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The Situation Room

Plan To Rescue Wall Street Fails; Stocks Die After Bailout Plan Fails

Aired September 29, 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: Happening now, the breaking news we're following -- the $700 billion plan to try to save the nation from even deeper financial crisis -- it fails. On Wall Street, frightened investors send stocks plummeting. On Main Street, worried Americans fret over their retirement accounts, their 401(k)s and their jobs.
Financial guru Suze Orman is standing by. Live. She'll offer us some advice what to do next.

Barack Obama and John McCain both claim victory in their debate. But wait until you see who really got a bounce.

And the McCain campaign says Sarah Palin is going to debate camp. She and Joe Biden are enduirng intense preparations right now. But whose debate style could help or hurt the most?

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

One Republican lawmaker says -- and I'm quoting now -- "heaven help us." The $700 billion plan to save the nation from deeper financial crisis fails -- defeated under a hail of no votes from some Democrats, but mostly Republicans turning their backs on President Bush's urgent pleas to vote for the legislation.

It caused the single largest point drop in the stock market's history. And right now, acts toward bipartisanship have dissolved into bickering and finger-pointing. President Bush is disappointed, but he failed to get fellow Republicans -- at least enough of them -- on board.

Gloria Borger is standing by. Deb Feyerick is at the Stock Exchange. Ali Velshi is in New York.

But first, let's go to our White House correspondent, Elaine Quijano, where she's monitoring what's going on -- Elaine, what a day. Tell viewers what they're saying behind you over at the White House.

ELAINE QUIJANO, CNN CORRESPONDENT: Well, certainly, President Bush's urgent pleas, including one just this morning, ultimately failed to get members of his own party to fall in line.

(BEGIN VIDEOTAPE)

QUIJANO (voice-over): It's a stinging defeat for President Bush delivered at the hands of his fellow Republicans.

UNIDENTIFIED FEMALE: On this vote the yeas are 205, the nays are 228. The motion is not adopted.

QUIJANO: After intense weekend negotiations on Capitol Hill, the House failed to pass a $700 billion bailout plan.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I was disappointed in the vote with the United States Congress on the economic rescue plan. We put forth a plan that was big because we've got a big problem.

QUIJANO: Just days after the president warned of a long and painful recession, the finger-pointing began immediately.

REP. ERIC CANTOR (R), VIRGINIA: Right here is the reason I believe why this vote failed. And this is Speaker Pelosi's speech that, frankly, struck the tone of partisanship that, frankly, was inappropriate in this discussion.

QUIJANO: But Democrats fired back, saying it was House Republicans' own opposition to the bailout that scuttled the bill.

REP. BARNEY FRANK (D), MASSACHUSETTS: We don't believe they had the votes and I think they are covering up the embarrassment of not having the votes. But think about this. Somebody hurt my feelings, so I will punish the country. I mean that's hardly plausible.

QUIJANO: House Minority Leader John Boehner admitted GOP lawmakers remained firmly opposed.

REP. JOHN BOEHNER (R-OH), MINORITY LEADER: The fact is, is that while were able to move the bill drastically to the right, it wasn't good enough for a lot of our members. And so we've got to find a true middle ground that will bring enough votes in order to avert any crisis.

(END VIDEOTAPE)

QUIJANO: And President Bush met with members of his economic team a short time ago, including, as we heard, Treasury Secretary Henry Paulson who insisted once again that a rescue bailout plan or a rescue plan needs to come together as soon as possible. Secretary Paulson saying the administration does have some tools at its disposal in order to keep the U.S. banking system -- to hold it up essentially. But Secretary Paulson also saying, Wolf, that that tool kit is insufficient -- Wolf.

BLITZER: Elaine, I notice that -- I think all the Republican leaders, Boehner and Blunt and Eric Cantor -- all of the Republican leaders in the House voted in favor of it, but the rank and file conservatives in the House, they voted overwhelmingly against this legislation. Interesting -- a repudiation not only of the president, the secretary of the Treasury, but their own Republican leadership in the House, as well.

All right, thanks, Elaine. Elaine is over at the White House.

Let's go to Ali Velshi, who's watching all of this -- Ali, this is the single biggest point drop ever -- 777 points. It beats, I think by more than 100, the earliest single biggest point drop when the markets reopened after 9/11.

But talk about the impact of what's happening on Wall Street on the banking structure...

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Right. This is kind of unusual --

BLITZER: -- because that's so critical.

VELSHI: It's kind of unusual that on the day that we've seen the biggest point drop ever in the Dow, I'm going to tell you that that's actually not your biggest problem. While it will be seen in your 401(k), you'll see this sort of drop, it's actually bigger in the S&P 500.

The real problem here is not reflected in the Dow. It's something we don't have a measure for and that is how tightly frozen the credit markets are right now.

The credit markets go two ways. They go down all the way to your bank, which is where you get your loans from and your mortgages. So without a deal, without those credit markets being unfrozen, you will find it tougher to get a mortgage. And if you're trying to sell a house, the person who is buying it from you will find it tougher to get a mortgage, which is going to affect the price of your house. That's the obvious connection.

The less obvious connection is that it is very common in American business to borrow money for short-term financing needs -- for short- term operations, because you've got money coming in from your customers and money going out to your creditors. That is the money that has stopped flowing. There are many good businesses that are having a very difficult time raising money right now. Everybody's keeping their squirrels until their -- their acorns. All the squirrels are keeping their acorns until they realize what is going to be done in this deal.

So the inability to get a deal done is freezing out some businesses from getting money. That money could be utilities. It could be money paid to suppliers, small businesses, like Donna Brazile said, and it could be salaries. It could be payroll, it could shifts at plants.

So this is much more serious than what you see on the Dow right now.

BLITZER: Ali, stand by. I want to get back to you in a moment. The uncertainty and the frustration is clearly out there.

CNN's Deborah Feyerick is in New York. She's over at Times Square getting a little reaction -- for a lot of folks out there Deb, I have to tell you, this is a nightmare.

DEBORAH FEYERICK, CNN CORRESPONDENT: Absolutely. And there's a lot of uncertainty. A couple of folks that we have spoken to, they've taken pictures of this ticker here at Times Square. There's anger. There's confusion. There's disgust that the Treasury Department will not be able to buy some $700 billion in these troubled mortgages in order to stabilize the financial situation.

The big question -- why didn't this get done, as Democrats suggested it was going to get done, and why did two-thirds of Republicans vote against it?

Here's what some of the folks we spoke to had to say.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I have an annuity account and a pension plan. I mean, that's my retirement. I mean, it's in mutual funds. But the funds are all in this -- all in these markets.

UNIDENTIFIED MALE: I think the term they used was catastrophic if this was not passed. So, we'll just have to wait and see.

UNIDENTIFIED MALE: I think it's pretty irresponsible of them, but that's nothing new.

(END VIDEOTAPE)

FEYERICK: So there really is lots of uncertainty here. The one thing we're not hearing that we were hearing listening in on Capitol Hill earlier today, and that is a number of politicians saying well, their constituents didn't want this. But the one thing that we haven't heard -- at least not here in this small corner of the world -- is the sense of relief that it didn't get passed. So that's absent, at least from here -- Wolf.

BLITZER: All right, Deb Feyerick over at Times Square. Thanks very much.

John McCain is going to walk through those curtains momentarily and make a statement. We have our cameras there, our microphones there. We're going to hear what he has to say going into the vote that was lost today on the floor of the House of Representatives, he had clearly indicated he supported this emergency legislation.

He had come back to Washington over the weekend earlier last week to try to get involved and to try to get some sort of legislation -- a compromise worked out. He wanted to see it passed and earlier today at a speech out in Des Moines, he was indicating he wanted the legislation to go forward.

But, clearly, that was not to be. The legislation failed, largely because not enough Republicans were on board with the Republican president, the Republican secretary of the Treasury, the Republican leadership and the Republican presidential nominee. All of them urged members to go ahead and support this. But in the end, that simply didn't happen.

As we await John McCain to walk through those curtains, Gloria Borger is watching and listening. I might interrupt you, Gloria, but what a day not only economically for the United States, but politically, as well.

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Well, yes. And as we look at John McCain getting ready to make a statement, he, as you remember, Wolf, suspended his campaign. He came back to Washington because he said he needed to try and help solve the crisis.

I spoke with somebody in his campaign today and that person said, look, John McCain got 61 Republicans on board here, where were the Democratic votes?

Now, a majority of Democrats did vote for this bill, Wolf. But 40 percent of the Democrats said no. And so that's a question I'm sure John McCain is going to be speaking to when we hear him in a minute. He is going to say that this is the failure of Barack Obama's leadership, not his leadership.

But, you know, in the end, it could be the result of a weak presidency, Wolf, because George W. Bush couldn't move those votes, either.

BLITZER: Yes. Those Republicans, the rank and file, they were adamantly against this $700 billion plan. Only 65 Republicans in the House voted in favor of it; 133 voted against it. On the other hand, Democrats voted overwhelmingly, 60 percent -- 140 Democrats voted in favor; 95 voted against. So it's interesting that the Democrats were more on board with the Republican administration on this piece of legislation than the Republicans were.

BORGER: Right. And the original plan, Wolf, was to get sort of half of each caucus to kind of hold their noses and jump off together and vote for this and pass it on a bipartisan basis. The Democrats said even though they control the House this is a Republican president, a Republican bailout proposal, we're amending it, but you need to brings along a half of your caucus. And what you saw, as you were just, saying was that by a 2-1 margin, Republicans, particularly ideological conservatives who are against big government and who saw that the popularity of this bill was heading south, decided to vote against it.

John McCain did help with some members of the Republican caucus, but clearly not enough.

BLITZER: Ed Henry is watching this.

We're awaiting John McCain. And he's going to be making a statement. I don't know what he's going to say on this day -- an historic day that has seen the single largest point drop ever on the Dow Jones industrials -- a 777 point drop. That's more than 100 points worse than it was when the markets reopened right after 9/11.

And you've been covering the McCain campaign for some time. I suspect all this dire economic news is awful for his campaign.

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Yes, well, obviously, there are two things that John McCain needs to get done in these remarks. He has to, first of all, push back, as Gloria was pointing out, and try to pin the blame on the Democrats, away from him. And, secondly, he needs to show that he'd would be ready to be president -- what would he do to sort of calm the markets.

This a moment -- we talk about this a lot on national security, where either Barack Obama or John McCain has an opportunity when there's an international crisis to say, look, I could be in charge, I could be commander-in-chief.

Now we have a financial crisis on our hands. And this is an opportunity for John McCain, in this setting, to show, look, I can rise to the occasion. I calm the markets down. I can show I have a plan to deal with this.

The same for Barack Obama, when he was talking earlier in Denver. I assume, over the next couple of days, Barack Obama will be using these opportunities, as well, to show he can rise to the occasion.

But there's a special challenge for John McCain for a couple of reasons. One, you've got Republicans leading the White House for the last seven-and-a-half years. That's why there's a lot of pressure on Republicans to show they can turn the economy around. And, also, over the last few days, John McCain himself raised the stakes dramatically by saying he was going to suspend his campaign, he was going to go back to Washington, he was going to try to win over some of those House Republicans.

Obviously, that failed. The McCain camp was trying to say, as Gloria pointed out, look, we got a bunch of Republicans -- a lot more than there were last week -- to vote for this. And that is accurate. The McCain camp is right, that dozen more Republicans did, in the end, vote for this.

Now, was that just because of John McCain? Was that also because of the president's public remarks?

There's a combination in there, obviously. But politics is about the bottom line in this business. And the bottom line is that John McCain put a lot of political capital on the line. And, in the end, this bailout failed nevertheless -- Wolf.

BLITZER: All right.

Stand by, Ed, because we're waiting to hear from Senator McCain. And as we await Senator McCain, let's check in with Jack Cafferty for "The Cafferty File" -- Jack, go ahead and tell us what your question is, but we may interrupt you.

JACK CAFFERTY, CNN ANCHOR: Well, I'll just fill up the time here until you have something else you want to do.

The chorus of calls for Governor Sarah Palin to step aside as John McCain's vice presidential candidate is getting louder in the wake of that disastrous interview that Palin did with Katie Couric. Kathleen Parker, a well-respected conservative columnist, writes on the "National Review" Web site that after watching Palin's recent media appearances her "cringe reflex" is exhausted. She says Palin's interviews with ABC's Charlie Gibson, Fox News' Sean Hannity and CBS' Katie Couric have "all revealed an attractive, earnest, confident candidate who is clearly out of her league."

Parker admits that she'd been pulling for Palin as a woman and as a conservative, "but her lack of understanding of economic and foreign policy issues is troubling." Parker now says if B.S. were currency...

BLITZER: Right now, Jack. Jack, I'm going to interrupt you to go to Senator McCain.

(JOINED IN PROGRESS)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: Every American worker, small business owner and family, if our leaders fail to act. I share the anger and frustration that many Americans feel toward reckless and corrupt mismanagement on Wall Street and in Washington.

I returned to Washington last week to work on a bipartisan rescue plan, because the only plan that at that time on the table lacked enough support to pass. It also lacked sufficient accountability and transparency to justify expenditure of the taxpayers' money.

At the time, the concerns of all members were not being heard. My colleagues were worried about the size of the plan and the risk it posed to taxpayers. I shared those concerns and I laid out principles that I thought must be adhered to. Those principles included responsible oversight, effective transparency, added protections for the taxpayers and a cap on excessive salaries for executives. I also believed that the legislation should have no earmarks.

I worked hard to play a constructive role in bringing everyone to the table. The plan is now significantly improved. We strengthened taxpayers' protections and oversight, and the taxpayers were on the hook for less money up front.

Don't get me wrong, it isn't perfect. And the fact that taxpayers could have to spend a single dollar to create stability in our economy is a decision that I do not take lightly.

I was hopeful that the improved rescue plan would have had the votes needed to pass, because addressing the credit crisis is of vital importance to families, small businesses and every working American. We must be assured that their assets are safe and protected and that our economy will continue to function.

Today, I've spoken to the Federal Chairman Bernanke, Secretary Paulson, Congressional leaders and now it's time for all members of Congress to go back to the drawing board. I call on Congress to get back, obviously, immediately to address this is crisis.

Our leaders are expected to leave partisanship at the door and come to the table to solve our problems. Senator Obama and his allies in Congress infused unnecessary partisanship into the process.

Now is not the time to fix the blame. It's time to fix the problem. I would hope that all our leaders -- all of them can put aside short-term political goals and do what's in the best interests of the American people.

Thank you.

(CROSSTALK)

BLITZER: All right. So there he is, Senator McCain making a statement -- a carefully prepared statement -- and then walking off, not responding to reporters' questions.

Just a little while ago, we also got a statement in from the Barack Obama campaign. A spokesman, Bill Burton, said this. And let me read it to you: "This is a moment of national crisis and today's inaction in Congress, as well as the angry and hyper partisan statement released by the McCain campaign, are exactly why the American people are disgusted with Washington. Now is the time for Democrats and Republicans to join together and act in a way that prevents an economic catastrophe. Every American should be outraged that had an era of greed and irresponsibility on Wall Street and Washington has led us to this point. But now that we are here, the stability of our entire economy depends on us taking immediate action to ease this crisis."

That statement coming in just a little while ago from the Obama campaign. We heard Senator Obama make a similar statement just a little while ago. Actually, both Obama and McCain effectively saying the same thing -- they don't like this very much, but the country needs it and Congress needs to take action ASAP, soon as possible.

We'll take a quick break. When we come back, we'll finish up with The Cafferty File.

Also, what's happening right now is certainly wiping away a lot of the value of all of our savings accounts.

What should Americans do about their 401(k)s, their retirement accounts, their stocks, their portfolios?

Our financial expert, Suze Orman -- there she is -- she's joining us here in THE SITUATION ROOM. We've got some specific questions. She has some advice for all of us.

Also, Governor Sarah Palin is throwing some zingers against Joe Biden.

Will she sharpen up more now that she's going to what the campaign calls -- and I'm quoting now -- "debate camp?"

And who's got the bounce -- the poll on what Americans thought of Barack Obama and John McCain during their last debate. Who won?

Stay with us. Lots of news happening on this important, historic day right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Seven hundred seventy-seven -- that's number of points the stock market dropped today -- the largest single point drop ever.

Here to explain the impact of the legislation's failure and how it's all going to affect us, our families, he personal finance expert Suze Orman.

She's the host of CNBC's "The Suze Orman Show." Suze, thanks very much for coming in.

SUZE ORMAN, HOST, CNBC'S SUZE ORMAN SHOW: Any time, Wolf.

BLITZER: I wish we were meeting, as they say, under different circumstances, but how worried should our viewers be right now, not only about their stocks, if they have stocks, their mutual funds, their portfolios, their 401(k)s, but about their jobs?

ORMAN: They should be worried about everything. And they should be so worried, truthfully -- and not that we should start a panic here -- but they should be so worried about everything that they really start to truthfully change their behaviors. They have to realize that nobody is joking here. They can't continue to go out to eat, charge it on a credit card and then just pay the minimum at the end of the month. They have got to go into a different type of financial mentality, Wolf.

And I have to tell you, I don't think that has sunk into them yet. So a few more days like this, a few more things coming down the pike, they may go oh, my God, we may be in serious trouble here. And the fact of the matter is we are, evidenced by drops like this.

BLITZER: All right. So what do people do about their 401(k)s, their investments? What should they -- should they be worried about their bank accounts?

ORMAN: All right, let's start with bank accounts.

Can you all just understand that if you are within the FDIC limits of a bank account -- if you happen to be at a credit union, if you're within the limits of the NCAU there -- or NCUA there -- you have got to understand your money is absolutely safe and sound. Nobody has ever...

BLITZER: That's up to $100,000 per account.

ORMAN: One hundred thousand. And here's what everybody needs to do, especially with FDIC. Please go to myFDICinsurance.gov.

Do the little calculator that's there so you know without a shadow of a doubt that your money is insured. You cannot take somebody else's word for it that says oh, it's OK, don't worry about it. You need to worry. So just take a few steps to make sure that your money is institutions that are insured, you are within the insured limits and that that money is safe.

If you are, this doesn't matter to you in that way. It's your -- even if your bank fails, the FDIC will step in. They have the money.

BLITZER: All right...

ORMAN: They'll be there for you. You're OK.

BLITZER: What about your portfolios, your investments, your stocks, your mutual funds, your bonds? What about those?

ORMAN: Now, there you're seeing a situation where they're going down, down and down.

Now, if you have 10, 20, 30 years until you need that money and you are invested in good quality stocks, mutual funds, exchange traded funds, you have to continue to invest. You have to continue every single month going into the investments that you're in if they're good.

However, if you are older, if you were counting on this money -- you needed this money for retirement or something, that is money that never should have been in the stock market to begin with.

Your rule of thumb is money that you need within 10 years is not money that belongs in the stock market, because of the deterioration now that we have seen -- and will continue to see if they do not get their act together.

If you think this day was bad, what you may see if these people -- the administration does not get their act together, so to speak, you could see another 2,000, 2,500 points very easily, Wolf.

BLITZER: Well, should people move their money from these stocks, these mutual funds, to cash, the T-Bills, which are obviously the safest investment out there?

ORMAN: Not now if have you time on your side. This is when you continue to invest. However, if you need this money, this is all the money that you have, you are counting on it next year to do something with, yes, you have to come out at that -- at this point in time, because you can't continue to wait anymore. You never should have been in to begin with, though...

BLITZER: Because some people see a deep recession coming that could last a year, maybe two years. And as bad as the markets might be right now, a year from now, as you point out, they could be even worse.

Why not take that money and move it to the sidelines, move it to T-Bills right now and then a year from now, go back and start investing?

ORMAN: Because it is impossible to time the market.

If you look in the past, if you had invested the day before September 11th, if you invested the day before in 1987 the market went down 22 percent, you would have been up considerably 10 years later, even if you invested right before those big drops. So don't try to time the market. Just be consistent with your investing.

For those of you, again, who are afraid, you might want to the transfer your money, however, that's in stocks that keep going down that aren't paying you a dividend and possibly go into individual good quality stocks or exchange traded funds that do pay you a dividend. You can get 4, 5, 6 percent with some secure stocks, some secure exchange traded funds, so at least you're being paid to wait. But you can't time the market. You'll never win at that game.

BLITZER: Based on what you know right now, when do you think this market and the economy is going to turn around? How long is this down cycle going to last?

ORMAN: Probably two, three, four years. I don't want to say what I'm about to say, but I don't think you're going to see a lot of light at the end of the tunnel until about the year 2015.

WOMAN: Wow!

ORMAN: So we have a number of years to go.

However, somebody's got to be able to make a decision. And since everybody can tell that people in charge here can't make decisions for you, you've got to make decisions for yourself. You've got to stop charging things on your credit card. You've got to stop spending money on things you don't need. You know, you've got to understand, this is very serious people, and you've got to start acting like it's serious, because it is.

BLITZER: But if people are still investing in their 401(k)s, why not change those investments, as opposed to mutual funds and bonds or stocks or whatever, and just have the money invested in T-Bills or money market accounts?

ORMAN: Because as we saw a little bit ago, when they did certain things -- you saw in June, you saw certain bank stocks, you know, rally 30, 40 percent. And so as the markets go down, as you continue to invest your dollars in things that are less expensive, you buy more shares. The more shares you have, in the long run, the more money you make when everything turns around.

So if you aren't putting your money in today, while the prices are getting cheaper and cheaper -- every month, not all at once, but every month, as long as you have 10, 20, 30 years or longer -- you won't be able to take advantage of accumulating more shares. You'll lose in the long run.

So while it sounds like I'll just keep my money safe and sound and not worry about it, I don't know. There are some great buys out there. There's great things to be doing with your money, as long as have you time on your side. Everything's on sale right now.

And, by the way, that's what the government's doing and they buying everything that's at a tremendous sale. They aren't bailing out anybody. They are actually investing in assets that are so cheap right now that I wish we could invest in those same assets.

BLITZER: But the average investor -- the average person watching right now, they don't know about these so-called bargains that are out there. I agree, there are a lot of the bargains out there. But you really have to be a sophisticated investor to know what's going on?

ORMAN: Yes. And that's why you have to somehow have a little trust here right now that if we do this investment plan -- and they have to stop calling it a bailout plan -- if they simply are allowed to go ahead and do this investment plan, eventually you're going to see the mortgages will get paid off, you'll have some ownership in it, the taxpayers will be paid back. And, in the long run, we should be OK.

But if we continue to let these markets freeze -- these credit markets, it is possible one day you're going to go to your ATM and nothing's going to come out. It's possible you're going to go to use your credit card and you're not going to be able to use it. The credit crisis here is severe. When you hear all our leaders...

BLITZER: So, bottom line, Suze, you wish the House would have passed this legislation today?

ORMAN: Oh, you bet you I do. You bet you I do.

BLITZER: Suze Orman -- Hey, thanks very much. We hope you'll be back.

ORMAN: All right. Thank you.

BLITZER: Thanks very much. Let's check in with Fredricka Whitfield.

She's monitoring some other important stories incoming into THE SITUATION ROOM right now -- Fred, tell us what's going on.

FREDRICKA WHITFIELD, CNN CORRESPONDENT: All right. Well in news around the world, a key discovery at the site of a deadly weekend attack in central Baghdad. Iraqi security forces have found a suicide vest in Baghdad's Karada district. They believe the vest belonged to a would be bomber who did not detonate explosives. Had the attack been successfully carried out, it could have added to yesterday's casualties. The series of bombings in Baghdad killing at least 35 people yesterday including 20 in the Karada district.

Vatican City is becoming greener. Today, the first solar panels were installed on top of the Papal Audience Hall. They'll be used to illuminate and to heat or cool the building. The 6300 feet hall is used for the pope's weekly audiences during the winter and in bad weather during the rest of the year. Pope Benedict has made conserving earth's resources one of his key priorities. Get ready for another big rock 'n' roll performance during the Super Bowl halftime show. Bruce Springsteen and the E Street Band are scheduled to perform at this winter's Super Bowl. It will take place February 1st in Tampa, Florida. The NFL says more than 14 million viewers in the U.S. watched last year's halftime show when Tom Petty and the Heartbreakers performed. So something tells me the number might it be higher because who doesn't love Bruce Springsteen?

BLITZER: The boss. We'll be watching that. Fred, thanks very much.

And to our viewers, you're in THE SITUATION ROOM.

Happening now, breaking news. The market turmoil. On Wall Street and around the world as the government's bailout bill fails. What's being done to try to revive it and how is the nation's banking system holding up?

As the vice presidential candidates prepare for their first debate, how will they handle questions on the economy and the nation's credit crisis? We're going to examine their debate style.

And we'll also take a closer look at Senators John McCain and Barack Obama's first debate this past Friday night. Who do the voters think came out on top? We've got brand new poll numbers to share with you.

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

Today's sell off on Wall Street is the single biggest point drop in history. Seven hundred and seventy-seven points. Let's go to CNN's Susan Lisovicz. She's at the stock exchange in New York watching all of this. All right. Translate that number, 777 into how it impacts on average folks' lives out there.

SUSAN LISOVICZ, CNN CORRESPONDENT: Well, I mean, we're all tied to Wall Street in one way or another because most of us are invested in stocks whether it's our retirement, our kids' college tuition, or you know, our homes, that kind of thing. It's a paper loss what we saw today.

You know, the Dow Jones industrial average is just 30 stocks, the creme de la creme of American industry. But it's a much broader average is the Dow -- is the Wilshire 5,000 which is 5,000 stocks. A paper loss today of $1.3 trillion in market value, Wolf. That's the first time we've ever seen a trillion dollar loss. Since the beginning of this year, the stock market wealth declined by $4.2 trillion.

Most of us we buy and we hold. So it's not like you immediately feel that, but it is psychological because that is a wealth effect. You open your statements and look at these numbers and you say oh, my gosh, I don't feel very good and don't spend. It's a vicious cycle because if you're not spending, that accounts for most of the economic activity in the U.S. and we're going into the holiday season. It sort of compounds an already difficult situation. BLITZER: I can't tell you, Susan, how many people have e-mailed me and told me in recent days, you know what? I don't even want to see that bottom line number on my portfolio. I don't have the stomach to look at that paper drop in the value of how much money I have right now. They don't even want to know what's going on because it's simply too painful.

LISOVICZ: Wolf, I'll tell you one thing. Historically the market goes down a lot faster than it goes up. You know, Warren Buffett bought for a reason a week ago. I'm not saying that the glass is half full all of a sudden. My point is there will be value in there and the market will eventually rise. If you're not planning on using that money anytime soon, maybe you shouldn't look at these numbers.

BLITZER: Warren Buffett bought a piece of Goldman Sachs for a mere $5 billion. All right. Thanks, stand by. Susan's over at the stock exchange.

As you know, a record loss for the Dow as the government's bailout bill fails. Let's discuss the financial and political turmoil with our Democratic strategist Paul Begala and Republican strategist Leslie Sanchez. How is this going to play out politically in the short term? When I say short term, the next 35 days or so before the election on November 4th, Paul?

PAUL BEGALA, DEMOCRATIC STRATEGIST: You know, it's a real problem today in that John Boehner the Republican leader in the House claimed they lost the vote today because Republicans didn't like Nancy Pelosi's speech. Now, we can only hope that he was just covering up for the fact that Mr. Boehner, the president and John McCain couldn't get votes for his party. If it is true, let's entertain the notion he's telling truth, then that means that Republicans who otherwise would have supported this legislation politically difficult but experts say economically necessary vote it had down and cost all of us $1.2 trillion because their feelings were hurt by Nancy Pelosi? Maybe the speaker should bake them cupcakes or something. It does sort of mark the end of the Republican Party as any kind of serious source of economic leadership.

BLITZER: Leslie, the president, a Republican, wanted it passed. The vice president was aggressive up on the hill trying to get Republicans to support it. The secretary of the treasury, the chairman of the federal reserve and John McCain wanted it passed, the Republican presidential nominee but an overwhelming majority of the Republicans in the House said no way. And as you heard, Paul say, and others are now saying they decided for whatever ideological or political reasons they were not going to put their country first.

LESLIE SANCHEZ, REPUBLICAN STRATEGIST: You know, let's get to the bottom line. I think Americans right now are saying enough is enough and especially with respect to my colleague and friend Paul. I think politicking and the talking point have to come to a stop. This is amateur hour on Capitol Hill. You have the Democratic leadership Nancy Pelosi who went to the floor without a third of other caucus and Republicans are to blame here, too. I mean, 12 votes on either side and we would have seen something. It was a crap shoot. They went to the floor without the votes. Anybody who's worked on the hill knows you don't do that. They thought they could lobby enough, put enough political pressure from the White House to get some of these members to turn. They're looking at their districts.

The biggest problem Wolf is what you talked about this weekend. Wall Street is feeling the pain. Today it's trickling down to Main Street and Church Street. Everybody has to get on the same page here so there's a consensus. It has to be acted out now.

BLITZER: At some point if these fears that are being expressed Leslie are actually going forward and people start losing, forget about their portfolio and start losing jobs, they're going to blame folks and there's I'm sure a lot of Republicans are nervous, they're going to blame Republicans for failing to pass this legislation.

SANCHEZ: I think there's going to be blame ought way to go around. When they feel the heat, they see the light. They're starting to feel that heat right now. People have to get a consensus this is a common sense measure, that it doesn't have a lot of entities to it. It's the right measure at the right time and then they're going to call their members and say do it now.

BLITZER: What if they do in the coming days some cosmetic changes on this legislation, Paul, and let's say Thursday when the House is scheduled to come back from this two-day recess, they come back and pass it. Everything back to normal?

BEGALA: Well, that may be. I still think this maintains -- gives enormous black eye to the Republicans. As I say, this was their package and they couldn't even deliver more than one-third of their members.

What you may also see, my sources are saying is the Senate may now go first. The Senate Republicans don't seem to be as difficult or obstreperous here. It's important to understand there are different breeds Republicans in the Senate, at least the Democrats I talk to feel like they can get the votes to pass.

The deal all along, Wolf, was this. Thirty Democrats in the House, 30 Republicans in the Senate to get to the magic number of 60 so it can't be filibuster. In the House, since there's a bigger gap between the two parties in terms of party strength, half of each conference, half the of the Republican conference, half of the Democratic caucus, Nancy Pelosi delivered two-thirds of her caucus. Not just half. President Bush, Senator McCain could only deliver one- third of the Republican conference. That's why this failed.

SANCHEZ: Don't forget, in terms of caucuses, you've got the black caucus and Hispanic caucus now that the members voted for this. There's a lot of politicking going around.

BEGALA: That's not true.

SANCHEZ: Listening to the debate, there's a lot of politicking just today. BLITZER: Among the Congressional Black Caucus, 18 members of the Congressional black caucus voted in favor of the legislation.

SANCHEZ: I stand corrected. Thank you very much, Wolf.

The bottom line portion is, Nancy Pelosi and the Republicans together are to blame for this. They have got to get together in the next 48 hours. Nobody's going to buy this is a Republican problem. This is America's problem today. And they want to see bipartisanship in a strong clean measure if there has to be one moving forward.

BLITZER: The Congressional Black Caucus was evenly divided. 18 voted in favor, 21 against. Go ahead and make a final point, Paul and then I'll let you go.

BEGALA: I understand her point and it's the Republican talking point today is to feign bipartisanship. We should all be bipartisan now. You know, the House is on fire. And the House is on fire not because of a lightning strike or an act of nature. It's an act of policy. It's choices and Republicans are making those choices today only delivering one-third of their conference. I think also they made the choices that created this problem in supporting a set of economic policies controlling the Congress for 12 out of the last 14 years, controlling the White House for the last eight years. We now see the consequences of their choices. We have to get together to fix this but I think there are real partisan reasons that this happened.

SANCHEZ: Paul, who is going to buy that? No one is going to buy that. Yes, people think the Republicans are part of the blame for that. No one thinks the Democrats can walk away without some guilt.

BLITZER: Thanks very much for coming in.

Also, we're going to continue the breaking news coverage and also taking a look at the first presidential debate. The new numbers are in. Who won? Who lost? You may have your opinion. We'll tell you what the new polls just coming out right now are saying about Friday night's debate.

And countdown to the next face-off. Thursday night, it's Biden versus Palin. A closer look at both of their debating styles and staying on top of the financial meltdown. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: They came, you saw, but who ultimately conquered? Three days after John McCain and Barack Obama held their first debate, both are claiming victory. What do you think? Our senior political analyst Bill Schneider has more -- Bill?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Wolf, was the first debate a game changer? We're beginning to get the answer.

(BEGIN VIDEOTAPE) SCHNEIDER: Among voters who watched the first debate Friday night, the assessment was clear. Viewers thought Barack Obama did a better job in the debate than John McCain by a margin of 13 points in Friday night's CNN poll conducted by the Opinion Research Corporation. Obama won by a 17-point margin in the Diageo hotline poll and by a 12- point margin in the "USA Today" Gallup poll. The debate audience included a disproportionate number of Democrats. It's not surprising that more viewers thought Obama won. But it did provide Obama's campaign with the talking point.

DAVID AXELROD, OBAMA'S CHIEF STRATEGIST: I think what people saw was a debate between change and more of the same and that came across very, very clear. I think it's one of the reasons so many people felt Senator Obama won the debate.

SCHNEIDER: It's not enough to win the debate. You also have to win the interpretation. Both sides tried to spin the results.

STEVE SCHMIDT, MCCAIN SENIOR ADVISER: Well, obviously, Senator McCain demonstrated he was ready to be commander in chief, displayed a superior knowledge. Senator Obama never used the word victory. He, you know, didn't talk in a way that I think makes Americans comfortable with his capacity to handle the national security issues facing the country.

SCHNEIDER: The ultimate test is whether the debate has an impact on the candidate's standings. The Gallup tracking poll show Obama gaining momentum as the financial crisis broke in the days leading up to the debate. Immediately after the debate, Obama had an eight-point lead over McCain. Obama's lead is holding up two days after the debate. Gallup's conclusion? The debate apparently has done nothing to halt or reverse Obama's momentum.

(END VIDEOTAPE)

SCHNEIDER: The Diageo hotline tracking poll shows similar results. Obama's lead stayed at five points just before and just after the debate, which suggests that there was no game-changing moment in the debate. The game-changing moment has been the financial crisis, which broke before the debate and gave Obama some momentum. The debate sustained his momentum -- Wolf?

BLITZER: Interesting numbers, Bill Schneider crunching them for us.

One of the nation's biggest banks had to be rescued today. And ordinary Americans are clearly scared. They're calling the FDIC to find out what to do. What does all this mean for you and your bank account?

And Sarah Palin's big debate only a few days away. We're taking a closer look at her debating style. You're going to hear how she did when she ran for governor of Alaska.

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

(COMMERCIAL BREAK)

BLITZER: The suspense already building to a high-stakes political showdown. In only three days, Governor Sarah Palin and Senator Joe Biden debate. Both vice presidential candidates are undergoing some intense preparations right now. Biden in Delaware. Palin will attend what aides are calling debate camp at McCain's ranch out in Arizona. Today, Palin preempted the debate with a few zingers. Listen to this.

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL CANDIDATE: I do look forward to Thursday night and debating Senator Joe Biden. We're going to talk about those new ideas, new energy for America. I'm looking forward to meeting him, too. I've never met him before. But I've been hearing about his Senate speeches since I was in like 2nd grade. Recently Senator Biden made it perfectly clear that in an Obama/Biden administration there would be no use of clean coal at all. Now, from Wyoming to West Virginia, and especially right here in Ohio, America's coal resources are greater than the oil riches of the Middle East. And yet Joe Biden says, sorry, Ohio, we're not going to use it.

BLITZER: The debate will feature two people with rather different styles. One of them is criticized for at times saying too much. The other is criticized for not saying enough. Largely avoiding questioning.

Let's go to Fredricka Whitfield again. You've been looking at Joe Biden's past and present, his debating skills. What are you thinking of?

WHITFIELD: And hers as well. That's why there's such huge anticipation over this Palin/Biden showdown. Now just three days away. Senator Biden has been said to be rehearsing for this debate with the house of Michigan governor, Jennifer Granholm playing the role of Palin. Palin is getting ready at that so-called debate boot camp at McCain's Arizona ranch.

(BEGIN VIDEOTAPE)

WHITFIELD: Loquacious and unleashed versus low-key and tightly managed. How much of what we've already seen in vice presidential candidates Joe Biden and Sarah Palin tells us about what to expect Thursday? How much is riding on this?

RON FAUCHEUX, EDITOR, THE DEBATE BOOK: They have to not just defend themselves and present themselves, but they have to present and defend their presidential candidates.

WHITFIELD: We invited Georgetown University's Dr. Ron Fauchex, author of "The Debate Book," a manual for political debates to watch Palin and Biden's previous performances.

FAUCHEUX: He and Palin are very different kinds of people, but they both have different kinds of appeal that can be very charming.

WHITFIELD: Biden, the 25-year veteran with extensive knowledge of national and foreign issues with a seemingly clear advantage, feeling at home.

SEN. JOE BIDEN (D-DE), VICE PRESIDENTIAL CANDIDATE: You know, let's -- facts are a funny thing. They get in the way. You know what I mean?

FAUCHEUX: He has to put a stop button on what he says. So he doesn't just keep talking until he gets it wrong.

WHITFIELD: The 44-year-old first-term governor seemingly at ease here in a gubernatorial debate.

PALIN: Government should be assisting ending life.

WHITFIELD: Commanding, standing her ground.

FAUCHEUX: What she's doing is she's getting it off of policy and talking about how it affects here and people personally. And she seems to be much more comfortable doing that.

WHITFIELD: And comfortable taking on her competition at the time.

FAUCHEUX: The thing she has to watch is if she has a lack of knowledge or a lack of a grasp of an issue that she doesn't look superficial or look like it's just opinionated without having anything behind it.

WHITFIELD: Is the ticket for the presidency riding on these vice presidential nominees?

FAUCHEUX: I'm not sure that the -- the presidential race is riding on this debate. But the thing you have to remember about debates, it's -- they're rarely won. They're oftentimes lost. And so both candidates need to be very careful they don't lose the debate.

(END VIDEOTAPE)

WHITFIELD: All right. So, so much at stake weighing on what is said, what's not said. Body language, comfort, eye contact or lack thereof in what is the only scheduled vice presidential debate, just five weeks before America decides. This vice presidential debate is Thursday. Just a reminder, 9:00 p.m. I know everyone knows it by now. It will be airing live here on CNN. You don't want to miss it. I know you won't miss it.

BLITZER: Yes. Your coverage starts Thursday in THE SITUATION ROOM and will go all night with that debate at 9:00 p.m. as you point out. And the format is going to be different than the first presidential debate. Not as much give and take. We'll watch.

WHITFIELD: Lots of nuances to watch.

BLITZER: That's right.

WHITFIELD: Thanks. BLITZER: We're continuing to follow the breaking news right now. The plan to rescue Wall Street fails in the House of Representatives. The bill, the finger-pointing and what happens next and what it means for all of us.

Plus, one of the biggest banks in the nation has to be taken over. What that means for your money.

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

(COMMERCIAL BREAK)

BLITZER: Gas shortages following Hurricane Ike are still plaguing the southeast. Drivers in Atlanta are waiting in hour-long lines and driving around in search of a place to fuel up. Abbi Tatton has been working this part of the story for us. Abbi, what is going on?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, these I-reports just keep coming. For the last week and a half, we've been getting them every day around the Atlanta area. People saying they're spending an hour in line, seeing lines for gas snaking around the block. If I can bring you a couple of these right now, from Helen in Marietta, Georgia, she waited an hour in one line, went to another line at a different gas station, an hour there. Finally at the end, she managed to get gas.

We've been getting these reports from all over the area. The people are being told this is back-to-back hurricanes combined with low inventories and the supplies will be coming soon, but from the people I spoke to today, they're not convinced -- Wolf?

BLITZER: Thanks very much.

To your viewers, you're in THE SITUATION ROOM.

Happening now, the breaking news we're following. The House rejects the financial bailout plan. The stock markets suffer historic losses. Now the future of the bill and the U.S. economy are on very shaky and uncertain ground. We're covering all angles.

Congressional leaders and the presidential candidates are pointing some pretty angry fingers. Who is to blame for this startling setback and what happens next? The best political team on television is standing by.