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The Situation Room

Coast Red Flags in Port Security Controversy Revealed; Civil War in Iraq?

Aired February 27, 2006 - 19:00   ET

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

WOLF BLITZER, CNN ANCHOR: Thanks very much. To our viewers, you're in THE SITUATION ROOM where new pictures and information are arriving all the time. Stand by, reporters from around the world to bring you stories. Happening now, Coast Guard red flags revealed in the port security controversy.
It's 7:00 p.m. here in Washington, will the new warning about intelligence gaps whip a storm that may have been subsiding. Tough new questions tonight from a key Senate Republican.

Plus, the powder keg in Iraq. It's 3:00 a.m. Tuesday in Baghdad where officials are alert from new violence. We'll get an update on the threat of civil war from the U.S. ambassador to Iraq.

And is Karl Rove obsessed? Hillary Clinton thinks so. It's the senator versus the strategist. Why does she think he can't stop talking about her?

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

Up first tonight, a developing story; a surprise disclosure in that Dubai port deal. It turns out the United States Coast Guard raised serious questions about security well before this issue exploded here in Washington. Only moments ago, a leading Senate Republican emerged from a classified briefing. She says now, she's more convinced than ever that the process for approving the deal was seriously flawed.

Our White House Correspondent Dana Bash is standing by, Senior National Correspondent John Roberts is as well. Let's go to Ed Henry on Capitol Hill, though, for the late developments -- Ed?

ED HENRY, CNN CAPITOL HILL CORRESPONDENT: Wolf, in a blow to the White House Republican Senator Susan Collins also declared after this classified briefing that she believes there was a, quote, "rush to judgment" by the situation in the early parts of this port deal situation. And she also said, there was not, in her words, "painstaking thorough analysis" of the port agreement.

What makes this significant is that earlier today when Senator Collins revealed the existence of this classified document, revealing Coast Guard concerns about what the Coast Guard officials called intelligence gaps in the port deal. Bush officials at this Senate briefing said they were aware of the concerns in December. They dealt with it. They got assurances from the company involved here, Dubai Ports World. And they also said if they went to a classified briefing, with Senator Collins and top Democrat Joe Lieberman, those concerns from the senators could be alleviated. But Senator Collins emerged from this briefing, after about an hour and 20 minutes, with a much different result than the administration was expecting. Take a listen.

(BEGIN VIDEO CLIP)

SEN. SUSAN COLLINS, (R), CHAIRWMN., HOMELAND SECURITY CMTE. : At the end of this afternoon's briefings, I am more convinced than ever that the process was truly flawed. That the national security and homeland security implications of this proposed transaction were such that a 45-day formal investigation, as called for under the law, should have been undertaken.

(END VIDEO CLIP)

HENRY: It's important to note that Senator Collins also expressed confidence, though, in the fact that she believes the Bush administration can now conduct a fair, thorough, 45-day review. But she noted that at the end of that process, she thinks the administration could -- could come up with a different result, Wolf?

BLITZER: Ed Henry on Capitol Hill. Thanks very much.

Let's go over to the White House where officials have been hoping they were closer to putting the port storm behind them. All of a sudden, they're now dealing with new word of that Coast Guard warning. Dana Bash, our White House correspondent, standing by with this part of the story.

What are they saying there, Dana?

DANA BASH, CNN WHITE HOUSE CORRESPONDENT: Clearly, Wolf, the White House is probably not going to be happy to listening to what the Chairman Susan Collins just had to say. And probably breathing a bigger sigh of relief than ever that they have worked feverishly behind the scenes all weekend long to make sure that they did have this extra 45-day review, despite last week saying that they didn't need one.

Now, last week, officials here did say -- did admit -- that there were early objections inside the Department of Homeland Security about this process. Last week, the president's Homeland Security adviser told us that intelligence services were involved in this particular concern that was raised. We did not know what that concern was.

But they also told us, inside the administration, that they got this letter from DPW, Dubai Ports World, giving them assurances, that's why this went through.

Now, we are told tonight, Wolf, from a senior official that the president did in fact ask questions about things like this. And he was told, in general, that Department of Homeland Security did raise early concerns, but was also told that the concerns were allayed. That before he went out and was very defiant saying he would veto any legislation to stop this.

So, that is what we know. What we don't know, Wolf, is how much specifics he was given in terms of the Coast Guard, or anything else, that was raised during this process, Wolf.

BLITZER: All right, Dana. Thanks very much.

At this hour, officials across Washington, and the nation, are digesting tonight's port deal surprise. Our Senior National Correspondent John Roberts has more on the story and the fall out -- John.

JOHN ROBERTS, CNN NATIONAL CORRESPONDENT: Wolf, this Coast Guard document was about the last thing that the officials, who were in that Capitol Hill briefing today, wanted to see come out. After all, they had insisted that no one on the Committee on Foreign Investment in the United States has raised objections about the ports deal. Now, they're up on the Hill trying to convince senators in the Homeland Security Committee that they were upcoming, this new security review would be comprehensive and complete.

(BEGIN VIDEOTAPE)

CLAY LOWERY, ASSIST. TREASURY SECRETARY: The administration will take this charge very seriously. We have heard very clearly, the concerns raised in Congress and in some of the port authorities. We will look at that transaction in that light.

ROBERTS (voice over): The 45-day investigation will begin almost immediately after DP World files a new application. Fourteen government agencies, lead by the Treasury and Homeland Security will oversee the review. The director of National Intelligence will coordinate intelligence gathering on the company to determine any further possible security concerns.

When the investigation is complete, the president will have an additional 15 days to give a thumbs up or down on the deal. As of now, only the president can make that decision, though Congress does want the final say.

Patrick Malloy helped write the original law. A concern made all the more apparent with out disclosure at that Coast Guard had problems with the deal. He's urging the administration to get a fresh start.

PATRICK MULLOY, INT'L. TRADE EXPERT: I hope they feel, within themselves, the strength to say we should not be prejudging this, let's do the investigation and see where it leads us.

ROBERTS: But will the administration do that? Listen to the national security adviser.

STEPHEN HADLEY, NATIONAL SECURITY ADVISER: The president is very clear as to where he stands. He thinks there's been a good process. He thinks there are not outstanding national security concerns that need to address, and this deal needs to go forward.

(END VIDEOTAPE)

ROBERTS: However, that review turns out, there's going to be changes going forward. Congress wants a big role in these decisions in the future and may pursue new legislation to increase oversight. And the officials in charge of making those decisions on the Committee on Foreign Investment, have been told to get a better political radar so the next time something like this comes over their transom, they'll tell the White House about it -- Wolf.

BLITZER: John Roberts, reporting for us. John, thanks very much.

To our viewers, stay tuned to CNN day and night for the most reliable news about your security.

This just coming into CNN, one of America's top 10 most wanted fugitives has now been captured. Let's go to CNN's Zain Verjee at the CNN Center; she is following the story and has details.

ZAIN VERJEE, CNN ANCHOR: Wolf, as you said, just coming into CNN, a Mexican man who is among the FBI's 10 most wanted fugitives is now under arrest in Mexico. He's wanted for allegedly torturing and killing his four-year-old stepson in Nashville back in 2003. His former girlfriend, the victim's mother, was also arrested in Mexico for an alleged role in the murder. Tonight, U.S. officials are saying that they're going to seek extradition of the suspect.

In other news tonight, we've also just learned that a group of Democratic lawmakers is calling on the president to name a special council to probe his domestic spying program. In a letter released just a short while ago, the group says administration officials, including Attorney General Alberto Gonzales, are too involved in the program to provide adequate scrutiny. The Departments of Defense and Justice have already turned down requests for independent investigations of the program.

The Texas woman who has admitted to drowning her children rejects a plea deal that would have sent her to prison for 35 years. Andrea Yates is pleading innocent by reason of insanity. Her 2002 murder conviction in the deaths of three of her five children was overturned because a witness gave false testimony. A new trial is set to begin in late March.

On a lighter note, let's take a look at this, Wolf. What you're seeing there comes out of the bushes into the garden is a mountain lion prowling around in a Los Angeles suburb today. The big cat caused something of an uproar in this neighborhood. Residents scrambled to get themselves and pets indoors. A local school was locked down for a short period of time. No one was hurt. Animal control officers, as you're seeing in the picture, tranquilized the animal, took it away and said that they're going to return it to the wild -- Wolf?

BLITZER: As long as it's not in my backyard. Thanks, very much.

Jack Cafferty is standing by in New York. He's happy it's not in his backyard in New Jersey, either. JACK CAFFERTY, CNN ANCHOR: Thank you, Wolf.

Senator Hillary Clinton says Karl Rove, quote, "spends a lot of time obsessing about me," unquote.

Clinton made the comments during a radio interview. Adding that President Bush's chief political strategist spends more time speaking about her political future than she does. She was reacting to a new book in which Rove says Senator Clinton is the dominant player on the Democratic side of the slate. He says anybody who thinks she's not going to be the candidate is kidding themselves.

Rove also adds, though, that he doesn't think Clinton can win the general election. Clinton suggested the Republicans are focusing on her to divert attention from problems within their own party as the '06 midterm elections approach.

Here's the question: Do you think Karl Rove obsesses about Hillary Clinton? E-mail us at Caffertyfile@cnn.com.

BLITZER: Thanks, Jack, very much. We'll get back to you soon.

Coming up here in THE SITUATION ROOM, Coast Guard concerns over an Arab company running some U.S. ports. There is a new development in the controversy. We're going to talk about it our "Strategy Session". Also, the Govern-ator, part three, we'll take a closer look at the latest incarnation of California Governor Arnold Schwarzenegger, and why he's changed.

Plus, the very intense situation in Iraq. Is the concern over civil war justified? The U.S. ambassador in THE SITUATION ROOM with me. Stay with us.

(COMMERCIAL BREAK)

BLITZER: Happening now, flood watches, winter storm warnings, high surf advisories in effect, a state of emergency declared in one city. We'll have the latest here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: More now on our developing story. Today's new revelation that they United States Coast Guard warned the Bush administration the Dubai port deal posed some serious risk. That's the subject of tonight's "Strategy Session".

(BEGIN VIDEOTAPE)

BLITZER: Joining us now, CNN analysts, Democratic Strategist Donna Brazile and Bill Bennett, the host of the radio show, "Morning in America."

Here's what the Coast Guard intelligence assessment said, and it was just released by Susan Collins, the chairwoman of the Senate Homeland Security Committee. She said that the Coast Guard said this, referring to the Dubai Ports World and P&O, which was the British owned company, it's buying. "There are many intelligence gaps concerning the potential for DPW, or P&O assets to support terrorist operations, that precludes an overall threat assessment of the potential merger. The breadth of the intelligence gaps also infer potential unknown threats against a large number of potential vulnerabilities."

Yet, at the same time, despite that internal Coast Guard document, they concluded, this committee that reviewed it, there were no national security concerns that justified a 45-day review, which is the law. What do you make of this, Bill?

BILL BENNETT, RADIO TALK SHOW HOST, "MORNING IN AMERICA": It's not good. As I said before, the party is riven over this, the Republican Party. And things, I think, will get worse before they get better. The only good thing is they're now giving this the 45-day review. But they should have given this the 45-day review earlier, as this Coast Guard point makes clear.

We've now got another situation where you've got some of the conservative pundits talking down to the base, saying this is negativism, we've got this kind of reaction, that's xenophobic. Not true. People are genuinely concerned. They don't understand why a country, or a set of emirates, that was heavily involved on the wrong side in the war on terror, now has flipped, should be given control of these ports, or at least the contract for these ports.

BLITZER: It seems like a lot of it -- Republicans, especially now, are turning around. Originally, a week ago, very concerned -- Bill Frist the Senate majority leader, now suggesting well it looks like it's going to be OK. Do the Democrats have the votes when all is said and done, to block this deal after 45 days of review, assuming the administration comes up with the same bottom line conclusion that it represents no risks?

DONNA BRAZILE, DEMOCRATIC STRATEGIST: First of all, Senator Schumer, today, introduced this bill. This bill will provide Congress with more oversight of these deals in the future, including this deal.

Senator Schumer has not only good Democratic support for the bill, but he picked up the support today of Senator Santorum, and Senator Coburn. So, I believe that this deal at some point will be reviewed by Congress. Whether or not this legislation moves in the next 10 days, we don't know. But there's legislation now that Congress intends to provide its own oversight of these types of deals.

BLITZER: It's clear, Bill, that Democrats would like to be critical of the administration from the hard-line national security perspective because this was an issue that the Republicans were strong on.

BENNETT: Right.

BLITZER: Listen to Senator Hillary Clinton.

(BEGIN VIDEO CLIP)

SEN. HILLARY RODHAM CLINTON, (D) NEW YORK: It raises serious concerns about who's minding the store in Washington. And what kind of leadership we need and deserve when it comes to homeland security.

(END VIDEO CLIP)

BLITZER: Can they get away with that? Can they criticize the president from the security perspective; that he's being weak-kneed on national security?

BENNETT: If they're strong and if they're careful. It's a tricky place to be. I heard governor, now Governor Corzine, talking this morning. He was very careful to say, you know I'm not being xenophobic. It's not that I suspect because it's an Arab country, you have to be very careful of this.

(END VIDEOTAPE)

BLITZER: Coming up, we're going to go back to the White House, there's fresh reaction coming in on this port deal. We're going to have that for you.

Also, other stories we're watching, flood watches, winter storm warnings and surf advisories. A major storm hits out West. We'll show you what's happening right now.

Plus, is Karl Rove obsessed with Senator Clinton. Details of why she thinks so, in her own words. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Just coming into CNN right now, reaction from the White House, the Bush administration on the latest that the U.S. Coast Guard raised some serious concerns about the Dubai Port Deal. Let's go to our White House Correspondent Dana Bash.

Dana, what do they say?

BASH: Wolf, a little more pushback, if you will, from the White House. The same kind of thing you and I were talking about a short while ago.

Essentially trying to make the point that these Coast Guard documents that the Chairman Senator Susan Collins revealed today on Capitol Hill are just a snapshot in the long process, or the 30-day process, that ended in approving this particular deal.

Scott McClellan the White House spokesman, tells us there was a broader intelligence community assessment done as part of the review that addressed such questions. And there were no unresolved national security issues at the end of the process.

Another senior official telling us that the DNI, the director of National Intelligence, also strongly recommended going forward with this transaction. So, they're trying to put this in a broader context about the process here. But, if you note, Ed Henry, earlier today said, that it was the process itself that the senator was criticizing after going into a closed, classified session talking about this very issue, Wolf.

BLITZER: Here's what I don't understand, Dana, if the administration says it's not Dubai Ports World that's going to be in charge of security. It's the Coast Guard that's going to be in charge of the security. And now there's documentation the Coast Guard is raising alarm bells about intelligence gaps and security. What are we to believe?

BASH: Here's what they're saying, they're saying, what we saw are not necessarily alarm bells -- or maybe they are alarm bell, but they say that they were early alarm bells. Or more specifically they would probably characterize them more as questions about the process. Questions about how this would work in the future; that were going on early in this review process.

And these were specific questions that the Coast Guard asked, but they do insist that these were questions that were answered and concerns that were allayed. Otherwise, this wouldn't have gone through. That's the case that they make of the administration.

Of course, it had to be unanimous. The way the process works is, all of the agencies on this panel have to agree in order for it to go forward. Otherwise, they would have extended the review, which, of course, has been part of the debate for the past week and a half or so.

BLITZER: I'll be anxious to hear some Coast Guard reaction when you get it, Dana. Let us know specific Coast Guard reaction. We're going to follow the story.

We're also following another developing story tonight, people in parts of north California are piling up sandbags in fear of flooding as heavy rains drench the region. Flood watches, winter storm warnings, high surf advisories are posted over large portions of the state. Our Meteorologist Jacqui Jeras is live at the CNN Weather Center with more on what's going on.

What is going on, Jacqui?

JACQUI JERAS, CNN METEOROLOGIST: Well, Wolf, it's the Pineapple Express. And it's kicked into high gear, bringing ample sub-tropical moisture into the West, in particular, across parts of California.

The rain has been steady and heavy through much of the day. We've seen on average one to three inches on some of the heavier bands that have pushed through. Some of the worst of the conditions in the western portion of Nevada, in the town of Sparks, right along the Trucky (ph) River there, the mayor has declared an emergency there. The river is expected to push out of its banks by tomorrow morning. If we continue to get the heavy rain pulling in here, we could see as much as 12 inches of water move into the lower streets of those towns.

Another area getting hard at this time is San Francisco Bay Area. They're under an urban and small stream flooding advisory. So expecting to see some street flooding. There you can see, beside me, a picture of the Golden Gate Bridge, with those wet streets and very overcast conditions.

How much rainfall can we expect? Well, quite a bit in the next 24 hours. Two to five inches in all of this red and orange area. Up in the mountain, we'll see the snow. But, wolf, the snow levels are very high at 8,000 feet. So below that it's still rainfall. That's going to slide down the mountains. That's why we're very concerned about the threat of mudslides and landslides.

BLITZER: Jacqui, thank you very much.

Just ahead in THE SITUATION ROOM my interview with the Zalmay Khalilzad, the United States ambassador to Iraq, talks about the rash of violence in the country and gives his own assessment on whether Iraq will spin itself into a civil war.

Also, Arnold Schwarzenegger, the sequel. The California governor is running for re-election. But will enough of his political fans show up to support him? Stay with us.

(COMMERCIAL BREAK)

BLITZER: My interview with U.S. Ambassador Zalmay Khalilzad, the point man in Baghdad. That's coming up. First, let's check in with CNN's Zain Verjee with other headlines around the world.

VERJEE: Wolf, the European Union is turning up pressure on Serbia to deliver one of the Balkans most want war crimes fugitives. The EU says Serbia had one month to arrest Ratko Mladic and turn him over to The Hague to be prosecuted. Otherwise European officials say Belgrade could risk seeing it's bid to join the EU slowed or even suspended. Renegade members of the Serbian security forces are though to have been shielding said to be shielding Mladic, wanted for war crimes and crimes against humanity, from capture.

British authorities are holding five more suspects in connection with that record-setting heist last week. Investigators say the thieves netted some $92 million in currency when they raided a cash depot near London. A little over $2 million of the loot has been recovered. Police say the robbery was the work of organized crime. They've arrested 11 people so far and still are still searching for a truck they believe transported much of the cash.

And there's a new plot twist in the odyssey of the best-selling novel "The Da Vinci Code." Dan Brown, the book's author, was in a London court today to face allegations that he lifted the idea of his conspiracy thriller from a 1982 non-fiction novel. The authors of that book have filed suite to bar the use of their material. Now, the case could hold up the scheduled May release of the film version of "The Da Vinci Code." Wolf?

BLITZER: Zain, thank you very much. Zain Verjee reporting.

In Iraq today pocket of violence pierced the relative calm despite curfews and other measures. This after last week's bombing of the sacred Shiite shrine.

Just a short while ago, I spoke with United States ambassador to Iraq, Zalmay Khalilzad. He told me Iraq was on the brink of a civil war only a few days ago, but he insists the risk of civil war now is over.

I also asked the ambassador if the U.S. military has received new orders to beef up its presence.

(BEGIN VIDEOTAPE)

ZALMAY KHALILZAD, U.S. AMBASSADOR TO IRAQ: What we have done is that as a result of this crisis, we are increasing the number of patrols that we are running in the mixed areas of Baghdad. And several neighborhoods where we have traditionally not been welcome, the Sunni Arab strongholds, the leaders there are asking for our help, for the coalition presence. There is a significant change in attitude there in recent months, and this crisis has further accelerated that process.

And we are doing more patrols. The last few days, a number of patrols that we're doing in those neighborhoods have gone up to -- anywhere from 250 to 300. The second night, we were running only 60 such patrols.

So there are changes in the way we are operating as a result of this crisis.

BLITZER: There are some who say that even if you patch things up in the short term, the animosity now between the Shiites, the Kurds, the Sunnis is so great that inevitably, Iraq is going to split up into separate regions -- a Shiite country, a Sunni country, a Kurdish country. And some are even saying, what's so bad about that? It happened in the Balkans. What would be so bad if Iraq broke up into separate countries?

KHALILZAD: Well, the Iraqis tell me they don't want that, that they want to build a democratic country. There is, of course, the fundamental problem of competition for political and economic power between sects and ethnic groups. But the answer to that at the present time is for Iraqis to come together to get an agreement, a national compact on the future path. We've made some progress. Sunnis did not participate in the political process earlier. They did in the last elections. Now, the answer to the effort to provoke a civil war is a national unity government with unity program, with competent ministers, and a good process for decision-making.

And I believe once that government is formed, the risk of successful efforts at provoking a civil war will diminish. Right now, they are particularly vulnerable because a government of national unity is not in place, and there are disagreements on the issue of power and economic resources among the various communities.

BLITZER: Mr. Ambassador, many observers think the Saddam Hussein trial, which resumes tomorrow, has become a circus, has become a joke. Ayad Allawi has told me that, the former interim prime minister of Iraq. You must be so disappointed in the way this trial has unfolded.

KHALILZAD: Well, this is an Iraqi process. We're helping, but Iraqis are running it. The changes that have been made in the court with the new judge, has got a lot of support. There's positive resonance here among the Iraqis. But this is an Iraqi process. And they're trying to do the best they can in a very difficult -- in a very difficult situation.

BLITZER: We're almost out of time, Mr. Ambassador, but Jill Carroll, the American journalist who is being held hostage. You suggested earlier that you know and the Ministry of the Interior in Baghdad knows where she is and that she's OK. Update our viewers on what exactly you know.

KHALILZAD: Well, I don't know where she is. If I did, we would be there liberating her. The minister of interior was reported to have said that he knows where she is and that she's alive. It was also reported that he said that she will be released soon.

Now, we're doing everything we can to find her and to release her, to gain her freedom. But she is, obviously, in a very dangerous situation, and we'll persist in doing all that we can to gain her freedom.

BLITZER: Mr. Ambassador, thanks for spending some time with us here in THE SITUATION ROOM.

KHALILZAD: Well, it's nice to be with you, Wolf.

(END VIDEOTAPE)

BLITZER: Pennsylvania Democratic Congressman John Murtha is highly critical of the administration's handling of the war. The decorated Vietnam veteran previously called for a phased U.S. troop withdrawal from Iraq. Earlier today here in THE SITUATION ROOM, Murtha responded to Iraq's recent days of sectarian rage.

(BEGIN VIDEO CLIP)

REP. JOHN MURTHA (D), PENNSYLVANIA: We're caught in between two factions inside the country fighting for supremacy. And there's no way we can take sides. There's no way we can win. We -- the only answer is, since we've become the targets and we're uniting them against us -- al Qaeda is a very small proportion of what's going on in Iraq. The Iraqis themselves are the ones that are creating the disturbances, and have got to settle it themselves.

(END VIDEO CLIP)

BLITZER: Up ahead, Hillary Clinton and Karl Rove. Is there an element of obsession? Details of what she said. And that's raising some eyebrows.

Plus, he's the same Arnold Schwarzenegger but it seems like a new governor. Our senior political analyst Bill Schneider is in the Golden State, and he's reporting on what's going on. (COMMERCIAL BREAK)

BLITZER: Welcome back. Now, you can listen for yourself to the new and provocative words from Senator Hillary Clinton. As we told you, she says the Deputy White House Chief of Staff Karl Rove is obsessed with her. CNN's Adaora Udoji is joining us now from New York with more on this story -- Adaora.

ADAORA UDOJI, CNN CORRESPONDENT: Well, Wolf, Karl Rove and Senator Hillary Clinton are not mincing any words, and the timing is interesting, as the Democrats and Republicans not only start gearing up for midterm elections this year, but also start planning for the looming 2008 presidential election.

And of course the big question is, will Clinton run? Rove thinks so.

(BEGIN VIDEOTAPE)

UDOJI (voice-over): Senator Clinton plays down talk about her potential run for president. But Karl Rove does not. And not surprisingly, he's got (INAUDIBLE) opinions about it. In a new book, the president's chief political strategist is quoted as saying, anyone who thinks Clinton is not going to be the Democrats' 2008 presidential nominee is, quote, "kidding themselves." But he contends there is a quote, "brittleness" about her that could doom her in the general election.

In a radio interview, Clinton said she is busy running for re- election to The Senate. And she says Rove is way too busy talking about her.

SEN. HILLARY CLINTON, (D) NEW YORK: I know that the Republicans are out there trying to get yet another candidate in against me. I Karl Rove says a lot of -- Karl Rove spends a lot of time obsessing about me. He has people to the White House. He sends out e-mails. He spend more time thinking about my political future than I do.

Senator Clinton has been an increasingly vocal critic of the president and his administration. Even on this issue, she managed to work in a few digs when explaining her theory about Rove's alleged obsession.

CLINTON: Why are they spending so much time talking about me? Is it to divert attention from their own problems and from their continuing plans of implement this really ill-thought out, ill-advised agenda?

(END VIDEOTAPE)

UDOJI: We're still trying to get a response from Clinton's comments from Karl Rove. No word back yet from the White House. This may be just the beginning, Wolf, of a Rove-Clinton feud that would, of course, only intensify as we get closer to 2008. Wolf.

BLITZER: Adaora, thank you very much. Tonight, another big name politician with big-time baggage. That would be Arnold Schwarzenegger. He's been shmoozing with his fellow governors here in Washington. But at the same time the California Republican is in the midst of a makeover back home.

Our senior political analyst Bill Schneider is joining us from California. Bill?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Wolf, you know how movies have sequels? Well, do so governors. You might call this one Schwarzenegger Three.

(BEGIN VIDEOTAPE)

(voice-over): Governor Schwarzenegger take one, 2004. Arnold the conciliator worked with Democrats to reform state finances. A hit. Take two, 2005. Arnold the fighter. Picked fights with unions and Democrats over ballot measures. And lost. Flopper-roo. Take three, 2006. Arnold the builder

GOV. ARNOLD SCHWARZENEGGER, (R) CALIFORNIA: we can't just fight. We must build.

SCHNEIDER: A huge new public works program, $222 billion for highways, schools, bridges. It's big, it's bold. But will it be a blockbuster?

California has learned small is not beautiful.

S: We cannot be infrastructure isolationists and say that if we don't build it, they won't come.

SCHNEIDER: Rebuilding California should appeal to a bipartisan audience.

SAL ROSSO, REPUBLICAN POLITICAL CONSULTANT: I think he's trying to get both parties on the same page to say, look, California infrastructure needs bipartisan help.

SCHNEIDER (on camera): Governing California requires coalition building because it's really two states. In dream begin responsibilities, the poet Delmore Schwartz once wrote. Coastal California is the land of dreams, where Arnold Schwarzenegger realized his dream of fame and fortune. It's a blue state, liberal and democratic and it turned against the governor last year.

Inland California is the state of responsibilities. It puts food on the table. It's a red state, hard-working and conservative. And it worries whether Governor Schwarzenegger will turn away from them.

(voice-over): But a conservative revolt that was supposed to take place at the California Republican convention last weekend fizzled. Since the governor fought for them last year and lost, conservatives decided to keep their differences all in the family.

TOM MCCLINTOCK, (R) CALIF. LT. GOV. CANDIDATE: There are always political differences within a family. I don't agree with my wife on absolutely everything, but I still love her. I don't agree with the governor on absolutely everything, but I still support him.

SCHNEIDER: Maybe President Bush has written California out of his screenplay, but this is my picture, the governor he said on "Meet the Press."

SCHWARZENEGGER: I will run as an Arnold Republican.

(END VIDEOTAPE)

SCHNEIDER: What's an Arnold Republican? A bold problem solver. That's a story line that could win Governor Schwarzenegger the only Oscar that counts, best chance to get re-elected.

BLITZER: Bill Schneider from L.A. Thank you very much.

There are signs of change in the U.S. housing market after an unprecedented boom. Ali Velshi joining us from New York with "The Bottom Line." Ali?

ALI VELSHI, CNN CORRESPONDENT: Once again, Wolf, numbers released by the government today suggests more evidence that the housing boom is slowing down. But that and five bucks will get you a fancy cup of coffee like this.

(BEGIN VIDEOTAPE)

VELSHI: The question on every home buyer's mind, are house prices coming down? The question on every home seller's mind, are house prices coming down? Despite everything you've heard about the housing bubble bursting, the answer, surprisingly, is no. At least not for now.

KATHY BRADDOCK, REAL ESTATE CONSULTANT: We see a great stabilization in prices which is very different than a year ago where every time you turned around you felt like the market had just spiked again.

VELSHI (voice-over): The median price of a new single-family home in January was $238,000. Home prices increased about 7.5 percent last year. That's better than the average of the last five years.

Sounds good, right? Check this out. For the second month in a row, fewer homes were actually sold than in the same month a year earlier. Home sales were down more than 10 percent in the South and Midwest. In the Northeast, down a whopping 15 percent. Sales were up in the West, just to throw you pessimists off.

BRADDOCK: But are houses are staying on the market longer to sell than maybe a year ago in those markets? Yes. Are people surprised? Yes. Is that more the norm of what real estate should be doing? Yes.

VELSHI: There were more than half a million homes for sale in America in January. That's the highest ever. America has been building a lot of homes to keep up with this market. There's a little excess fat to burn off right now. (END VIDEOTAPE)

I haven't answered the question, are house prices coming down. It seems to me that that depends on where you live in this country. It's going to take some local homework to find out weather the house that you're planning on buying or selling is getting affected, Wolf.

BLITZER: Good advice, Ali. Up ahead here in THE SITUATION ROOM, battered and bruised, but the good times are rolling in, in spite of all the things that have happened in New Orleans. How safe is it? We'll take you live to Mardi Gras.

Plus, do you think Karl Rove obsesses about Hillary Clinton? It's our question of the hour as well and Jack Cafferty is standing by with your email.

(COMMERCIAL BREAK)

BLITZER: Tomorrow marks the culmination of New Orleans carnival season Mardi Gras. By all accounts the scaled back celebration in the wake of Hurricane Katrina has been a success, thanks in part to the city's police department. CNN's Chris Lawrence is live on the scene for us with more. Chris.

CHRIS LAWRENCE, CNN CORRESPONDENT: Wolf, this may be the biggest understatement of the year but people are drinking a lot on Bourbon Street. Everybody is having a really, really good time. You can take a look behind me, you know, just miles of people just packed out there, lining the balconies, throwing the beads down, everything like that. People are, for at least a few days, right here on Bourbon Street, you almost forget that Hurricane Katrina happened.

We talked to several people who lost their homes, live in Mississippi, live in other parts of Louisiana. They lost their home. They're living in trailers. But they came out to Mardi Gras for two, three, four days, just to kind of forget about it, just for a few days before they have to go back to reality on Wednesday -- Wolf.

BLITZER: Chris Lawrence in New Orleans, thanks very much.

Let's find out what's coming up right at the top of hour. Paula Zahn standing by. Hi, Paula.

PAULA ZAHN, CNN ANCHOR: Hi, Wolf. And for folks that are counting, that's about nine minutes from now.

We have a new development in an ongoing CNN investigation. I'll be talking with a man who says his wife died because she got a pedicure and ended up picking up an infection at the salon. How could a trip to the beauty salon potentially threaten your life?

And have you ever wondered what you would do if a robber pulled a gun, a knife, or even a blow torch on you? We've got some incredible pictures and an expert's advice, so hopefully, you'll know exactly what to do if you are ever faced with what we just witnessed on videotape. Really fascinating stuff, Wolf. I don't know... BLITZER: Amazing.

ZAHN: ... if any of us would have the presence of mind to do what our expert tells us to do tonight, but we'll let folks out there be the judge of that.

BLITZER: Thanks, Paula. Thank you very much. Jack Cafferty is in New York as well. He's standing by with "The Cafferty File" -- Jack.

CAFFERTY: Senator Hillary Clinton says Karl Rove spends a lot of time obsessing about me. That's a quote. She was reacting to a book in which Rove says that Senator Clinton is the dominant player on the Democratic side of the slate. The question we're asking is, do you think Karl Rove obsesses about Hillary Clinton?

Jay in Albuquerque, New Mexico -- "I think he's playing Republican politics, trying to put the story on her and take it away from Iraq, Scooter, the ports deal, et cetera. Right now, they don't want to scare the American public with terrorist threats because of the port deal, so how about trying to scare us about Hillary? It's all very transparent if you ask me." Excuse me.

M. in Riceville, Tennessee -- "I'm no great fan of Hillary Clinton, but God love her, she just might be the one person who could cause Karl Rove to tear the rest of his hair out. Hopefully, by his grabbing it with his hot little hands and just pulling it out."

Dave in Florence, South Carolina -- "Karl Rove obsessed with Hillary? Probably the greatest understatement of the political season. I suspect she gives him nightmares while sleeping and hallucinations when he's awake."

"Of course Karl Rove obsesses over Senator Clinton," writes Gene in Greenberg, Pennsylvania. "Perhaps this is why the White House got caught flat-footed over Portgate."

Jerileah in Ridgecrest, California -- "Nothing would boil the Bush family more than to see the Clinton family moving back into the White House and have to turn over the keys to Air Force One. One must admit the humor of it is delightful. Karl Rove would require a paramedic."

And Monty in Vancouver writes -- "No, I think Hillary Clinton obsesses about Hillary Clinton." Wolf.

BLITZER: Jack, see you tomorrow. Thanks very much.

Still ahead, identity theft. Americans lose millions of dollars each year. Can technology help stop that? We're going to show you what the future may hold.

Plus, rare footage from the National Archives, available to all of us now. Our Internet reporter is going to show you what's going on online.

(COMMERCIAL BREAK)

BLITZER: Our series, "Welcome to the Future," resumes this week with a focus on security. CNN's Miles O'Brien shows us the future of fighting identity theft in this CNN "Security Watch."

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: It was worse if somebody had just taken money from my purse, because it made me feel that they were taking me.

UNIDENTIFIED FEMALE: For me, the cost of being a victim of identity theft was more than monetary. I'd always been pretty trusting and felt that everything was under control. And suddenly, I started to suspect all people with whom I normally do business. I mean, those people have all kinds of information about you. You know? The technological fixes that I've heard of don't really reassure me that my privacy wouldn't be invaded far more than I would be willing to have it invaded.

MILES O'BRIEN, CNN CORRESPONDENT (voice-over): Barbara is not alone. In fact, American consumers lost nearly $57 billion last year to identity theft. When it comes to protecting our personal security, what hope can technology offer?

UNIDENTIFIED MALE: This device is a smart card reader.

O'BRIEN: Meet Reid Gough, dean of technology at Davenport University in Michigan.

REID GOUGH, DAVENPORT UNIVERSITY: Biometric security is one way to stop identity theft. The physical characteristics that identify who you are is a lot harder to steal than a credit card number.

O'BRIEN: Technology already in place include iris scans, palm geometry readers, facial recognition, and fingerprinting tools.

GOUGH: The next line of defense is trying to identify those who unique physical characteristics of an individual that are very hard to replicate. Veins in your hands, looking at the inner ear.

O'BRIEN: But are we all ready to divulge that much personal information?

GOUGH: If we think that we live in a private world, we don't. What we need to do now is just to make sure that the information we do have is secure.

(END VIDEOTAPE)

BLITZER: Stay tuned to CNN day and night for the most reliable news about your security.

The landing on the moon. The Japanese surrender in World War II. Access to any of this rare footage would take a visit to the National Achieves here in Washington, at least until now. Our Internet reporter Jacki Schechner is here to explain -- Jacki. JACKI SCHECHNER, CNN INTERNET REPORTER: Well, Wolf, it's not as historic as landing on the moon, but it's certainly a pretty big deal to the folks at Google Video and the National Archives. They've entered into a partnership to put 103 historical films online. You can take a look at the Apollo 11 landing from 1969. You can also take a look at this. It's from 1894. This is Carmencita. She's a Spanish Gypsy dancer. There's also Orson Welles, talking about his historic reading of H.G. Wells' "War of the Worlds," and whether or not there is actually life on other planets. So full archive at the pilot project. They've got tens of thousands of videos, and both organizations told me today, Wolf, they're very excited for more to come.

BLITZER: I'm going to go take a look at it right after the show. Thanks very much, Jacki, for that.

And to our viewers, don't forget we're here in THE SITUATION ROOM weekdays, 4:00 to 6:00 p.m. Eastern, back at 7:00 p.m. Eastern for an hour. Until tomorrow, I'm Wolf Blitzer in THE SITUATION ROOM. Let's head over to Paula Zahn. She's standing by in New York -- Paula.

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