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Tony Snow Interview; Stocks Falling; Castro No Longer in Charge?

Aired July 26, 2007 - 17:00   ET


WOLF BLITZER, HOST: And to our viewers, you're in THE SITUATION ROOM.
Happening now, stocks drop like a stone. Wall Street worries about housing, credits and investors running for the exits.

Democrats take aim at top guns in the Bush administration. They want a perjury investigation for the attorney general, Alberto Gonzales, and they slapped the White House political adviser, Karl Rove, with a subpoena.

Also, Fidel Castro is no longer in charge. The other Castro is. And that brother, Raul, is offering a deal to the United States -- with one big condition.

I'm Wolf Blitzer.


U.S. stock markets took a very, very big tumble. After markets reached some dizzying heights recently, the air got too thin for many investors and for most of the day there was a frenzied selling on Wall Street.

Let's go live to Mary Snow.

She's watching all of this in New York -- Mary, what was behind this dramatic fall?

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, what prompted it -- there were some red flags raised about lingering concerns. It triggered a sell-off. At the closing bell, the Dow closed down 311 points.


SNOW: (voice-over): It was jitters about the housing market and people borrowing money that sent stocks tumbling -- a roller coaster ride with the Dow at one point dropping more than 400 points.

And investors are wary.

UNIDENTIFIED FEMALE: Yes, I'm concerned because I work on Wall Street. So, obviously, it's kind of scary because it just kind of, you know, one minute everything is -- you know, the market is rallying and then all of a sudden you turn around and everything's down. JAMES AWAD, AWAD ASSET MANAGEMENT: The market today is worried about debt. It's worried about consumers who have borrowed, about the people who lent them that money and -- and whether they'll ever get repaid.

SNOW: The housing market is at the center of those worries. For months, there have been ongoing concerns about loans made to people with bad credit. But now, even those with good credit are having trouble paying their bills. On top of that, sales of homes in the U.S. continue to drop.

AWAD: It all emanates from the housing market because the one place you would have to say there was the most excess as a result of the abundance of cheap money was in housing.

SNOW: The money was cheap because it was easy to borrow. Interest rates were low, housing prices increased and consumers refinanced their homes to access cash. But with the housing price slowdown, homeowners are running out of money.


SNOW: And consumers who run out of money stop spending, and that's the big concern for the economy -- Wolf.

BLITZER: All right, Mary, thanks very much.

The two -- at least two of the top figures in the Bush administration may be in some trouble. The attorney general, Alberto Gonzales, facing a possible perjury investigation, and the White House political adviser, Karl Rove, has been slapped with a subpoena.

Powerful Democrats want a special counsel to look into Gonzalez's testimony on the president's domestic surveillance program and the firing of federal prosecutors. And they want grill Karl Rove about the dismissals of those eight U.S. attorneys.

Our White House correspondent, Suzanne Malveaux, is standing by.

But let's go to our justice correspondent, Kelli Arena, first -- Kelli tell our viewers what this is all about.

KELLI ARENA, CNN JUSTICE CORRESPONDENT: You know, Wolf, this is the most serious allegation yet against the attorney general. Democrats say that he misled Congress under oath.


ARENA: (voice-over): The fight is about the NSA's super secret warrantless surveillance program and what Gonzales has told Congress about it.

SEN. CHARLES SCHUMER (D), NEW YORK: Did tells the half truth, the partial truth and everything but the truth.

ARENA: Gonzales originally testified back in 2006 that there was no major dispute within the administration about that NSA program. But later testimony contradicted that.

Former Deputy Attorney General James Comey testified that he was ready to quit over it, as was the FBI director.

JAMES COMEY, FORMER DEPUTY ATTORNEY GENERAL: I prepared a letter of resignation.

ARENA: Comey testified that when he objected to parts of the program, Gonzales went over his head and pressured then Attorney General John Ashcroft to sign off on it while he lay sick in a hospital bed.

Gonzales insists that he would never take advantage of a sick man.

ALBERTO GONZALES, ATTORNEY GENERAL OF THE UNITED STATES: We would not have sought, nor did we intend to get any approval from General Ashcroft if, in fact, he wasn't fully competent to make that decision.

ARENA: Gonzales went to the hospital just after a high level meeting at the House with Congressional leaders. Gonzales says that meeting was not about the NSA program, but about "other intelligence activity.

But several individuals who were there say it was the NSA program that was discussed. And today, FBI Director Robert Mueller indicated that's what Gonzales rushed to the hospital to talk to Ashcroft about, just after that White House meeting.

ROBERT MUELLER, FBI DIRECTOR: The discussion was on a national -- an NSA program that has been much discussed, yes.


ARENA: Now, to get at the truth, Democrats want the solicitor general to appoint a special counsel to investigate whether the attorney general misled Congress or perjured himself.

Now, Gonzales says he stands by his testimony -- Wolf.

BLITZER: All right, Kelly, thanks very much.

The White House is under fire tonight on another front, as well. Democrats are leading the charge. Certainly, it's continuing.

Let's go to our White House correspondent, Suzanne Malveaux.

She's watching this.

The president's under a lot of pressure now on two fronts.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Really, it's a one-two punch. And the Bush administration, Wolf, is really firing back.

What was very telling today, President Bush traveling with Pennsylvania Senator Arlen Specter of Pennsylvania a Republican. They go to Philadelphia together. And he is aboard Air Force one as a guest. He goes to the back of the plane, talks to the press and simply blasts the attorney general, Alberto Gonzales, saying that the hearings were "devastating," in his words, that the president is keeping Gonzales out of loyalty.

These things he is saying while he's with the president. But it's also telling when he was back in Washington, he did not go so far as to back the Democrats' call for this perjury investigation. And White House officials believe that is a good sign that, perhaps, the Democrats are overplaying their hand -- Wolf.

BLITZER: What about the subpoena of Karl Rove?

What are they saying there about that?

As you know, and our viewers know, a lot of Democrats have been going after Karl Rove for some time.

MALVEAUX: The White House is -- is a bit more confident when it comes to Karl Rove and the case again him. They believe that they have a firm principle here that they're standing on -- executive privilege, essentially protecting the president's private conversations with his advisers. They stand by that.

Of course, as you know, Wolf, there's also politics that's playing out here, as well. They are trying to get the upper hand on the debate, so they're trying to paint members of Congress as really being unreasonable. We heard from Tony Fratto earlier today, saying every day this Congress gets a little more out of control -- a new call for a special prosecutor, a new investigation launched, a new subpoena issued, an unprecedented contempt vote and an old score somehow settled -- all the while appropriation bills go unpassed and FISA modernization, energy and other important issues go unaddressed.

So they are trying to paint Congress as really a do nothing Congress, trying to put the criticism back on them -- Wolf.

BLITZER: Thank you very much for that.

Suzanne Malveaux at the White House.

This note. We're going to get reaction from the White House press secretary, Tony Snow.

He's standing by live.

He'll be joining us here in THE SITUATION ROOM shortly.

Joining us now is Jack Cafferty with The Cafferty File -- hi, Jack.

JACK CAFFERTY, CNN CORRESPONDENT: How dare those pesky Democrats want to know if the attorney general of the United States is committing perjury in their presence? The number of National Guard troops deployed along the U.S.- Mexican border will be cut in half next month from 6,000 down to 3,000. President Bush, you may recall, ordered the troops to temporarily help the Border Patrol more than a year ago and this cutback is actually scheduled to happen after one year.

The National Guard has allowed the Border Patrol agents to get back to patrolling the border. The soldiers have been manning radios, repairing vehicles, helping to bill the roads, fences and they've also assisted at border observation posts.

Officials say cutting down on these National Guard troops will hurt the Border Patrol's efforts to decrease illegal immigration into this country. It will mean fewer bodies out there on the front lines to deter and report intrusions along our border.

Meanwhile, a Tucson-based immigrants rights group says that it's glad the number of troops is decreasing, that the presence of those soldiers created a hardship for Mexicans who want to enter our country illegally.

Now ain't that a crying shame?

This is happening at the same time that a judge ruled Hazleton, Pennsylvania, cannot enforce the laws it passed to try to deal with its own illegal alien population.

So we're reducing security at our borders and rendering local cities and towns helpless to deal with the illegal alien problem on their own. This is your government at work.

Here's the question -- is now the time to reduce the number of National Guard troops patrolling along the Mexican border?

E-mail or go to -- Wolf.

BLITZER: They need a lot of guys, though, in Iraq, the National Guard.


BLITZER: They're serving up to a year at a time right now. I guess there's a limited number of them.

CAFFERTY: Yes, and a lot of the National Guard equipment, apparently, has been shipped over there, too. We found that out, I think, back when Katrina hit and they were scrambling around trying to find equipment to -- to aid in the rescue efforts and a lot of it wound up in Iraq.

BLITZER: And a lot of it is never going to come back. They're just going to keep it there and at some point hand it over to the Iraqis.

All right, Jack, thanks very much for that. CAFFERTY: Sure.

BLITZER: Still to come, football star turned soldier Pat Tillman died by friendly fire in Afghanistan. Now the trail of blame for the misinformation mess that followed is leading to one retired U.S. general.

Atlanta Falcons quarterback Michael Vick makes his first appearance to face dog fighting charges. We're going to tell you what happened in the courtroom just a little while ago. Our Brian Todd is there.

And just ahead, the Bush administration taking heat from a lot of angles. We're going to get reaction live from the White House press secretary, Tony Snow. He's standing by.

Stay with us.



BLITZER: Earlier we told you about a suggestion that there's been some sabotage involving NASA. Now there's another story emerging -- allegations of drunk astronauts.

John Zarrella is watching both of these stories for us.

First, John, on these allegations of drunk astronauts, what's going on?

JOHN ZARRELLA, CNN CORRESPONDENT: Wolf, "Aviation Week" magazine is reporting that they've gotten their hands on a panel report that's scheduled to be released tomorrow afternoon that says that at least -- on at least two occasions, astronauts were allowed to fly -- that flight surgeons cleared them to fly even though the flight surgeons and other astronauts warned that these astronauts were so intoxicated that they posed a flight safety risk, but that they were allowed to fly.

The panel also is reporting, according to "Aviation Week," "heavy use of alcohol" by astronauts within 12 hours of launch.

I can tell you that I spoke with some former astronauts today who said it absolutely is an incredible story, that nothing like that, they said, ever happened on their watches, and they would certainly like to see evidence to this effect.

Again, NASA is going to hold a press conference on that tomorrow -- Wolf.

BLITZER: Well, let me just get this straight. Just before these astronauts were ready to take off and head up into space, they were drunk?

Is that the allegation? ZARRELLA: That is apparently what the allegation is, that within 12 hours of launch, that there was heavy use of alcohol by astronauts and that, at least on two occasions, they were allowed to fly after flight surgeons and other astronauts warned that they were "so intoxicated they'd pose a flight safety risk."

This is being reported today by "Aviation Week" magazine.

And there's a press conference scheduled tomorrow afternoon by NASA to address some of this.

This panel was set up -- that apparently uncovered these findings -- was set up in the wake of the Lisa Nowak incident back in February -- Wolf.

BLITZER: John Zarrella watching this incredible story for us.

I guess I don't know what's worse, these astronauts showing up allegedly drunk or authorities actually allowing them to fly off into space with that kind of alcohol blood level.

All right, John, stay on top of this.

We're going to check back with you for more information.

John Zarrella covers NASA, among other subjects, for us.

Other news, well, with Democrats demanding a perjury probe of the attorney general and slapping a subpoena on the president's top political adviser, let's get some reaction now from the Bush White House.

Joining us now, the press secretary, Tony Snow -- Tony, thanks very much for coming in.


BLITZER: Here's what the chairman of the Judiciary Committee, Patrick Leahy, said about this decision to go ahead and subpoena Karl Rove for testimony because he doesn't want to come voluntarily.

Listen to this.


SEN. PATRICK LEAHY (D), VERMONT: The list was compiled based on input from the highest political ranks in the White House, including Mr. Rove and Mr. Jennings, and today, I will subpoena Mr. Rove and Mr. Jennings.


BLITZER: At issue, the firing of those prosecutors and Karl Rove's role -- if he had some -- in that.

What's wrong with the Judiciary Committee engaging in what their constitutional requirement is -- oversight of these kinds of matters?

SNOW: Well, first, we will respond in due course to the request from Senator Leahy.

But let me point out that we have actually made Karl Rove available to that committee under conditions where he's going to tell the truth. We've made everybody available. We made available every key person at Department of Justice. We've made available 8,500 pages of documents. We've made available dozens of people who have testified.

You may recall that -- it looks like there was always a sense of expectation of trying to play got you. Kyle Sampson comes, we're going to get him now. Monica Goodling comes, boy, that's going to be the showdown.

The fact is, nothing untoward took place. The president is perfectly free to replace those who serve at his pleasure --

BLITZER: But, Tony, the Democrats point out that the conditions in which you've made Karl Rove and others available are simply unacceptable. They wouldn't be under oath. They couldn't even take -- do a transcript, have a record of what -- of what he was testifying about, and that's simply unacceptable.

SNOW: Well, it's unacceptable because they -- they understand perfectly well, number one, you testify before Congress, you're under a legal obligation to tell the truth.

Number two, you don't have a transcript, you can ask him to repeat every sentence and write it all down. They would have perfect access to all of the facts.

What it appears, Wolf, is that people want photo image, they want a theatrical production. If they wanted the truth, they could get it. And, furthermore, if -- suppose they found out something in those hearings that gave them pause. Suppose behind closed doors, where Karl Rove or anybody else would be under a legal obligation to tell the truth, they found something that gave them pause. They could public with it. They could ask questions.

What's been interesting in this process that is at every stage we have stepped forward with accommodations. We said --

BLITZER: All right --

SNOW: -- you can talk to anybody at the Department of Justice. You can have documents between the White House and the Department of Justice. You can have e-mails from the White House to the Department of Justice. You can talk to key White House members. You can bring them in for conversation.

But what has happened is that members of the Senate, at each and every stage, seem to have been inclined toward confrontation, which burns up time, creates --

BLITZER: All right -- SNOW: -- I'm sure, the ability to sort of cast stones. But if they wanted to find the truth, they could get it.

BLITZER: Here's the other battle you're facing right now involving the attorney general, Alberto Gonzales. They want -- some of the Democrats, members of the Judiciary Committee -- a special counsel to investigate whether he lied, whether he committed perjury, because some of the statements, they say, are being flatly contradicted not by Democrats, but by, what, the former Deputy attorney general, James Comey; the former director of national intelligence, John Negroponte; and a former colleague of yours at the White House, Monica Goodling, a senior staffer there.

What do you say to these charges that there are flat out contradictions between what they have told Congress and what Alberto Gonzales has testify under oath about?

SNOW: Well, number one, we're confident of the veracity of the attorney general's testimony.

Number two --

BLITZER: Did the other three lie?

SNOW: Well, no. They don't necessarily have to have lied.

What's happened in some of these cases is that members have tried to bring into open session conversations about highly classified matters and you've got to be very careful how you discuss them. And in some cases it is perfectly possible to square the testimony.

I can't be the fact witness for all of the conversations that took place. On the other hand, members of Congress know that they're asking about things that cannot be the subject of a complete and full answer in open session because it involves matters of high classification and that creates a problem.

BLITZER: Now here's the other problem the attorney general has. A stunning development today. The FBI director, Robert Mueller, also contradicting what Alberto Gonzales says.

SNOW: Well, a classic example of what I'm talking about, Wolf.

If you go back and you look at the transcript, you've got a member of Congress talking about the terrorist surveillance program.

Go back and look at the transcript.

Does Bob Mueller once use the phrase "terrorist surveillance program?"

I'll save you the wait. The answer is no. He talks about an NSA program. It's exactly what I'm talking about, which is that members of Congress are trying to create controversies about highly classified matters, some of which cannot, should not and must not be discussed publicly. And it forces people to give very careful answers that could very easily be twisted by folk on the other side of the aisle.

BLITZER: Here is what a lot of Democrats are saying on the Hill. They're the majority right now. They remember when they were in the minority, when there was a Democrat in the building where you worked. That would be Bill Clinton.

Listen to one of Bill Clinton's former aides, Paul Begala what he said the other day.

SNOW: Oh, come on.

BLITZER: I want you to listen.

SNOW: You're going to give me some --

BLITZER: Listen to this.

SNOW: Paul Begala?

BLITZER: Paul Begala.

Listen to this.

SNOW: Oh my goodness.


PAUL BEGALA, DEMOCRATIC STRATEGIST: When I was working in the Clinton White House, one committee alone, the House Government Reform Committee, issued a thousand subpoenas to Clinton administration officials. A hundred and forty-one different people were subpoenaed.


BLITZER: All right, so if it was OK for Republicans to do it to a Democratic White House, then why isn't it OK for Democrats to do it to a Republican White House now?

SNOW: Look, people get issued subpoenas. We've never argued against that. There are some cases in which executive privilege applies. And I believe the very first executive privilege case this administration supported was for -- oh, that's right, the Clinton administration -- trying to preserve the ability for people to have conversations -- confidential conversations with the president.

Those Government Reform and Oversight subpoenas, I think, had to do with things other than confidential conversations with the president.

But I'm not going to say that members of Congress don't have oversight obligations or responsibilities. Of course they do.

BLITZER: I've got to let you go.

How do you feel?

SNOW: I feel good.


BLITZER: All right. Good. Stay -- stay with us, stay healthy and we'll continue this conversation down the road.

SNOW: I'll do my best.

Thanks, Wolf.

BLITZER: Tony Snow, thanks very much, joining us from the White House.

Up ahead, still three homers away from a hot, new record, and now hot under the collar. Barry Bonds fires back at new steroid allegations with a little name calling.

And officials are making restricted skies over the nation's capital simpler.

Will it make things any better, though?

Stay with us.



BLITZER: There's new fallout in the friendly fire death of Pat Tillman. The football star was killed while serving as a soldier in Afghanistan.

As the Army cleans up the mess made in the reporting of Tillman's death, a retired general may be taking some of the heat, at least right now.

Let's go to our Pentagon correspondent, Jamie McIntyre.

He's got the latest -- Jamie, you've been all over this story.

Tell our viewers what's go on.

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, Wolf, in a development reported first on CNN this morning, Pentagon sources say that Army Secretary Pete Geren is strongly considering adding a letter of censure to a formal reprimand that will be given to a three star general next week.

Even though the general is retired, he can still be demoted and lose part of his pension.


MCINTYRE: (voice-over): Pentagon sources tell CNN that Army Secretary Pete Geren is strongly considering a letter of censure against the highest ranking general facing punishment in the Pat Tillman case.

If Geren recommends the censure, it would come on top of disciplinary action, expected to be announced next week, against nine officers who were all found to have made critical mistakes in the aftermath of the friendly fire death.

But for the three star general who retired last year, it would mean a reduction in rank and a cut in pension benefits.

Lieutenant General Philip Kensinger was most senior of nine officers faulted by the Pentagon in a March inspector general's report probing death of former NFL player turned Army Ranger Pat Tillman in April of 2004. In fact, the three general was the Army's representative at Tillman's nationally televised memorial service the following month.

The DOD-I.G. Report concluded that: "At the service, although Lieutenant General Kensinger knew friendly fire was suspected, he decided to withhold notification from family members." It also found that when asked about it later, "Kensinger provided misleading testimony" to investigators.


MCINTYRE: So he said at that point he didn't know that fratricide was a likely cause -- a likely reason for the death and that he didn't find out until afterwards.

And you didn't find that credible?

THOMAS GIMBLE, ACTING DOD INSPECTOR GENERAL: We didn't find that credible. We found evidence that he knew in the April time frame.

MCINTYRE: Well, that sounds like lying.

GIMBLE: Well, in the Army, we'll look at that and we'll make a determination.



MCINTYRE: There were nine officers faulted in the inspector general's investigation. Sources say two junior officers will be spared reprimands and one, Lieutenant General Stanley McChrystal, will get only a mild rebuke.

But if the Army demotes General Kensinger, it's more than a slap on the wrist. It could cut his monthly pension by $900 -- Wolf.

BLITZER: Jamie McIntyre watching it for us.

Thanks, Jamie, for that good reporting.

Jamie broke the story earlier today. A quarterback in court -- pro-football's Michael Vick goes before a judge on dog fighting charges. We're at the scene. Brian Todd is there right now.

And the other Castro is now leading Cuba. That would be Fidel's brother, Raul. And he's making the United States a surprising offer.



BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, Senator Hillary Clinton thinks the defense secretary is being too defensive about sharing information about troop withdrawal plans from Iraq. He's written her a letter trying to diffuse the situation.

The parents of an Iraq War veteran who killed himself are blaming the Veterans Affairs Department. They say Veterans Affairs Secretary Jim Nicholson is guilty of negligence.

And former Panamanian dictator Manuel Noriega makes his first public appearance in almost 14 years. He wants to fly to Panama when he's released from prison in September. He's fighting extradition to France, where he was convicted on money laundering charges.

I'm Wolf Blitzer.


Off the playing field and in court -- the Atlanta Falcons quarterback, Michael Vick, making his first appearance to face federal dog fighting charges and get the legal ball rolling.

Let's go to Brian Todd.

He's outside the U.S. District Court in Richmond, Virginia.

That's the capital -- Brian, what happened inside that courtroom behind you earlier today?

BRIAN TODD, CNN CORRESPONDENT: Wolf, Michael Vick was very stoic inside the courtroom after being met with a throng of boos as he arrived here earlier today. Inside the courtroom Vick was very understated wearing a dark suit, he stood right before Judge Hudson and pleaded not guilty to a felony charge of conspiracy and dog fighting. Michael Vick said very, very few words inside the courtroom. He said, yes sir, when Judge Hudson read the arraignment to him, asked if he understood the charges. He minced very few words saying yes, sir, yes, ma'am to the court officer when she gave him a couple of statements as to whether he understood the charges. The other three defendants also entering not guilty pleas.

Outside the court, however, Michael Vick did have more words to say to his attorney, Billy Martin who stated how much Vick understands what he's up again.


BILL MARTIN, MICHAEL VICK'S ATTORNEY: "Today in court, I plead innocent the allegation made against me. I take these charges very seriously and look forward to clearing my good name. I respectfully ask all of you to hold your judgment until all of the facts are shown. Above all, I would like to say to my mom, I'm sorry for what she's had to go through in this most trying of times. It has caused pain to my family and I apologize to my family. I also want to apologize to my Falcon teammates for not being with them at the beginning of spring training.


TODD: And some members were addressing the media this afternoon. The trial date is set now, November 26th, that's the Monday after Thanksgiving. That is a little bit of a postponement. Under federal guidelines the trial is supposed to begin 70 days but Vick's attorney asked for more times to go observe the complexity of the case, Wolf.

BLITZER: Brian, what restrictions did the judge place on Vick and the others for this period between now and the eventual trial?

TODD: Well, they are not allowed to leave their primary -- the district of the primary residence. They have to stay where their primary residence is. In Vick's case, that's Atlanta, Georgia. Not allowed to leave the district without notifying the court. First they have to surrender the passports. Two out of the four defendants, not Michael Vick, but two of them, Kwana Stoltz (ph) and Pernell Peace (ph) have to have electronic monitoring because of previous convictions.

Vick himself has to surrender his dog breeding license. But the key restriction here, no travel outside your home district unless you notify the court first.

BLITZER: Brian Todd over the courthouse in Richmond, Virginia. Thank you, Brian. Quarterback Michael Vick, by the way, was picked first in the 2001 draft by the Atlanta Falcons. Although only 27 years old, he already ranks third among NFL quarterbacks for all-time rushing yards. He also holds several records for rushing and carries per game. Vick has been linked to several past relatively minor scandals but nothing that landed him in criminal court.

In yet another sports controversial, we told you yesterday about an HBO Sports report highlighting fresh allegations that Barry Bonds used steroids. Now Bonds has responded and the Giants slugger is by no mean as mused. Carol Costello reporting this story for us. He's really hot under the collar on this one. Tell our viewers what's going on.

CAROL COSTELLO, CNN ANCHOR: Wolf you know it's getting hot when the word midget is thrown out there. When confronted by reporters last night about Bob Costas' HBO report about bonds and steroid allegations, this was Bonds' response, "You mean that midget man who knows absolutely jacks -- about baseball?"

For the record, Bonds is 6'1" and Costas is 5'7".


COSTELLO (voice-over): It started on HBO Sports Tuesday when Patrick Arnold the man who created the steroid the Clear (ph) told Bob Costas he believed Bonds was a steroid user back in 2001 when he blasted a record 73 home runs.

PATRICK ARNOLD, CHEMIST: He was on the program and like everyone else the program consisted of the Clear.

COSTELLO: Bonds who sat out last night's game against the braves, answered the charges by telling reporters, "I have never seen the man in my entire life."

But Arnold's comments echo the steroid allegations made in the best selling book "Game of Shadows" by two "San Francisco Chronicle" reporters and others piled on as Costas probed further like Red Sox pitcher Curt Schilling.

CURT SCHILLING, BOSTON RED SOX: If someone wrote that stuff about me and I didn't sue their ass off am I not admitting there is legitimacy to it?

COSTELLO: Well, Bonds did sue the authors but dropped the suit three months later. And more recently back in February he brushed off news coverage that touched upon the steroid use allegations.

BARRY BONDS, SAN FRANCISCO GIANTS: Doesn't wear on me at all. At all.

QUESTION: Why not?

BONDS: Because just you guys talking, that's all it is. Just media conversation.

COSTELLO: But now Schilling's comments caused him to lash out, not at Schilling but Costas, calling him a "little midget man who absolutely knows jacks -- about baseball, who never played the game before." Bonds added, "You can tell Bob Costas what I called him."


COSTELLO (on camera): Well, we called HBO Sports to have them tell Bob Costas he was called a midget and we're waiting for a reply.

BLITZER: HBO is our sister network. What about the ex- girlfriend, because that all of a sudden has become another part of the story.

COSTELLO: Yeah, the ex-girlfriend. Well, things will heat up again for Bonds come October, that's when the ex-girlfriend will pose for "Playboy" and talk about their sex life. Kimberly Bell has testified before a grand jury and is widely quoted in the book "Game of Shadows" about Bonds' alleged steroid use. That "Playboy" issue is supposed to come out in November.

BLITZER: That means it will come out in October. Always comes out a little bit earlier. Thanks for that, Carol. Good reporting for us.

Cuba celebrates a revolution but is it with or without Fidel Castro?

News of possible talks with the United States. A report from Havana, that's coming up next.

What if a Mormon became president of the United States? Our Frank Sesno explores that. Stay with us. You're in THE SITUATION ROOM.


BLITZER: Cuba celebrated the anniversary of its revolution today without its long time leader. In charge the brother of ailing leader Fidel Castro. And he's offering a deal, Raul Castro, that is, a deal to the United States, reforms and talks, once the Bush administration he says is out of power. CNN's Morgan Neill is in Havana.


MORGAN NEILL, CNN CORRESPONDENT (voice-over): Wolf, the plaza here in Camauey (ph) is emptied out following celebrations for Cuba's national day of rebellion. The main speaker was Raul Castro, not Fidel Castro the man who led the country since 1959.


FIDEL CASTRO, CUBAN LEADER: Viva la revolucion!

NEILL (voice-over): This was Fidel Castro, one year ago today, the last time he appeared in public. As he strode past the throngs on a revolutionary holiday there was little to indicate what lay ahead.

Less than a week later, came the stunning news, the president was temporarily handing over power, his aide announced. For the first time since 1959, Fidel Castro was not charge of Cuba. The government said only that he had been forced to undergo intestinal surgery. He's widely believed to suffer from diverticulitis, inflamation of a pouch in the intestine wall.

But those who predicted Cuba's communist system would collapse in his absence were wrong. At a year with Raul Castro at the helm little has changed. Tens of thousands turned out waving their flags for the July 26th celebration. In Fidel's traditional place, Raul stressed Cuba's stability.

RAUL CASTRO, CUBAN LEADER (through translator): These have been difficult months though with the opposite effect expected by our enemies who are hoping for chaos and Cuban socialism to collapse.

NEILL: There has been little to suggest Raul is headed for the so-called Chinese model, opening the economy while retaining tight control over the political system. Looking toward U.S. elections he repeated an offer he previously made.

R. CASTRO (through translator): If the new U.S. authorities would finally put their arrogance aside and decide to talk in a civilized way, it would be a welcome change. If not, we're ready to continue to confront their policy of hostility, even if it takes another 50 years.

NEILL: As for Fidel Castro, although he hasn't appeared in public, Cubans have seen him in several videos. Recently in this interview on Cuban TV in June. He had put on weight since earlier videos but still looked frail. Recently he's regained his place in the public consciousness by writing columns called "reflections of the commander in chief".

HAL KLEPAK, ROYAL MILITARY COLLEGE OF CANADA: This is a moment where he can sit back and do just that, reflect, which for a long time he didn't have a lot of time for as he ran the country.

NEILL: If he is planning a comeback, Castro seems in no hurry to do so. In a recent column he writes that he's so caught up in watching the Pan American Games he sometimes misses meals and forgets to take his pills.


NEILL (on cameras): Today more evidence of that trend. Even though he was introduced as second secretary of the party, there was little doubt that day to day Raul Castro is the man in charge of Cuba, Wolf.

BLITZER: Our man in Havana, Morgan Neill. Thanks, Morgan, for that report. Our man coming up at the top of the hour is Lou Dobbs and he is standing by to tell us what he's got in store for all of us. A special Lou Dobbs tonight, right, Lou?

LOU DOBBS, CNN HOST: Absolutely. Always, Wolf. Thank you. Tonight we're reporting on a stunning legal decision for the small town in Pennsylvania trying to curtail the impact of illegal immigration. A federal judge today ruling that Hazelton's ordinance against the impact of illegal immigration is in fact unconstitutional. We'll have that live report for you from Hazelton, we'll be joined by the mayor of Hazelton, Lou Barletta. We'll also be joined by a top official of the ACLU. One of the groups that sued Hazelton.

And rising anger after pro-business senators try to weaken a government program that would help American workers and families whose jobs have been exported. The chief oversees labor markets. We'll have that story tonight. And security breaches, long lines, cancelled and delayed flights and outsourced maintenance causing chaos at our airports and in the skies this summer. Is our aviation system on brink of collapse? We'll have that story. Please join us for all of that, all of the day's news at the top of the hour and much more. Wolf, back to you.

BLITZER: I hope it's not because I'm flying to New York over the weekend, Lou. Let's hope that aviation system works.

DOBBS: You're not alone. Millions of us do.

BLITZER: Thanks. Lou's coming up in a few minutes.

How well can you spot an online scam? It may not be easy as you think. One online test even has some experts stumped. Let's go to our internet reporter Jacki Schechner. So, Jacki, what should we be looking for? Because there's a lot of scam artists out there.

JACKI SCHECHNER, CNN CORRESPONDENT: Well, Wolf, that's exactly it, the devil's in the details. MacAfee, a Web security company put this test online where you have to see if you can tell the real Web site from the fake one. By now a lot of us are able to spot a false Web address. But would you notice something like a small missing security link or just small bad grammar notes or even an extra pull- down menu? Chances are you wouldn't. McAfee says almost everybody who takes the test misses at least one answer. They say that the phishing for financial information is so lucrative that the thieves are spending a tremendous amount of time getting the little details down that you probably wouldn't even notice.

What they say is in order to protect yourself you really need to pay attention. Don't panic, there's no financial emergency when you get e-mails. Take your time, be very careful and make sure that you take a look, don't ever click on a link in an e-mail that is asking for your personal financial information.


BLITZER: Important advice. Very important advice. Jacki, thanks.

Up ahead -- he had a shot of being the first Mormon to occupy the White House. Our special correspondent Frank Sesno considers what if Mitt Romney became president? And flying over Washington. The restricted flight zone known by its Mickey Mouse shape is getting a makeover. We'll be right back.


BLITZER: Republican presidential candidate Mitt Romney is considering a speech explaining the role of his Mormon faith in his political life. He said so in an interview in Iowa with the Associated Press earlier today. If he were elected president, Romney would be the nation's first Mormon president.


BLITZER (voice-over): And joining us now our special correspondent Frank Sesno for this week's "What If?" segment. Hi, Frank.

FRANK SESNO, CNN CORRESPONDENT: Hi, Wolf, still in the presidential what if series, this week Mitt Romney. How about a little ask the anchor segment, see how you're doing. BLITZER: All right.

SESNO: OK. First, how many children and grandchildren does Mitt Romney have?

BLITZER: I know he's got four or five sons. I know that. I'm guessing grandchildren, 12.

SESNO: Wrong. He's got 20.

BLITZER: Twenty, whoa!

SESNO: He likes family reunions. Big ones. They'd said they'd be at White House. Hope they got the holds battened down. Next question, how much is Mitt Romney's estimated financial worth?

BLITZER: I know he made a ton of money. I'm going to go with C, at least $190 million.

SESNO: Correct. At least 190 million. Some estimates put it up to over $300 million.

And finally this. Centerpiece legislation, certainly one of the cornerstones of his time as governor of Massachusetts. Raising the driver age to 17, attracting foreign business or health care reform.

BLITZER: C, health care reform.

SESNO: Health care reform it is. Employers with more than 10 employees have to pay for, contribute to insurance. Most state residents, if they don't have it have to get it or face a penalty. Surveys say they have insured 155,000 people who weren't insured before.

Romney want to be seen as tough, charismatic and solution oriented.


SESNO (voice-over): What if Mitt Romney becomes president? Yes, he'd be the first Mormon in the white house. He may be sick of talking about it but his wife Ann points out he's the major GOP candidate who has had just one wife. They've been married for more than 40 years.

He'd bring more dynastic politics to Washington. His father was governor of Michigan, a presidential candidate himself. But this Romney is the richest candidate running, has enough money, he says, that doesn't need the salary. Might donate it to charity. Maybe he'd slay the deficit dragon while he's at it. After all, he's got that Harvard MBA, made a profit of the '02 Winter Olympics when he headed up the Olympic Committee and saw deficits become surplus in Massachusetts while he was governor. Question is how he'd handle the deficit as president. Cut defense? There's still a war going on. Social Security? The boomers are starting to retire. Raise taxes? No way. In Massachusetts he explains he attacked waste and inefficient, duplication and patronage. Whatever that means. What if it's Mitt? It's not clear what he'd do on hot button issues. He's been accused to flip-flopping to cater to conservatives, changed his mind on abortion from this in '94.

MITT ROMNEY, (R) PRESIDENTIAL CANDIDATE: I believe that abortion should be safe and legal in this country.

SESNO: To this in '07.

ROMNEY: I want to make it very clear that I'm pro-life.

SESNO: Changed his mind on gay rights and shifted on gun control and taxes. But as for Iraq, there have been mistakes, he says, but he favors the surge. And says he'd do whatever it takes to prevent a nuclear Iran.


SESNO (on camera): Prevent a nuclear Iran. That may well be the early and most profound challenge of the next president because whoever estimates and is watching Iran says they are on a trajectory to get very close, maybe dangerously close to a nuclear weapon somewhere in that time.

BLITZER: What are his prospects looking like right now?

SESNO: Prospects are a little uneven. Let's go to some of the early states. First in New Hampshire, if you look at voters there, Romney is way out front. Should be, he is a Massachusetts governor, right next door, obviously, 33 percent. Smaller numbers for the other two pulling up behind. If you go to South Carolina, Giuliani's up top. And look where Romney is. He is in single digits. Down South, not playing, at least not yet.

And finally in Iowa doing very well there, 25, 18, 14. Some inconsistency, still some discomfort among conservatives not just with the Mormonism among some but also some positions on some of the issues we've talked about.

BLITZER: Frank Sesno, our special correspondent, thanks.

SESNO: OK. Thank you.

BLITZER: And Carol Costello's monitoring stories incoming to THE SITUATION ROOM right now. Carol, what do you have?

COSTELLO: A couple of things, Wolf, the heat wave in Europe is being blamed for dozens of deaths including at least 33 in Romania. Firefighters been battling heat-related wildfires that are raging in Greece, Italy and Macedonia. Temperatures have soared above 100 degrees, high pollution, humidity and stagnant air are also compounding the misery for residents and for tourists.

The tuberculosis patient who sparked an international public health scare is now out of the hospital. A spokesman at a Denver Hospital says that Atlanta attorney Andrew Speaker left in an air ambulance and went to an undisclosed location in Georgia to recuperate. The hospital says doctors do not consider Speaker to be completely cured. He'll continue antibiotic treatment for about two years.

And in news affecting small business, a restricted flight zone over the DC area is being reduced in size and simplified in shape as you can see here. The new zone is outlined in red. The change will take effect August 30th. It's designed to reduce confusion for general aviation pilot whose fly in or near the nation's capital.

The current restricted flight zone is known by its Mickey Mouse shape and was put into place after 9/11. That's a look at the headlines right now, Wolf.

BLITZER: Thank you, Carol, for that. Jack Cafferty wants to know if now is the time to reduce the number of National Guard troops stationed along the Mexican border. Stick around. You're in THE SITUATION ROOM.


BLITZER: Let's check back with Jack Cafferty for the "Cafferty File." Jack?

CAFFERTY: Wolf, the question this hour, is now the time to reduce the number of National Huard troops stationed along the Mexican border from 6,000 cut them back to 3,000. That's scheduled to happen next month.

Lisa writes from Post Falls, Idaho. "I am absolutely appalled at the way our government handles this issue. Giving in to illegal immigrants doesn't help our economy or our safety in any way. My husband is immigrating here from Scotland. It took nine months to go through the visa process but I feel proud that he did it the right way and he arrives on his legal visa next week."

Paul in Illinois, "I think it's time to arm the National Guard and increase the numbers on the border to preclude not only the illegal aliens from entering our country but also to provide backup to the Border Patrol against illegal alien drug traffickers and terrorists. I think a new rule of engagement should be exercised in view of the deaths of innocent people and the hands of the drug cartels."

Beth in Maine writes, "Nope, they should be bringing them home from Iraq to reinforce all of our borders. All of our borders. But heck, if I wanted a terrorist attack to distract the public from what I was doing I'd reduce numbers on the borders, too."

E in Dallas writes, "Yes if the fence is in place and there are armed Marines to take their place. Otherwise, no. Those who don't see the need for absolute security on the border had better think again and those who don't see the problem of uncontrolled migration don't have it in their backyards yet. The number one duty of a president is to protect the country. Mr. President, the back door's swinging in the wind. We have a silent invasion well under way. Action is indicated post haste."

Ron in San Francisco, "You and Wolf hit half of the issue right earlier in terms of all of the National Guard serving in Iraq. Besides, he's going need these guys when he surges the surge. The other half of the equation is Bush's guest worker program. By pulling the National Guard troops of the border he gets his program and the rest of us get lower wages as a result."

And Andy writes, "Absolutely not. Shame on the government for using every possible excuse to not enforce its own laws."

If you didn't see your e-mail here it's probably because it wasn't any good. No, you can go to where we post more of them online along with video clips of "The Cafferty File."

BLITZER: Brutally honest. Jack Cafferty telling it like it is. A lot of those e-mails are horrible, right?

CAFFERTY: Nah. I was just kidding. They're all great.

BLITZER: They are. OK, Jack, see you back here. Thanks very much.

Remember, we're in THE SITUATION ROOM weekday afternoons from 4:00 to 6:00 p.m. Eastern. Back for another hour at 7:00 p.m. Eastern. Until then thanks for watching. LOU DOBBS TONIGHT starts now. Lou?