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Rick's List

More Troops to the Border?; Arizona Losing Money Over New Immigration Law?; BP's New Strategy for Stopping Oil Spill; GOP South Carolina Gubernatorial Candidate Accused of Affair; Is the Financial Regulation Bill Being Too lenient Towards Wall Street

Aired May 25, 2010 - 15:00   ET


RICK SANCHEZ, CNN ANCHOR: So, this is -- let's go to the open.


SANCHEZ (voice-over): And here's what's making today's LIST.

UNIDENTIFIED MALE: I'm not seeing BP coming to help me save my heritage yet. You are not going to replace me being able to teach my kid how to fish. How can you replace that?

SANCHEZ: Angry Louisianans getting angrier still.

UNIDENTIFIED MALE: And it is not just money. It's more than money.

SANCHEZ: Twenty-four hours from trying to plug the leak with a top kill, but has the damage been done? Is this now an institutional crisis? I'm asking.

NIKKI HALEY, (R) SOUTH CAROLINA GUBERNATORIAL CANDIDATE: I'm the wife of a man who puts on a military uniform every day.

SANCHEZ: But was she unfaithful to him? She's denying it, but is she now caught up in a political sex scandal exacerbated by Sarah Palin? Another candidate backed by the Tea Party in trouble.

Students allowed to dress as Klansmen for a school project, and their teacher says this:

UNIDENTIFIED FEMALE: And I don't cover it up. You can't discuss racism and not include the Klan.

SANCHEZ: Arizona down at least $90 million and counting in tourism because of the new immigration laws. One hotel alone gets 4,000 cancellations. Is that fair?

UNIDENTIFIED MALE: A dark moment in our history.

SANCHEZ: Phoenix's mayor goes public on CNN.

The lists you need to know about. Who's today's most intriguing? Who's landed on the list you don't want to be on? Who's making news on Twitter? It's why I keep a list. Pioneering tomorrow's cutting-edge news right now.


SANCHEZ: We have got some breaking news having to do with Arizona.

Arizona, as you know, has been engulfed in this controversy involving these new laws that they have passed, some of which are agreeable to many of the folks in Arizona, and many of which are not agreeable. That is why the mayor of Phoenix has gone on CNN today and complained that they are losing up to $90 million in tourism business. One hotel alone apparently has lost 4,000 customers. That is how many cancellations that they have had.

Well, listen to this, breaking news coming to us now, and apparently CNN can now confirm through our contacts at the White House and the Justice Department that the Obama administration is requesting $500 million, $500 million in supplemental funding for enhanced border protection and law enforcement activities.

The president -- and here's where it gets even perhaps a little more concrete in terms of explanation -- the president will also deploy up to an additional 1,200 National Guard troops to the border who will provide intelligence, surveillance and reconnaissance supports, intelligence analysis, immediate support for counternarcotics enforcement and training capacity until Customs and Border Patrol can recruit and train additional officers and agents to serve on the border permanently.

So, this is brand-new information coming us to right now. It certainly does appear, doesn't it, from reading this, that the federal government, at least the Obama administration in the form of what they are doing through the Justice Department and some of these agencies is getting the message that Arizona has been trying to send. This is brand-new.

We are hoping to have the attorney general of Arizona with us on the line in just a moment. Now, I'm going to go ahead and talk through you to my executive producer and I will just ask on the air, do we have the attorney general? We don't. We should have him in about 10 minutes.

Stand by, folks. The very latest on what I have just shared with you is coming -- is forthcoming here. I'm going to just put it aside, and then we're going to get to that in just a minute.

Meanwhile, speaking of the president of the United States, who is being criticized around the clock, not just by Republicans, but by Democrats, for failing to put a face, his face, on the Gulf Coast crisis, for going to a fund-raiser tonight, instead of going to the Gulf of Mexico and Louisiana and Mississippi and Alabama and Florida, we have just learned the president of the United States will be heading to the Gulf Friday to try and assess efforts firsthand to stop the oil leak. It will be his second visit to the area since the oil rig explosion. Most are saying it hasn't been enough. So, we are now, what, 24 hours, right? And in 24 hours, I and Chad and Brooke, we all hope to be reporting to you that we have a solution that has worked for the Gulf oil spill. But here's -- here's the real story, folks.

Whether it works or not, what we already seem to have on our hands is an institutional failure. I mean, why was this industry allowed to drill so deep? Where was the regulation? Where were the safeguards? Where the controls? Why were they calling their own shots? These are not rocket science questions that we are asking here.

In fact, a Coast Guard investigation has revealed that your government wasn't required to inspect the blowout preventer. So, who was left to inspect them? The oil companies. Yes. You can't make this stuff up, folks. But wait. There's even more.

Remember the battery that was supposed to be replaced to make sure that the failsafe system worked? It wasn't replaced. Oh. And then there's the testing and the inspections, the ones the oil companies are supposed to do for themselves, right? How well do they generally do these -- these tests and these inspections on these apparati (ph)?

Well, let me take you back to an interview I did right here on RICK'S LIST with a man who has testified in Alaska about oil companies, like BP, who he says cut corners for time and for profit. Listen to what Mike Mason has to say.


MIKE MASON, ALASKAN FREIGHT HAULER: They're supposed to do an integrity test on the blowout preventers once a week. And they would have a state inspector witness the test at times, but there weren't enough inspectors, so probably about half the time, they would waive the witness and the oil company was left to do it for themselves.

And they were supposed to do pressure up to 5,000 PSI on all of the different valves, rams and other components of the BOPs. And what they would do is -- they were supposed to pressure up on them for five minutes. And what they would with the paper charts that they use, it would kind of like a seismograph-type chart type thing, where the ink pen would go on the paper.


MASON: And -- yes. And what they would do is pressure up for 10, 20, 30 seconds and see that it was holding at 5,000, and they would take their finger and move the chart five minutes, and then they would bleed the pressure off and go on to the next valve by saving time doing that.


SANCHEZ: All right, you know our team, right? Because more and more of you are watching us every day. I got my trusted pal Cato (ph) over here, Chad, who is going to be bringing us up to date on what the actual procedure, the top kill procedure is, when it starts, what's going to happen with it.

Brooke Baldwin standing by as well. And Brooke has got brand-new pictures that she has gotten a hold of that she is going to be sharing with you, so we are going to be working them into this situation in just a moment. We want you to stand by. We have got important information for you.

But let's get back to this institutional failure conversation that we were just raising.

I want to bring in now Daniel Stone. He's a correspondent for "Newsweek" magazine, where he covers politics and the environment. He has done a series of reports on what's going on with the Gulf oil situation.

Daniel, thanks for being with us, man.

DANIEL STONE, SENIOR REPORTER, "NEWSWEEK": Thanks, Rick. Good to see you.

SANCHEZ: I use the word institutional failure. Am I wrong?

STONE: No. It is actually time in this that we start addressing the institutional question with, and we ask ourselves, this is an accident, this is an incident, but is it isolated? And it turns out it is not.

If you look back over the past several years, the past decades, at the environment of regulation around here, it turns out that this wasn't just one snafu. This wasn't just one accident. There was a clear series of events that led us to where we are now.

SANCHEZ: Well, let's talk about some of those. Look, we have been reporting -- you heard -- you may have heard me allude to them just a while ago -- some of the bad testing that was done, the lack of failsafe systems.

What competent scientist would allow these things to happen? So, I'm asking -- I know there is a profit margin and businesses are going to want to make as much money as they can. I would if I had business. But where were the scientists, the smart guys that are supposed to step in and say, no, you can't do that because you can cause a problem and we are not going to let you? Where were those guys?

STONE: The short answer is that they weren't there.

One of the things that the oil industry and certainly BP have gotten really good at over the past decade is to downplay the risk, is to say don't worry about the inspections. We're going to take care of our own inspections. We have got the safeguards in place. We have got the people to make sure that this isn't going to happen.

Most of the time, it doesn't happen, but as we have seen from some of the reports that have come out of the -- of this particular incident, that there was definitely certain lapses over the past month leading up to this.

SANCHEZ: You know what I want to ask you about? Have you -- you have done a lot of reporting on this. And Chad and I have had a lot of conversations about this. At the point where they started to drill at very deep depths, so deep in fact that you can't get people down there, only those special submersibles that we have been watching, didn't somebody -- shouldn't maybe somebody have raised a flag at that point and said, wait a minute, we want to go down a mile below the ocean, where we may not be able to control the environment if something bad happens?

STONE: That's what this blowout preventer is really for, to make sure. And that is their safeguard. That's what they have put in place.

The reason there really was no worst-case scenario planned for this, they didn't know what could happen, is because nothing like this has ever happened before. Remember, we were talking about Exxon Valdez two months ago as the worst spill ever. That was 250,000 barrels. We went through that in the first, you know, few days after this incident. So you can't really plan for an incident of a magnitude that you have never seen before, and no one really thought it could get this big.

SANCHEZ: Well, people are going to point to -- let me ask you this question. People in our audience aren't dumb. OK? They are watching you and I have this conversation and they followed the Bush and Cheney years, and they know that Bush and Cheney are oil guys. And they are all going to probably want -- the liberals, especially, are going to want to say, well, you know, we probably can blame it on Bush and Cheney because they were oil guys. I guarantee you that they were exacerbating the situation, exacerbating the situation.

It that fair? Was it only Cheney and Bush, or has been this something that's been coming along for a while previous to them and including some of the Democrats who are in the White House?

STONE: Well, the Bush administration certainly lifted one of the moratoriums on offshore drilling, so there is that. But if you look at the Obama administration and the Bush administration, even back to Clinton, I think it's very telling that, in the days after this particular incident, Secretary Salazar said. Wait a minute. We need to address how the Mineral Management Service actually operates.

And he separated those two. And he said the agency that collects revenue for drilling in these leases shouldn't be the same agency that regulates, that oversees, you know, safety protocol here.

SANCHEZ: All right.

STONE: The fact he said that signals that, over the past decade, things probably certainly weren't in place, you know, in the most effective way. SANCHEZ: Well, I was just going to let our audience know that Mineral Management Services is part of the Interior Department. They are the ones who are supposed to oversee a lot of these leases and how they actually are handled in places like the Gulf, for example.

I'm going to hold you right there. Can you stick around? I want to bring you back --

STONE: Absolutely.

SANCHEZ: -- because I think suddenly, today's story -- yesterday, we were very micro. Today, I think it is more of a macro story. What's going on -- even if they solve this thing tomorrow, I think we are still left with a lot of very important questions that this country is going to have to be dealing with and asking itself, not just in the short run, but probably over the next decade or so.

STONE: Absolutely.

SANCHEZ: And I got Brooke standing by.

And, Brooke, you have got some brand-new pictures. Give me a tease on that, will you?

BROOKE BALDWIN, CNN CORRESPONDENT: Yes. So, I have pictures from the Gulf, different examples with animals that potentially are ramifications of some of the damage. And I also got video from -- remember our conversation yesterday with Jean-Michel Cousteau? They sent me the video, that underwater video. So, I will have that on the other side of the break.

SANCHEZ: Well, and, apparently, you know what, Chad? This new -- this operation they are going to do tomorrow at -- first thing in the morning, the, what's it called, quick kill?


SANCHEZ: Top kill. They have got so many names for these things, I start to forget them now.

MYERS: Junk shot, top kill.


SANCHEZ: Junk shot, top kill.

MYERS: I know.

SANCHEZ: Well, we have just been told that BP will likely not let us see this as it happens. In other words, the video feed will likely be cut.

We are drilling down on that. I want to get your opinion on that as well. And we are going to have these conversations when I come right back. As you can tell, we at RICK'S LIST are devoted to this story. We are going to put everything we got on it. We are going to be right back with that.

And, also, the attorney general from Arizona may be joining us. Well, we are just waiting to get him on the line. As soon as he comes on, we will tell you what is going on with this new Obama initiative to give Arizona in many ways what they have been asking for. And many in Arizona are saying, finally.

We are going to be right back.


SANCHEZ: Welcome back. The breaking news is this. The Obama administration is requesting $500,000, so they can send an additional 1,200 National Guardsmen down to the border between Mexico and Arizona. We understand that John McCain is on the Senate floor right now talking about this. Let's take that live, Rog, if we can.


SEN. JOHN MCCAIN (R), ARIZONA: -- of the Guard, as well as additional $500 million. But it is simply not enough. We need 6,000. We need 3,000 across the border, an additional 3,000 -- 3,000 National Guard troops to the Arizona/Mexico border.

And, Madam President, I say that because of my many visits to the border, my conversations with the Border Patrol, and the time it will take to train an additional 3,000 troops just for the Arizona/Mexico border.

Now, I have colleagues waiting with other amendments, but I hope that my colleagues appreciate the extent of the violence and -- on the Mexican border and the dramatic increase in that violence that's taken place over the last several years.

There was a time not that long ago that someone wanted to come across our border illegally could do so, if they were fortunate, and would come across by themselves. That's no longer possible. We now have highly organized human smuggling rings and drug cartels that are working together. They are using the same routes. And, unfortunately, the so-called central corridor, the Arizona/Mexico border, has been where a great degree of violence and certainly a preponderance or majority of human smuggling and drug smuggling.

I would refer to my colleagues two numbers. Last year, in the Tucson sector of the Arizona/Mexico border, there was over 1,200 million pounds of marijuana intercepted on that border, to the point where I was told that the U.S. attorney didn't prosecute anything less than 500 pounds of marijuana intercepted.

One other number. Last year in the Tucson sector of the Arizona/Mexico border, 241,000 illegal immigrants were apprehended trying to cross the Mexico/Arizona border. If you figure that we catch one out of four, one out of five --

SANCHEZ: All right, John McCain, who we just happened to be hearing reacting to the Obama administration's initiative to send $500,000 to the border, 1,200 -- I think you heard him there at the beginning. Now he is talking more in general about what he believes or perceives the needs are there on the border.

But, at the very beginning, you heard him say that it wasn't enough. I mean, he wants even more money and more troops going to the border.

Terry Goddard is the attorney general from Arizona and he is good enough to join me now to bring me up to date on what this is.

Is this -- is this -- are you seeing this as welcome news?

TERRY GODDARD, ARIZONA ATTORNEY GENERAL: It absolutely is welcome news.

I mean, it shows that the administration is listening to the pleas that I have been making and others have been making from Arizona for months, for years to focus on border crime.

SANCHEZ: Now, to be fair to the administration, they had already increased the federal response at the border. Arguable whether it was enough or not, but this is on top of that, correct?

GODDARD: This is at -- we still don't have all the details, but this is 1,200 troops, $500 million in the supplemental budget request. In anybody's game, that's a significant increase, but it's focused in the right place. It's focused on the border criminals.

Senator McCain seems to be late to this party. We have been working from local law enforcement for the last 10 years on this problem of the cartel incursions in Mexico. They are highly sophisticated, highly organized, highly violent. And, yes, they are bringing lots of people and lots of drugs into the United States. We need to focus on them. And that's what the administration is doing with this increase.

SANCHEZ: You just said Senator McCain is late to this party. He seemed to be very critical even of this initiative. Most people would look at that and say, well, he's Republican and this is politics. He is criticizing a Democratic president. Do you think there is more to it than that?

GODDARD: More than -- well, A, I have been beating the bushes for a long time in the last administration and now in this one, saying that we have a criminal problem on the border. Let's get serious about it. Let's go after the cartels, wherever they happen to be, both in the United States and Mexico.

There have been some efforts. The Merida Initiative is a significant piece. And this last announcement by the administration I think adds tremendous firepower to that effort to put boots on the ground at the border.

And, you know, if the senator is supportive of that, great. It's just he has been around a long time and we are now hearing new level of rhetoric from him. SANCHEZ: That's interesting. I think I and most people listening to you understand what you are saying with that.

One final question. Will this act by the White House in any way affect your new immigration law signed by your governor, which probably will be taking effect sometime in the next 60 days or so, if I recall?

GODDARD: It takes place on the 29th of July. I can't see a connection. I think what the administration is doing is what I have been pleading for, and that is focus on border crime. Focus on the very organized criminals that are operating on both sides of the border right now and for the last many years, and --


SANCHEZ: Well, let me just --


GODDARD: -- let's get rid of them.

SANCHEZ: Let me just -- Attorney General Goddard, let me just interrupt you for a moment and suggest this. If -- what we constantly hear from folks in Arizona is, we are going to have to have our police officers do the jobs that a lot of these agents would have had to do because they are not getting the job done.

And we have seen cases where these people have crossed across the border, come across the border and they have been captured in the central parts of the state. Well, here is the federal government saying, OK, fine, we will give you 1,200 officers and maybe some more on top of that. Would the next part of that logical enthymeme then be, if we do that, would you get rid of the law where you're going to make or deputize, federally deputize your police officers?

GODDARD: Well, I think it would make a lot of sense to do two things, one, secure the border, make sure that it is not possible for these organized criminals to bring people and drugs across, and, number two, have immigration reform, which I hope is the second half of this, which basically says those people who are working in the United States don't have any criminal record otherwise, except for the illegal crossing, can get on a path citizenship.

SANCHEZ: At the federal level?

GODDARD: That's number two. At the federal level. The federal government's responsible for both of those issues. And, frankly, they have failed.

SANCHEZ: But -- well, what about your law? What about your law? Would you go back to your governor and suggest, you know what, Governor, maybe we don't need that law after all, that the federal government is now coming forward and supplying us these 1,200 troops? Or will you say to her, as you just seemed to intimate, no, they have to go a step further; they have got to get some kind of comprehensive immigration reform?

GODDARD: Oh, I think that is absolutely critical --


GODDARD: -- or -- we still are fighting this war on two fronts, but the most serious is at the border. It is the organized criminals that threaten the United States in many different ways, not just the state of Arizona, but the Justice Department has said 230 cities have cartel presence. It is time to get serious.

And I think the heartening thing about this announcement from the administration is that they are listening, that they are finally getting serious about fighting the border crime where it is, on the border. That's -- that's a huge step forward.

SANCHEZ: Attorney General Goddard, it has been a delight to have you on. Thanks for hustling, sir, grabbing a phone, and getting on the air, and sharing your perspective on this with the American people. All right, thank you.

Chad Myers standing by, as well as Brooke Baldwin. They are going to be bringing us into this conversation that we're having about what exactly is going on in the Gulf of Mexico. Yes, we are counting this down for you, folks. We're less than 24 hours now from what may be a solution crossed -- I'm Catholic, so I will go ahead and do it.

We are close to having it happen. It would be nice if it happens, but, unfortunately, we all look at this from the standpoint of what has failed before.

We also are in the middle of a conversation about what could be an institutional problem in the Gulf of Mexico, and we will bring you that as well. Stay right there. We will be right back.


SANCHEZ: Welcome back. We have got Brooke Baldwin, we have got Chad Myers and we have Daniel Stone standing by, having a discussion now about, well, what is soon to be zero hour.

That's when BP -- and we understand you're not going to be able to see it, as we all assumed that you might be able to see. You see these live pictures that you are looking at right now? That is what it looks like, folks, 5,000 feet below the surface, right?

MYERS: Right.

SANCHEZ: About -- about a mile down. Well, this shot is going to be stopped, it's going to be cut, as we understand it, when they actually go in to do this operation.

Now, before we do anything else, Chad, you have got a representation, an animation, as we call it in the business, that shows just -- because scope is important. And people keep asking us, well, how big is this thing? What does it look like? Because we keep showing little pictures.



SANCHEZ: Let's start with the big picture. Can you do that?

MYERS: All right. Yes, let's go see it.

What we did -- and Google Earth made this really possible for us, so it was really easy to do -- we took a map of where the satellite picture was this morning. This is from the government. Here's where the approximate location of the Deepwater Horizon rig is right here. The oil has been leaking out.

A big part of the heavy oil, the slick, is well off to the west of where the leak is. But you can see it into the Delta here, and it's easy to see on this visible picture where the oil is at this point in time. So, someone drew a big circle around this, a little bit better picture than I did, and then they allowed us to take it and put it anywhere we wanted to.


MYERS: So, I chose Cleveland, Ohio, only because I used to live in Detroit. Here is Toledo. Here is Cleveland, Akron, and Pittsburgh. So, if you take that representation of where the oil was today and you drop it on top of Ohio, you drop it on top of Lake Erie, it goes almost all the way to Sandusky and Put-in-Bay, all the way down to Mansfield, across Cleveland to Erie and then back across.

So, can you imagine if all of Lake Erie was essentially polluted, was a dead lake because this oil now has killed it?

SANCHEZ: And you got a little piece going all the way into Pittsburgh over there as well.

MYERS: And this -- well, this is that little wispy part.



MYERS: Two days ago, it wasn't in the -- in the loop current.


MYERS: Now it seems maybe a little bit of sheen made it to the loop current. And that would make its way all the way down, yes, all the way down to McMurray and Pittsburgh and the like, right down there.

SANCHEZ: All right, that is the macro version. Now let's do the micro version.

Brooke Baldwin is working on that for us. What's it look like?

BALDWIN: So, I have two different micro for you, number one being -- I think we can say this -- casualties, potential casualties of the oil.

And I'm going to show you a picture. I want to warn you, it's tough to look at. You will have a very visceral reaction if you are anything like me. But this is -- if we can get it to work -- there we go -- this is a dead dolphin.


BALDWIN: This was found courtesy of the Plaquemines Parish government -- 20 dolphins, dead dolphins have been found since the start of the spill. We can't conclusively say, hey, this is absolutely oil-related, but it is possible. Dolphin.

Also, my friends down on Gulfport, when I was down there, Moby Solangi with Institute for Marine Mammal Studies, they have found six of these endangered turtles. They again can't say, hey, this is definitely oil-related, but they have been found swimming closer to the coast, potentially looking for food, because they are leaving the oil.

Another huge problem, these birds, a lot of pelicans. Folks this is nesting season. They are just covered in the stuff. I was out along New Harbor Island. You can see hundreds of these guys flying around. And, as I said, nesting season, the eggs.

So, story number one, obviously, the ramifications with the animals. But story number two, if you were watching yesterday, we had this amazing conversation with Jean-Michel Cousteau with Ocean Futures Society.

I had a couple quick screen grabs, but now we can show you the video. He was out there along with his team last week, but this video was taken just two days ago. And we were talking yesterday about so much of this story is what (INAUDIBLE) below the surface of the water.

When you see those aerial pictures and the fingers and tentacles of the oil, that is just one part of it. But underwater you see how the dispersants have broken up the oil, but it is sinking. When I was there a couple weeks ago, it was maybe two feet down, but now it seems to be going further and further into the water.

SANCHEZ: Good stuff from both of you.

By the way, I want to take a quick break, when I come back, Daniel can you stick around for just a little while longer?

STONE: Sure.

SANCHEZ: I figure you have done a lot of reporting on this. And I think the question to a guy like you is what is it that we need to do now that we weren't doing before? If this is an institutional problem, it needs to be attacked from many different directions, I would imagine. Think of that during this break, come back, give us the best answer you can.

You are watching RICK'S LIST. This is your national conversation. We are all over this gulf oil story, and we are going to be right back.


SANCHEZ: Daniel, you have been covering this as much as anyone for "Newsweek" magazine. Daniel Stone is with us and we're talking about what is not just a problem of this oil leak but what may be an institutional problem in terms of how our country, hell, our world, deals with oil and gas recovery from these places.

Moving forward, what would likely have to change as we learn from this particular experience? Can you just give us the -- the nuts and bolts of this, Daniel?

STONE: I think it is a two-part solution, here. One is the regulatory structure. Clearly one of the reasons the White House and the Department of Interior are scrambling at the moment is because something has to change with how these oil companies regulated, how they are watched.

I think we are going to see a lot of changes in that structure over the next even just several months.

The second part is bigger, and it is assessing the risk that really comes with drilling. The oil industry and places like BP have gotten very good the past several years of making the case that oil is relatively cheap, it's accessible, and the technology is so advanced that we don't really have spills anymore. That sentiment was echoed by president Obama last year.

But now we are seeing it is not so cheap, right? We're talking numbers in the billions. It's not so accessible. We're talking a mile below the surface. And it is certainly not advanced technology that can prevent anything like this from happening again. So it is really a risk assessment here.

SANCHEZ: Points well made. Daniel Stone, we thank you for sharing your perspective on this, Daniel with "Newsweek" magazine.

And from "Newsweek" magazine where do we go? Well, the obvious turn is "Rolling Stone." That's right. Will legislation on Wall Street make financing worse? "Rolling Stone's" Matt Taibbi is fired up about this subject, and he's going to be joining me in just a little bit.

And then another candidate supported by the tea party is making headlines, not the type of headlines that she wants to make. And Sarah Palin, yes, Sarah Palin may have somehow made matters worse for this candidate when she got herself involved in this sex scandal. I promise I will put it all together for you. That story coming up in just a little bit. I'm Rick Sanchez. This is RICK'S LIST. We'll be right back.


SANCHEZ: We welcome you back to your national conversation. This is RICK'S LIST. We are glad you are here.

Another tea party-backed politician is making headlines today in South Carolina, and they aren't the type of headlines she or anybody else would want. Her name is Nikki Haley, official GOP candidate for governor of South Carolina.


NIKKI HALEY, (R) SOUTH CAROLINA GUBERNATORIAL CANDIDATE: I'm the wife of a man who puts on a military uniform every day.


SANCHEZ: Haley has a problem with what she just said because a fellow Republican has come forward to say that she has not been faithful to that military man who puts on a uniform every day, her husband. He says that she had an inappropriate physical relationship with him.

That's her. That's him. Who is he? He is Will Folks, press secretary at one time to Governor Mark Sanford until a guilty plea on a domestic violence charge.

Important to know, Nikki Haley is categorically denying Folks' accusation. She says that just didn't happen.

So why is Folks going public with the allegation? Why is he saying something like that? Well, because he says that a newspaper in South Carolina was about to report it and he wanted to get ahead of the story.

Then there's Sarah Palin, who may have made things worse for Nikki Haley. How? Apparently she did so just when there was a chance this story could possibly die down.

Here is what Palin wrote on her Facebook page that may have made things worse, quote, "South Carolina, don't let some blogger make any accusation against your Nikki if he doesn't have the guts or the integrity to speak further on such a significant claim."

Well, by saying that, by writing that, did Palin just make the guy who made the allegations come forward with more information? That is how it seems to be taken. Will Folks is the person who made the original allegation. He just said "I'm going to report this because I want to get it out before a newspaper reports it."

But he also said "I'm not going to divulge any embarrassing details about this."

Now his website after the Palin Facebook entry is suggesting that he has phone records, text messages, e-mails, and voicemails. And it says, "Stay tuned."

And just as we were preparing this story, as if on cue moments ago, the website posted this picture. That is the accuser in the middle, Will Folks, right between Governor Sanford and candidate Nikki Haley. The signed inscription from Haley reads, "Will, thank you for your friendship and support."

We have got a lot to discuss and want to turn it over to a guy who is no stranger to scandals in South Carolina. You may remember Peter Hamby, CNN's political producer. He was all over the Mark Sanford story. So Peter, thanks for being with us.


SANCHEZ: I imagine that Haley, that she has been conducting interview after interview to deny this story. How many newspapers and how many TV stations has she gone on in the last 24 to 48 hours to say "I don't know what this guy is talking about?"

HAMBY: I think she did about three media interviews yesterday, radio and TV. There was a candidates' debate last night in Greenville, South Carolina. She talked to reporters again after that to just say basically there is no truth to this whatsoever.

The Haley campaign has been on the warpath against Will after he made his accusations yesterday, and the people I have talked to down there, you know, even Haley's rivals, consultants, the notoriously tribal world with of South Carolina politics, even they acknowledge that Haley at this point seems to be winning the PR battle with Will.

But as you point out, he is almost dangling these things out there to have fun with it, it seems like.

SANCHEZ: She suing for defamation, as most would expect somebody would if somebody came forward and said something about that that was not true?

HAMBY: No, not that we know of. And Will Folks, the blogger, went up with a lengthy post last night pointing out that very fact, basically saying if I'm not telling the truth, if I'm slandering this person, my attorneys haven't been contacted. And he said he has lawyered up before this.

And we have no word from the Haley campaign they are pursuing any legal action aft others that charges.

SANCHEZ: Also, she could file an injunction, for example, to get all this information removed. That is what I would do if somebody wrote something about me that was absolutely not true.

HAMBY: Right, but they haven't done that. So we don't know what is going to happen. That contributes to this uncertainty down there no one really knows who to believe.

I mean, Will is a fixture in South Carolina politics. Everyone reads his website. Like you pointed out, he was close to the Sanfords. He supports reform candidates like Nikki Haley.

At the same type, he hasn't been right all the time on his website, and he shrugs off claims he has been paid for stories by consultants. But again --

SANCHEZ: But it's a heck of thing for him to say. You heard what I just read. He says he has e-mails, he has texts, he has phone recorded messages over the phone. That stuff, either you got it or you don't got it.

HAMBY: Yes. And it's sort of curious because the Haley pushback against the story has been my critics are out to get me, this is South Carolina politics at its worst.

But again, Will Folks, he supports Nikki Haley for governor. He supports things like school choice, small government ideals, you know, this whole reform movement of South Carolina is very powerful. This is his favorite candidate. So, it's sort of interesting --

SANCHEZ: It is weird.

HAMBY: Why would he come out and attack Nikki Haley when that is his horse in the race, which is why this whole thing is uncertain.

SANCHEZ: And finally, the Sarah Palin angle in all of this. It seems like every time I turn on the TV, a network somewhere is talking about the last thing Sarah Palin said, tweeted, Facebooked, MySpaced, wrote about, said on FOX News, et cetera. The woman in omnipresent. She seems to be everywhere.

But that aside, Sarah Palin has inserted herself into this controversy in South Carolina. And it turns out as a result of that, as suggested, Will -- what's his last name, I just forgot it?

HAMBY: Folks.

SANCHEZ: Folks comes forward and said, you know what, she challenged me to come forward with information. Here is all my information and turns out to be true, how is that going to play in the Palin camp?

HAMBY: Hard to tell with Sarah page. Even the Haley folks when Palin endorsed Nikki Haley a couple of weeks with ago, it was very last minute to the point the Haley campaign only had 24 hours to put together a rally with Sarah Palin. So it is impossible to tell.

But Palin certainly did elevate this story to a national level. And the full force of the conservative blogosphere have been behind Nikki Haley in this campaign and are really coming down on Will, and it kind of helped Nikki Haley in certain ways.

I talked to a Haley adviser couple minutes ago who said just yesterday Nikki Haley had had the best fundraising day of the campaign so far. She had more online donations yesterday than this entire year.

SANCHEZ: Nothing like getting a little trouble and becoming a victim to get the people out there to back you a little bit more.

But it all depends on how it plays. And, you know, we don't know which way it is going to go. And at this point nobody knows who is actually telling the truth. But usually in cases like this, because it's so public, eventually we will know, right? You can't keep this stuff in the closet.

HAMBY: I don't know. South Carolina, you can keep a lot of things in the closet.


SANCHEZ: We will leave it at that before we get ourselves in trouble. Peter Hamden, good interview. We appreciate you digging on this and sharing with us what's going on there in South Carolina again.

All right, like a dog with a bone when it comes to finance reform, that's how some describe Matt Taibbi of "Rolling Stone." He is joining us in just a little bit. There he is, as a matter of fact.

The point he seems to be asking is -- some of these Wall Street changes, this financial reform that we are all talking about, is that really going to make things better on Wall Street or worse for guys like you and me? We will be right back.


SANCHEZ: We have two breaking stories I want to share with you before I do anything else. They are kind of quickies as far as information goes. So let me get to the first one first.

Ready? It is the FDA is investigating reports of several hundred serious side effects or adverse events and seven deaths since May 1st when there was a recall of 50 children's versions of these nonprescription medicines. They are included in the report, 30 deaths, as well, all of which were found not -- to not be tied McNeil's recall of Tylenol, Motrin and Benadryl drugs.

Back to the headline -- the Food and Drug Administration is looking into reports of at least 775 serious side effects from side effects from drugs recalled by McNeil, a division of Johnson and Johnson. You may have never heard of it, according to a source close to a Congressional investigation.

So again, there seems to be information about 775 serious side effects. It may involve some recalls we've told you about in the past, and we're trying to nail down which of these are or are not included. Again, included in the report, nearly all of which were found not to be tied to McNeil's recall of the Tylenol, Motrin, and Benadryl drugs from January 1st through April 30th.

So as the information comes out we'll give you more information. But it seems to be affecting a recall in this case.

Number two breaking story. We've just learned from the White House that they are trying to put the pressure on BP. Remember, I told you at the beginning of this news cast it was starting to look like BP might take the signal down when they actually do top kill tomorrow morning or start top kill tomorrow morning, that you won't be able to see this live as they do the actual top kill?

Well, they're getting a lot of heat from people like Markey, Ed Markey in Massachusetts, Senator Bill Nelson in Florida, and now apparently the White House is chiming in, telling them, look, keep the damn signal up. Just keep it up. It's important.

That's what we're hearing the White House is doing. We'll let you know as we get more details on this.

Now to this. You know how I feel as we have these conversations every day, and we talk about a lot of different things, you and I. But you know how I feel about conventional wisdom. As far as I'm concerned more often than not, you know, a quarter will buy you a blow pop. Conventional wisdom often will get you very little. More often than not it's more like conventional idiocy, as a matter of fact.

I want to bring in somebody who often tackles conventional wisdom as well. As you know, he works for the "Rolling Stone," Matt Taibbi. And he's writing now about this new financial reform that all of us have been reading and writing about that most have believed is the right thing to do that will salvage the situation on Wall Street and never let us have to go through what we've been through before, meaning what happened two and a half years ago.

He joins us now, and let me start -- let me start with this -- general question to you, Matt. If what they're doing is undoing the problem that led us to the meltdown itself, you know, putting back in the regulations that we needed, putting back in some of the laws we've gotten rid of, isn't that a good thing?

MATT TAIBBI, CONTRIBUTING EDITOR, "ROLLING STONE": It is, but they just didn't do enough of that. They really address add few things. There are some good things in this bill, but the really, really key thing, the big problems they left unaddressed or they did a half-measures or quarter measures, and they didn't really tackle the problems head-on.

The key things are too big to fail, they didn't really fix that problem, and they didn't really solve the derivatives issue very well.

SANCHEZ: You write about an army of banking lobbyists. You write about them offering senators and congressmen, well, you know, deals. I mean, these guys got to stay elected. What do they get in return?

TAIBBI: Well, you know, I think the number one thing you have to remember is that they get access. I think there were only -- the number one progressive reform agency organization, Americans for Financial Reform, they only had 60 volunteer lobbyists, and that's against about 1,800 paid Wall Street lobbyists that were in on this bill. SANCHEZ: Say that again. Hold on. Give us those numbers again. How many lobbyists -- how many good guys going against the bad guys? Pardon me for characterizing it that way.

TAIBBI: There were 1,800 financial services lobbyist, from what I understand, and there was really only one organization lobbying on the other side, Americans for Financial Reform, and they had 60 people, and they were all unpaid. They were all volunteers.

SANCHEZ: I bet they didn't do very well.

TAIBBI: Physically, even on the Hill -- you know, they did all right, actually. But that just shows you how they were on the right side. That's why.

SANCHEZ: So what is wrong with this financial reform legislation? What does it not do that it needs to do to make sure that what happened in 2007 doesn't happen again?

TAIBBI: Well, again, the really, really big thing was the too big to fail question. I mean, the really big issue we had in the last decade was we got these companies that were so massive, and there's so much concentrated capital that when -- their irresponsible. And when things go wrong it creates massive financial disasters that ripple throughout the entire planet.

And we didn't tackle that problem. There was an amendment that was offered by Ted Kaufman Sherrod Brown of Ohio that would have mandated the breakup of companies if they got too big, went over certain numerical, and that amendment got beat badly in the Senate.

There was also an amendment put forward by Carl Levin and Jeff Merkley from Oregon that would have restored part of the Glass-Steagle Act, keeping investment banks, commercial banks, and insurance companies separate. And that never got voted on through a very strange senatorial procedure.

So those two things didn't happen, and those are pretty important things.

SANCHEZ: They're trying to reconcile this between the House and Senate. We'll see they read your article and try and tie in some of those loose ends. Matt Taibbi, as usual, I enjoyed talking to you. Keep up the good work.

TAIBBI: Thanks, Rick.

SANCHEZ: Two big stories we're following now. The Obama administration is sending National Guard troops to the Mexican border. We've been all over that.

And the president will also be heading to Gulf coast Friday. That's new information. And we're also learning that the White House is now putting pressure on BP to try and show that streaming video of the Gulf oil spill while they do the operation tomorrow morning to try and plug it up. But first, we're going to check in on the markets, and Poppy Harlow will be there for us. There she is, as a matter of fact. Let's take a break. When we come back we'll find out how the markets did. We know it was abysmal across the world. But how did the Dow do? Stay there.