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The Situation Room

Economic 'Tough Time': President Bush Warns Against Overreaction; Michigan Primary Do-Over; McCain's Stance on Earmarks

Aired March 14, 2008 - 16:00   ET

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

WOLF BLITZER, CNN ANCHOR: Happening now, President Bush takes yet another stab at easing economic jitters, but he warns against any kind of "foolish overreaction." A top Democrat says Mr. Bush is on a different economic planet all together.
Also this hour, new movement in Michigan for a Democratic primary do-over. Are the Clinton and Obama camps likely to be on board?

And the Democrats so-called 60 percent solution. Can they win a filibuster-proof majority in the U.S. Senate?

I'll talk to a Republican senator, Norm Coleman of Minnesota, about the very tough challenge he's facing by the comic-turned- candidate Al Franken.

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

A powerful new punch in the gut for Wall Street today. Just when President Bush was trying once again to be a calming influence on a rocky economy, the Federal Reserve stepped in to bail out the nation's fifth-largest investment bank. The Fed took a Depression-era plan out of mothballs to help Bear Stearns survive a severe cash crisis.

Stocks closed down about 190 points. Investors read the bailout as a sign the nation's credit crunch is getting worse.

And in the midst of all of this, the president gave an economic speech and conceded what even he says is obvious.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our economy obviously is going through a tough time. It's going through a tough time in the housing market, and it's going through a tough time in the financial markets.

(END VIDEO CLIP)

BLITZER: But a top Democrat contends the president still doesn't get it.

(BEGIN VIDEO CLIP)

SEN. CHUCK SCHUMER (D), NEW YORK: The bottom line, it seems as if the president is on a different economic planet than most Americans. It seems that the president is on a different economic planet than most New Yorkers. We've heard the same speech we've been hearing for months, but on a very different day.

(END VIDEO CLIP)

BLITZER: Let's go to our White House correspondent, Elaine Quijano. She's watching the story for us.

So, what did the president suggest that's new today, Elaine?

ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Not much new. No major new initiatives announced in the president's economy speech Wolf.

Instead, President Bush tried to strike an optimistic tone. But even some members of his own party say it's the presidency policies that have lead to a weak economy.

(BEGIN VIDEOTAPE)

QUIJANO (voice-over): Steady hands on the economic wheel, that's what President Bush says Washington needs to provide.

BUSH: When you overcorrect you end up in the ditch.

QUIJANO: Even as Americans find themselves buffeted by high gas and food prices, the president offered no major new initiatives, telling business and finance leaders at the Economic Club of New York that markets need time to self-correct.

BUSH: Any time the government intervenes in the market it must do so with clear purpose and great care.

QUIJANO: The president also argued again that Congress should make permanent his tax cuts.

BUSH: If Congress doesn't make the tax relief permanent, they will create additional uncertainty during uncertain times.

QUIJANO: But economist and actor Ben Stein...

BUSH: Ben, you always draw a good crowd.

QUIJANO: ... who in 2005 campaigned with the president to overhaul Social Security, blames tax cuts in large part for today's economic trouble.

BEN STEIN, ECONOMIST, ACTOR: I love Mr. Bush. And he will always have my vote and he will always have my appreciation for the many good things he's done. But I think he did this wrong. And we've had fiscal mismanagement in this country for a very long time now.

QUIJANO: Stein argues that deficit spending under President Bush's watch has left America's economy weak, with much of the U.S.'s debt owned now by foreign countries.

STEIN: The chickens have come home to roost. We've got to stop. And we owe it to our grandchildren, or else we're going to leave them as peons of the Asians and of the petrol states.

(END VIDEOTAPE)

QUIJANO: Now, President Bush and Democrats did agree on that economic stimulus package to help boost the economy. And the president says those checks should start coming in the mail in May.

Democrats though say that the president should do even more. The president maintains that those tax rebate checks should first be given a chance to work -- Wolf.

BLITZER: Elaine Quijano. Thank you.

No matter who is or isn't to blame for the very troubled economy right now, Americans are feeling the pinch every single day from the grocery store to the gas pumps and beyond.

Look at how milk prices have climbed over the past two years alone. You're paying on average 60 cents more for a gallon of whole milk, 63 cents more for a gallon of skim milk.

A gallon of regular unleaded gas costs on average 52 cents more now than it did back in 2006. A gallon of premium costs 54 cents more.

The back-and-forth over primary re-votes in Michigan and Florida is almost as volatile as the financial markets. A proposal for a mail-in vote in Florida appears to be dead on arrival. But right now Michigan is moving forward with its own plan for a do over.

Here's CNN's Jim Acosta -- Jim.

JIM ACOSTA, CNN CORRESPONDENT: Wolf, call it Florida and Michigan part two. And while Florida's sequel is up in the air, it appears Michigan is making progress.

(BEGIN VIDEOTAPE)

HOWARD DEAN, DNC CHAIRMAN: I think the best option is whatever we can get the candidates to agree with which puts a vote back in the hands of the people of Florida and Michigan. And that's going to be not so easy to do. .

ACOSTA (voice-over): But Michigan may make Democratic Party chairman Howard Dean's job a bit easier. Some top Michigan Democrats, including Congresswoman Carolyn Cheeks Kilpatrick, say they're working on plans for a June 3 primary do-over. Kilpatrick tells CNN, "We are trying to get there. It's not a done deal yet."

Michigan and Florida broke National Democratic Party rules by moving up their primaries to January. The contest took place, but none of the party's major candidates campaign in the states. And Michigan and Florida's delegates were banned from this summer's Democratic convention.

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: The results of those primaries were fair, and they should be honored.

ACOSTA: Clinton won both primaries. But the idea of awarding delegates based on those results doesn't fly with Obama.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: What we don't think makes sense is, for example, the Michigan delegation to be seated when my name wasn't on the ballot.

ACOSTA: With the battle between Clinton and Obama for the nomination so close, and with November victories in both states crucial for the Democrats to take back the White House, both candidates agree action is needed.

CLINTON: Nearly two and a half million Americans in those two states who participated in the primary elections are in danger of being excluded from our Democratic process. And I think that's wrong.

OBAMA: What we want is an opportunity for the Florida and the Michigan delegates to participate in the convention.

(END VIDEOTAPE)

ACOSTA: Even if Michigan Democratic leaders come to an agreement, Howard Dean and the two campaigns will have to sign off on the deal. And then there's the big question of, who will foot the bill? But Michigan Democrats say their party will reimburse the state for the cost of a new primary -- Wolf.

BLITZER: Jim Acosta reporting with the latest there.

Still ahead, by the way, we're going to be focusing in on why Florida's re-vote plan appears to have fallen apart. We'll update you on that part of the story.

Let's go to Jack Cafferty right now. He's got "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: The superdelegates, Wolf, are starting to break for Barack Obama. Bloomberg News is reporting Obama has now pulled almost even with Hillary Clinton in endorsements from top election officials and has cut into her lead among other superdelegates as well.

Since it is unlikely that Clinton can catch Obama when it comes to the pledged delegates, the superdelegates will ultimately be called upon to decide the race. Bloomberg says according to the two campaigns, of the 313 superdelegates who are members of Congress or governors, Clinton has the backing of 103. Obama has the backing of 96.

Since Obama won the Iowa caucuses in early January, he has gotten 53 superdelegate endorsements, compared to only 12 for Hillary Clinton. And since the Texas and Ohio primaries, Obama has picked up nine more superdelegates, compared to just one for Clinton.

It sounds like a trend. One Obama supporter and superdelegate, Missouri senator Claire McCaskill, says, "This is not glacial. This is a remarkable momentum. I don't think there's anything that will slow that down."

The Clinton campaign doesn't agree. They think most of the uncommitted superdelegates will take sides until -- will not take sides until the rest of the primaries and caucuses are over.

Adviser Harold Ickes says, "We think the momentum has been stopped. Not cold, but very much stopped."

"The Washington Post" reports Hillary Clinton has been opening up her Washington home to try to woo uncommitted lawmakers. Now, it's not exactly like renting out the Lincoln Bedroom, but, hey, whatever it works.

So here's the question: How significant is it if superdelegates are beginning to break for Barack Obama?

Go to cnn.com/caffertyfile and post a comment on my blog -- Wolf.

BLITZER: Thanks very much, Jack, for that.

Hillary Clinton and Barack Obama are clearly at odds over issue number one. Today Clinton is providing new fuel for their economic debate. Will it score her points in Pennsylvania?

John McCain rides Amtrak and rails against wasteful spending. Can he turn a new defeat into an opportunity?

And comic-turned-Senate-candidate Al Franken is giving incumbent Norm Coleman a run for his political life in Minnesota. I'll talk to Coleman about his race and the larger battle for the U.S. Senate.

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: The Republican presidential candidate, John McCain, is talking about a major pocketbook issue, one that affects our tax dollars and how lawmakers spend then. Dana Bash is joining us now from Springfield, Pennsylvania.

Dana, McCain had an interesting commute this morning. Tell us what's going on.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: That's right. John McCain returned here to Pennsylvania on Amtrak with one aide. He returned after being back in Washington for a late-night vote, a vote that he is calling now a charade.

(BEGIN VIDEOTAPE)

BASH (voice-over): The morning after a one-year ban on lawmakers' pet projects lost, and lost big in the Senate, John McCain came to Pennsylvania and used defeat as political opportunity, suggesting he may be a creature of Washington, but he voted for change.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: The moral of the story is there's only one place left in America that they don't get it. They don't get it that pork barrel spending is out of control and Americans want it stopped. And that's in our nation's capital. And I want to tell you, as president we will veto those bills...

BASH: McCain even lambasted fellow Republicans. More than half of GOP senators voted to keep earmarks in place.

MCCAIN: My Republican conference is not responding to the will of the people. Americans want this stopped. And the members of our party are very upset about it.

BASH: But the presumptive GOP nominee, still struggling to rally his party behind him, tried to focus on Democratic opponents.

MCCAIN: The first thing they can do if they're against the earmarks is ask that the money they've gotten, hundreds of millions that they've gotten from pork barrel projects, not be spent.

BASH: Pennsylvania is now the center of the political universe as the next battleground for Democrats, but it's also pivotal for McCain in the general election. And a Republican presidential candidate hasn't won Pennsylvania in 20 years.

MCCAIN: I've got a lot of work to do. We'll straight talk. I've got a lot of work to do.

BASH: Yet, McCain was careful not to bite when a voter called the Democratic candidates a joke and handed him a Hillary Clinton doll.

MCCAIN: We want to have a humorous aspect to every political campaign, otherwise it gets too boring. But I want to emphasize my commitment to respect my opponents.

(END VIDEOTAPE)

BASH: Now, insisting on a respectful campaign is really big focus of the McCain campaign right now, especially in light of recent controversial comments about Barack Obama even at one of McCain's own rallies. And Wolf, CNN is told that McCain campaign aides are now working on an op-ed to be published in McCain's name warning surrogates not to be disrespectful or attack Democrats.

BLITZER: He has an emotional anniversary coming up tomorrow. Tell our viewers about it, Dana.

BASH: That's right. Tomorrow is 35 years to the day John McCain was released from the so-called Hanoi Hilton. He was there as a prisoner of war during Vietnam for five and a half years.

It was talked about here at town hall in Springfield. In fact, he was introduced and it was mentioned. And he got a standing ovation, and certainly a round of applause. And he was asked about what that moment means to him considering where he is right now in his life. Listen to what he said.

(BEGIN VIDEO CLIP)

MCCAIN: Well, certainly the day that I was released I didn't anticipate I would be standing here before you today. It was a grand and glorious opportunity to have freedom.

(END VIDEO CLIP)

BASH: And also today to commemorate that anniversary, Wolf, the campaign put a video, a new video online, talking about his journey -- they call it his journey -- from Vietnam and from his time as a prisoner of war to where he is today. This is a precursor to what they plan to do in a couple of weeks, which is take him on kind of a bio tour and try to explain the kind of life that he's had, and hoping this will be politically beneficial and perhaps inspirational for voters, and will be the kind of thing that they hope will help explain the kind of man he is. And as you can imagine, lure voters towards him -- Wolf.

BLITZER: All right, Dana. Thanks very much.

(COMMERCIAL BREAK)

(NEWSBREAK)

BLITZER: In the U.S. Senate right now, Democrats are hoping their days of being easily blocked by Republicans are numbered. At issue right now, what many consider to be a magic number, 60, and whether the Democrats can reach that number in November.

Let's go to CNN's Kate Bolduan. She's joining us now live with more on this story.

Do Democrats have a shot of reaching the 60 majority number in the Senate, Kate?

KATE BOLDUAN, CNN CORRESPONDENT: Well, Wolf, it is a Democratic dream. And for the first time in three decades, it just might be within reach.

(BEGIN VIDEOTAPE)

BOLDUAN (voice-over): The three presidential candidates in the heat of battle for the White House. But there's another big race, a broad control of the U.S. Senate.

Democrats frustrated over Republican blocking tactics see a chance to end the stalemate with a possible 60-seat filibuster-proof majority. Right now 49 Democrats hold a slight voting majority with the help of two Independents to make 51. But with the GOP in danger of losing the seats of some departing Republicans, and with other GOP seats hotly contested, Democrats see potential. SCHUMER: Bottom line is, the public wants change. They see the economic problems we have. They're unhappy with the continued direction in the war in Iraq, and they want change.

BOLDUAN: Senator John Ensign, who is in charge of getting Republicans elected to the Senate, is having problems recruiting candidates. Faced with an unpopular president and war, as well as weak fund-raising, Ensign says -- quote -- "There's no question that getting back in the majority now would be a very long stretch."

At the same time, Ensign's counterpart concedes getting 60 seats is a stretch.

SCHUMER: We would have to every star aligned in the right direction to pick up 60 seats.

BOLDUAN: Political analyst Jennifer Duffy (ph) agrees.

(on-camera): Let's take a look at how this could break down. Give me best-case scenario for Democrats.

UNIDENTIFIED FEMALE: For Democrats, their best--case scenario is to win the eight most vulnerable Republican seats and not lose any of their own seats, especially Louisiana.

BOLDUAN: And that's unlikely.

UNIDENTIFIED FEMALE: Probably. But, in this environment, you never say never.

BOLDUAN: So, let's take a look at worst-case scenario then for the Democrats.

UNIDENTIFIED FEMALE: Worst case is if they pick up three seats, probably Virginia, New Mexico, maybe New Hampshire, again, and keeping Louisiana in their column.

BOLDUAN: So, the worst case for the Democrats is better than the best case for Republicans?

UNIDENTIFIED FEMALE: Right. Republicans' objective is keep their losses to a minimum.

(END VIDEOTAPE)

BOLDUAN: So, what do the voters want? Well, a recent NBC News/"Wall Street Journal" poll shows that 49 percent of Americans want a Democratic-controlled Congress. That's compared to 35 percent who want a Republican Congress -- Wolf.

BLITZER: Kate, thanks very much.

One of the Democrat's best shots, they say, of picking up a Republican Senate seat may be in the state of Minnesota. The comic turned Democratic candidate Al Franken is challenging the Republican incumbent, Norm Coleman. Franken was on CNN's "AMERICAN MORNING" this morning. He's hammering Coleman on issues from Iraq to the economy. Listen to what he said this morning.

(BEGIN VIDEO CLIP)

AL FRANKEN (D), MINNESOTA SENATORIAL CANDIDATE: Here's a guy whose policy on the war is to stay the course. His policy on the economy is to stay the course with the Bush economy. Minnesotans want serious solutions to these problems. Staying the course is not serious. And, you know, Tip O'Neill had a word -- or a phrase -- for moderates like Norm Coleman. They're always there when you don't need them.

(END VIDEO CLIP)

BLITZER: Let's talk about that with Norm Coleman. He's the Republican senator from Minnesota.

Thanks, Senator, for coming in.

SEN. NORM COLEMAN (R), MINNESOTA: Great to have the opportunity, Wolf. Thank you.

BLITZER: He's not -- he's not telling jokes right now. He's being serious.

Let's get your positions down. He mentioned two issues, the war in Iraq. Is it status quo? Do you simply want to continue what the president has been doing these past five years?

COLEMAN: No, Wolf, it's not status quo. Clearly, Minnesotans and Americans want to see light at the end of the tunnel. But, Wolf, politics is a business of choices. I am going to run against someone -- I have spent 30 years in public service in Minnesota, mayor of Saint Paul, a city that was economically dead and dying, turned it around.

I have been a champion in the U.S. Senate of working together in a bipartisan way to do things, and whether it real health care, whether it's renewable energy. And I'm going to run against a guy who, for 30 years, has been throwing gas on the fire, for 30 years, has not been a constructive force.

BLITZER: Well...

COLEMAN: So, my point being is, on these issues, when you talk about the economy, you can't just...

BLITZER: Well, let's talk about the issues, first of all, Iraq. Is there any area of the president's current strategy with which you disagree?

COLEMAN: What I would disagree with is, I think I would be more forthright and tell the American public that our goal is to be out of being in the lead militarily by the end of this year. But I would still leave it to General Petraeus. I leave it to Petraeus, to the commanders on the ground to make the military decisions. I don't think politicians should be making that in Washington, based on what the next election is going to bring.

BLITZER: The other issue he raised, the economy. Is there anything you would do differently than what the White House is doing right now?

COLEMAN: Oh, I would do a ton of things differently, Wolf. One area where I would disagree with the president on that is, I would be more forthright in telling the American public that we're in a recession.

I think, when you question that, I think, sometimes, people think that you're questioning whether you're listening to the anxiety and the frustration and the pain that's out there, the price of gas, the cost of food, worried about healthcare. But, again, I want to get back to choices. Wolf, it's not simply enough to criticize.

You have got to offer choices. On the economy, I have been a champion in the U.S. Senate, trying to deal with the subprime housing problems, offered a range of proposals, everything from $5,000 a year for rebates over three years for folks who are buying homes that are in foreclosure to get the excess stuff off the market, supporting FHA reforms to get folks out of those ARM mortgages, which are causing such great stress, and putting them in to more government-secured mortgages, working with Bernie Sanders, who is an Independent, or -- certainly on the far left, on a proposal to get more community development block grant funding to build up neighborhoods that are in jeopardy.

(CROSSTALK)

COLEMAN: So, it's not enough just to throw charges and to be contrary. It's easy to tear things down, Wolf.

(CROSSTALK)

BLITZER: Let me ask you this. Do you want to see -- because you voted for the Bush tax cuts. Do you want to see those tax cuts made permanent, including the tax cuts that benefit the wealthy?

COLEMAN: I want to see the Bush tax cuts made permanent, Wolf. And you have got to get past the class-warfare rhetoric. Quote, "benefiting the wealthy," that is benefiting small businesses, which is are Subchapter S corporations. The worst thing you can do in a time of recession -- I believe we're in a recession -- is to raise taxes, take more money out of peoples' pockets.

My colleagues on the other side of the aisle put forth a budget. It's going to raise taxes $1.2 trillion. It's going to make sure that those tax cuts are not permanent. And, in the end, if we don't deal with that, it's going to have a long-term negative impact on our economy. The biggest issue today is the economy. It's jobs. And you don't grow economies by raising taxes. BLITZER: Will you be campaigning in Minnesota with John McCain?

COLEMAN: Oh, absolutely. John McCain will be a blessing. He's going to be -- it's going to be wonderful to campaign with McCain, because McCain will reach, by the way, not just the base -- and he will on issues of wasteful Washington spending. He will on making sure that we don't wave the white flag of surrender in Iraq. He will on a whole range of issues, the Second Amendment.

But he's also going to appeal to independents. And, Wolf, in my race, ultimately, the independents are going to decide. And they're going to look at folks who have been constructive forces, who are willing to do the best for Minnesota. I don't think they're looking for folks who simply are throwing more gas on the fire.

BLITZER: All right.

COLEMAN: That's not what you need in Washington --

(CROSSTALK)

BLITZER: Will you be prepared to debate Al Franken one-on-one in the course of this campaign?

COLEMAN: I'm looking forward to the debate. I'm looking forward to draw the contrasts, Wolf, on the issues -- on the issues.

Al Franken believes in government controlling your healthcare. Al Franken believes in taking away the right to a secret ballot in a union election. I would love to debate Al Franken on a range -- and I don't know where he is, by the way, on the war, Wolf, one of the big issues. But I can't tell you.

He was with the president initially in entering Iraq. He was against the media with -- against cutting off funding. Now he's for funding. He was against a deadline. He's for a deadline.

BLITZER: All right.

COLEMAN: So, let us have a debate. But, Wolf, it is also -- beyond the issues, it's experience and temperament. And those are important in deciding whether you can really do something about the issues.

BLITZER: Senator Coleman, thanks for coming in.

COLEMAN: Always a pleasure, Wolf.

BLITZER: All right, Senator Norm Coleman, running for re- election in Minnesota.

Hillary Clinton often plays up her role in pushing forward the State Children's Health Insurance Program, the SCHIP, as it's called. But what was her exact role? We're taking a closer look into that amid a new report that's raising questions. Also, Michigan Democrats hope for a possible primary do-over. They're discussing various options. But who might benefit more from whatever plan emerges? Would that be Hillary Clinton or Barack Obama?

And a major investment bank that made bets on risky mortgages nearing collapse. Now the federal government steps in to aid its rescue. What does it mean for you?

Lots of news happening today -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: A man officials say previously helped Osama bin Laden hide and run in Afghanistan is now in the hands of the United States military. The Pentagon saying he's a high-level al Qaeda member and one of bin Laden's close associates.

Let's get details from our senior Pentagon correspondent, Jamie McIntyre.

What do we know, Jamie?

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, the Pentagon has announced that it has taken custody of a man named Mohammad Rahim, an Afghan, who is described by the U.S. government as a tough, seasoned jihadist.

He is said to have combat experience and had worked against U.S. interests since the 1980s, but probably best known in intelligence circles for being the man who prepared Osama bin Laden's hideout in Tora Bora, and when U.S. and Afghan forces were closing in, helped him escape, presumably to Pakistan.

Rahim was -- fell into U.S. custody some time in the summer of 2007. Exactly how, it's not clear. He was in CIA custody, went into their interrogation program. And you know that means he could subjected to some harsh interrogation techniques.

The Pentagon announced that they took custody of him this week. Now he will be at Guantanamo Bay, Cuba, where those harsh interrogation techniques, such as waterboarding, are officially prohibited -- Wolf.

BLITZER: All right, thanks very much, Jamie, for that.

Coming up in our "Strategy Session": politics, polls, President Bush, and the economy.

(BEGIN VIDEO CLIP)

BUSH: It's easy to go around and, you know, hammer away on trade. It's -- and I guess, if you're the kind of person that followed polls and focus groups, that's what your tendency to be. I'm the kind of person who doesn't give a darn about polls and focus groups. And I do what I think is right.

(END VIDEO CLIP)

BLITZER: But, if the economy doesn't turn around, does Senator John McCain have any chance in November?

And Michigan Democrats may get a second chance to have their voices heard in the Obama-Clinton battle. Which candidates would benefit more from a revote?

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Democrats are pushing a plan to redo Michigan's primary contest, one proposal being floated, a June 3 primary. If that were to happen, how might it work? Who might benefit more between Barack Obama and Hillary Clinton?

Let's get to our "Strategy Session" right now. Joining us, our CNN political analyst the Democratic strategist Donna Brazile, and Republican strategist Rich Galen.

What do you think about -- about the possibility of a redo in Michigan? A full-scale primary, they're talking about.

Who is likely to benefit from that, given what you know, Donna?

DONNA BRAZILE, CNN POLITICAL ANALYST: Well, before we talk about the results, I think we need to make sure that the process is fair, that the proposal meet the standards of the Michigan lawmakers. They first have to sign off on it.

BLITZER: Let's say they work out all the details. There's a full-scale new Democratic primary on June 3 in Michigan. Is that good for Hillary Clinton or good for Barack Obama?

BRAZILE: The reason why I'm concerned about talking of the results of Hillary and Obama is, I'm a member of the rules committee. And just like the they violated the rules in -- on timing, they may violate other rules.

So, I want to wait and see what this proposal looks like. I want to see if the lawmakers sign off on it. Remember, this involved raising private money. And Rich reminded me private money for a federal election. I don't know if that will meet muster. But once we know the results, then we will see who might benefit.

BLITZER: All right. Assuming they can -- it passes the rules committee, everybody says it's fine, no legal problems, no technical problems, they're going forward with another primary on June 3, who does that help?

RICH GALEN, REPUBLICAN STRATEGIST: John McCain.

(LAUGHTER)

GALEN: This is 10 more weeks. This is June 3. This is all the way through April, all the way through May, into June.

BLITZER: Long term, it might help John McCain. You're saying that.

GALEN: Yes.

BLITZER: But what about in the short term? Does it help Hillary Clinton or Barack Obama? Who gains in terms of getting the nomination?

GALEN: I think -- I think, at this point, it's going to help Obama compared to where we are now, because Mrs. Clinton had those delegates, because she was the only one on the ballot.

BLITZER: Well, there are no delegates.

(CROSSTALK)

BLITZER: Nobody is getting delegates.

(CROSSTALK)

GALEN: But if they went with the previous...

(CROSSTALK)

BLITZER: But they're not going with that.

GALEN: Well --

(CROSSTALK)

BLITZER: So, nobody gets those Michigan delegates.

My guess is, it will help Obama, because I think he's on a glide path to get to the nomination.

BRAZILE: It will give Senator Clinton, if she manages to win this revote, it would give her bragging rights, again, about big states vs. little state.

But Senator Obama clearly will come out with delegates. And because he's now leading in pledged delegates, as well as the popular vote, it will also give him some bragging rights as well.

GALEN: Because even when -- even when he wasn't on the ballot, and only Mrs. Clinton was, uncommitted, which was the effective vote for Obama, did -- did well enough to almost get a 50/50 split.

BLITZER: They got 40 percent. I think she got about 60 percent. She and Dennis Kucinich were the only names on the ballot, though, in Michigan. So, it wasn't exactly fair, by all accounts.

If Florida and Michigan, by the way, do get to redo, and they can be full participants at the convention in Denver, the magic number to win the Democratic nomination goes from 2,025 without those two states the 2,208 with those two states. We will see if Florida and Michigan can get their act together.

(CROSSTALK)

GALEN: I think you guys have done a great job so far. Just keep it up.

(LAUGHTER)

BRAZILE: And I think, at this rate, we will have a Democratic nominee before June. And, hopefully, the party will come together before August.

GALEN: So, you think the whole June 3 thing is just going to be a waste of that private money?

BRAZILE: Well, I'm hoping that, in the next few weeks, the Democrats will ultimately make a decision and we will have -- star having some peace within the family.

BLITZER: Let's talk a little bit about the economy right now. It's in trouble. It's in deep trouble. As we all know, the president acknowledging that today in a speech up in New York.

Let me play a couple of clips. And then we will discuss.

(BEGIN VIDEO CLIP)

BUSH: We have got an active plan to help us get through this rough period. We're always open for new ideas, but there are certain principles that we won't violate. And one of the principles is overreacting by federal law and federal regulation that will have long-term negative effects on our economy.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

SCHUMER: Things are worse now because the president's proposals are always a day late and a dollar short.

(END VIDEO CLIP)

BLITZER: All right. If the economy is rocky in November, it's going to be tough for the Republicans, because the American public generally blames the party in power in the White House for rough economic times.

GALEN: Right. That's right. The -- except for this, that, if the economy is bad this early, and it's just -- it kind of stays -- as long it doesn't collapse into 1939 -- then, by November, it's more likely that people will have adjusted to a new reality. And whoever comes up with the best plan --

BLITZER: That's really looking at some silver lining right now.

GALEN: Well, you got -- I mean, that's right. But it's tough. Look, this morning, I woke up to find out that the Fed and -- had bailed out...

BLITZER: Bear Stearns.

GALEN: ... Bear Stearns. And my first thought was, well, if you can bail out Bear Stearns, why not bail out people who can't make their mortgage payments? I mean, that's the kind of thing...

BLITZER: And, if you saw on the front page of "The Wall Street Journal," the Carlyle Group is in trouble. These are -- these are companies that were rock-solid, supposedly. And, presumably, that's going to have political ramifications.

BRAZILE: Look, if you look at the polls, the voters trust the Democrats on all of the leading indicators, on the economy, on health care, on solving problems for the middle class.

So, in the short term, there's no question that Democrats benefit, because the president has been in power for almost eight years. And they know that the president doesn't have a plan to bail out Main Street. And that worries people.

GALEN: But let me just say this, that, when you look at the head-to-head polls, either Clinton or Obama vs. McCain, given all of this, either one of those should be ahead of John McCain by 25 points. They're not. It's virtually tied.

BRAZILE: Because we're in a protracted struggle. And competition is good for the soul. And it's great for the Democratic Party.

(CROSSTALK)

BRAZILE: McCain gets a thank-you note this week, but he will not get it for long. Trust me.

(LAUGHTER)

BLITZER: There's just been a lengthy statement that Barack Obama released on the whole -- Reverend Jeremiah Wright, his pastor in Chicago, some very, very explosive, controversial comments that he has made in sermons over the years.

And Obama, under pressure, has issued a statement that says in part -- and let me put it up on the screen and I will it read it to you.

"Let me say at the outset that I vehemently disagree and strongly condemn the statements that have been the subject of this controversy. I categorically denounce any statement that disparages our great country or serves to divide us from our allies. I also believe that words that degrade individuals have no place in our public dialogue, whether it's on the campaign stump or in the pulpit. In sum, I reject outright the statements by Reverend Wright that are at issue." And at the end of his statement, he says this. I will read it to you. He says: "With Reverend Wright's retirement and the ascension of my new pastor, Reverend Otis Moss, III, Michelle and I look forward to continuing a relationship with a church that has done so much good. And while Reverend Wright's statements have pained and angered me, I believe that Americans will judge me not on the basis of what someone else said, but on the basis of who I am and what I believe in, on my values, judgment and experience to be president of the United States."

Does this end this controversy?

BRAZILE: Well, no. Some people will continue to dig up things on Barack Obama, like we saw his kindergarten paper.

But it speaks volumes to his character and his leadership that he's willing to go publicly and denounce the words of his pastor. This tells me a lot about the person he is, not the fact that he's running for president. But he's a man of impeccable character.

(CROSSTALK)

GALEN: Well, in the words of the late, lamented H.R. Haldeman, T.L. squared, too little, to late. He's been a member of that church for 20 years. This pastor has been -- has been saying these kinds of things for 20 years. It seems to me that Obama is turning his back on...

(CROSSTALK)

GALEN: ... coming a little bit late to the game.

BRAZILE: If you go back in October of last year, he also had to put out a statement.

Look, the fact is, is that people are going to continue to throw mud and trash. And Obama has to decide if he's going to try to put it all in perspective or he has to continue to respond.

(CROSSTALK)

BRAZILE: The truth is, he's running for president, not Jeremiah Wright.

GALEN: He waited until the church began to sell those videos before he got caught.

BRAZILE: He waited until -- he waited until someone decided this is a character flaw. And it's not. It's a man of integrity. And I'm glad that he made the statement. And let's move forward.

GALEN: That's what everybody says when it's really bad news.

BRAZILE: Barack Obama didn't say it.

BLITZER: We're leaving it right there, guys. Thanks very much.

I suspect the subject not necessarily going to go away, but certainly one that you guys can disagree with.

Richard Gere will be here, by the way, in THE SITUATION ROOM. He's standing by live. We will talk about what's going on, the violent clashes between protesters and police in Tibet, an arrest warrant, by the way, that he faced over his alleged breaking of public obscenity laws in India last year, that now over.

Richard Gere, he's going to be here in THE SITUATION ROOM, important developments in Tibet right now.

And politicians embroiled in sex scandals. What have some of the people who pledged to live decently actually did? Frank Sesno takes a closer look at that question.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: On our political ticker, Barack Obama gains new ground over Hillary Clinton in a daily tracking poll. The Gallup poll shows it's been nip and tuck between the two Democrats so far this month, with Clinton holding an edge at one point and now Obama in the lead.

The tracking poll shows Obama now has 50 percent support of voters nationwide, compared to 44 percent for Clinton. That's the largest lead either of them has had since late February.

Remember, for the latest political news any time, you can check out CNNPolitics.com. That's where you can read my daily blog post as well, CNNPolitics.com.

Let's go back to Jack. He's got "The Cafferty File" -- Jack.

CAFFERTY: The question this hour is: How significant is it that the superdelegates are now beginning to move toward Barack Obama?

Michael writes from Notre Dame, Indiana: "If Hillary had the pledged delegate lead, the popular vote, and had just about broken even with the superdelegate count, do you think Obama would still be in the race? I don't think so. She needs to bow out now, before she damages the party any further. She is staying in this race in hopes of someone convincing the superdelegates to go against the will of the people. This is suicide for the Democrats."

Ann in North Carolina says: "Maybe they are finally realizing, by the record turnout in every election, that people are not happy with the status quo. Maybe they realize their own positions are on the line if they go against what the people want. Maybe they see that people are very uncomfortable that this has turned mean and nasty. The longer it goes on, the greater chances are the Democrats will be responsible for their own defeat."

Jerry says: "Superdelegates supporting Hillary and Barack in equal numbers isn't significant. If Hillary wins Pennsylvania, Florida, and Michigan by double digits, which she should, she will be the Democratic nominee. How significant is it that Barack only receives 30 percent of the white vote in blue states would be a better hypothetical."

Nora in Texas: "Keep an eye on Hillary. This thing is not over until she says it is, and that is not happening. I am sure there are a lot of backroom deals falling into place right now and a lot of favors being called in. I think Obama is a great man. I am just afraid he is not going to survive the Clinton machine."

And Al in Lawrence, Kansas, who we hear from periodically, and we read some of his stuff when we're absolutely desperate: "It is very significant. A blind man can see Obama has the nomination sewn up. If they had the guts, they would end this thing in a heartbeat" -- meaning the superdelegates. "But these superdelegates are the same people who can't pass anything in Congress and cannot hold a proper election. See Florida and Michigan" -- Wolf.

BLITZER: Thanks, Jack.

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