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CNN Late Edition with Wolf Blitzer

Interview With Congressmen Frank, Cantor; Interview With Asif Ali Zardari

Aired September 28, 2008 - 11:00   ET

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

WOLF BLITZER, HOST: It's 11:00 a.m. here in New York, 8:00 a.m. in Los Angeles, and 6:00 p.m. in Baghdad. Wherever you're watching from around the world, thanks very much for joining us for "Late Edition."
We'll get to Congressman Barney Frank and Eric Cantor in just a moment. But first, let's go to Ed Henry. He's over at the White House with the latest on what appears to be a huge breakthrough on that $700 billion rescue plan.

Ed, what do we know right now?

HENRY: Well, Wolf, at this very moment, on Capitol Hill, negotiators are still putting this tentative agreement to paper, as we speak.

But we're told, here, by officials at the White House that the president is very pleased with what he's heard about. He's been constantly briefed by his chief of staff, as well as the Treasury secretary, Henry Paulson. The stakes, obviously, could not be more enormous.

Let me take you inside the room for some of the dramatic moments where it got to this place. Various negotiators say that it got very loud in there, very intense, into the wee hours of this morning, trying to work out the final details.

And at one point, some of the negotiators actually consulted various experts to run some of these provisions by them, including Warren Buffet, the legendary investor.

And I'm told by two different officials that Warren Buffett's message to these negotiators was very blunt and very direct, that if Congress did not act and did not act quickly, the U.S. could face its biggest financial meltdown in history. That's the kind of stakes that are here. Now, obviously, on the other side, you have some skeptics, like conservatives like Eric Cantor, who will be on in a moment, who are very concerned about a rush to judgment, or concerned that a bad bill may be worse than no bill at all. And that's why the devil will be in the details.

We're told that Speaker Nancy Pelosi is aiming to get this legislation, which has been negotiated in secret, basically, finally online at 12:00 noon, Eastern Time. You can bet we'll be looking at it closely. We'll be posting it at CNN.com, to got through all the details, line by line. But so will those conservatives in the House Republican Conference.

They have been very skeptical, very concerned about the details up until now. And so we have to stress that, while there's, sort of, a tentative agreement that they're moving toward, the point would be that Speaker Pelosi gets it online at noon today, so they're will be 24 hours to review it, a vote on the House floor as early as noon Monday.

But we're expecting this could be a nail-biter of a vote. Just because there's a tentative agreement, the House still has to vote on it; then it would have to go to the Senate. So we're a long way before it gets to the president's desk, Wolf.

BLITZER: All right. Ed, stand by. We're going to be getting back to you.

Let's get to two men, right now, who were at the center of all these negotiations. Massachusetts Congressman Barney Frank is the Democratic chairman of the House Financial Services Committee. And Virginia Congressman Eric Cantor is the deputy Republican whip in the House.

To both of you congressman, thanks for joining us.

Congressman Cantor, I'll ask you first. Since the House Republicans were largely complaining about this proposed deal, are you ready to sign on?

Will you vote yea, as opposed to nay?

CANTOR: Well, Wolf, I think the devil is in the details. And, as you know, in Washington, there may be a tentative deal, but oftentimes, when the writing starts, the renegotiation begin.

So we are looking very much forward to seeing what is in the bill when it hits the paper. And, frankly, as we have always maintained, we want to be very constructive to try and shape a bill that tries to get it right so that we can avoid a financial meltdown in this country.

BLITZER: But assuming, Congressman Cantor, that the actual words on paper reflect what the breakthrough last night -- the breakthrough early this morning, I should say, reflected, you'll be on board? Your intention is to go ahead and support it? CANTOR: Wolf, I think the important thing that the Republican members in the House want to see is that taxpayers are not the ones left holding the bag.

And that's why we have put forward this insurance guarantee program that hopefully will be seen to be a mandatory program set up by Treasury that will allow investors to purchase insurance coverage.

So, again, it will be funded by Wall Street, not the taxpayers, and it will be aimed at those asset classes out there that frankly are performing but have been the victim of the real toxic stuff.

And the principle of trying to unleash private capital to rejuvenate the markets, together with having Wall Street pay, not the taxpayers, is really what is behind our proposal.

So I believe if we see that in language, then we can go forward. But, again, I've not seen the language, so we are not ready, at this point, to say that a deal is done.

BLITZER: All right. Congressman Frank, you're the chairman of the House Financial Services Committee. You were right in the middle of all of these crisis negotiations.

Are you going to be able to satisfy those concerns you just heard from Congressman Eric Cantor?

FRANK: Well, I'm puzzled by them. First of all, the House whip, the minority whip, Roy Blunt, the number two man in the Republican House hierarchy -- (inaudible) the negotiations.

It wasn't because the bill was initiated by President Bush and Secretary Paulson. So this is a Bush administration initiative. We Democrats accepted the secretary and the chairman of the Federal Reserve's view that, if we did not do something, there would be terrible disaster.

We do intend, by the way, next year, to deal with this terrible policy of complete deregulation that got us here. But we have to deal with the disaster.

We added a number of things that we thought were important. If this bill passes, for the fist time in American history, there will be restrictions on excessive CEO compensation, particularly for companies who try to benefit from the public.

We put some things in there that try to make it possible, if this works at all, for the taxpayers to get paid back. But, again, Mr. Blunt was in there, who's the number two Republican.

Secondly, the program that Mr. Cantor talked about is in there as an option for the secretary of the Treasury to use. It's mandatory that he consider it. He's got to see if he can get it to work.

But let's be very clear. That does not substitute for the main part of the program. That will basically deal with things, going forward. There is a problem, now, that people in the private sector, in the absence of sensible regulation that our conservatives friends gave us, they made a lot of bad decisions and they can make loans.

And there does have to be some -- Eric mentioned the toxic paper. Somebodys's got to provide some capital, there. The insurance plan doesn't do it.

But here's our disappointment. The Democrats -- the Democratic Caucus instructed me to propose that we say, at the end of this program, after five years, we have a calculation as to how much it costs us.

We're going to sell it off (ph), so it won't cost us $700 billion. And if there is a net cost, that the president then raise fees on people in the financial industry to pay it off.

That was rejected, unfortunately. We couldn't get Republican support for it.

BLITZER: Well, Let me bring back Congressman Cantor.

You heard the explanation from Congressman Barney Frank. Is that enough to satisfy what you want?

Because you want a mandatory use of this insurance that would save the taxpayers some money, I assume. But it sounds like there's some wiggle room, there, that it would be mandatory that the secretary of the Treasury considers it, but not necessarily that he does it.

CANTOR: Well, Wolf, I think what -- we'll have to wait to see what the language says. I believe and hope that it will say it's a mandatory provision that the secretary must set up this program.

And what our thought is, is that we can set up a mechanism that can end up saving the taxpayers significant money. We don't differ with the fact that Secretary Paulson says that so many of these assets are so bad that they must be purchased, unfortunately, by the taxpayers.

But once the government steps in and takes away, really, the real toxicity in the market, there's $2 trillion worth of mortgage-backed securities. These are single-loan residential mortgages that are performing.

This paper has been the victim of the toxic stuff. So once we use the taxpayer funds to purchase the toxic stuff, we believe very strongly that the investors in the private sector will want to hold onto the upside that the performing paper will offer and will take advantage of (inaudible) program.

BLITZER: All right. Let me let Congressman Frank respond. Go ahead, Congressman.

FRANK: Well, again, yes. It is mandatory that the secretary set it up and see if anyone wants to do it. But it goes forward, as Mr. Cantor just acknowledged. It does not deal with the need to put some money in there. And he acknowledges the taxpayers will have to put some money in to get the thing started.

Although, if I want to be conciliatory, I was pleased -- the original plan we saw from the Republicans suggested that one of the things we do to get the capital available was to allow people to bring back foreign tax profits that American companies earned overseas, basically tax-free. And we didn't think that was a good idea.

FRANK: But again, there is an element that Mr. Cantor agrees where the taxpayers are going to be having to put this money up. And that's why we did put forward a proposal that said at the end of this program, if there was a net cost to the taxpayer for helping buy up this other paper or buying equity, that it should be assessed on the financial industry. The Republicans rejected it. BLITZER: Congressman Frank, what is your understanding of what this legislation will do to limit compensation for Wall Street CEOs whose firms are being aided by U.S. taxpayers?

FRANK: Well, first of all, it will forbid golden parachutes. We just saw a crazy example where Washington Mutual, the guy was going to get $18 million for a couple of weeks worth. Sheila Bair, the excellent chairman of the FDIC, vetoed that. But people have read about these companies that were bought out or went out of business and people going away with $15, $20 million. It will make it illegal. If they get help from the government, they can't do that.

Secondly, we have what we call a club act provision. A lot of these companies have had rules where if a certain target is hit, the executive gets a bonus, and then it turns out a couple of months or a year later that the target wasn't really hit. There was some accounting tomfoolery or some bad guessing. We require that they have a plan, the secretary has to draw up the regulations, where they would have to return the money.

Third, there's a limitation now on how much a company can deduct for paying its top executives. We're going to reduce that down to, I think, $400,000.

BLITZER: Well, let me ask you this question, Congressman Frank, will the top CEOs for these firms that are being assisted by American taxpayers, will their salaries go down to the highest levels of federal employees?

FRANK: No. No. That was a proposal that frankly no one was advocating on either side. And I have to say that we had some obstacles.

Secretary Paulson began, when I first raised this and others, that we needed to reduce -- restrict the compensation of the CEOs benefiting, he said that would kill the program. He was very much against it.

We spent a lot of time persuading him, and he had some support from others, but frankly here a lot of Republicans joined the Democrats and said, no, you have to have some restrictions.

But the notion of getting it down to whatever, $400,000 total, had no support. By the way, these are not -- (inaudible), but it's an important precedent that we are for the first time in American history putting some limits on these, and I hope we can generalize that more next year.

BLITZER: Is that OK with you, Congressman Cantor?

CANTOR: Well, Wolf, I don't think that we should have any executive in a failed institution calling on taxpayers to help them be bailed out be able to benefit from that. So I think that the principle is sound.

I'm not necessarily advocating going forward, that the federal government be able to set salaries across the board for any company. I think that that is just not what we're about. We're a free market country. We always have been a free market country. We rely on the innovation in the private sector and the capital markets to help drive this economy.

And the bottom line is, there's been a lot of discussion about how we got here. And there's no question a lot of blame to be had both in the business community on Wall Street, but certainly here in Washington. And I think the taxpayers are really sick and tired of the fact there's no accountability in Washington and there's no accountability on Wall Street.

And again, that's why the Republicans in the House stepped forward and said, you know what? We want to make sure that Wall Street shares the paying (ph) for cleaning up this mess...

FRANK: But they do.

CANTOR: And this is how our plan, the insurance plan, will require them to step forward, to put premiums up so that the taxpayers are paid for given the benefit of a government guarantee.

FRANK: Wolf, nothing in that plan deals with the part of it that Mr. Cantor agrees where you have to buy up the bad stuff. That plan does not help pay for the past mistakes. It's something that is future oriented. And if it works, it will be very encouraging, but it does not...

CANTOR: Again, Wolf...

FRANK: No, Eric, it does not clean up the current problem. It is still going to be hundreds of billions of dollars of taxpayers in that bill money...

CANTOR: There's no question. But we don't have to go in and purchase $700 billion worth of securities when we know good and well at least $2 trillion worth of that paper is performing, and has been tainted...

FRANK: I agree. CANTOR: ... and a victim of the bad stuff.

FRANK: But you've got to buy some of the bad stuff...

CANTOR: Absolutely. We're not...

FRANK: ... and that's taxpayer money. So Wall Street is not going to pay for that, unless -- well, here's what we did get agreed to. At the end of the five years, the president will have to see how much it cost, and we will ask him to submit under this bill -- we tell him to submit to Congress a proposal to have Wall Street pay for it. And then five years from now, that will be the reckoning day.

CANTOR: And going forward, Wolf, what we hope is that we have set up a mechanism in this mandatory insurance program that will allow Congress to review how successful we've been in terms of intervening, and so that the private sector will respond to the benchmarks set by government purchases so that the private capital will come back in and will purchase the assets and will insure the assets that they would like to hold onto and, frankly, are performing.

At the end of the day, again, the House Republican plan makes sure that we've put private capital back into this equation, which is the most important thing we can do going forward, and to hold the people accountable.

(CROSSTALK)

FRANK: No, that's not the most important thing. The most important thing is to put reasonable regulations in place. Eric gave this great talk about the free market and they have done a lot of good, but it is the free market on its own by overleveragiing, by...

CANTOR: Barney, this started with...

FRANK: Excuse me, Eric, please don't interrupt me. Eric, Eric, I'm sorry, Eric, don't interrupt me.

(CROSSTALK)

FRANK: Financial deregulation didn't start with it.

Let me give you one last fact to go with it. 1994, the Democratic Congress, the last one before now, passed a bill that told the Federal Reserve restrict subprime mortgages that are being done outside of banks, which are regulated. Restrict the unregulated subprime mortgages. Alan Greenspan, a strong conservative, said no, the market knows better than I, and refused to do it.

It wasn't until 2007 when we came back that we were able to put some pressure on, and Ben Bernanke, to his credit, promulgated the move. Greenspan wouldn't do it, and there would be no more subprime mortgages...

(CROSSTALK)

BLITZER: Congressman Cantor, go ahead and respond.

CANTOR: Wolf, at the end of the day, the Carter administration, we saw Congress put into law regulations requiring banks to extend credit to non-credit worthy borrowers. In fact, the banks would be punished under...

BLITZER: You're talking about the...

(CROSSTALK)

BLITZER: Hold on a second. Congressman Cantor, you're talking about the Jimmy Carter administration?

CANTOR: We're talking about Congress during the '70s put into place some regulation that would punish banks if they did not extend credit to some un-credit-worthy borrowers. And what we had then is we had the government leading in terms of trying to push the lending to folks, so they could buy houzing when the credit worthiness was not there.

And obviously, Barney, I agree that the private sector followed suit. But it all started with the fact that we had these government- sponsored enties there beginning to loosen underwriting guidelines that got us to where we are. So we do need some regulation.

FRANK: Let me respond here, because I'm very disappointed that Eric would characterize efforts to prevent racial discrimination...

CANTOR: I absolutely...

FRANK: Eric, let me finish. You made your accusation and it's wrong. The Community Reinvestment Act never said you had to lend to unworthy borrowers. The anti-discrimination things never said that. They said you can't discriminate. You can't walk away from whole neighborhoods.

But even with that, again, you're ignoring the point. 1994, Congress did pass a law saying, wait a minute, we are afraid that the wrong kind of mortgages are getting issued. Alan Greenspan refused to use the authority. If he had used the authority, as Ben Bernanke did, Greenspan being a gerat deregulator, we would have shut this off way before the problem got to the dimensions it did.

CANTOR: Wolf, at the end of the day, it was Congress 20-some years ago that set the bar here and said, you know what? We're going to loosen underwriting guidelines for good intentions, to let people aspire to the American dream...

FRANK: We never did that.

CANTOR: ... of homeownership. And at the end of the day, what happened is the regulations went wild and really began to punish institutions if they weren't able to demonstrate that they had bad loans.

FRANK: Well, excuse me, Wolf... CANTOR: ... or other issues.

FRANK: There's terrible history here. Yes, the bill passed in '77. The regulations were mostly promulgated after that by the Reagan administration. But, again, it is true people worried about that.

In 1994, you keep ignoring this, Eric -- we told, Congress told Alan Greenspan to try and have it so that credit worthy African- Americans and Hispanics and people in poor neighborhoods got it and not others. And Greenspan, as a true conservative, said the mrket knows better and I won't do it.

BLITZER: Unfortunately, we are out of time, but a good, serious discussion and it raises a lot of question for down the road. But right now, the immediate issue is this $700 billion legislation. Will it pass tomorrow? Won't it pass? And we'll watch together with both of you.

Congressman Frank, Congressman Cantor, thanks to both of you for coming in.

And just ahead -- the first head-to-head debate between Barack Obama and John McCain. Which candidate won? We're going to get insight from top Democratic and Republican strategists. You're watching Late Edition, the last word in Sunday talk.

(COMMERCIAL BREAK)

BLITZER: Welcome back. At the top of the hour, we're going to be speaking live with two of the most important negotiators at the center of this entire $700 billion bailout plan, Senators Chris Dodd and Judd Gregg. They're going to be joining us, live.

But, right now, let's go to our CNN political contributors to discuss the news of the day and a lot more. In Washington, Democratic strategists Donna Brazile, Republican strategist Leslie Sanchez, and HuffingtonPost.com political director Hilary Rosen, a CNN contributor. All of them are. Also, here in New York with us, Republican strategist Alex Castellanas.

Guys, thanks very much for coming in.

Alex, let me start with you. Will the House Republicans, many of whom hate this notion of a $700 billion government intervention into Wall Street -- will they go along, a majority of them, and support this legislation?

CASTELLANOS: Enough of them will to put something together and get a package done. They don't want to do it. They're going to hold their nose. They all remember what happened when Republicans shut down government a few years ago with Newt Gingrich. It wasn't one of our best moments and it certainly didn't play well, politically.

Imagine if Republicans shut down the economy now, if, all of a sudden, people can't get loans; people start losing their jobs. Republicans don't want to be that party.

BLITZER: And Leslie Sanchez, do you agree with that assessment?

SANCHEZ: To some extent, Wolf. You know, former speaker of the House Sam Rayburn had a great expression -- you know, "When I feel the heat, I see the light."

There's a lot of people on Main Street that don't feel the heat. They think that this is a bailout just for Wall Street.

And very much to Alex's point, when the American sentiment is that this is the right thing to do, that it's catastrophic, that it has to happen, then they're going to be, you know, asking their members to support it. But there's a lot of political repercussions on the conservative side, right now, who see this as a boom for special interests. BLITZER: From the political perspective, Hilary, who wins; who loses?

ROSEN: Well, you know, I think this has got to be a Democratic victory. And, you know, the Republicans were, sort of, brought kicking and screaming to the table, but they're going to vote for they because it recognize it happens.

We've had John McCain, kind of, batting himself around last week, trying to figure out his positioning on this. And you had some calm, cool, collected leadership and good work with Speaker Pelosi and Barney Frank and Leader Reid, you know, working with Secretary Paulson.

I don't see how you don't give this to the Democrats. On the other hand, I think there will be a whole lot of Democrats and a whole lot of Republicans that vote against it. Enough will vote for it to pass it, but there will be members in vulnerable districts who won't want to take the chance.

BLITZER: And let me let Donna weigh in, as well. Is this going to have an impact on the presidential race during these final five weeks -- what the Congress votes on tomorrow?

BRAZILE: Absolutely, Wolf. People are very concerned. I was with members of the Congressional Black Caucus last night, and they're also receiving phone calls like the conservatives, 99-1 against this. Because the American people are not convinced that this will help people on Main Street.

And I think, to the extent that the politicians, over the next couple of days, can convince Main Street that this is in their best interest, to accept this deal, because it will ultimately preserve jobs, get credit flowing back into communities, and help people who are struggling right now with foreclosures -- if they can convince the American people that this is a good deal for the country, then ultimately the politicians can go out there and explain it.

BLITZER: Alex, the Democrats normally -- when it comes to the issue of the economy they do better than the Republicans, at least in recent years, in the polling.

So does the focus of the attention, right now, in this financial meltdown -- does that automatically translate into political points for Barack Obama?

CASTELLANOS: It does. And, Wolf, if John McCain loses this election a month from now, we're going to look back not at this first debate and maybe not even these next few debates; we're going to look back at this last week and see that this is where the campaign changed.

A few weeks ago, the Republican brand was McCain-Palin, outsiders change Washington; the little guy is going to storm Washington and change it. Now the Republican brand is Wall Street, rich Republican, George Bush economy. And that's a big change. I think Republicans have slipped back, a little bit. So now McCain has some ground, really, to gain.

BLITZER: And, Leslie, I think you'll agree that, for the past eight years, there has been a Republican in the White House. And a lot of Americans will say, this financial mess -- how could this administration have allowed this to go forward? Six of those last eight years Republicans were in the majority in the Congress as well.

And I assume you believe that, potentially, will translate into votes for Barack Obama.

SANCHEZ: I think there's a tremendous amount of frustration on the Republican side, you know, in terms of spending and growing these special interests, no doubt about that.

But, you know, with regard to this economic and financial crisis, I think people are reasonable enough, have enough common sense to say this is a problem that's both tainted with Republicans and Democrats, who've had their hand in the pot.

I think, realistically, they're going to look for reassurances that this is the right thing to do. That's a very compelling thing that these members have to do, and do it quickly, if they expect this to really have the type of success we're looking for.

BLITZER: All right. I want everyone stand by, because we have a lot more to cover with our political panel. Up next, we're also going to go to the campaign trail for a live update on how the candidates are reacting to this tentative bailout deal. Jessica Yellin is on the scene for us. Stay with us. We'll be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back. We'll get back to our political panel in just a moment. But first, how are the campaigns reacting to the news, huge news, of a tentative bailout plan?

BLITZER: CNN's Jessica Yellin is standing by in Detroit where Senator Barack Obama will be holding a rally in a few hours.

What are the two campaigns saying, Jessica?

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: Good morning, Wolf. Both campaigns are saying that they are essentially hailing members of Congress for hammering out a deal, working hard over the weekend in tough negotiations, and saying they really do hope that this is one that they can support.

Barack Obama is singling out the efforts to protect taxpayers, provide CEO compensation limits, and an oversight board as things that he's particularly pleased are included. What's sort of surprising is that John McCain outlines these same components as the things that he's pleased with without also acknowledging the one element that was so important to the House Republicans, this special insurance measure.

McCain had come back to town saying that he was going to help push this deal through, as you know, that it was this House Republican holdout that he was going to help bring to the table.

They got that one component in and in John McCain's appearance on -- with "THIS WEEK" this morning, he didn't even acknowledge what the House Republicans got into the bill. But both men are trying to turn the page, saying this financial crisis is an unfortunate product of some bad economic policies and they have a vision for the future, of course. Barack Obama focusing on his efforts to help the middle class, John McCain saying that he is going to limit taxes on all Americans, some of the themes that you heard had enunciated at the debate earlier this week.

And you will hear much more about that in the week ahead as these two men will continue to campaign. Barack Obama hammering home his message that John McCain just doesn't understand kitchen table issues, the needs of real Americans. John McCain will continue to hammer home the message he believes Barack Obama is not ready to be commander-in- chief -- Wolf.

BLITZER: Jessica is going to be watching all of this unfold, thanks, Jessica. We're going to get back to you.

Coming up, our political panel, they are standing by. We're going to look ahead to this coming week's highly anticipated debate between the two vice presidential candidates, Joe Biden and Sarah Palin. LATE EDITION continues right after this.

(COMMERCIAL BREAK)

BLITZER: And welcome back to LATE EDITION. I'm Wolf Blitzer in New York. We're talking with CNN political contributors Donna Brazile, Leslie Sanchez, Hilary Rosen and Alex Castellanos.

Hilary, I'll start with you this time. The poll that we did immediately after the debate Friday night, it was a CNN/Opinion Research Corporation poll, showed that most Americans thought Barack Obama did a better job in the debate than John McCain, 51 percent to 38 percent, with a couple of caveats.

This poll only reflected the views of those who were watching the debate. And it seemed a lot more Democrats were actually watching the debate than Republicans. Should Barack Obama simply walk away from this and say he has got it locked up?

ROSEN: Well, he doesn't have it locked up. I think Democrats are clearly interested in what's going on there. You know, polls are showing that there is still a soft number of Democrats who are undecided and the independents who are leaning Democratic still somewhat undecided.

So I think Obama had a lot to win the other night, and I think he succeeded in going a long way to do that. That's how the polls are showing, so...

(CROSSTALK)

BLITZER: At least on that poll. Leslie -- let me bring Leslie Sanchez into this discussion. The Obama campaign quickly came out with an ad, as the McCain campaign did after this first debate. I'm going to play a little clip of the Obama ad first. Listen to this.

(BEGIN VIDEO CLIP)

UNKNOWN: Number of minutes in debate: 90. Number of times John McCain mentioned the middle class: zero. McCain doesn't get it. Barack Obama does.

(END VIDEO CLIP)

BLITZER: All right. Leslie, do you think that's an effective ad, the aftermath of this first debate?

SANCHEZ: Not particularly. I mean, I didn't see an ad that said the number of times he called him John was 23. I mean, there was a lot of little numbers and things they could put in there. This was a debate on foreign policy, the economy, it definitely played a third of that debate because the economy is tied to security.

I don't think either of the candidates particularly overwhelmed people. They didn't make any major gaffes. But with respect to this middle class issue, don't forget, about 90 percent of the people have already made up their mind in this election. That 10 percent is watching and looking for reassurances.

I'll tell you there are a lot of Democrats want to vote for Barack Obama, but have yet to feel that comfort level. And I don't think this debate got them there.

BLITZER: Here, Donna Brazile, is a little bit of the ad that the McCain camp put out after the debate.

(BEGIN VIDEO CLIP)

UNKNOWN: Barack Obama's answers at the first presidential debate.

JIM LEHRER, MODERATOR: Do you have something directly to say, Senator Obama, to Senator McCain about what he just said?

OBAMA: Well, I think Senator McCain is absolutely right that we need more responsibility.

Well, Senator McCain is absolutely right that the earmarks process has been abused.

(END VIDEO CLIP)

BLITZER: Now, we heard Senator Obama during the debate on several occasions agree with Senator McCain, said Senator McCain is making a good point. I don't think Senator McCain had ever said that Senator Obama made the right decision and I agree with him.

BRAZILE: You know, Wolf, people are tired of the partisanship, people demagoguing each other just because they have different views and values. I think Senator Obama helped himself by agreeing on several important issues that as a country we should all support.

We all want to see an end to terrorism. We all want to see our troops do well. So in agreeing with Senator McCain on those important issues, Senator Obama showed that he is willing to step up to the plate.

But, look, he increased his personal favorabilities in the debate. Senator Obama also closed the stature gap, the leadership gap. Many of the undecided voters and some Republicans came away with a better feeling about his leadership and they believe that Obama shares their values and is on their side on the issues.

So I think overall Senator Obama did himself a great deal to show the American people that he's up to the task of being commander-in- chief.

BLITZER: Alex, let's look ahead to Thursday night, a big debate in St. Louis, Washington University in St. Louis, between the two vice presidential nominees. I think you'll agree, I think everyone will agree, this past week was not necessarily the best week that Sarah Palin had.

Her interview with Katie Couric getting lots of buzz, not very favorable. Here is a little clip of what she said, for example.

(BEGIN VIDEO CLIP)

PALIN: Ultimately what the bailout does is help those who are concerned about the health care reform that is needed, to help shore up our economy.

(END VIDEO CLIP)

BLITZER: She seemed to be looking down and then she began to ramble on a bunch of other points. That wasn't her best moment right there.

CASTELLANOS: You know, these candidates have all had tough moments on the campaign trail. The schedule, the relentless travel, especially imagine being a governor and just jumping into this maelstrom here at the last second. So it wasn't one of her better moments...

BLITZER: But it looked like they were sort of, you know, hamstringing her to a certain degree and she was losing some of her self-confidence, maybe there were too many briefers, too many handlers, because she had, I thought, did much better in that first interview she did with Charlie Gibson as opposed to this interview that she did with Katie Couric.

CASTELLANOS: And in this debate she's going to have plenty of time to put her best foot forward in front of the American people. And she's going to need to do several things.

One is demonstrate some breadth and knowledge of the issues which she can do. She's a good study. She has been a good debater before. Two, she doesn't need to debate Joe Biden. She needs to debate Barack Obama. And the traditional role of a V.P., here's what an Obama administration would mean. Don't look back at his record, look at the future.

And the third thing she has got to do is don't pretend she's something she's not, all the experience in the world. Connect with us on a human level. She's better than Barack Obama and John McCain and Joe Biden at identifying with real people and saying, look, here's what it will mean to us if we change Washington.

BLITZER: We'll see how she does Thursday night.

BLITZER: We'll see how Joe Biden does Thursday night. The rules for this second debate will be different than the first debate, and throughout the week we'll be explaining all of that.

Guys, all of you, thanks very much for coming in.

Coming up next -- my exclusive interview with Pakistan's new president. Stay with us. "Late Edition" continues right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back. Asif Ali Zardari became Pakistan's new president only a few weeks ago. He's also the widower of the former Pakistani Prime Minister Benazir Bhutto, who was assassinated late last year. I spoke with President Zardari about the war on terror and the search for Osama bin Laden.

(BEGIN VIDEOTAPE)

BLITZER: Mr. President, thanks very much for joining us. Welcome to the United States and welcome to Late Edition.

ZARDARI: Thank you.

BLITZER: There was a horrible terrorist bombing in Islamabad just the other day, at the Islamabad Marriott hotel. And there had been reports that you and the prime minister and other top officials of your government, the cabinet, members of parliament, were actually supposed to be having dinner there that night. Is that true?

ZARDARI: That's true. We got it changed about three days earlier. But you know these guys. They hunt in like wolf packs, so obviously the information didn't get to them. And we were supposed to have dinner that night there. The speaker had actually booked the place, asked for the rates, but then we changed our minds and had it at the prime minister's house and prime minister's lunch (ph). That's exactly where all of us were sitting, myself, the prime minister, General Kayani, the chief ministers, including the chief minister of Punjab, everybody was there.

BLITZER: Did you have any indication that there was a plot afoot to go at the Islamabad Marriott?

ZARDARI: No, but by nature, by -- by natural means of -- oh, why did that place, that's all. No information on that.

BLITZER: Who was responsible for that bombing? ZARDARI: It's still investigating. It's too early. It's only been a week. We're still investigating. But obviously people who don't want democracy to flourish in Pakistan.

BLITZER: Because it was very sophisticated. It was an extremely powerful bomb. If you've seen the pictures of the Marriott -- and you've been there, you've seen it -- it was a very sophisticated operation that seemed to have the fingerprints, the hallmarks of an Al Qaida-affiliated organization.

ZARDARI: Obviously, it does have the fingermarks and hallmarks of an Al Qaida-affiliated organization. That is very clear.

BLITZER: But your intelligence services, you don't know for sure yet who's responsible?

ZARDARI: Nobody knows for sure.

BLITZER: Has anyone been arrested?

ZARDARI: Not at the moment.

BLITZER: Let's talk about some of the issues that have come up while you've been here in the United States. In your address before the United Nations General Assembly on Thursday, you said this...

(BEGIN VIDEO CLIP)

ZARDARI: Just as we will not let Pakistan's territory to be used for terrorists for attacks against our people and our neighbors, we cannot allow our territory and our sovereignty to be violated by our friends.

(END VIDEO CLIP)

ZARDARI: If you would read the whole quote, it said because it's counterproductive. Let us do the job. We can do a better job than anybody else can. It's partly and mainly our war. We'll fight it, but let us do it.

BLITZER: You're referring here to the United States.

ZARDARI: I'm referring here to all the friends of ours who sometimes get overindulgent.

BLITZER: But President Bush has told me on two occasions in the two most recent interviews I did with him, he said that if the United States has actionable intelligence that there's Al Qaida, Osama bin Laden, or whoever, across the border from Afghanistan and Pakistan and the United States could do something about it, he doesn't hesitate to go ahead and give the order to do it.

ZARDARI: I think, if there's actionable intelligence of that high priority, shared with us, we would do the job with them.

BLITZER: But you know that there are some in the U.S. government who don't necessarily trust all elements of the Pakistani security services, the intelligence services, the military.

ZARDARI: I think that's the past. That's the past. I think, at the moment, the back-together democracy is trustworthy.

BLITZER: Here was a statement that was issued by the Pakistani army spokesman, on Tuesday, in dealing with one of these controversial encounters.

He said, after the September 3 incident, when the U.S. allegedly went into Pakistan to look on the ground for Al Qaida or Taliban elements -- he said, the orders are clear. In case it happens again in this form, that there is a very significant detection, which is very definite, no ambiguity, across the border, on the ground or in the air: open fire.

Are your military forces now in the process of opening fire against U.S. helicopters or troops, ground troops, that might cross the border and go into Pakistan, some of those tribal areas, looking for Al Qaida or the Taliban?

ZARDARI: I think the open-fire bit is not too get them down, or down helicopters, but to warn them that they have crossed over without realizing.

Most of the time, as you know, in engagements, they don't even know when they've crossed over the border. It's such a murky border between Afghanistan and Pakistan -- half the hill is here; half the hill is in Afghanistan.

So last that I heard of there was a flare fired at them, to just warn them that they've crossed over.

BLITZER: Because a U.S. Army helicopter -- or at least one, maybe two, supposedly crossed the border, looking for the enemy, if you will, and there was an incident in which there was fire directed at those helicopters from your troops.

ZARDARI: No, I think there was a flare directed at them. There was not fire directed. There was a first flare that was fired. And in the flare, they realized they'd crossed over, and they went back. BLITZER: How worried are you, though, that there could be an encounter in which, because of some ambiguity, some concerns, U.S. troops and Pakistani troops could clash?

ZARDARI: No, but I wouldn't be worried about that. There is always friendly fire, and even in your own wars, there is friendly fire, where you sometimes get your own. So I wouldn't be worried about it. I'd be concerned if something happened like that.

BLITZER: In recent days, both Senator Barack Obama, the Democratic presidential candidate, and Sarah Palin, the governor of Alaska, the vice presidential nominee on the Republican side -- they both made it clear that they support the Bush administration's stance, in effect, that, if there's actionable intelligence on your side of the border, the U.S. must take action against Al Qaida or the Taliban.

Let me play for you what they both have said.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, D-ILL.: If we have a high-value Al Qaida target in our sights, then we need to make sure that, if the Pakistanis are unwilling or unable to go after them, that we do.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

GOV. SARAH H. PALIN, R-ALASKA: I believe that America has to exercise all options in order to stop the terrorists who are hell-bent on destroying America and our allies. We have got to have all options out there on the table.

(END VIDEO CLIP)

BLITZER: What do you want to say to these candidates?

ZARDARI: Senator Obama answers that, if the Pakistani authorities are unwilling, but in this case, Pakistani authorities and the president of Pakistan is more than willing.

BLITZER: Are you confident that you have control over all elements of the security forces, that you're all on the same page, as far as the United States and the war on terror is concerned?

ZARDARI: Most definitely.

BLITZER: Absolutely?

ZARDARI: Absolutely.

BLITZER: Do you know, or do you believe you know, where Osama bin Laden is hiding?

ZARDARI: If I did know, he wouldn't be there.

BLITZER: Do you have any idea, though, where he is?

ZARDARI: No, I have no idea where he is, Wolf.

BLITZER: Do you think he's in Pakistan?

ZARDARI: I could not say that for sure.

BLITZER: Because there's a working assumption, in the intelligence community in the U.S., that he's hiding out somewhere along that border, probably on the Pakistani side.

ZARDARI: And I don't know about that, but if he is there, then, probably, they've known it seven years ago. We've been on the job 17 days, so obviously we don't know much about it, but if they do think that he's there, let them share the information with us, and we'll get him. BLITZER: If you got him, Osama bin Laden, or his number two, Ayman al-Zawahiri, what would you do with them?

ZARDARI: Would I do with it?

BLITZER: What would you do with him if you captured him?

ZARDARI: If we capture him?

BLITZER: If you captured him alive?

ZARDARI: If we captured them alive, we would and try them.

BLITZER: Would you try them in Pakistan or would you hand them over to the United States?

ZARDARI: We would try them in Pakistan.

BLITZER: Why not hand them over to the United States...

ZARDARI: It depends...

BLITZER: ... for the 9/11 crimes that were committed?

ZARDARI: We could even -- we can hand them over or we could try them ourselves.

BLITZER: Because, in the past, there have been terrorists apprehended by Pakistan who have been handed over to the United States.

ZARDARI: That is a policy which has been followed in the past, and it will be pursued in the future, also.

BLITZER: But, specifically, on these two high-value targets, Osama bin Laden, and Ayman al-Zawahiri, just explain what you would do.

ZARDARI: I would go along with my friends, and see what they want. If they want them tried in Pakistan, we'll try them in Pakistan. If they want them tried in New York, so be it.

BLITZER: OK. I just wanted to clarify that. How worried are you about your own safety?

ZARDARI: I'm worried. Everybody has to be concerned -- not worried, but concerned, because I have children, and I have a country which I feel only People's Party can lead and democracy can lead, so I'm concerned. But I'm not worried.

BLITZER: Do you feel that those who killed your wife, Benazir Bhutto, are out after you as well?

ZARDARI: Obviously, those are the same groups which tried to take us -- take out the Marriott. It's the same...

BLITZER: You think, the same Al Qaida-related group?

ZARDARI: I think it's the same kind of Al Qaida-related group. I think they're all related, one way or the other. I don't see a difference from one to the other.

BLITZER: Let's wrap up with a little bit about your wife, Benazir Bhutto. And I see her picture over there. I know it's sad whenever we discuss it. I knew her. Obviously, you were married to her for many years. You said this.

(BEGIN VIDEO CLIP)

ZARDARI: Terror took my wife's life, but terrorists cannot kill my wife's dream. Her vision, her passion, her force is now our common task. I am dedicated to implementing what she has proposed. I wish I could do it at my wife's side, but now I will do it in my wife's place.

(END VIDEO CLIP)

ZARDARI: Yes, and in her name.

BLITZER: Yes. Beautiful words that you uttered. Talk, a little bit, about Benazir Bhutto and the impact she still has on you right now.

ZARDARI: First, I'll tell you every member of the parliament signed on the document while they were signing the name, either the lady, she signed, "Sister Benazir Bhutto," and if it was a man, he signed "Brother of Benazir Bhutto."

When we called upon our prime minister to take oath, we said, "The People's Party calls upon Yousuf Raza Gilani to become the prime minister of Pakistan in the name of Shaheed Mohtarma Benazir Bhutto. In the name of Shaheed Mohtarma Benazir Bhutto, they called upon me to become the president of Pakistan.

Since then, we've made a lady the speaker of the national assembly for the first time in the history of (inaudible). We've made an acting president a lady in the name of Shaheed Mohtarma Benazir Bhutto. So, that's the legacy we're keeping on.

BLITZER: And we wish you good luck. We wish good luck to all the people of Pakistan.

Mr. President, thanks very much for spending some time with us.

ZARDARI: Thank you, Wolf, for being there.

(END VIDEOTAPE)

BLITZER: And, up next, two key U.S. Senate negotiators, Chris Dodd and Judd Gregg. They're standing by live. We'll talk about what appears to be a huge breakthrough on the $700 billion bailout proposal.

More "Late Edition" at the top of the hour.

(COMMERCIAL BREAK)

BLITZER: This is LATE EDITION, the last word in Sunday talk.

(BEGIN VIDEOTAPE)

DODD: We can say something positive to the American people and others who are waiting to hear that we can come out of this crisis.

BLITZER (voice-over): Early this morning, weary legislators announced a tentative deal on a huge plan to prevent the financial meltdown. But will it pass a very divided Congress and will it work? We'll ask two senators who have been deeply involved in the negotiations, Senate Banking Committee Chairman Chris Dodd and the top Republican on the Senate Budget Committee, Judd Gregg.

MCCAIN: Senator Obama refuses to acknowledge that we are winning in Iraq.

OBAMA: You said we were going to be greeted as liberators. You were wrong.

BLITZER: Post-debate analysis from three of the best political team on television.

And New York Times columnist Thomas Friedman on the energy crisis and his new book, "Hot, Flat, & Crowded," why we need a green revolution and how it could renew America.

LATE EDITION's second hour begins right now.

(END VIDEOTAPE)

ANNOUNCER: Live from CNN in New York, this is LATE EDITION WITH WOLF BLITZER.

BLITZER: And welcome back to LATE EDITION. We're reporting today from New York. We'll get to our conversations with senators Chris Dodd and Judd Gregg. They're standing by live. Both key players in last night's negotiations over the bailout. We'll get to them in just a moment.

But first, let's get some background on all of these late- breaking developments. Ed Henry is over at the White House.

You've got latest on the breaking news, Ed. What do we know? HENRY: Well, Wolf, at this very moment, congressional staffers are still literally putting this tentative agreement to paper. They're rushing to get it done so they can get these votes on the House and Senate floors as early as possible this week to try and calm down those rattled markets, not just in the U.S., but all around the world.

The stakes, obviously, are enormous. Just to take you behind the scenes on some of the talk that was flying around in the wee hours of this morning as this deal was starting to be sealed, I'm told that one of the experts that negotiators talked to among many was Warren Buffett, the legendary investor.

And two different officials told me that at various points when they reached out to Buffett, he was very blunt in saying that if Congress did not act quickly to deal with this financial crisis, it would be, quote, "the biggest meltdown in American history."

Obviously, when you have people like that of that stature talking about the stakes like that, that gets people on Capitol Hill moving quickly. However, there are conservatives like Congressman Eric Cantor, a House Republican leader that you spoke to in the last hour, still very skeptical, concerned maybe that Congress is moving too quickly here, and that's why they want to see the details.

They want to see this legislation. And I have a little update on that. Earlier, congressional leaders had been suggesting they were going to try to get this bill online on the House Financial Services Committee Web site as early as noon Eastern time today.

Now they're just committing to at some point this afternoon, because they say staffers are literally still writing this and that it is somewhere in the neighborhood of about 100 pages. You can bet the critics are going to pounce on that, saying that this bill was written in secret, behind closed doors. Nobody has gotten a chance to see it yet.

And that's why it's so pivotal for it to eventually get online so everybody on all sides can take a very close look at what exactly is in this bill, what are the provisions, how will it work? Speaker Pelosi had been hoping to have a vote as early as Monday in the House, maybe later in the week in the Senate.

Obviously President Bush wants to get this moving, get it to his desk as quickly as possible. We're told by aides the president has been getting very frequent updates from his treasury secretary and his chief of staff and he is feeling good at least about what he's hearing so far from the Hill -- Wolf.

BLITZER: Ed Henry is going to monitor what's going on from the White House. Ed, thanks very much.

Let's go to Capitol Hill right now. Two men at the center of the bailout negotiations standing by to join us live: Senator Chris Dodd of Connecticut, and he's the Democratic chairman of the Senate Banking Committee; and Senator Judd Gregg of New Hampshire. He's the top Republican on the Senate Budget Committee.

A hundred pages, Senator Dodd, when Henry Paulson first submitted his recommended legislation, it was three pages. What happened?

DODD: Well, I think it's safe to say this is, first of all, mixed emotions here. This was not a happy day, obviously, to be dealing with this issue, but obviously very important that we try to come to an answer here that we can agree on and move forward.

Clearly the president's proposal as submitted by the secretary of the treasury, both parties here I think thought that was just totally inadequate. That had a life span of about an hour here a week ago Saturday.

And so, we began working on this product which you have described here, which includes, of course, things like taxpayer protection, good accountability and oversight, seeing to it that we have strong language dealing with executive compensation, trying to deal the best we can with the foreclosure issue in the country.

Those are the kind of issues which we have included as part of this package while simultaneously giving the secretary the necessary tools to be able to respond to this crisis.

BLITZER: And, Senator Gregg, we heard in the last hour from Congressman Eric Cantor, he is a leader among the House Republicans. He says he wants to see the fine print, the devil is in the details. He's not yet sold that he's going to vote yea in favor of this legislation.

Where do you stand? Are you ready to commit that you support it?

GREGG: Oh, absolutely. This is absolutely critical for our country. What we're talking about is facing a fiscal meltdown which will take Main Street with it.

It will mean jobs are lost, so many people's credit lives will just dry up. It will mean people won't be able to basically have the normal commerce that you have on Main Street because they won't be able to get credit unless we do something here.

And I think what's important to stress is that we have given the secretary the authorities and the resources he needs, in his opinion, in order to try to do something to stabilize the credit markets.

BLITZER: Is it your understanding...

GREGG: In addition, we put in a lot of conditions relative to executive pay, as Chris said, relative to making sure there aren't any golden parachutes, making sure that the taxpayers get a return on this.

And as a practical matter, the cost on this will -- well, actually, taxpayers might make a little money on this if we're fortunate. BLITZER: Well, we'd like to see that. But, Senator Gregg, are you confident that the two top Republican leaders in the House -- I think it's fair to say the Democrats and the Republicans in the Senate are going to support this by and large, but the two top Republican leaders in the House, John Boehner and Roy Blunt, as far as you know, your colleagues from the House side, are they on board?

GREGG: Well, Roy was in the room, and he was an aggressive and effective defender and promoter of the position of the Republicans in the House. And I believe -- well, he agreed when we left, and I know he agrees. He got a lot of what they wanted and it was a give-and- take session, but Roy Blunt had very well on behalf of his House members, in my opinion.

BLITZER: All right. Senator Dodd, explain to the viewers out there, the American taxpayers, why they should come up with $700 billion in effect to bail out Wall Street.

DODD: Well, again, this is -- we shouldn't. If that were the only thing we were doing, then I think this probably wouldn't go anywhere at all. The problem is you've had creditors frozen. It's not just what has happened on Wall Street. If this were just about Lower Manhattan, I suspect there wouldn't be a whole lot of sympathy for what's going on here.

The problem is it goes way beyond Lower Manhattan. It involves car dealerships, restaurants, it deals with small banks, small businesses, student loans, 401(k)s, retirement accounts, any kind of economic growth.

If capital is not flowing, it isn't just a question of whether or not it's working on Wall Street, it's whether or not it's working across the country. And what has happened here over the last number of days, as we've been reported, not just by this administration but as you pointed out, by people like Warren Buffett and others who are not part of an administration, is that this could have resulted, if we don't get this done, in a major meltdown of our economy.

And that means small towns in America, small businesses would suffer terribly. I'm convinced of that. As I said a moment ago, I'm not happy about this, but we have to do our job here.

And let me just say that Judd Gregg and others played tremendously responsible roles this week as we tried to come together here with some answers on executive pay, on taxpayer protection, on accountability, on dealing with foreclosures as well as giving the secretary the authority to move.

I believe that's what we've done and why this is worthy of our support, although I'll emphasize again, the president's plan would have been rejected flat out. We're sorry we're here having to do this, but we needed to step up.

BLITZER: Senator Gregg, is it your understanding that the CEOs, the tops of these major Wall Street firms who are now going to be assisted by American taxpayers, they'll still be able to make millions of dollars a year in compensation although they won't be eligible for those so-called golden parachute deals where is if they leave they'll get tens of millions of dollars? Is that your understanding of what is going on?

GREGG: Well, the way the executive compensation is structured is, first, there will be no golden parachutes during the period of this effort. And secondly, the tax deductibility, if the company wants to pay these people a lot of money, they can, but it won't be deductible over a certain level.

BLITZER: But they still -- if the company wants to pay the CEO of whatever company a billion or $5 million, they'll still be able to do that?

GREGG: That's correct, but it won't be deductible.

BLITZER: All right. Practically speaking, Senator Dodd, what does that mean?

DODD: Well, Judd is correct, although in certain circumstances, if this plan works differently, there's an auction or direct investment. With direct investments, there it would be a bit more restraining, than...

GREGG: That is correct. I should have mentioned that.

DODD: ... just on the tax deductibility. If there's direct investments here, then the golden parachutes apply and they're not allowed to take that kind of compensation.

GREGG: It can also set compensation. In other words, if the Treasury goes in and actually takes these assets off the books of a specific corporation, and that is that the Treasury has literally control over the reimbursement structure of that -- of the senior leadership of that company.

BLITZER: Senator Dodd, let me just press you on this point. $700 billion, that's money that's going to have to be borrowed from wealthier individuals and countries around the world, whether from China or from the United Arab Emirates or Japan or whatever. How is this going to impact on if Senator Obama is the next president of the United States, on his very ambitious spending proposals, especially to get health care for all Americans and tax breaks for the middle class? It's obviously going to have a major impact on what he can or cannot do if he's elected president.

DODD: Well, the hope in this case, Wolf, is that this begins very quickly. If we approve these measures this week, then this auction process and these direct investments can begin immediately. There's a wall of capital in this country alone that's ready I think to move as I've been told by many who are involved in this every day. And so our hope is this would begin to right this problem rather quickly.

That doesn't mean the economy is all of a sudden going to be on its feet immediately, but we can deal with this situation far more quickly.

And maybe we should emphasize as well that one of the parts of this agreement last evening, while $700 billion is clearly authorized here, that there are steps in this process where Congress could step back in and do resolutions of disapproval if we're not happy about the second half of this money or how it's being used, could slow it down. So while $700 billion is there, it's important to be there.

GREGG: I think it's important also to stress here that this isn't $700 billion simply laid on the table and is gone. We're buying assets with this, and we're buying them at really depressed values. So as a practical matter, it's very likely that the government, when it resells those assets into an orderly market, is going to make more than it pays, and we may come out of this in a very good way relative to taxpayers.

Secondly, if we don't do this, the next president is going to be confronted with an economic situation which is going to cost him a colossal amount of money, and his agenda is going to be totally thrown aside, whether it's Senator Obama or Senator McCain.

DODD: That's true.

GREGG: This is not an exercise -- it's not an either/or. This is a situation where either we take this action or we go into a very severe economic situation in this country, which is going to affect everyone, everyone on Main Street.

BLITZER: Both of you were deeply, personally involved in all of these negotiations that culminated early this morning with this tentative breakthrough. Senator Dodd, first to you and then to Senator Gregg, the two presidential candidates, Barack Obama and John McCain, were they for all practical purposes really involved in this process, or did they sort of just show up and weigh in a little bit? What were their respective roles in hammering out this deal?

DODD: Well, I can't speak for John McCain. You know that story and I have expressed my views on that. I can just say that in the case of Barack Obama, he called in, asked how things were going, was curious about whether or not some of these conditions that Judd and I have talked about were going to be a part of this. He was very supportive of the process and believed it was important we try to get to a result here that would be good for the country. And that was almost exclusively (ph) just some phone conversations, but I never saw him up here. It was only calls that he made, I know not only to me, but he made them to several Republicans as well. So he's been active over the last eight or nine days on this issue in a very mild and constructive way.

BLITZER: What about Senator McCain, Senator Gregg?

GREGG: I actually think Senator McCain and Senator Obama were one of the catalysts of this effort, because when they showed up here in Washington on Thursday, it focused the American people's attention on how severe and really how dangerous this situation was, because they both basically stopped their campaign, came to Washington to address the issues.

So, that was good. That gave focus not only to the American people but it gave focus to the Congress. So I think we moved much faster that way.

BLITZER: But you don't believe, Senator Gregg, that by them coming to Washington, having that meeting that collapsed at the White House on Thursday, that that set back the process? You believe it actually helped?

GREGG: I missed the meeting at the White House. I'll tell you, though, that...

DODD: I was there. It didn't help.

(LAUGHTER) GREGG: As far as I was concerned, having them here in Washington highlighted dramatically for the American people just how dangerous this situation was to folks on Main Street. And I think that was very helpful in getting us the votes we need.

BLITZER: I know Senator Dodd disagrees. Very quickly, tell us why.

DODD: Well, I just -- with all due respect -- again, we're now moving forward -- that delayed and slowed down this process. I think we would have gotten closer to an agreement here, frankly, coming in and parachuting in -- I say this respectfully -- John McCain did not help, quite candidly. That's behind us now. In my view, that was just a political stunt.

GREGG: As to John's involvement in the day-to-day operations, he has been really active, and, in fact, I think he's been extremely constructive dealing with the House Republicans and getting them comfortable with the importance of doing something and doing it the right way.

BLITZER: Senator Gregg, Senator Dodd, thanks to both of you for joining us. Good luck to all of you up on Capitol Hill.

DODD: Thank you.

GREGG: Thank you.

BLITZER: And up next, the New York Times columnist and best- selling author Tom Friedman. He has some very tough criticisms for both Barack Obama and John McCain. You're going to hear what he has to say when we come back. Stay with us.

(COMMERCIAL BREAK)

BLITZER: The U.S. energy crisis certainly has become a key issue in the presidential campaign, but are Barack Obama and John McCain adequately addressing this issue? Just a short while ago, I spoke about that and a lot more with the New York Times columnist Thomas Friedman. He's the author of a brand new book entitled "Hot, Flat, and Crowded -- Why We Need a Green Revolution and How It Can Renew America." The new book today emerged as the New York Times number-one bestseller.

(BEGIN VIDEOTAPE)

BLITZER: Tom Friedman, thanks very much for joining us. Welcome back to Late Edition.

FRIEDMAN: Great to be with you, Wolf. Thank you.

BLITZER: What do you think about this bailout announcement, this breakthrough that came through overnight?

FRIEDMAN: I feel good about it. I mean, I wish we didn't have to go into debt, you know, to bail out our financial system, of course, but we faced a credit crisis, Wolf. And credit crisis is hard to see, but when you face a credit crisis, what it means is no one is lending to anybody else. And a credit crisis, I think, can only be dealt with, with what I would call the financial equivalent of the Powell doctrine -- overwhelming force. In this case, overwhelming capital. You have to smother it.

Unfortunately, some people are going to be bailed out who don't all deserve to be bailed out. But the most important thing is that people who don't deserve at all to be punished, basically, are not going to suffer from a real meltdown of the economy, let's hope.

BLITZER: Who are those who are going to be bailed out who shouldn't necessarily be bailed out? Who are you referring to?

FRIEDMAN: Well, I mean, people obviously in the financial market who ran up a lot of these risks for banks and investment banks, and you know, now their banks aren't going to collapse. Obviously, you know, they're not going to be punished, but most importantly, all their depositors aren't going to be punished, and I think that's what we have to keep our eye on.

BLITZER: So bottom line is, you see this potentially as good for Main Street, not just for Wall Street?

FRIEDMAN: Absolutely. I mean, basically, you know, had this not gone through, Wolf, I mean, a lot of small businesses would not have gotten loans. There are people who would have gone to the ATM machine and not gotten money out. And they would have lost their jobs.

FRIEDMAN: Unfortunately, this is a necessary evil, but what I think we need to focus on Bush's -- Wolf, is, how do we get beyond this? Because this is just that, it's a bailout. We need a buildup. We need to get back to making things, Wolf, and not just financial engineering, but real engineering. I think that's what we need to be focusing on. BLITZER: Now what do you want to see built up? I know that the book, your new book, "Hot, Flat, & Crowded," has a lot of recommendations, a lot of proposals to take advantage of this crisis right now and build up, as you say, rather than just bail out. Explain what you have in mind. FRIEDMAN: Well, what I mean is that, you know, in the 19th Century, Wolf, we had a boom and a bubble and a bust around railroads. But that bubble left us with a national railroad system. In the 20th Century, we had a big dot-com boom, bubble and bust, but that left us with an Internet highway. Unfortunately, this financial boom, bubble and bust has left us with basically a lot of Florida condos and dead derivatives, and we need to, to the extent that the government can profit from this -- and some people think it will ultimately be able to make money on the bailout, we need to make sure those funds are directed to laying the foundation of a new industry, an industry I call in the book ET, "energy technology," which I think is going to be the biggest industry in the 21st Century. And the country that dominates ET, it will be even more important than IT, the information technology. BLITZER: And I want to discuss the two presidential candidates and your vision of what needs to be done, but I want to play this clip first of what Senator McCain said Friday night in the first presidential debate. Listen to this. (BEGIN VIDEO CLIP) MCCAIN: Let me point out, I also warned about Fannie Mae and Freddie Mac and warned about corporate greed and excess and CEO pay and all that. A lot of us saw this train wreck coming. (END VIDEO CLIP) BLITZER: Based on everything you know, was McCain on top of all of this over these past several years? FRIEDMAN: If he was, I missed it. I can't say I've parsed all his comments these past few years. You know, to me, the whole regulatory structure in Washington and everyone who was a part of it and everyone who enabled it was basically asleep at the switch.

We went into the business as a country of letting Wall Street self-regulate. Well, you know, when you let people self-regulate, you get these kinds of extremes. BLITZER: Who's to blame, first and foremost, in your mind, for this worst financial crisis since the Great Depression? FRIEDMAN: Well, you know, obviously, there's no, you know, single party to blame. On the one hand, we as a government, as I say, lapsed into a mode of basically taking all regulation off, and as a result, Wall Street did what Wall Street did -- it went for greed. At the same time, you know, there's a lot of people who enjoyed going in and getting a subprime mortgage that allowed them to get the American dream even though they didn't -- they knew they really didn't qualify for that mortgage. So, you know, obviously I put the blame -- blame most myself on government and the investment banks who took the absence of regulation to make crazy, wild bets like we were in Vegas. Well, you know, as a commercial says, Wolf, you know, what happens in Vegas, keep it in Vegas, not on Main Street. BLITZER: The Democratic presidential nominee, Barack Obama, he made this point at that debate Friday night. I'm going to play this clip and then we'll discuss. Listen to this. (BEGIN VIDEO CLIP) OBAMA: The single thing that has strengthened Iran over the last several years has been the war in Iraq. Iraq was Iran's mortal enemy. That was cleared away. (END VIDEO CLIP) FRIEDMAN: Well, you know, I...

BLITZER: Is Iran -- the question is, is Iran stronger today than it was before the U.S. invasion that toppled Saddam Hussein? FRIEDMAN: Definitely, I think Iran is stronger today for two reasons. One, Iraq was the main counterbalance to Iran, and to the extent that Iraq has been weakened as a counterbalance, Iran is stronger. But Iran is stronger I think for a much, even more important reason. Iraq is certainly part of it, but it's because of the price of oil. And the fact that suddenly the Iranian mullahs are sitting on mountains and growing mountains of money thanks to our energy policies and our energy consumption. And you're not going to have leverage on Iran until you take that pile of money down. BLITZER: And then the best way to do that? FRIEDMAN: Well, the best way to do that, I think, is to have a green revolution in this country that focuses on spawning the renewable energy industries and technologies that will in the long term create alternatives to fossil fuels and weaken these petro dictatorships, so we get away from this policy we've been on in this country, which is no mullah left behind. That's our energy policy, no mullah left behind. BLITZER: And that's one of major theses in your new book, "Hot, Flat, & Crowded." I'm going to read to you from a column you wrote on September 10th that was provocative. Here's what you said.

He said: "Here's what I've been feeling for a while, whoever slipped that Valium into Barack Obama's coffee needs to be found and arrested by the Democrats, because Obama has gone from cool to cold. Somebody needs to tell Obama that if he wants a chance to calmly answer the phone at 3 a.m. in the White House, he's going to need to start slamming down some phones at 3 p.m. along the campaign trail." Go ahead and explain what you have in mind. FRIEDMAN: Well, I was really writing that, Wolf, in the wake of the Sarah Palin announcement as vice president, and then she obviously was a very evocative and emotional speaker, able to rally her forces, and I was just arguing that if Obama, you know, wants to win this election, he needs to maybe connect a little bit more on the gut level with people. BLITZER: Did he do that at the debate? FRIEDMAN: He didn't do it for me, but I think he connected on a very intellectual level, and maybe that's what he was after, proving that he has the chops to be the commander-in-chief by being a very cool customer when he does answer the phone at 3 p.m. I hope people -- you know, his voters recognize that. BLITZER: Here's what you wrote on September 14th about Senator McCain. "I respected McCain's willingness to support the troop surge in Iraq even if it was going to cost him the Republican nomination. Now, the same guy who would not sell his soul to win his party's nomination is ready to sell every piece of his soul to win the presidency." All right, those are pretty strong words. Explain. FRIEDMAN: Well, what I was reacting to is the fact that, you know, McCain started this campaign as a green candidate. He then threw away I think his most important credential when he came out in the summer calling for lifting of the gasoline tax, which would have ended up people driving more and only driving up the price of gasoline. He has basically absented himself; he didn't vote in favor of any single renewable energy production, investment tax credit, which are vital, I think, for the launching of our wind and solar industries. And then, you know, lastly he came out with this idiotic mantra of "drill, baby, drill," at a time when the motto of the United States needs to be "invent, baby, invent." And "drill, baby, drill" is just stupid. It's not that we don't need to drill; it's not that we don't need, you know, some offshore oil, but it's not the pathway to the future. If we're talking about the future, we need to be giving birth to a 21st Century industry, not breathing life into a 19th Century industry. BLITZER: Thomas Friedman is the New York Times columnist, the author of the new best-seller, "Hot, Flat, & Crowded."

Tom, thanks very much for coming in. FRIEDMAN: Great to be with you, Wolf.

(END VIDEOTAPE)

BLITZER: The best political team on television is standing by with their take on Obama versus McCain, what's going on.

Plus, we'll go live to the campaign trail to see what is literally going on right now. Stay with us, LATE EDITION continues after this.

(COMMERCIAL BREAK)

BLITZER: We'll get to our political panel shortly. But first, both Barack Obama and John McCain are heading back to the campaign trail. They're still keeping a close eye on what's happening as far as the bailout is concerned on Capitol Hill.

CNN's Jessica Yellin is joining us. She's in Detroit, where Barack Obama will be speaking shortly.

Jessica, give our viewers the reaction from both campaigns to this bailout negotiation.

YELLIN: Wolf, this morning, both men are giving indications that they're inclined to support the bailout deal as it's been outlined in the press. Of course, they say they want to wait, pending a final bill.

But, so far, they say it's unfortunate we're in this position, but here's something they believe they can support. And, not surprisingly, both campaigns are saying their guy deserves a lot of credit for getting it to where it is.

The one thing both men seem to agree on, McCain and Obama, is that the original proposal Secretary Paulson outlined needed significant adjustments, and they are pleased that Congress was able to include a CEO pay limit and an oversight board. On some of the other aspects, there are disagreements between the two men.

Now, you're also not going to be surprised, Wolf, to know that they're using this economic bailout as a jumping board to focus on their own different economic visions, John McCain focusing on his plan to cut taxes for corporations and businesses and insisting that Barack Obama is going to be a tax-and-spend Democrat; Barack Obama, for his part, saying that John McCain isn't concerned about working Americans and that he is demanding an immediate stimulus package, an economic stimulus plan, that would help people pay their daily food bills and health bills, et cetera.

So there you see some substantive disagreement. The other big thing, of course, this week, Wolf, is the vice presidential debate, toward the end of this week.

And we are in the home state of Governor Jennifer Granholm. She is playing Sarah Palin in all the debate preps with Biden, so she is going to be spending some time with Biden at his home in Delaware, as he prepares later this week.

And of course, Sarah Palin already has begun her preparations, everyone very much looking forward to that event. Wolf?

BLITZER: We know that Tina Fey does a fabulous job portraying Sarah Palin. Let's see how Jennifer Granholm, the governor of Michigan, does on that front, as well.

There's a new clip from "Saturday Night Live" we're going to have laster this hour.

All right, thanks very much for that. Jessica Yellin is on the scene.

Just ahead, Obama versus McCain -- we'll assess the candidates in their first presidential debate with the best political team on television. "Late Edition" continues right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back. From the big presidential debate to the big bailout talks, a lot to discuss, right now, so let's get right to it.

Joining us, our CNN senior political analysts Gloria Borger and Jeff Toobin, and -- that's Jeff Toobin. Where was Gloria? Did I see Gloria? I missed her.

(LAUGHTER)

And in Washington, our chief national...

KING: We all look alike.

BLITZER: ... correspondent, John King.

All right. They're all here.

(LAUGHTER)

John, let me start with you. You know, the last time we heard that there was a breakthrough, earlier in the week, on these bailout negotiations, it wasn't necessary lay breakthrough. They, sort of, collapsed.

Right now, there's a breakthrough. They're going to look at the fine print. The document, the 100 pages or so, is going to be released. Is there a deal, you think?

KING: There is a deal on the surface, right now, Wolf, but you've had evidence of it during your own program, here; the big question is, how does this sell among House Republicans?

They were the missing link from the quote, unquote, "deal" that was announced last week. The House Republican Caucus had not signed off on this, and there are some things in this deal, as we've seen it on the surface -- we need to see the fine print -- that makes it more palatable to most House Republicans. And it looks like their leadership is prepared to get behind this deal.

The question to watch, the thing to watch the dynamic, politically, over the next 72 hours is -- in the next 24 hours, if they're planning a vote on Monday -- is, what is the breakdown in the House Republican Caucus? How many are willing to support this deal?

But this is more to their liking. And they, in part, credit John McCain, saying he slowed the negotiations down to get them some provisions that are more to their liking.

BLITZER: What do you think, Gloria?

BORGER: Yes, I agree. I think Nancy Pelosi is going to demand that you get half of the Republican Caucus to go along with it.

BLITZER: A majority...

BORGER: A majority.

BLITZER: ... of the Republicans in the House?

BORGER: Right. She's not going to send her Democrats out there on a political limb, all by themselves, this close to an election, without getting Republicans to come on board and support what the Bush administration...

(CROSSTALK)

BLITZER: There will be a number of conservative Democrats that are going to have a hard time voting for this $700 billion expenditure.

BORGER: Right. So you may need half of each caucus to put it together.

BLITZER: What do you think?

TOOBIN: Well, I think it's interesting that -- how infected with politics this is. Remember, the House Republicans are a minority. They are not needed in the House. And this is the House, not the Senate. The majority can steamroll the minority in the House, the way they can't in the Senate.

But the Democrats are so worried about being identified with this really unpopular bailout that they are insisting on the political cover of the House Republicans joining them, which is pretty extraordinary, if you think this is a real national emergency.

BORGER: But they also believe that some Democrat seats could actually be in danger as a result of this bailout plan, and they're not going to lose one seat over this, because they keep saying, this is a Republican bailout plan.

And, by the way, those House conservatives -- most of them are in pretty safe districts.

BLITZER: John, how does this play out on the campaign trail, right now, with these two presidential candidates?

KING: Well, it's a great question because both are saying, at least for now, they support it in principle; they want to see the fine print.

Let us assume, going forward, that both candidates support it. You would make the argument that it's a wash, right? Both candidates have supported it. But to Gloria's point, if there is a conservative revolt in some parts of the country; if, in some places, conservatives think this is crazy; this is too much money, and they don't think it's going to Main Street or to the little guy who's been foreclosed on, but they think it's going to rich people on Wall Street; if this affects conservative intensity, which has come back somewhat since earlier in the year, when it was low, then it could hurt John McCain, even though both candidates have the same position.

That is something worth watching, as we go forward.

BLITZER: Let me play a clip, Gloria, for you from what Senator McCain proposed in that debate Friday night on a related matter: spending. Listen to this.

(BEGIN VIDEO CLIP)

MCCAIN: How about a spending freeze on everything but defense, veteran affairs and entitlement programs?

I think we ought to seriously consider, with the exceptions of caring for our veterans, national defense, and several other vital issues.

(END VIDEO CLIP)

BLITZER: Now, Senator Obama took issue with that. But what do you think?

BORGER: Well, also...

BLITZER: It sounds -- it sounds pretty good to freeze spending.

BORGER: OK. You're taking out entitlement programs; you're taking out defense. Well, you've got most of the budget right there, so he's not freezing that -- or veterans programs.

BORGER: But honestly, given the fact that we're now involved in the $700 billion bailout, what the candidates aren't saying, although Obama kind of edged towards admitting it, is that all of the plans they now have are going to have to go on hold, Wolf, because they just don't have the money for it.

BLITZER: Yes. But they're not acknowledging...

TOOBIN: Although...

BLITZER: Neither of these candidates is ready to...

BORGER: But there will be a freeze anyway.

BLITZER: ... acknowledge it.

BORGER: So there's going to be a freeze anyway.

TOOBIN: But one thing I think -- you know, just about the economics of this, everybody is assuming you have to have a balanced budget or something close to it. We are in or near a recession. Many economists say you don't want a balanced budget in a recession. You want to actually run a deficit in a recession. It's a healthy thing. It will stimulate the economy.

So I think, you know, Jim Lehrer's questions were based on the premise that you somehow have to move towards a balanced budget, but maybe in this economic environment that's not a good thing.

BLITZER: Now John King, here's a main theme that Barack Obama leveled throughout the debate, at least when it came to economic issues on Friday night.

(BEGIN VIDEO CLIP)

OBAMA: This is a final verdict on eight years of failed economic policies promoted by George Bush, supported by Senator McCain, a theory that basically says that we can shred regulations and consumer protections and give more and more to the most and somehow prosperity will trickle down. It hasn't worked.

(END VIDEO CLIP)

BLITZER: All right. How is that going to work?

KING: Well, it is a key argument right now. When you travel the country, as I was all last week, voters are saying we need more regulation. These institutions were allowed to get too big and too freewheeling, and that's a fact.

Now to the question, on economics, John McCain has largely supported the Bush administration approach. When you talk about Fannie Mae and Freddie Mac, many here in Washington -- and I'm not smart enough to be an economist, Wolf, but many would say some of those problems actually go back to the Clinton days and even prior to that when those organizations grew and began doing things that they weren't originally intended to do.

But on the idea of deregulation, it is true that for most of his career, John McCain has been a supporter of deregulation. There are a few occasions that he can rightly say two years ago he warned about what was going on Fannie Mae and Freddie Mac, a couple of years ago he did talk about excessive corporate greed.

But for the most part, it is fair to say that John McCain in his career in Washington, has been in favor of deregulation. That is true.

BLITZER: All right. Guys, stand by, we're going to continue this discussion. Both John McCain and Barack Obama, by the way, were guests on some of the Sunday morning talk shows. We're going to tell you what they had to say in our very popular "In Case You Missed It" segment. That and much more coming up next.

(COMMERCIAL BREAK) BLITZER: Now "In Case You Missed It," let's check some of the highlights from the other Sunday morning talk shows here in the United States. On ABC, Republican presidential candidate John McCain defended his decision to temporarily suspend his campaign in order to address the Wall Street financial crisis.

(BEGIN VIDEO CLIP FROM ABC'S "THIS WEEK WITH GEORGE STEPHANOPOULOS")

MCCAIN: I saw that the House of Representatives was not engaged -- the Republicans in the House of Representatives were not engaged in the negotiations. I understand that. They're the most fiscally conservative people. And so I came back, I did the best that I could. I came back because I wasn't going to phone it in.

(END VIDEO CLIP)

BLITZER: On CBS, Democratic presidential candidate Barack Obama discussed whether he would support the Wall Street bailout if a deal finally gets done.

(BEGIN VIDEO CLIP FROM CBS'S "FACE THE NATION WITH BOB SCHIEFFER")

OBAMA: If the four principles that I laid out 10 or 12 days ago are, in fact, contained in a meaningful way: the taxpayer protection, the investor participation of the taxpayers, the corporate -- or the CEO compensation issues, as well as the homeowner assistance, if those are contained, my inclination would be to vote for it, understanding I'm not happy about it.

(END VIDEO CLIP)

BLITZER: And on NBC, the former president, Bill Clinton, shared his thoughts about the man who defeated his wife, Hillary Clinton, for the Democratic nomination.

(BEGIN VIDEO CLIP FROM NBC'S "MEET THE PRESS")

BILL CLINTON, 42ND PRESIDENT OF THE UNITED STATES: And I think Senator Obama has shown a remarkable ability to learn and grow in this campaign. He always was highly intelligent and always a very good politician.

He got the change -- the fundamental change and the calendar of this Democratic primary process of which we were engaged, his energy program kept getting better through campaign, his health care program kept getting better.

I think what you want in a president in a time like is somebody with good instincts.

(END VIDEO CLIP)

BLITZER: And right after LATE EDITION, 1:00 p.m. Eastern, "FAREED ZAKARIA GPS" takes a comprehensive look at international affairs with world leaders, policy experts, and journalists. Fareed today goes one-on-one with the new Chinese premier. Listen to this.

(BEGIN VIDEO CLIP)

WEN JIABAO, CHINESE PREMIER (through translator): I don't think there is this problem as to whether I can have contact with the Dalai Lama. The real key lies in the effectiveness of such contact and talks. We hope that he can use real actions to show sincerity and break the deadlock.

FAREED ZAKARIA, HOST, "FAREED ZAKARIA GPS": What action would you like to see from the Dalai Lama that would show sincerity?

WEN (through translator): The sincerity can be demonstrated in giving up separatist activities.

(END VIDEO CLIP)

BLITZER: Stay tuned for "FAREED ZAKARIA GPS," that comes up right at the top of the hour, right after LATE EDITION, only here on CNN.

Up next, the spotlight turns to the much-anticipated vice presidential debate between Joe Biden and Sarah Palin. We'll discuss the high stakes with our political panel when we come back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MCCAIN: There are some advantages to experience and knowledge and judgment. And I honestly don't believe that Senator Obama has the knowledge or experience and has made the wrong judgments in a number of areas, including his initial reaction to Russian aggression in Georgia.

(END VIDEO CLIP)

BLITZER: Senator McCain at the Friday night debate.

John King, he kept going back very, very hard on Barack Obama through much of that debate, that the man simply is not qualified, not ready to be commander-in-chief. He has been saying it far long time now, but is it resonating? Because you've been out on the campaign trail for a long time now over these past several days.

KING: Well, it's a great question and it's a better one I think asked Wednesday or Thursday as people digest this debate. But, Wolf, you raised the point because many in the McCain campaign and most Democrats will tell you they think this is very much like 1980. There is a change dynamic in the country, that Barack Obama should win the election, but people are saying, is he safe as commander-in-chief? Does he have the experience? Can he be an able and effective president.

And John McCain is trying to stop that small slice of voters out there, many of them soft Democrats, many of them independents who would be inclined to vote for a Democrat if they think he's up to the job. So John McCain was simply trying to say, he's not. And he said it over and over and over again. The question is, does it work?

Most people believe Barack Obama held his own but we're often too close to this, so it will be very interesting to see by the end of this week how it all settles in out there in the key states.

BLITZER: Did he reassure -- Senator Obama, did he reassure viewers during that debate Friday night?

BORGER: Well, you know, we all did some instant polling, which is notoriously unreliable, but if you look at it, it shows that he did. I think McCain's message was not very subtle and he kept doing it over and over and over again. And sometimes that really works. And...

TOOBIN: You know, a lot of Democrats were offended and angry by Obama saying over and over again, I agree with John, I agree with John. But you know what...

BLITZER: You never heard Senator McCain say, I agree with...

BORGER: No.

TOOBIN: Never heard that. But I think that was a way of showing that Barack Obama is not a -- some weird sort of outsider candidate, he's someone from the mainstream of politics, willing to agree sometimes with the opposition. So I think much as the partisans didn't like that, that may have been an effective strategy.

BLITZER: All right. Let's look ahead to Thursday night. St. Louis -- Washington University in St. Louis, John, there's going to be a vice presidential debate. Here's a little clip from "SATURDAY NIGHT LIVE" last night, Tina Fey portraying Governor Sarah Palin. Now, just watch this, because I'm going to explain it. I haven't seen anything like in this in a while. Listen to this.

(BEGIN VIDEO CLIP FROM "SATURDAY NIGHT LIVE")

TINA FEY, "SARAH PALIN": Ultimately, what the bailout does is help those that are concerned about the health care reform that is needed to help shore up our economy to help...

(LAUGHTER)

FEY: It has got to be all about job creation too.

(END VIDEO CLIP)

BLITZER: All right. Now, that was Tina Fey, but here's the real Sarah Palin earlier in the week in the interview with Katie Couric.

(BEGIN VIDEO CLIP)

PALIN: Ultimately, what the bailout does is help those who are concerned about the health care reform that is needed to help shore up our economy, helping the -- oh, it has got to be all about job creation, too.

(END VIDEO CLIP)

(LAUGHTER)

BLITZER: All right. That was the first time, John, I've ever heard the parody on "SATURDAY NIGHT LIVE" actually use exactly what was said during the course of the week. It was a rough week for her this week.

KING: Not sure if that's art imitating life or life imitating art there as you watch. Look, everyone inside the McCain campaign will tell you, Wolf, in a private conversation they thought that interview was simply a disaster. They won't say that publicly, but they will tell you that privately.

And they understand the stakes for Sarah Palin in this debate. Look, people vote the top of the ticket, but again, we're talking about a relatively small universe of people out there who have yet to make up in their mind in this election, and the possibility that John McCain could lose some of the support he has if people think not necessarily in their judgment about Sarah Palin, make it about John McCain's judgment.

She needs to prove to people that she's up to the task. If she can prove she's up to the task, then it is about John McCain and Barack Obama. If she fails that test, then it's about John McCain's judgment and why he picked her.

So, that is the main frame that I would look at this heading into Thursday night. There's no question her numbers have come down in the polls as more people see her. She still is very popular among the Republican base. That is the most important point if you're John McCain. But they cannot have further erosion of support for her or the impression of her because then that reflects poorly not on her, but more on him.

BLITZER: Gloria, what are you going to be looking for Thursday night?

BORGER: Well, the bar is, first of all, on the floor for Sarah Palin, she -- you know, so I'm looking to see how she goes toe to toe with Joe Biden, who's very experienced in foreign policy, and how he handles her.

BLITZER: But he's pretty capable of having a gaffe himself.

BORGER: He is, and that's why this debate is going to be so interesting because these people are going to look at each other this time.

TOOBIN: But I don't think the bar is on the floor. I think the bar is the same place it is for Biden. I mean, who are we to say where the bar is? I think this is the job to say whether she's capable of being vice president and president of the United States.

BORGER: But people don't expect a lot. You know, look, if she performs...

TOOBIN: Well, they should.

BORGER: ... fine, it will better than...

TOOBIN: They should expect a lot.

BORGER: ... fine for her, do you know what I'm saying?

TOOBIN: I understand your point, but I just think we sort of create these expectations that are just not -- it's not our job.

(CROSSTALK) BLITZER: Thursday night, we'll all be here. We'll be watching with millions and millions of folks not only in the United States, but around the world. Guys, thanks very much for coming in.

If you'd like a recap of today's program, you can get highlights on LATE EDITION's podcast. Simply go to cnn.com/podcast. LATE EDITION continues after this.

(COMMERCIAL BREAK)

BLITZER: And that's your LATE EDITION for this Sunday, September 28th. Please be sure to join us again next Sunday and every Sunday at 11:00 a.m. Eastern for the last word in Sunday talk. Remember, we're also in "THE SITUATION ROOM" Monday through Friday from 4:00 to 7:00 p.m. Eastern. Until then, thanks very much for watching. I'm Wolf Blitzer in New York. "FAREED ZAKARIA GPS" starts right now.