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The Situation Room

Candidates Respond To The Federal Bailout; McCain Offers His Economic Strategies; Obama Says Holds Off, Give Bush Plan 'A Chance To Work'

Aired September 19, 2008 - 17:00   ET

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

WOLF BLITZER, CNN ANCHOR: Well, we begin with huge breaking news. The promise of a massive government bailout is certainly thrilling to Wall Street. Stocks soared once again today, closing out one of the most tumultuous weeks in American financial history. It's a story that stole the spotlight from the presidential campaign, but now the candidates are trying to get it back discussing what they'd do to try to set America's financial house in order. CNN's Jim Acosta has been working the story for us.
Jim, what are Senators McCain and Obama saying about all of this?

JIM ACOSTA, CNN CORRESPONDENT: Wolf, two different approaches from the candidates today. John McCain unveiled a six-point plan to deal with the crisis, but Barack Obama did something unusual for a politician. He held back.

(BEGIN VIDEOTAPE)

ACOSTA (voice over): In New Mexico on Thursday, Barack Obama said he was on the verge of revealing his plan to fix the mess on Wall Street. And even worked in a dig at the Bush administration.

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: Call for the passage of a homeowner and financial support act that would establish a more stable and permanent solution than the daily improvisations that have characterized policy making over the last year.

ACOSTA: But as he was scheduled to make that critical announcement with his economic team, Senator Obama offered no plan opting unsatisfied to give the Bush administration's approach a chance.

OBAMA: Given the gravity of the situation and based on conversations I've had with both Secretary Paulson and Chairman Bernanke, I will refrain from presenting a more detailed blueprint about how an immediate plan might be structured.

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: I will lead in the creation of the mortgage and financial institutions trust, the MFI.

In Wisconsin, John McCain showed no hesitation calling for the creation of a new agency that would rescue collapsing financial institutions. Experts say the proposal sounds a lot like what the Bush administration is already considering. Plan or no plan, both candidates are have little choice but to sit back and watch with the White House does next.

DIANE SWONK, ECONOMIST: The reality of the situation is they're going to have to react and deal with the hand they've been dealt and they are not going to able to reshuffle the deck.

ACOSTA: The man who wrote this week's "Time" magazine cover story on the crisis says the current meltdown should be treated like a financial 9/11 with bipartisanship.

ANDY SERWER, MANAGING EDITOR, FORTUNE MAGAZINE: So, I think it makes a lot of sense for them to sort of check out what's going on, look at the government's plan, look at Secretary Paulson and Chairman Bernanke's plan, make sure it makes sense. And I think supporting this in a by partisan nonpartisan way makes a lot of the sense.

(END VIDEOTAPE)

ACOSTA: The Obama campaign insists they're taking that bipartisan approach but the McCain campaign is having none of it, accusing the Democratic nominee of , quote, "having no plan and no position." -Wolf.

BLITZER: I know you've been speaking with sources inside the Obama campaign. Give us some other reasons why they decided to hold back instead coming out with a big formal blueprint, if will you?

ACOSTA: Right, Wolf, I talked to a key aide on economic policy within the Obama campaign and he said today that basically they didn't want to come out with a competing set of bullet points. They could have easily come out, as John McCain did today, and unveil a vast proposal with different sets of bullet points. But they said they wanted to give the Bush administration a chance. They say that this nonpartisan/bipartisan approach is the way to go for the time being.

They do have a plan. You can read it about it, but they want to hold off on announcing it to give this process a chance to move forward.

BLITZER: Jim Acosta, working the story for us. Thank you.

The cost of the bailout is staggering. Possibly, let me repeat, possibly $1 trillion when all is said and done. And some are questioning whether the cure might actually be worse than the disease. Carol Costello has been looking into this part of the story.

There are critics out there, Carol. What are they saying?

CAROL COSTELLO, CNN CORRESPONDENT: I talked to at least five economists today. There's no joy in our economic world.

We're talking possibly about $1 trillion. Connected to a plan no one really knows enough about to say it's going to be OK. What's the bottom line? For you and that money in your wallet?

(BEGIN VIDEOTAPE) COSTELLO (voice over): It's $1 trillion. That's a lot of zeros, 12, to be exact. It's what Senator Richard Shelby suspects the mother of all bailouts may cost you. And he ought to know, he's on the banking committee.

SEN. RICHARD SHELBY,(R), ALABAMA: That's got to have a hit on the taxpayers.

COSTELLO: $1 trillion to bail out AIG, Bear Stearns, Freddie Mac and Fannie Mae. Let's pretend that $1 trillion is due right now. That means every man, woman and child will pony up about $3,278. Thank goodness we just got that $600 tax rebate check from Uncle Sam.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: It will provide a booster shot for our economy.

MELISSA KING, TAXPAYER: I'm pretty pissed actually. I really don't want the government to use my money to pay for banks mistakes.

LISA HERNANDEZ, TAXPAYER: I know it sounds crazy, but I've struggled enough.

VINVENT PATRICOLA, TAXPAYER: I think it's their problem. And they have to fix it. We pay enough money.

COSTELLO: But the government says if it doesn't help companies like AIG take toxic mortgages off their books, we could be in even bigger trouble.

HENRY PAULSON, SECRETARY, TREASURY DEPT.: I am convinced that this bold approach will cost American families far less than the alternative, a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.

COSTELLO: And there is a real possibility Paulson's plan may not be your entire financial burden. The government hopes parts of AIG are still valuable. It could sell off those parts and recoup some of our money. That would be a good thing. Wouldn't it?

RYAN ELLIS, AMERICANS FOR TAX REFORM: The government's stepping in at this point and bailing out several firms creates a horrible precedent. They're essentially nationalizing a lot of the financial services, that are going on, and that over time will lead to far less economic growth.

COSTELLO: In other words, if businesses aren't allowed to fail, there will be little incentive to turn a profit responsibly.

(END VIDEOTAPE)

You know, remember, Detroit is asking Congress for $25 billion in federal low-interest loans to bail it out of its mess. Will Uncle Sam say yes to General Motors? Detroit, too? Who knows.

BLITZER: Who knows.

COSTELLO: You know, pick and choose who you're going to save and who you're not going to save? BLITZER: When I heard that $1 trillion figure earlier today and Paulson, himself, the Treasury secretary he said hundreds of billions. But others are saying possibly this could go up to a $1 trillion. I said to myself, that's basically what the U.S. has spent in Iraq since the war back in 2003. That's been several years since then a trillion dollars. It's a lot of money, obviously, but in terms of saving Americans and their bank accounts, their 401(k)s, their IRAs, because as much as this is a bailout for Wall Street, it's certainly a bailout for American savers and investors, as well.

COSTELLO: That is certainly what the Bush administration is saying. But the scary part is no one really knows how much it will cost, because nobody really knows enough about this plan to know if it really work. That's the scary part.

BLITZER: I guess the argument is if it saves this financial system of ours and gives people the confidence to put money in the bank and keep on going, I guess, whatever the price, that's worth it, but we'll see. The debate will continue. Carol, thanks.

COSTELLO: Sure.

BLITZER: Let's go to Jack; he's got the "Cafferty File," - Jack.

JACK CAFFERTY, CNN ANCHOR, THE SITUATION ROOM Funny how a stock market crash, the failure of a few big investment banks will distract Americans from the flavor of the day. There doesn't seem to be the burning interest in who makes Sarah Palin's glasses that there was a few days ago. Former White House advisor and Republican strategist Karl Rove told the Associated Press this week that the Palin phenomenon will fade between now and the election, and that may be already happening.

Suddenly, following the big bounce Sarah Palin and John McCain got coming out of their convention, Barack Obama's once again moving ahead in the national polls. Obama's a heavy favorite when it comes to handling the economy. And the crisis in the nation's financial system may have helped him politically.

Plus, Sarah Palin has said she will refuse to cooperate in the investigation into her firing of Alaska's public safety commissioner. She has said some awkward things during interviews and campaign appearances. And a recent CBS News poll shows only 42 percent of Americans think Sarah Palin's prepared to be vice-president.

So here's the question: Is Sarah Palin's 15 minutes of fame over? Go to cnn.com/cafferty file. You can post a comment on my blog - Wolf.

BLITZER: Jack, thanks very much.

Sarah Palin is still making some news though today even as we watch what's going on. She's attacking Iran, Ahmadinejad, and the Democrats in the process. She's attacking them over an upcoming protest. We're learning more about the tremendous amount of influence also that they are husband has in her administration in Alaska. Some people up there actually call him Alaska's shadow governor.

Also, how the financial crisis could frustrate the next president. We'll talk about that and more with Senator Jon Kyl. He's the number two Republican in the Senate, and he was at that dramatic meeting last night. Where lawmakers were warned of a total collapse of the financial system if something isn't done in the next few days.

Plus, get this. There's been a death sentence imposed for Mickey Mouse. One Muslim cleric calls him and I'm quoting now, "Satan's agent." We'll have a report. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Sarah Palin was supposed to be there. So was Hillary Clinton. But now neither will appear at a rally protesting the appearance of the Iranian President Mahmoud Ahmadinejad at the United Nations next week. Palin is seizing on that in her speeches. It's turning out to be a campaign issue, as well. Brian Todd has been looking into the story.

All right, Brian, tell us what happened. Give us the background.

BRIAN TODD, CNN CORRESPONDENT: This is now a peg, Wolf, for Sarah Palin and, in fact, both campaigns to spar with each other yet again. The prospects for Hillary Clinton, Sarah Palin standing together to rally against Iran was clearly very enticing for the organizers of this event. What they thought would be a bipartisan rally, with some real juice to it, quickly spun out of control politically.

(BEGIN VIDETAPE)

TODD (voice over): In a double-barreled attack, Sarah Palin takes aim at two opponents, the Democrats and Iran.

SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: I will continue to call for sustained action to prevent Iranian President Ahmadinejad from getting these weapons that he wants for a second holocaust.

TODD: Comments she could have made this coming Monday at a New York rally. The event will protest Mahmoud Ahmadinejad's visit to the U.N. and call for American leaders to do more to stop Iran's nuclear program. But Palin's been disinvited from that event. Why?

PALIN: Some Democrat partisans put politics first and now no elected official will be able to appear at that "Stop Iran" rally.

TODD: A charge the McCain/Palin team has been leveling since before the governor was told thanks, but no thanks. The Republicans say first Senator Hillary Clinton was pressured by the Obama campaign to go back on her promise to attend the rally with Palin.

The Obama team called that a dishonorable lie and Clinton's office said only she wanted to avoid a partisan event. We asked the McCain campaign who the so-called Democratic partisans were who they believe pressures the Jewish groups organizing this rally to disinvite Palin.

One, they pointed to, is the National Jewish Democratic Council, which has been vocal in its disapproval of the Palin invitation. Did the group lean on the organizers?

ALEXIS RICE, NATIONAL JEWISH DEMOCRATIC COUNCIL: We publicly, on Wednesday, called for the withdrawal of Sarah Palin's invitation to this Iran rally. It had become a political circus it. There is no knowledge, that I am aware of, that our organization put pressure on the organizations involved, but we did put public pressure by going out into the media, by talking to the press.

(END VIDEOTAPE)

TODD: Now, we tried repeatedly to reach leaders of the various Jewish groups organizing this event to ask them about any pressure brought to bear on them. They did not return our calls. But one of them, Malcolm Honeline (ph), from the Conference of Presidents of Major American Jewish Organizations, is quoted in "The New York Times" as saying the message of the rally was being lost in this media frenzy and, quote, "this is not about Governor Palin" - Wolf.

BLITZER: But in this current political environment once Palin is there and Hillary Clinton is there, it obviously has a political overtone.

TODD: That's right. The one group we talked to, who had voiced opposition publicly, had said that was what really made the difference. These groups have held rallies before with elected officials from both parties and there's never been a problem. The fact they had someone there who is running for vice president made it too politically charged. That's what got this out of control. That's what they said.

BLITZER: All right, Brian, thanks very much for working the story for us.

And we're learning more and more each day about Governor Sarah Palin. But what you about her husband of some 20 years? Some call Todd Palin, and I'm quoting now, "the shadow governor". Does he wield more influence than some might think? Let's go to CNN's Randi Kaye, she is in Anchorage, Alaska, for more on the man behind the woman who could become the next vice president.

(BEGIN VIDETAPE)

RANDI KAYE, CNN CORRESPONDENT (voice over): He was introduced to the nation as a blue-collar oil worker, a world record holding snowmobile racer.

PALIN: Two decades and five children later, he's still my guy.

KAYE: He's made an impression on Senator John McCain.

MCCAIN: He's not afraid of Washington, D.C. We can take'em on. KAYE: Here in Alaska, many say Todd Palin has plenty of influence. This man certainly thinks so. Stephen Branchflower is investigating the firing of the state's top cop and wants to find out if the Palins pressured him to fire the governor's ex-brother-in-law, a state trooper. He plans to subpoena Todd Palin.

STEPHEN BRANCHFLOWER, ALASKA STATE INVESTIGATOR: He has spoken to numerous government employees I think because he's such a central figure to the events.

KAYE (On camera): The governor says she hasn't pressured anyone. Todd Palin hasn't spoken publicly about the case but a picture emerged of him as his wife's greatest protector. He grew up in Alaska and is part Eskimo. The two met at a high school basketball game and eloped in 1988. When she's busy with state business, it is Todd Palin who cooks, carpools and juggles the five kids.

KRISTAN COLE, FAMILY FRIEND: Todd is incredibly supportive and is willing to do whatever it takes to help Sarah.

KAYE (voice over): These e-mails, released earlier this year, show he's been copied on lots of state business ranging from public criticism of the governor to meetings with corporate leaders.

ANDREW HALCROW, POLITICAL BLOGGER: Todd plays the role as kind of the fixer.

KAYE: Andrew Halcrow, a critic of the governor, who blogs about politics, calls Todd Palin a shadow governor.

KAYE (On camera): Do you really see Todd Palin as a shadow governor?

HALCROW: I think he has a tremendous amount of influence with Governor Palin.

KAYE (voice over): Halcrow found himself the subject of e-mails Todd Palin was copied on and wants to know why the governor's husband, a private citizen, was included on state correspondence.

KAYE (On camera): Why is Todd Palin copied on e-mails about state business?

MEG STAPLETON, CAMPAIGN SPOKESWOMAN: There is espousal privilege in that the governor is asking him to take care of some -- to print them off, or to take care of business.

KAYE (voice over): By all accounts, Todd Palin is a fixture at the legislature. Some have even joked about getting buttons that say, "What Would Todd do?"

Senate President Lyda Green is a Republican, but no friend of the Palins.

LYDA GREEN, PRESIDENT, ALASKA STATE SENATE: I had gone to the office, at a meeting I requested with the governor. I was particularly surprised that Todd was there. I'd never seen a spouse stay in the room, you know, through the meeting.

STAPLETON: Todd's role has not been inappropriate.

KAYE: Todd Palin wants to help Alaskans find jobs, which is why the campaign says he has taken two trips with us state commissioners to survey Alaskan mines and a flyover of the proposed route for a pipeline, his wife's key goal. The state paid for those trips because they were considered state business.

(On camera): Now with Todd Palin refusing to testify under the subpoena, the campaign is pointing to an Alaskan law that says no ethics violation proceeding can take place against a candidate running for office. So even though it's Sarah Palin running for office, the campaign says that Todd Palin is being asked to testify in an inquiry regarding a candidate running for office and he should be covered under this law, as well. Randi Kaye, CNN, Anchorage, Alaska.

(END VIDEOTAPE)

BLITZER: Bailing out Wall Street. It was certainly has huge implications for the next president of the United States. We'll talk about it with a skeptical senator who was in that Capitol Hill meeting last night. We have dramatic new details, as well.

Plus, hackers hit the website of the most powerful cleric in Shia Islam. You're not going to believe whose video wound up in the website. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Carol Costello is monitoring other important stories income together situation room right now.

Carol, what's going on?

COSTELLO: Wolf, let's begin with news around the world.

The U.S. military says it has killed the head of a bomb making ring in Iraq plus three other suspects terrorists. It said three women were also killed and a child was wounded in the raid and air strike near Tikrit. The military says troops surrounding a house gave multiple warnings, but the people inside refused to come out. Local officials say all of the dead were civilians.

Florida authorities have closed their case against former Congressman Mark Foley and say there is insufficient evidence to file criminal charges against him. Foley, you may remember, resigned two years ago after being confronted with inappropriate e-mails he sent to congressional pages. Investigators say they were hindered by the refusal of Foley and the House to allow inspection of congressional computers.

Gas prices fell a second straight day after Hurricane Ike's spike. According to AAA, the average price of a regular gallon of gas dropped nearly 3 cents overnight to a nationwide average of just under $3.81 per gallon. This, as more refineries came back online after being shut down because of Ike.

That's a look at the headlines right now, Wolf.

BLITZER: Carol, thank you.

Lawmakers were warned of financial catastrophe. No words were minced. We're learning new details about their meeting last night with the Federal Reserve chairman and the Treasury secretary and the dire predictions they heard. But will the fix tie the hands of the next president?

And FEMA under fire right now over Hurricane Ike. Some victims say that without a phone or a computer, they have no way to apply for help.

And Arab soap operas, tame by American standards, but too racy for some and now prompting death threats. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: The meeting was top secret, held behind closed doors. What the lawmakers were told was stunning. We'll speak to one of those lawmakers who was inside that room when they heard of the dire consequences of not doing enough to deal with this financial crisis.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM. Happening now, the White House makes a dramatic move to try to shore up confidence in the hammered financial markets. But will its sweeping rescue plan hamstring President Bush's successor? We're taking a closer look at that.

Nearly a week after Hurricane Ike tore through Texas, thousands are still homeless struggling to apply for FEMA paid housing. A Texas congressman is taking action. He is very angry, also.

And Disney's beloved Mickey Mouse facing a death sentence. I'm Wolf Blitzer. You're in THE SITUATION ROOM

There's still a whole lot we don't know about the federal government's plan for a massive Wall Street bailout, but could it put fiscal handcuffs on whoever wins the White House in November and make a balanced budget mission even more impossible? Let's go to CNN's Mary Snow; she is looking into the story for us.

All right. This bailout and some say it could be hundreds of billions of dollars, maybe even a trillion dollars, Mary, how much does this put a hamstring on whoever's elect president?

MARY SNOW, CNN CORRESPONDENT: Wolf, some of the candidates' signature proposals may prove too costly. We spoke with some experts who have been studying the candidates' plans. Deficit this year already is at $407 billion, and that's before the government's massive bailout is factored in. (BEGIN VIDETAPE)

SNOW (voice over): The administration is hoping it's rescue plan will be the end game to solving the current financial crisis. Its price tag isn't fully known.

HENRY PAULSON, SECRETERY, TREASURY DEPT.: We're talking hundreds of billions.

SNOW: For the next occupant of the White House, whether it's John McCain or Barack Obama, it means limits.

ANN MATHIAS, STANFORD GROUP: Certainly larger federal budget deficits and the need to focus on financial sector regulation is going to make just time and attention and money available for other programs a little bit tighter.

SNOW: In fact, it could put the squeeze on their signature issues. One tax and budget expert says the costliest part of Senator McCain's plan is his tax cutting proposals.

LEONARD BURMAN, URBAN-BROOKINGS TAX POLICY CTR.: I have no doubt that Senator McCain intends to make big cuts in spending, but if you believe what he says on the stump, he'd have to cut back spending to its level in the 1950s before we had a national highway system, Medicare or Medicaid.

SNOW: For Barack Obama, experts consider his health care proposal the costliest of his plans and expect the realities of deficit constraints to scale it back.

ANNE MATHIAS, STANFORD GROUP: From a realistic standpoint in terms of Barack Obama's healthcare programs, we don't expect to see a major change in the U.S. health care system in the first couple of years of his presidency, and that prediction I think becomes even more firm given the amount of tumult going on right now.

(END VIDEOTAPE)

SNOW: Some experts say there is a possibility the government plans may actually make money with this plan that was announced today. If that happens, that could benefit the next administration, but at this point, no one is really counting on any rosy scenario.

Wolf?

WOLF BLITZER, CNN ANCHOR: I think that's wise. All right. Mary, thanks very much.

Let's get some more now on this financial crisis and the fallout of the presidential campaign for that. We're joined by Senator Jon Kyl. He is a republican from Arizona, he's a member of the finance committee and also the number two republican in the senate, the minority whip.

You were at that meeting last night, Senator Kyl, where the treasury secretary, the chairman of the Federal Reserve laid out in pretty dire consequences what would happen if you didn't take action, talking about the administration and congress, democrats and republicans, within the next few days. How bad would it be?

SEN. JON KYL (R), ARIZONA: It would be very, very bad.

BLITZER: Spell out the consequences.

KYL: The consequences, and this isn't for Wall Street. This is for people like you and me, average Americans who hope that they will still have a job, hope their 401(k) is safe, hope the money in the bank is safe. The bottom line is the problem plaguing all of these folks on wall street has now mate sized throughout the economy and because there is no liquidity in the market, there isn't money available for anything for your small business employer to get a loan so he can keep paying you or you know, for me to be able to invest in something. Throughout the economy, all investing would and trade would basically come to a grinding halt. And that's why I don't think we have any choice but to adopted something along the lines that the administration is proposing.

BLITZER: Because I know you personally, a lot of republicans and even some democrats have always wanted a free market, they didn't want government bailouts. On Monday you said "These days it seems the federal government would rather bailout slowing industries with billions of taxpayer dollars instead of allowing the free market system to work." I take it what you heard last night has caused you to revise your thinking.

KYL: Well, yes. Although let me say this, as a general proposition, we should be as free with our markets as possible and regulation should be targeted where it's necessary. But in an emergency situation like this, in order to prevent the economy literally from falling apart, there's no question that some kind of governmental action is necessary. And in addition to the plan that the secretary and the chairman proposed last night for legislation, they are also using their other powers to do a variety of other things that further regulates how the market operates.

BLITZER: When we spoke with Chris Dodd, the chairman of the banking committee in the last hour, he predicted that by Tuesday, you guys are going to have the legislation, the deal in evacuate that they're going to work, this is no time for partisan politics. He says the democrats and republicans have to get this done as quickly as possible. Do you agree with him?

KYL: I agree that it's got to be done as soon as possible and Secretary Paulson and Chairman Bernanke were on a call with us a little bit earlier today in which the secretary again made that point. He said you cannot fool around with this. You can't use this as a Christmas tree to hang a bunch of political ornaments on it. It's got to be clean and it has to be done quickly.

The markets have responded very well but they won't wait around forever. And if congress were to leave town at the end of next week when we were planning to go on the recess for the elections, without having done this, it would be catastrophe. We have to stay here until it's done.

It could be done by the end of next week if we really put our minds to it and leave partisanship aside. We can get to all of our favorite political ideas at a later time but don't need to use this legislative vehicle for that purpose.

BLITZER: Do you agree with Senator McCain that the chairman of the Securities & Exchange Commission, the former republican congressman Chris Cox of California, was derelict in his duties and should be fired?

KYL: I tend to look at it differently. I talked to John about that this morning. I understand his point of view.

It's interesting that Chris Cox, the person we're talking about, has just made some major changes for example on the short selling rules. Exactly the kind of thing that John McCain has suggested be done. So maybe have him just do what John McCain would like to see done with the S.E.C. rather than fire him that seems to be working right now.

As I said before, it's a combination of things that the SEC has done, the fed has done, treasury has done. We're worried about our 401(k)s in our money markets. The government is now going to guarantee those for the first time. All of these things together along with the legislation that the secretary has asked for will we believe together enable us to save this struggling economy for the benefit of all Americans. This is not a bailout for any particular industry.

BLITZER: Because I asked the question because "The Wall Street Journal" and its editorial page really hammered Senator McCain over this call to get rid of Chris Cox among other things, the editorial board said this, "In a crisis voters want steady calm leadership, not easy misleading answers that will do nothing to help. Mr. McCain is sounding like the candidate searching for a political foil rather than a genuine solution. He'll never beat Mr. Obama by running as an angry populist like Al Gore circa 2000." Are they right?

KYL: What I'm saying is what matters is what we do from here. Many of the ideas that John McCain is proposing are being effectuated and some of them by Chris Cox, the person that he's criticizing. Hopefully, his point has been gotten across, and it's not necessary for Chris Cox to go. He can begin implementing those ideas.

The key thing here is again, I really want to get the politics out of this. I've got great things my democratic colleagues don't want to see. They have things they'd like to put on this bill that should not be on it in my point of view. We've got to come together as Americans, forget the politics if for a moment and get this done. It's a short period of time for congress to get anything done as you can imagine within a period of a week or so. We really have to put the politics aside and work together to get it done.

BLITZER: Let's hope that happens. We heard a similar message from Chris Dodd in the last hour. Senator Kyl, thanks, good luck. KYL: You bet. Thank you, Wolf.

BLITZER: Evacuees may be able to return home to Galveston Island next week. It could be a lot longer for thousands of people in Houston chased out by their homes and Hurricane Ike to get their power back. We're watching what's going on and why red tape may be keeping them in shelters and out of FEMA housing.

And he's one of the most influential clerics in the Islamic world. What's Bill Maher now doing on this ayatollah's website? Our Abbi Tatton standing by to fill us in.

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

(COMMERCIAL BREAK)

BLITZER: Satellite TV networks ignoring a fatwa or death sentence issued last week by Saudi Arabia's top cleric. The cleric says Middle East network owners deserve to die for airing indecent programming. And he says, get this Mickey Mouse should suffer the same fate.

Here's CNN's Octavia Nasr.

(BEGIN VIDEOTAPE)

OCTAVIA NASR, CNN CORRESPONDENT: Scenes like these on Arab networks brought a call for the death sentence from Saudi Arabia's top cleric.

SHEIKH SALEH EL-LHEIDAN (through translator): I advise the owners of the shameless satellite stations who distribute programs promoting impudence, insolence and silly humor, I warn them, they're wasting people's time and corrupting their minds. If they don't heed our call, their killing could be permissible.

NASR: During the Muslim holy month of Ramadan, soap operas are on every satellite channel keeping the fasting masses entertained. Local productions tackling social issues including love and lust depend on makeup, costumes and dramatic voices to convey the message instead of actual love scenes or any hint of them. For them, talking about love is enough.

UNIDENTIFIED MALE (through translator): I wish to die for her. I long for her. I can't wait to see her.

NASR: Women rely on dreamy eyes and the body language.

What offended the Saudi cleric were Turkish productions such as this one dubbed into an Arabic offering a hint of open sexual relationships, a topic still taboo in the Arab world.

This Lebanese soap opera featuring a pregnancy out of wedlock could also be viewed as offensive. But then, the same cleric turned his power to issue edict on mice, calling them filthy and unhealthy, deserving death. And if this were not enough, he said the American cartoon character Mickey Mouse should die, too, calling him "Satan's agent."

Arab broadcasters gave the edict the cold shoulder. They continued airing the soap open operas and turned down requests for interviews. Meanwhile, on the Arabic satellite airwaves, they continued to love each other while on a Saudi soap opera, a man hits his wife and pronounces her divorced by merely repeating the words you're divorced three times. Viewers across the Arab world absorbing it all in unaware or uncaring about the controversy. A reflection of modern attitudes perhaps raising a question about the effectiveness of edicts or the leader who's issue them, signaling the possibility of change growing beneath the surface in the ultraconservative Saudi culture.

Octavia Nasr, CNN, Atlanta.

(END VIDEOTAPE)

BLITZER: He's one of Islam's most powerful figures but that apparently didn't stop hackers from accessing the website of the Shiite cleric Ali al Sistani and putting a YouTube video of the comedian Bill Maher, that would be from our sister network HBO, on that website. Let's go right to our internet reporter Abbi Tatton.

This is a weird story. Tell viewers what's going on.

ABBI TATTON, CNN REPORTER: This is normally a website where the top Shiite cleric answers questions from the Shia faithful but if you went to this morning, you see not al Sistani but it's Bill Maher doing the talking. This website hacked by a group calling themselves Group XP, part of the hack reads in the name of god the most merciful, do you think you're alone on the internet and there is no one who can hack your dirty site? What it seems they're mad about, material discussions of a sexual nature appearing on al Sistani's website and to make their point, they've added video of Bill Maher, the comedian making fun of the site's contents. This has been taken down now. The hack, the video is gone and website's inaccessible. The hackers threatened this is going to be an ongoing thing.

Wolf?

BLITZER: A battle between the hackers and al Sistani. All right. Abbi, stay on top of the story for us, as well.

It's been nearly a week since Hurricane Ike battered Texas. Why are thousands of people still homeless?

ERICA CHAMBERS, HURRICANE VICTIM: I'd see if it was Katrina when we didn't have a good understanding, we didn't know how to handle these disasters like this, these mass problems. But Katrina should have been a lesson learned.

BLITZER: A Texas congressman says the country can do better. What he's doing to get evacuees out of shelters.

And Barack Obama and John McCain, now the campaigns' economic advisors may be going after each other, as well. But are the campaign ads playing fair? Howard Kurtz getting ready with a fact check.

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

(COMMERCIAL BREAK)

BLITZER: The Texas Congressman Nick Lampson says more needs to be done in his storm-battered state and done right now. Nearly a week after Hurricane Ike tore through a million and a half, customers still have no power. 57 deaths are blamed on the storm, 23 of them in Texas. Ike's financial toll could reach $16 billion. Evacuees will be able to start returning to Galveston Island next week but it could be a much longer wait for thousands of people in Houston.

Here's CNN's Susan Roesgen.

(BEGIN VIDEOTAPE)

SUSAN ROESGEN, CNN CORRESPONDENT: Walk into Erika Chambers' Houston apartment and you'll notice two things, no lights and an awful smell from wet and moldy walls. Erika and her two daughters can't stay here. So this is where they wound up. Erika is one of thousands here with no way to apply for FEMA-paid housing.

UNIDENTIFIED MALE: Have you already done your initial application?

ROESGEN: People who have lost everything don't have the money to pay for a motel room up front. And to apply for FEMA's help, they have to have access it a computer to apply online or a working phone to call FEMA. These people didn't have either.

REP. NICK LAMPSON (D), TEXAS: It needs to be lean and mean and it needs to be able to go out and get its work done and get it done quickly.

ROESGEN: Texas Congressman Nick Lampson is so fed up wit h FEMA, he got permission from House Speaker Nancy Pelosi to bring 200 computers and 200 phones owned by the House of Representatives to Houston. So far, more than 5,000 people have used them to apply for FEMA help.

LAMPSON: The apartment is uninhabitable and she cannot get a claim number. We can do better. And we must.

ROESGEN: In response, FEMA tells CNN that the agency has had 300 employees helping people in shelters sign up for assistance, and while the agency appreciates the congressman's help, FEMA's first priority was the life-saving supply of food, water and medical aid. Erica Chambers agrees that those things were essential right away, but without some place to live, she is afraid people's misery will last longer.

CHAMBERS: I could see when it was Katrina and we didn't have a good understanding and we didn't know how to handle these disasters like this, these mass problems, but Katrina should have been a lesson learned. ROESGEN: Right now at least she feels that the wheels are in motion. Right now, these people are just grateful to have a way to reach the outside world, a way to ask somebody for help.

Susan Roesgen, CNN, Houston.

(END VIDEOTAPE)

BLITZER: We will continue to stay on top of that story for you as well.

Let's go to Jack Cafferty right now. He's got the Cafferty File.

Jack?

JACK CAFFERTY, CNN CORRESPONDENT: And the question are Sarah Palin's 15 minutes of fame over?

Wendy in Virginia writes, "Sarah Palin's 15 minutes of fame totally over. It was a moment of fascination because people were curious about who she was, and they really wanted her to be a new Hillary Clinton, except she is not. She is a beauty queen who has no credentials and no understanding of what the country needs."

Dave in British Columbia, "Sarah Palin is a metaphor for all that is wrong with America. Somewhere in our lifetime the packaging and pretty ribbons became more important than content and it is true when it comes to buying a book or seeing a movie or good meal or buying food at the local supermarket, and until this changes, America will remain in trouble."

Tyson writes, "Sarah Palin's 15 minutes of fame absolutely not over. Having her on the republican ticket is huge. John McCain was very smart when he decided to choose her as his running mate. She is a Washington outsider unlike her counter part, Senator Biden, and Sarah with more executive experience than Senator Obama and Senator Biden combined."

Linda writes, "Sarah Palin's star is fading fast. She went from a phenom to a Saturday Night Live joke and now is just another lying politician. She said she was an open book about the Troopergate issue, but now the cat has her tongue. On November 5th, republicans will be jumping on the bandwagon saying that McCain could have won the White House if it wasn't for Sarah Palin, her husband and her controversial issues. Put lipstick on that."

Dick writes, "I hope not. Getting back to the important issues and solving the country's problems seem boring compared to pregnant teenagers, nasty emails, lipstick on things, snowmobile races, pork wars and SNL skits."

If you didn't see your email here, you can go to my blog at CNN.com/Caffertyfile and look for yours there among hundreds of others.

Wolf? BLITZER: Thanks very much, Jack. See you in a few moments.

A nuclear Iran and an increasingly aggressive Russia. What should the next president of the United States do? Former secretaries of state are offering their advice.

Plus, a huge ambitious plan to avoid a meltdown in this country. What Barack Obama and John McCain are saying about it.

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

(COMMERCIAL BREAK)

BLITZER: A newly prosperous Russia flexing its muscles and whether to engage in diplomacy with Iran. That is just some of the challenges facing the next president of the United States whoever it will be. Our CNN special correspondent Frank Sesno is joining us.

Frank you and Christiane Amanpour have hosted a discussion with some very prominent former secretaries of state. They had some advice for the next commanders in chief. Share with us what you learned.

FRANK SESNO, SPECIAL CORRESPONDENT: Well, they certainly did have some advice and they said get real and see the whole world and quit the ideology.

(BEGIN VIDEOTAPE)

SESNO: What if you pulled the politics back from the waters edge of American foreign policy, what if you could really get a sense of what is at stake in the world and how the next president should confront it? Won't happen in the sound bite world of the campaign, but we had an extraordinary opportunity to hear what a real discussion about America's role in the world would sound like. Five former secretaries of state, democrats and republicans, spoke with Christiane Amanpour and me earlier in the week in front of 1,500 people at the George Washington University and they agreed that it is time for the United States to deal with Iran.

UNIDENTIFIED FEMALE: I think we need to engage with Iran.

COLIN POWELL: Don't wait for a letter coming from him. Start discussion.

CHRISTIANE AMANPOUR, CNN CORRESPONDENT: Do you want to actually try to engage for strategic reasons?

SESNO: They said that Russia should not get a pass, but shouldn't be vilified either.

HENRY KISSINGER, FORMER SECRETARY OF STATE: It is not democratic, but it is also not what it was before.

JAMES BAKER, FORMER SECRETARY OF STATE: You are going to have the border conflicts all around the periphery of the former Soviet Union and that should not be a cause for rupturing the entire big relationship to deal with nonproliferation, and to deal with environment, climate change, you name it.

SESNO: They said that America needs to take concrete steps to restore the confidence in the world.

UNIDENTIFIED MALE: Outlaw torture in a meaningful way.

UNIDENTIFIED MALE: Close Guantanamo which is a very serious blunder upon our reputation.

UNIDENTIFIED MALE: Close Guantanamo.

UNIDENTIFIED MALE: Yes, close Guantanamo.

SESNO: This blunt conversation conveyed urgency and sense of direction and even complexity. Imagine that from five who have been there.

(END VIDEOTAPE)

SESNO: Wolf, it was an incredible conversation, because these folks go back to the deepest days of the cold war through the most recent Iraq war, and Harry Kissinger and Collin Powell. They were blunt. The sad thing is that we won't hear it from the campaign and the campaign and the surrogates, because if they say anything with a degree of nuance like reach out to Iran, they will get pounded and turn into an attack sound bite, but this is the sense of what is out there for the next president and the big challenges he will face.

BLITZER: And sounds like, Frank, on some of the sensitive and controversial issues you heard a consensus between the democrats and the republicans.

SESNO: And there was, and there was not a criticism of president Bush, but it was veiled and it was get over it and start to engage the world and be realistic in the way it is done and recognize that this stuff is interrelated and we cannot stand on ceremony, but reach out and make some bold moves here in the years ahead.

BLITZER: Thank you, Frank, good work as usual. This CNN special "The Next President, A World of Challenges" airs Saturday night at 9:00 p.m. and Sunday again at 2:00 p.m. You will learn something from this special.

And to the viewers, you are here in THE SITUATION ROOM.

Happening now, the most sweeping and financial rescue plan since the great depression. Can the federal government really pull it off?