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The Situation Room

Growing Tensions with Iran/Iraq's Oil Windfall Outrage/Treasury Secretary Henry Paulson Discusses the Economic Situation

Aired April 30, 2008 - 17:00   ET


WOLF BLITZER, CNN ANCHOR: And to our viewers, you're in THE SITUATION ROOM.
Happening now, a show of American military might -- two, two U.S. aircraft carriers bearing a direct message for Iran.

But is the U.S. sending mixed signals about the real meaning of this mission?

Also, Iraq is raking in tens of billions of dollars in oil export profits while the U.S. says it's going to spend another $100 billion in that country this year. Now the outrage is boiling over. We'll tell you what's going on.

Plus, a housing and credit crisis, soaring gas prices and growing talk of recession -- we'll discuss your fears about the economy with the Treasury Secretary Henry Paulson. He's standing by live.

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

The U.S. is sending some mixed messages to Iran right now. Two U.S. aircraft carriers were sent to the Persian Gulf this week, along with more than a dozen escort ships. But the second carrier left the region before anyone knew it was even there.

The move comes as the U.S. is ratcheting up pressure against Iran, which the Bush administration accuses of killing American troops in Iraq.

Let's go to our senior Pentagon correspondent, Jamie McIntyre. He's watching this story for us.

It seems to be a mixed message going out. What is going on -- Jamie?

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, Wolf, both publicly and privately, Pentagon officials say the last thing they want is war with Iran. But sometimes, reading the public actions, it's hard to tell.


MCINTYRE (voice-over): For less than 24 hours this week, the United States had two aircraft carriers -- the Lincoln and the Truman -- conducting joint exercises in the Persian Gulf. The Pentagon called it a signal of U.S. military might -- a reminder to Iran, in the words of Defense Secretary Robert Gates -- while the White House insisted it was nothing unusual.

DANA PERINO, WHITE HOUSE PRESS SECRETARY: We are currently undertaking regularly scheduled exercises in the Gulf and these exercises are not aimed at Iran.

MCINTYRE: The mixed message is deliberate on the part of the U.S., which wants to keep Iran off balance and on edge. Strategic ambiguity is the term of art.

For instance, despite news reports to the contrary, the top planner for the Pentagon insists there have been no new orders to update military action.

LT. GEN. JOHN SATTLER, JOINT STAFF PLANS DIRECTOR: There has been no order -- specific order to plan in any particular area of the world. But I want to make it clear to everyone that we do plan, we challenge those plans, we challenge the assumption of those plans ongoing.

MCINTYRE: So, while the U.S. may not have any new attack plans, there are plenty of old ones.

ADM. MIKE MULLEN, JOINT CHIEFS CHAIRMAN: When we say -- or when I say I don't want to take any military options off the table, that certainly more than implies is that we have military options.

MCINTYRE: Iran wittingly -- or perhaps unwittingly -- has helped the Pentagon refine its target list by releasing these photographs from a recent tour President Mahmoud Ahmadinejad took of Iran's Natanz nuclear site. These pictures provide the first look at new centrifuges the U.S. believes Iran is testing to turn uranium into fuel for nuclear bombs.

Iran insists it's all for peaceful energy production. So the U.S. wonders why that's Iran's defense minister in one picture.


MCINTYRE: The saber rattling comes as the U.S. is pushing Iraqi Prime Minister Nuri Al-Maliki to confront Iran with fresh evidence that Iranian arms and expertise are fuelling the violence in Iraq. And that has contributed, in part, to April being the deadliest month for U.S. troops in Iraq, with 49 deaths -- Wolf.

BLITZER: Thanks very much for that.

Jamie McIntyre at the Pentagon.

Meanwhile, an oil windfall for Iraq right now and growing outrage on Capitol Hill and elsewhere over the billions of dollars the U.S. is pouring into reconstruction at a time when the Iraqis are making a lot of money.

Let's go to Brian Todd. He's watching this story for us.

So, what is going on -- Brian? BRIAN TODD, CNN CORRESPONDENT: Wolf, the Iraqi government is still so corrupt that the U.S. inspector-general for reconstruction calls it a second insurgency. That same U.S. official now has some other information about the Iraqi government that might make American taxpayers wince.


TODD (voice-over): The Iraqi government, now flush with cash thanks to skyrocketing oil prices.

How flush?

STUART BOWEN, INSPECTOR GENERAL FOR RECONSTRUCTION IN IRAQ: They could reach $70 billion in oil income this year, which is twice what they anticipated.

TODD: The eye-popping figure is part of Inspector-General Stuart Bowen's latest report to Congress on Iraqi reconstruction. We asked Bowen, how will the Iraqis spend the money?

BOWEN: On more relief and reconstruction projects. But the challenge in the Iraqi government is executing their budget. Last year, it was only able to execute about 50 percent of its ministry capital budgets and 30 percent of its local capital budgets.

TODD: Bowen says that's because of inefficiency and complicated contract laws.

The U.S. government has spent $31 billion so far on Iraq's reconstruction. And even before the latest numbers on Iraq's oil profits came out, members of Congress were steaming about the inequity for Americans getting socked at the pumps.

SEN. CARL LEVIN (D-MI), INTELLIGENCE COMMITTEE: It is unconscionable that American taxpayers are paying a fortune for gasoline, some of which comes from Iraq, building up a huge surplus for Iraq, which the Iraqis are not spending, that the American taxpayers continue to spend billions of dollars on the reconstruction of Iraq.

TODD: Outrage that has built almost from the outset of the war, when U.S. officials made bold predictions about Iraqi oil revenues.

PAUL WOLFOWITZ, FORMER ASSISTANT DEFENSE SECRETARY: We're dealing with a country that can really finance its own reconstruction and relatively soon.

TODD: The inspector-general says Iraq can now start doing that.

We asked Iraq's ambassador to the U.S. about the charges of corruption and inefficiency.

SAMIR SUMAID'IE, IRAQI AMBASSADOR TO THE U.S.: These concerns are real and we understand them. We are addressing them. Remember, we have inherited a situation which was not our own making. These are decades of misrule -- decades of a culture of corruption.


TODD: Both the ambassador and the U.S. inspector-general believe that despite the shock of the oil revenue figures, Americans should be pleased about this, because it does mean the Iraqi government will be far less dependent on American money for reconstruction. The inspector-general told us some American money has, in fact, just been trimmed off some reconstruction projects -- Wolf.

BLITZER: And there are some, given the Iraqi oil export windfall right now, suggesting Iraq should start repaying U.S. taxpayers for the billions already spent in Iraqi Reconstruction.

Is that idea getting anywhere?

TODD: I asked the Iraqi ambassador about that, Wolf. He essentially asked me back, where would you start to figure out how much that is?

He said a lot of that money benefited American companies more than it ever benefited Iraqis. But he said his government is open to negotiation on that.

BLITZER: Brian, thank you.

Brian Todd reporting.

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

JACK CAFFERTY, CNN ANCHOR: Oh, tomorrow is the fifth anniversary of "Mission Accomplished".

How is that working out for you?


CAFFERTY: We should just have we're dumb and easy right here.

It's no secret the health care system in this country is a mess, speaking of problems that haven't been fixed. Right now, almost 50 million people have no health insurance at all and the cost of health care keeps right on rising.

A new study out this week showed that seven percent of Americans are now willing to get married just so they can get their spouse's health care benefits.

You talk about the high price of health care.

Now, on the campaign trail, each of the three presidential candidates telling us his or her plan offers the best solution to the problem. Both Democrats want to move toward universal coverage.

Hillary Clinton tried to tackle this whole thing in 1992. That didn't get anywhere and we haven't made much progress since. She's proposing an individual mandate that would require all Americans to sign up for health insurance.

Obama's plan doesn't go quite that far, but it would require coverage for all children.

Both Democrats' plans built on the current employer-based system and would impose new regulations on the insurance companies.

The Republican John McCain says these ideas are inefficient and irrational. He's opposed to mandates and direct regulation. He favors, instead, tax credits to draw workers away from company health plans. He said this would allow people to find cheaper insurance on their own, more tailored to their individual needs. This proposal was similar to the one that President Bush tried to get some traction with last year. It didn't even get as far as a committee hearing.

One other item that's not being talked about by any of the candidates is this -- the current government health care plan -- that thing we call Medicare -- represents tens of trillions -- with a T -- dollars of unfunded liability, as we move into the future and the retirement of the baby boomers.

So here's the question: How optimistic are you about the future of our health care system?

Go to You can post a comment on my blog -- Wolf.

BLITZER: All right, Jack, thank you.

A troubled U.S. economy -- but are we in a recession?


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: You know, the words on how to define the economy don't reflect the anxiety the American people feel. You know, the average person doesn't really care what we call it.


BLITZER: We're going to talk about your economic concerns with the Treasury secretary, Henry Paulson. He's standing by live right here in THE SITUATION ROOM.

Also, Hillary Clinton declares war on big oil, calling for new taxes on their huge profits. You're going to find out why some experts say that could make our gas problems even worse.

And new embarrassments for Detroit's mayor, as a judge releases more of those text messages that landed him in trouble in the first place.

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

(COMMERCIAL BREAK) BLITZER: President Bush calls it a rough patch in the economy. But there's growing concern about recession. The administration is hoping billions of dollars in stimulus checks going out to taxpayers as early as this week will help.

Critics, including the former president, Bill Clinton, saying not necessarily, maybe not.

Let's discuss this and more with the Treasury secretary, Henry Paulson. He's here in THE SITUATION ROOM.

Mr. Secretary, thanks for coming in.

HENRY PAULSON, U.S. TREASURY SECRETARY: Wolf, it's good to be here.

BLITZER: I'll play the clip from Bill Clinton and let me get your response.



WILLIAM JEFFERSON CLINTON, FORMER PRESIDENT OF THE UNITED STATES: If a million families lose their homes and every one of you go blow every penny of those stimulus checks -- and you know you won't. But let's assume it's perfectly effective, the negative impact of the home mortgage foreclosures will be 50 percent greater than the positive impact of the stimulus package.


BLITZER: So I guess he's suggesting it's not going to make much of a dent, this stimulus package that you and the Democrats in Congress approved very quickly.

PAULSON: I -- Wolf, I don't argue with the fact that the quarter we're just -- we're in right now is going to be a tough quarter.

BLITZER: The second quarter of this year.

PAULSON: Yes. The last quarter was a tough quarter, no doubt about it. But as far as the stimulus checks go, that will make a difference. It will make a positive difference. There will be at least 500,000 additional jobs as a result of these payments.

BLITZER: So you think the second quarter -- the anemic growth in the first quarter, the anemic growth in the last quarter of last year -- the last six months, what, a .6 percent growth, you think it will be better in this new quarter?

PAULSON: Listen, we weren't satisfied with .6 growth. I mean the American people aren't satisfied.

What I'm saying -- I'm not going to make a prediction, but I am going to tell you there is going to be $50 billion pumped out into the economy this month, the month of May. Another $50 billion plus in June. And we're going to get to -- by the end of June, early July, close to 120 million Americans. That's going to make a difference.

It's not going to make the housing correction go away. It's -- we've got the headwind of high gas prices. We've got the headwind of rising health care costs.

BLITZER: Which raises the question whether there should be a second batch of checks that should go out following these first checks.

PAULSON: Well, I'm going to get the first checks out. We're going to get the first checks out. They're going to make a difference. We're going to watch very carefully and stay very focused on this economy.

BLITZER: What about other issues that some Democrats, especially -- some Republicans, mostly Democrats -- suggesting extending unemployment benefits, because there are people out there losing their jobs and they're going to need help.

PAULSON: Well, we have -- unemployment is running 5.1 percent. I don't take that lightly. But the average unemployment over the last 40 years has been 6 percent. I don't think it's time to extend the unemployment benefits in this country. But we're watching it carefully and we're going to take the right actions when it's necessary to do so.

BLITZER: A lot economists are really concerned right now about the weak dollar compared to the euro, compared to the British sterling, the pound and other currencies around the world. And that explains, at least in part, why the price of food is going up, why the price of gas, oil is going up.

How worried are you about this weak dollar?

PAULSON: Well, let me start with the price of oil, because the price of oil has gone up very significantly, measured in any currency, for an extended period of time here. So it's gone up in euros, it's gone up in yen, it's gone up in dollars.

But to get to your point, you know that a strong dollar is in our nation's interests and it's something I've been very, very supportive of. Our economy has got some ups and downs. It's going through a tough period right now. But our long-term fundamentals are strong. And as I look around the world, I like our long-term fundamentals the way they compare with the long-term fundamentals of just about every other economy I can see. And I believe that those fundamentals are going to be reflected in the price of (INAUDIBLE)...

BLITZER: So you think the dollar will make a comeback?

PAULSON: I tell you, I think the long-term fundamentals are going to be reflected in the price of our currency. I'm going to leave it at that. BLITZER: What about this notion -- the president was vague on it yesterday -- of eliminating, at least between Memorial Day and Labor Day, as Senator McCain and others are suggesting, the federal gas tax?

What do you think about that idea?

PAULSON: Well, I'll tell you what I think about it. First of all, I think that all of those that point to the problem are pointing to the right problem. There's no doubt that the American people are running into a headwind here and that this is tough for Americans that they've got to put gas in their car regularly, number one.

But number two, I am not going to get into presidential politics and...

BLITZER: Well, forget about presidential politics.

What about just the notion of eliminating for three months the federal gas tax?

PAULSON: Well, I would say is I look at gas -- I think that's supply and demand. And I think it doesn't avail itself of short-term solutions. And I think the president's policies -- the things we've been focused on -- alternative sources of energy, new technologies, investment, alternative sources of supply -- I think those are the solutions.

BLITZER: Well, when you talk about supply and demand, we had Congressman Clyburn, the minority -- the majority whip in the House, on in the last hour. He said if you want to increase the supply, stop pumping in additional oil into the Strategic Petroleum Reserve.

PAULSON: I've got to comment on that, too, because we've looked at that very carefully. The oil that's going into the Strategic Petroleum Reserve has got a dominimus (ph) impact on the price. And as I look at the price, it has to do with demand in a tight supply and the concern that the supply could get tighter. And the bigger concern I would have -- and I'm not predicting it -- is if there would be a supply disruption. And that's what we're guarding against with the Strategic Petroleum Reserve.

BLITZER: Give us some practical advice.


BLITZER: Right, we've got a lot of people out there who are worried about their nest eggs, their 401(k)s. You're a former chairman of Goldman Sachs.

If you were giving some advice to your clients right now, what do they do?

Do they keep their money in cash, they buy stocks, they invest other ways -- real estate, which is in trouble right now?

Help us spend our -- invest our money wisely. PAULSON: I tell you, I've been in the markets long enough that I'm smart enough not to give advice right now. But the thing that's important to me is I would say to all of those people, first of all, I understand you're going through a tough period right now.

And I hope you're pleased that rather than dreaming up some new programs, your government has decided to give you money, give you cash, so you can decide how best to use it. You can decide whether it's going to be most helpful meeting the needs you face in filling up your car with gas, making your mortgage payment or whatever.

And there's just too many people with different situations to give generic advice.

BLITZER: All right, so just to be precise on the two immediate issues that a lot of people are talking about, a second economic stimulus package, for now you're saying?

PAULSON: Well, for now, I'm saying let's watch the first one, watch it work, watch the economy closely. And I'm not calling for a second stimulus package.

BLITZER: And a federal tax holiday on gas?

PAULSON: I'd say this is -- it doesn't avail itself of a short- term solution. We're looking -- I'm looking at longer term issues. I -- you know, I care a great deal about what the American people are going through. But I feel a need to be very honest and to say that there is no short-term quick fix here.

BLITZER: Mr. Secretary, thanks for coming in.

PAULSON: Thank you.

BLITZER: Henry Paulson is the secretary of the Treasury.

Almost seven years into the war on terror, a disturbing new report on attacks. They're up in Afghanistan. We're going to show you why.

Plus, the presidential candidates battle over how to ease the pinch of gas prices. You're going to find out why experts warn some of their plans may backfire.

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


BLITZER: Carol Costello is monitoring some other important stories incoming into THE SITUATION ROOM right now.

Carol, what's going on?

CAROL COSTELLO, CNN CORRESPONDENT: Well, Wolf, the Taliban are stronger than ever and determined a threat to Afghanistan's stability. That's according to a State Department report released today. The report says the Talabani are funding their sophisticated operations through supporters in Pakistan and profits from narcotics trafficking and kidnappings.

The American Psychiatric Association wants more government money to treat mental health problems among the U.S. military. An APA survey shows three out of five service members think seeking help for mental help will harm their careers. A Rand survey a few weeks ago found that one fifth of all combat troops have mental health problems, but only half of them seek help.

There is no end in sight for violence that has rocked the Sadr City neighborhood of Baghdad. The Maliki government says it has no tolerance and no timetable in its battle against insurgents, who repeatedly fire rocket attacks on homes and buildings. The fighting has killed more than 900 people since last month.

And it's the Rockefellers versus Exxon Mobil -- members of the family which started the company want the oil giant to stop focusing on high-priced oil profits and to focus more on alternative fuels. The great great grandson of John D. Rockefeller accuses the company of not looking toward the future for renewable energy sources. The family is questioning company leadership with four proxy resolutions. You never know, maybe it will accomplish something. We'll keep you posted -- Back to you -- Wolf.

BLITZER: Thanks, Carol, for that.

A brutal primary season -- will it leave Democrats divided come November?


JIMMY CARTER, FORMER PRESIDENT OF THE UNITED STATES: There is no doubt in my mind at all that after a nominee is chosen, the other candidate will support that nominee enthusiastically.


BLITZER: But will that nominee will be Hillary Clinton or Barack Obama?

We'll hear more from my one-on-one interview with the former president and Democratic superdelegate, Jimmy Carter. That's coming up.

Also, soaring gas costs take center stage on the campaign trail. We're going to show you what the candidates want to do to save you money and why some say their plans could make matters even worse.

And we'll talk about the politics of gas prices and more with our political panel.

All that coming up right here in THE SITUATION ROOM.


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

Happening now, 24 hours after Senator Barack Obama's sharp rebuke of his pastor, still no response from the Reverend Jeremiah Wright. What message does the pastor send with this silence?

We'll discuss that and more with the best political team on television.

John McCain goes after blue collar voters in Pennsylvania with his health care plan. But his idea is under attack on another front.

And the Democrat who speaks from experience. We ask the former president, Jimmy Carter, about a divided party. More of my one-on-one interview with President Carter and his prediction on superdelegates.

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

The soaring cost of gas is taking center stage out on the campaign trail, with all three presidential candidates offering plans to ease the financial strain on Americans -- plans some critics say could actually make matters worse.

CNN's Dan Lothian is in Indianapolis watching this story for us -- Dan, what kind of relief are the candidates suggesting for the American public?

DAN LOTHIAN, CNN CORRESPONDENT: Well, Wolf, they're offering some short- and long-term proposals from the gas tax holiday to specific help for low-income families. Obviously the reason that this is getting so much attention is because gas prices are so high. Just a year ago the average price for a gallon of regular was $2.96. Today it is the $3.61 a gallon.


LOTHIAN (voice-over): As if defying gravity...

UNIDENTIFIED MALE: It's pretty bad.

LOTHIAN: ... gas prices keep going up.


LOTHIAN: The three presidential hopefuls have taken notice. Senator John McCain was the first to propose a gas tax holiday. He'd lift the 18.4 cents a gallon federal tax on gasoline during peak summer travel months, relief, he says, especially for low-income Americans.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: So they can travel a little further and a little longer and maybe have a little bit of money left over to enjoy some other things in their lives.

LOTHIAN: Commuting to work with a South Bend, Indiana, sheet metal worker, Senator Hillary Clinton touted a similar gas tax holiday, but said to make up for the nearly $10 billion in lost revenue that would otherwise pay for roads and bridges, she would impose a windfall profits tax on oil companies.

They pay, she says, you save.

SEN. HILLARY CLINTON (D-NY), PRESIDENTIAL CANDIDATE: Now some people say, well, that's not a lot of money. Well, it depends upon what you do for a living and how far you drive to work.

UNIDENTIFIED MALE: I like the idea for my pocket.

UNIDENTIFIED FEMALE: It's only going to be a temporary thing, like a drop in the bucket.

LOTHIAN: And Senator Barack Obama says the savings would be minimal, about $25 to $30. That's why he's against the gas tax holiday.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: This isn't an idea designed to get you through the summer. It's an idea designed to get them through an election.

LOTHIAN: Obama would use the windfall profits tax on oil companies to help low-income families pay for their energy bills. But some in the oil industry say the candidates should be focused on increasing domestic oil protection, not on taxing them.

JOHN HOFMEISTER, PRES., SHELL OIL: Taxing the oil companies is an idea that was tried in the '80s. It drove us to do more imports, which is the exact problem we have today. Too much imports, not enough domestic production.


LOTHIAN: Senator Obama is using the gas tax holiday to essentially liken Senator Clinton to Senator McCain because they both support it. On the other hand, Senator Clinton is using this issue to show that Senator Obama is really out of touch with working-class voters, the very key group that could play an important role in the upcoming primary -- Wolf.

BLITZER: All right. Dan, thank you.

Let's discuss this now with Congressman Xavier Becerra. He's Democrat of California, a strong supporter of Barack Obama. The Democratic strategist and Clinton supporter Steve Elmendorf. And Republican strategist Leslie Sanchez.

Guys, thanks very much for coming. Congressman, I'll start with you. Senator Clinton says it's time to get tough on OPEC, take on the oil companies, reduce their profits -- their windfall profits, she says, by force. Even though you support Barack Obama, do you think she's on the right path?

REP. XAVIER BECERRA (D), CALIFORNIA: Well, I think Senator Obama and Senator Clinton are both saying the right things with regard to the massive profits that are being made by the oil companies while everyone else suffers. I don't agree with the proposal to do a tax holiday on the gas tax simply because it doesn't work. It's like taking from Peter to give to Paul. Why would you take money out of your children's tuition account for college to pay for your mortgage?

We can't do the same thing to the highway trust fund either. I'd love to see us go after money from the windfall profits, but we still have an occupant in the White House who says he'd veto anything like that.

So I think we have to be realistic. I think Senator Obama has struck the right tone. We need to do some things, but we have to avoid the politics and get to the policy.

BLITZER: All right. Steve, what do you think?

STEVE ELMENDORF, DEMOCRATIC STRATEGIST: Well, I think, Wolf, it has been a good day on the campaign trail when we're actually having a debate about something interesting and substantive like energy policy.

And I think Senator Clinton has a good proposal to give people a gas tax holiday and we really ought to do something...


BLITZER: But the congressman makes the point, as other critics do, that if you take that money away, it's not going to be available to rebuild bridges, improve highways because that tax goes for those kinds of repairs.

ELMENDORF: Well, Congress can do a lot of different things with the money they're getting. I just think that we ought to focus on consumers and we ought to focus on what we can do to help them right now in this economic emergency this summer.

BLITZER: Here's what Hillary Clinton, Leslie, said. And I'll play the clip and then you'll respond.


CLINTON: We need a president who's going to take on the oil companies again. And I will do that. I will take away their tax subsidies. They don't need them to make these outrageous profits. We will try to do everything we can to get them to pay the gas tax this summer.


BLITZER: All right. So what's wrong with the taking the huge profits from Exxon Mobil, for example, billions and billions of record profits, and giving some of that money back to American taxpayers?

LESLIE SANCHEZ, REPUBLICAN STRATEGIST: I think a couple of things. One, it has been tried before and it really didn't work economically. I mean, when you talk about these windfall taxes, the problem is it really just diverts and takes money away from energy prospecting and research and ultimately puts it in government coffers where it goes to earmarks and like the congressman or like our panel has been talking about, more government spending.

And people are very skeptical of what that actually means. I mean, basically you're saying you want to tax profits in America, people that are doing well. You know, why wouldn't you tax the movie industry because movie tickets are so high? That really logically doesn't make sense.

And when she's talking about OPEC, if you really want to make it difficult for them, why don't we increase domestic production? I mean, why aren't we talking about drilling off the coast of Florida, you know, between Florida and Cuba where the Chinese are already drilling?

There are some important issues that we need to be talking about that the candidates are not doing.

BLITZER: Well, Congressman, this is an important issue, increasing oil production, supply and demand. If you start drilling, for example, in Alaska and the president says you can do it in environmentally-friendly ways, you're going to increase this supply and presumably the price will go down.

But Democrats and some Republicans, they have resisted increasing oil production, building more oil refineries, not in our backyard, if you will. What do you say to that criticism though? We heard it extensively from the president yesterday.

BECEERA: Wolf, you said it right. There's bipartisan resistance because these are the same broken record ideas that we've heard from the president for over six years. It doesn't work. And he shouldn't all of a sudden say that this is going to solve the problem. He has to start thinking in different ways. We've got to change this whole climate here in Washington, D.C. We're not going to...

BLITZER: But realistically, Congressman, I think you'll agree it's unlikely that this tax holiday, for example, on gas taxes that Congress is going to approve anything like that for this summer. This whole debate right now that you and the Clinton campaign and the McCain campaign are going through, it's really an academic, moot debate. Are you agreeing on that?

BECERRA: That's a political discussion. If we could get the president to do something decent on tax policy and also on this whole issue of rising gas prices and the gouging that's occurring, we would have done it. But we've got resistance in the White House.

And that's what makes it difficult to believe that if we drain the Treasury of money for the transportation fund that we would get that back somehow because the president would approve of it. So I'd love to go after the windfall profits that the corporations that drill oil are making.

But the reality is the Republicans and the president would resist and what we would end up doing is draining money out of the highway trust fund and not pay it back.


BLITZER: Hold on one second. I'll let Steve respond. Then we're going to take a break and, Leslie, we're going to come back to you.

Go ahead, Steve.

ELMENDORF: Well, I think our biggest problem -- I agree with Xavier on one thing, our biggest problem is we have a president who doesn't want to do anything. I mean, George Bush should sit down with the Democrats and Republicans in Congress and figure out what can we do to have a real energy policy now, not after the election, but now.

BLITZER: He says he wants to do something, for example, allow drilling in Alaska.

ELMENDORF: But all he has ever done is -- with Congress is propose his way or no other way. And it's time to have a discussion, a real discussion, where he listens to people in Congress about doing some things that are important to help the people.

BLITZER: All right. Leslie, go ahead, very quickly.

SANCHEZ: You know, real quickly, every single summer, and I worked on Capitol Hill as well and I know folks that are watching understand that every summer we talk about these kind of gas tax holidays.

And by the end of the summer nothing is ever done. Those are not realistic solutions. I mean, and you talk about making OPEC this bad guy when nobody talks about the fact that most of our imports come from Canada and Mexico.

I mean, I think there's a fair discussion, and you cannot discount the president has worked very hard on our energy independence, put ideas out there and that he gets resistance from the Democratic Congress. We've got to be fair about the debate.

BLITZER: Stand by, guys. We're going to continue this conversation.

Karl Rove faulting John McCain for being all policy and not necessarily enough warmth. Does McCain need to offer more of a personal touch? We'll discuss with our panel.

Also, someone who got a little too personal in his official capacity. There are more scandalous text messages in the case of the Detroit mayor.

And automated phone calls to voters in North Carolina have some suspicious origins. We're going to explain who's behind them and more right here in THE SITUATION ROOM.

(COMMERCIAL BREAK) BLITZER: Lately the Republican Party is speaking out about Barack Obama, but appears to be leaving Hillary Clinton out of the mix. Have they actually written off Senator Clinton as a candidate or is this just an oversight? Let's continue our discussion with Congressman Xavier Becerra of California, he supports Barack Obama, Democratic strategist Steve Elmendorf, he supports Hillary Clinton, and Republican strategist Leslie Sanchez.

Leslie, what do you think? Is it just the working assumption of the Republicans that Barack Obama is going to be the nominee?

SANCHEZ: I think for many Republicans they would like Hillary Clinton to be the nominee, but I think it's increasingly looking like Barack Obama is going to close the deal. And so that's more the mechanics of why you see the press related to the attacks and kind of the information overload that you are seeing on Barack Obama, and really identifying and learning who he really is.

BLITZER: You know, Congressman, Karl Rove wrote a column in The Wall Street Journal, and he said that John McCain really has to open up to the American people. Among other things, he said this: "Mr. McCain cannot make this a biography-only campaign, but he can't afford to make it a biography-free campaign either. Unless he opens up more, many voters will never know the experiences of his life that show his character, integrity, and essential decency."

What do you think about this Republican presumptive nominee?

BECERRA: Well, Wolf, I have to tell you that looking at Senator Obama and how much he has talked about what has made him into a man, a senator, I think it is important for people to know what makes you tick.

I don't know how much you have to say. I do know that Senator McCain will have to respond to questions about his taxes, his wife's taxes, his health, those issues that people want to know about him personally. And they'll obviously want to know a little bit about what makes him tick because he's had obviously a very important past.

But in terms of the campaign, I think we've gotten to know quite a bit about each of the candidates and people are making their decisions. I just hope that we keep this as positive as possible. What I always say is, Barack Obama is running for president, not against John McCain or Hillary Clinton.

BLITZER: All right. Steve, what do you think?

ELMENDORF: You know, I read Karl's column this morning and I think John McCain, you can't -- you know, have to be impressed by his biography. But I think this is a particular election where people want solutions and they want somebody who's going to say something about the economy, and they want somebody who's going to figure out how to get out of Iraq.

And I think that John McCain's problem is he doesn't have anything to say about those things. He doesn't have anything to say about health care, he doesn't have anything to say about the economy. And I think voters are going to have what they want.

BLITZER: Well, Steve, he's speaking a lot about Iraq, he's speaking a lot about health care, but he's not necessarily saying what you want to hear.

ELMENDORF: He's not saying what I think voters want to hear.

BLITZER: Leslie, go ahead.

SANCHEZ: Well, a couple of things. I think Karl Rove is exactly right when you're talking about humanizing these candidates. But if you think realistically part of the strategy of the McCain campaign starting in the fall was to show strong leadership, strong personal character. And those were things that really ultimately defined his comeback.

Thought it's not new to talk about John McCain, I would agree with the congressman there. What it -- and I did think topped the mind in the focus groups that I'm talking -- you know, and the folks I'm talking to, they want to know solutions among all three candidates.

How are they going to pay for what they propose? How are they going to direct this economy? And how are they going to keep America secure? And I think that really needs to be the focus here.

BLITZER: One final question, because we're almost out of time. Congressman, the Reverend Jeremiah Wright, he has been silent now for more than 24 hours. You think he's going to stay that way or will he go public in responding to Senator Obama's strong words yesterday?

BECERRA: Well, all I know is that Senator Obama is going to speak his mind. He spoke very, very clearly about the situation with Reverend Wright. Reverend Wright has every right to say what he wishes to say. But what's more important is what is Senator Obama saying? That's what counts for the American public.

And I hope that Senator Obama continues to speak what his heart tells him.

BLITZER: We've got to leave it there, guys. Thanks very much, good discussion.

Former President Carter knows that a divided Democratic National Convention can spell disaster. It certainly didn't help him back in 1980. Carter shares his thoughts on whether history will repeat itself this year in Denver. More of my interview with Jimmy Carter. That's coming up.

And more scandalous text messages led to a radio firestorm in Detroit. You're going to hear what's going on right here in THE SITUATION ROOM.


BLITZER: There are many calls right now for the Detroit mayor to resign amid newly released text messages. Mayor Kwame Kilpatrick and his former aide sent the embarrassing and graphic messages on their city-owned pagers. They now face several charges in connection with their alleged relationship in a city court case. Let's go back to Carol Costello, she's following this story for us.

All right. So what's the latest involving the mayor, Carol?

CAROL COSTELLO, CNN ANCHOR: Well, you could say steamy is the operative word here. Maybe you've heard, the Detroit mayor, Kwame Kilpatrick, is charged with perjury for lying under oath about a sexual affair. Well, tonight there's new evidence. Text messages that could hurt his case.


COSTELLO (voice-over): The newly released text messages between Detroit's married mayor and his former chief of staff read like a Harlequin Romance. April 27th, 2003, Beatty to Kilpatrick: "No response needed to this, but when held me in your arms and looked me in my eyes and said I was your woman, all was right with the world. I love you.

Kilpatrick: "Damn! Thank you.

Beatty: "Can you promise me that I will always be that?"

Kilpatrick: "I promise for the rest of my life you will be my girl."

COSTELLO: A Wayne County judge ordered the release of these new texts after a lawsuit by a local newspaper and a lawyer for city council. They were said on Christine Beatty's city-issued pagers between 2002 and 2003.

This one sent on September 19th, 2002. Beatty appears to be setting up a tryst in her city hall office. Beatty: "I have wanted to hold you so badly all day, but I was trying to stay focused on work. So I promise not to keep you longer than 15 minutes."

Kilpatrick: "Don't promise, (N-word)."

Beatty: "I'm in my office, do you want me to come to yours or are you coming to mine?"

Kilpatrick: "I'm coming down there. LOL ditto. Freaky Chris!"

UNIDENTIFIED FEMALE: Count six, perjury, court proceeding, penalty, 15 years.

COSTELLO: Detroit's mayor and Beatty were charged in March with perjury for lying under oath about their affair at a city whistleblower trial.

UNIDENTIFIED FEMALE: It's a doggone shame.

UNIDENTIFIED FEMALE: That's right. COSTELLO: On Detroit talk radio today, it was clear many had had enough.

MILDRED GADDIS, WCHB RADIO HOST: ... text messages that clearly shows, demonstrates a level of corruption in destroying these careers of these police officers.

COSTELLO: WCHB talker Mildred Gaddis told her listeners to urge those still supporting the mayor to stop.

GADDIS: A lot of Detroiters are praying that the feds just come on, put handcuffs on this guy and march him out. I think that Kwame Kilpatrick has an inevitable date with destiny.

COSTELLO: But the mayor has support from powerful Detroit business leaders and he's refusing to step down, even after the release of these latest text messages.

MAYOR KWAME KILPATRICK (D), DETROIT: As far as what I'm saying about it is, you know, we're going to keep marching forward. I think at the end, as I said before, we'll be fully exonerated and we're going to keep doing the work of the city.


COSTELLO: I did talk with Christine Beatty's attorney. He would not comment on the text messages but did tell me they were obtained illegally. As for Beatty, she resigned her office long ago and she is now looking for a job -- Wolf.

BLITZER: Carol, thank you. Carol Costello, reporting.

Senator Clinton had an awkward moment in Indiana today out on the campaign trail when a union president commented on NAFTA with an unusual choice of words. Listen to this.


PAUL GIBSON, STEELWORKERS UNION PRESIDENT: And you know what? I truly believe that that's going to take an individual that has testicular fortitude.



GIBSON: You know, that's exactly what -- that's we've got to have.


BLITZER: During her speech, Senator Clinton had said, I do think I have fortitude. Women can have it as well as men.

Let's go to Jack Cafferty. He has got a lot of fortitude. He's joining us right now with the "Cafferty File" -- Jack. JACK CAFFERTY, CNN ANCHOR: How do you follow something like that?

BLITZER: I don't know. I'm just a guy.

CAFFERTY: Yes, I understand. The question this hour is how optimistic are you about the future of our health care system. Marry writes from Alabama: "At almost 69, I'm not at all optimistic over the future of health care. I've seen the hospital in our town go from excellent to almost third world in less than three years. These are trying times in this country. After eight years of the Bush/Cheney kingdom, everything is down the tubes."

Kim in Kansas writes: "I'm not optimistic, until the government gets big pharma under control and realizes we're the only industrialized nation that has to pay these kind of prices for prescription drugs and medical treatment, there will never be a fundamental change in our health care system. As long as lobbying and kickbacks are legal, the health care field will remain rotten with corruption and that means higher costs to the public."

Matt in Nebraska writes: "I'm fairly optimistic because if it isn't now, our country's health care crisis will soon reach a critical tipping point. And the mood of the country generally seems to be in favor of massive reform."

Ken writes: "No, as long as the slugs we call politicians keep supporting the health care industry instead of the American people, nothing will change."

Mike in New York writes: "I've tried to think of any initiative besides national defense where the national government has done a good job. I can't. A national health care system will become an expensive bureaucratic mess. Whatever we do, we don't need another Social Security or Medicare monster."

And Sandy writes: "Right now I find it hard to be optimistic about anything. But I do have a small glimmer of hope. For many of my loved ones, universal health care will come too late. I just hope it's not the same for me."

If you didn't see your e-mail here, you can go to my blog at and look for yours there. We post hundreds of them each day. It's terrific reading. Much better than the mayor's text messages.

BLITZER: I think you're right. All right. Jack, thank you.

Former President Jimmy Carter dealt with a splintered Democratic Party during his presidential run. Here's what he has to say about the two current front-runners.


JIMMY CARTER, 39TH PRESIDENT OF THE UNITED STATES: I can't imagine the -- a candidate, I won't say which one, getting a majority of the delegates and then having the superdelegates go the other way.


BLITZER: More from my interview with the former president. That's coming up.

And Senator Hillary Clinton gets tough on China. We're going to tell you what she said. We'll ask Lou Dobbs what he thinks about it. That's coming up right here in THE SITUATION ROOM.



CLINTON: We're going to go right at China. On its currency manipulation. On its industrial espionage. On its counterfeiting. On its theft of intellectual property. On the practices that interfere with a free market and give us a disadvantage in competing.


BLITZER: Hillary Clinton speaking very tough about China. Let's discuss with Lou Dobbs.

Lou, you think if she's elected president of the United States she'll do something about the complaints she just raised?

LOU DOBBS, HOST, "LOU DOBBS TONIGHT": Well, I would certainly hope so. Because -- but at any rate we're already ahead with Senator Clinton on this issue. You haven't heard those statements from anyone in certainly this administration.

I mean, she's talking about very real issues that have a very real influence on this country. And the great thing is, with the exception of currency manipulation, all of that is within the -- if you will, the bailiwick of the U.S. government, the purview of public policy in this country.

This isn't about what the Chinese communist government is doing. They've already established that they're smarter, cleverer, and they're capable of strategies that this administration can't even imagine.

So what we have here is an opportunity for these candidates, and certainly Senator Clinton who is articulating an approach that I think is exactly correct, to lay out policies on this side.

Quit blaming the Chinese, quit sort of scapegoating them. That isn't the issue here. They're outmaneuvering us. It's time for the American government to be filled with intelligent, responsible, caring, dutiful Americans who will seek financial interest and preserve the common good.

And she's talking exactly correctly about the values and the issues that could make that happen.

BLITZER: Lou is going to have a lot more coming up in one hour on his show.

DOBBS: One hour.

BLITZER: Lou, thanks very much.

DOBBS: Thank you, Wolf.