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The Situation Room

Scandal Hangs Over Palin; When Will Markets Hit Bottom?; Government Announces Recapitalization Plan

Aired October 10, 2008 - 18:00   ET


LOU DOBBS, HOST, "LOU DOBBS TONIGHT": But the issue is, frankly, how -- how confident can any of us be that this election, come November 4, is going to be carried out honestly and forthrightly? And the answer is, at least to this point, we should not be very confident at all.
WOLF BLITZER, CNN ANCHOR: Lou is going to have much more in one hour on his show. We will stand by for you, Lou.

DOBBS: You bet.

BLITZER: Thank you.

And, to our viewers, you are in THE SITUATION ROOM.

Happening now: Wall Street ends a historically bad week with more losses and a case of whiplash. Where does the nation's devastated financial system go from here?

John McCain and Barack Obama, they are trying to calm investors and energize voters. The best political team on who is best equipped to prevent panic out there.

And an investigation of Sarah Palin under secret review right now in Alaska. Will the report of her firing of the public safety commissioner be made public this hour?

We want to welcome our viewers in the United States and around the world. I'm Wolf Blitzer. You are in THE SITUATION ROOM.


BLITZER: Wall Street ringing out its worst week ever. Throughout the day and right up to the closing bell, stock prices were on a roller-coaster, up and down, by a dizzying margin, get this, of some 1,000 points. In the end, today's losses were relatively -- emphasis relatively -- mild.

The Dow Jones industrials closed down 128 points. The Dow has now plunged for eight days straight, a total loss over those eight days of almost 2,400 points.

While the market seesawed, Barack Obama was working to try to keep his political edge with voters out there on the economy. He offered a new proposal to help bolster small businesses, and he warned Americans not to be -- quote -- "hoodwinked" by Republican policies. CNN's Suzanne Malveaux has been traveling with Obama in Ohio -- Suzanne.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, this community of 22,000 was once a booming industrial town, but now a lot of people are suffering. And despite a lot of the support for McCain, Barack Obama believes that he can win the support of some social conservatives and Independents by addressing their economic concerns.


MALVEAUX (voice-over): In the make-or-break state of Ohio, the town of Chillicothe usually signals the outcome. So Barack Obama is here in the heart of the community that twice elected President Bush.

Ross County has an 8. 6 percent unemployment rate. This year, 12,000 Ohio voters lost their jobs. Obama linked his call for unity to economic reform.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: We can come together to restore confidence in the American economy. We can renew that fundamental belief that in America, our destiny is not written for us, it's written by us.

MALVEAUX: Obama accused John McCain of using the economic crisis to divide.

OBAMA: Nothing is easier than riling up a crowd by stoking anger and division. But that's not what we need right now in the United States.

MALVEAUX: A McCain spokesman responded that Obama is using the crisis to deflect legitimate criticisms of himself and his record.

Both candidates are competing to come up with new ideas to address the financial crisis. On this day, Obama proposed a small business rescue plan which would provide short-term loans to help pay for immediate expenses. For some voters, Obama's message resonates.

UNIDENTIFIED FEMALE: I'm a single mother, and I took a 40 percent pay cut in my job. I'm a flight attendant and I work two jobs. I substitute teach on my days off.

UNIDENTIFIED MALE: He is the better of the two people and he can give us something that we need and we want, where the other one I'm afraid will still go with the upper echelon or the rich.

MALVEAUX: But other voters are not convinced.

UNIDENTIFIED MALE: It's almost like the old story about the South American dictators who promised chicken in every pot. And that's kind of where he's coming from, promising everybody, but I wonder whether he will actually be able to deliver any of it.

(END VIDEOTAPE) MALVEAUX: Many voters are questioning whether or not President Bush can deliver any relief before handing over this financial mess to the next administration -- Wolf.

BLITZER: All right, Suzanne, thanks very much.

John McCain is responding to all the turmoil in the markets by offering his second major economic proposal this week. McCain's attempts to look strong on financial matters remains a work in progress.

Let's go out to Minnesota. CNN's Dana Bash is covering the McCain campaign for us.

The economy issue number one for these presidential candidates, especially today, Dana.


No question about it. And it was interesting, Wolf. John McCain for the second day in a row out here on the stump, he did not mention the tumult and gyrations on Wall Street, but he did throw out a new proposal that made it very clear he knows how devastating it is to voters and potentially to his campaign.


BASH (voice-over): As the stock market tumbled for the 10th straight trading day, a surprise from John McCain. A call to let investors nearing retirement keep their stock instead of being forced to start selling their 401(k) and IRAs in this chaotic market.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: Current rules mandate that investors must begin to sell off their IRAs and 401(k)s when they reach age 70. 5. To spare investors from being forced to sell their stocks at just the time when the market is hurting the most, those rules should be suspended.

BASH: Much like his debate night proposal for the government to buy homeowners' bad mortgages, McCain did not make clear to voters he was putting forward a new idea. He left it to aides to confirm that this is indeed a fresh attempt to show voters he is in touch with their deep economic anxiety.

The voting bloc he is targeting, older Americans, is crucial. And it's an area McCain seems to be winning. A recent national poll shows McCain has a 10-point edge over Barack Obama among voters 65 and older. McCain is still pounding away at his home stretch theme against Barack Obama, calling him untrustworthy.

MCCAIN: Senator Obama will try to distract you from noticing that he never answers the serious and legitimate questions he has been asked.

BASH: Here, McCain did not mention William Ayers, but he did in this new negative TV ad.

NARRATOR: When convenient, he worked with terrorist Bill Ayers. When discovered, he lied. Obama: blind ambition, bad judgment.

BASH: And to supporters raising concerns this week about Obama's rise, he offered this...

MCCAIN: How many times, my friends, have the pundits written off the McCain campaign? We're going to fool them again. We're going to fool them one more time.


BASH: Now, McCain is wrapping up a town hall here in Minnesota. And, like recent events, Wolf, we have heard from voter after voter expressing their concern about Barack Obama and they say that the way that the country would go with him and urging John McCain to fight harder, particularly in next week's final debate against Barack Obama.

But it is clear, Wolf, that McCain has heard some of the concerns about some of the rage, frankly, that has come up and come out in some of his events. So, when one person urged him to fight, listen to how he responded. It is different than he has in the past couple of days.


MCCAIN: And we want to fight, and I will fight. But we will be respectful. I admire Senator Obama and his accomplishments. I will respect him. And I want...


MCCAIN: No, no. I want everyone to be respectful. And let's make sure we are.


BASH: Now, one of the voters who stood up and said that they were concerned about Barack Obama, Wolf, even said that he is worried about his children if Barack Obama were to become president, because he said he would be scared.

And, again, McCain responded, saying that Obama is a -- quote -- "decent person." He said, you don't have to be scared if Obama is president of the United States, but then quickly turned to the fact that he obviously believes that he, McCain, would be a better president than Obama.

So, definitely the tone here from the voters is the same as we have seen in the past couple of days, but the response from McCain is quite different -- Wolf.

BLITZER: A lot of people have been urging him, given the tone that we have been hearing, some of the ugly comments coming out, they have been urging McCain and Governor Palin -- she has not done this yet -- but they have been urging Senator McCain to calm everyone down, because it could get ugly out there, given some of the tensions just beneath the surface.

Dana, thanks very much for that.

In the midst of all this current economic crisis, the treasury secretary, Henry Paulson, is certainly playing a very prominent role. Back in the mid-'90s, Robert Rubin was in Paulson's shoes heading up the Treasury Department under Bill Clinton.


BLITZER: Have you ever seen personally anything like this?

ROBERT RUBIN, FORMER U.S. TREASURY SECRETARY: Not in an American perspective, Wolf. These are the most difficult and uncertain and complex conditions that this country has faced in the financial market since the 1930s, though it is not the 1930s. That was a very different set of conditions. But this is really a perfect storm.

BLITZER: What lessons did we learn from then that should be applied right now? In other words, what needs to be done to turn this around?

RUBIN: I think the single most important thing we could do that we haven't done is something that Senator Obama has been proposing for quite some time now, which is a major fiscal stimulus. And very importantly, if we do that, it has to be constructed in a way to have immediate effect and to get the most impact for the money you spend.

And I think it also needs to be married with a commitment to on the long term reestablishing fiscal discipline.

BLITZER: I know you support Senator Obama. You support him strongly. Let's talk about that stimulus, because Nancy Pelosi and others now are saying there should be another economic stimulus package. What would you see that package including?

RUBIN: Well, I do think there are a lot of choices you can make.

What I would do -- and it very much follows what Senator Obama has suggested -- and, as you probably know, he has met with a number of us, Paul Volcker, Larry Summers, myself, Laura Tyson, and others quite a number of times now to think this through.

I would put in place an infrastructure piece, because there are a lot of infrastructure projects that are in place.


BLITZER: What does that mean, an infrastructure project?

RUBIN: Oh, bridges, water systems, roads, highways, but not new projects that are going to take a long time to set up, Wolf.

There are a lot of projects under way, particularly where states and cities now are having trouble finding financing it, where you could funnel that money right into existing activities, so that you would be able to act very, very quickly.

BLITZER: Is that going to stimulate the economy and create jobs as well?

RUBIN: Oh, yes. What that would do is create economic demand. So, that stimulates the economy. And it very directly creates jobs in the infrastructure.

And, furthermore, since our country really has very serious needs in the infrastructure area for the long term, it, at the same time, is doing something very useful for the long-term good of our country.

And leaders from the International Monetary Fund, the World Bank, they are gathering in Washington this weekend, leaders from the G7. The Italian prime minister, Berlusconi, is recommending that all the markets worldwide be shut down, at least temporarily.

Is that a good idea? Is that a bad idea? Because this is a global economic crisis, as you point out.

RUBIN: I think that that is a genuinely bad idea, because what happens when you close -- the experience at least with closing markets in other countries is that, when you do, you have pent-up demand or pent-up anxiety, it increases anxiety. And then when you reopen them, you have all kinds of problems.

RUBIN: What I think that the G7, these leaders of the global economies, major global economies, can do, is, as they did this week, act cooperatively both with respect to rate cuts and with respect to their programs to support financial systems and to create jobs, so that you get a cooperative global endeavor. There's a lot of advantage in that kind of cooperative endeavor.


BLITZER: Robert Rubin speaking with me earlier here in THE SITUATION ROOM.

Meanwhile, right now in Alaska, lawmakers are meeting in secret. They are huddling over a report about Governor Sarah Palin's alleged abuse of power. Will part of a secret report about Governor Palin e revealed this hour?

And you may not know anything about the governor's husband, Todd Palin. We will speak to a woman who knows him, knows the governor quite well. She is the Governor Palin's former aide. She's standing by live.

And will November 4 be independents day? Undecided independent voters could decide the presidential race. You're going to find out where they live and a lot more right here in THE SITUATION ROOM.


BLITZER: It could say she did nothing wrong or it could contain some sort of smoking gun, an investigator's report into whether or not Governor Sarah Palin abused her power when she fired a state worker who refused to fire Palin's former brother-in-law. Right now, even as we speak, Alaska lawmakers are huddled in secret to review the report.

Our justice correspondent, Kelli Arena, is working this story for us.

Kelli, are we getting any indication of what is going on up there?

KELLI ARENA, CNN JUSTICE CORRESPONDENT: I will tell you, Wolf, we probably won't get any indication for hours. As you said, Alaska lawmakers are still meeting in Anchorage. They are discussing the report. They remain behind closed doors.

We are told that they are carefully vetting about 1,000 pages of documents. Whatever happens, you know, this is -- it's a fair bet we have not heard the last of this. Here is some background on what generated the controversy in the first place, Wolf.



ARENA (voice-over): Walt Monegan says he lost his job because he wouldn't fire Sarah Palin's ex-brother-in-law, Mike Wooten, a state trooper. Monegan was Alaska's public safety director, until this past summer.


MONEGAN: I believe I was fired bus I did not fire Mike Wooten.


MONEGAN: Palin's sister and Wooten went through a nasty divorce in 2006. Todd Palin said in an affidavit that Wooten exhibited violent behavior, had drunk beer in a squad car, and was unfit for the job.

Still, both Palins insist that they never told Monegan to fight Wooten. Sarah Palin says that Monegan was let go because he did not embrace her platform of reform.

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL NOMINEE: It's a governor's right and responsibility to make sure that they have the right people in the right place at the right time.

ARENA: But accusations that she acted inappropriately persisted. And Alaska's legislation launched an investigation this past summer.


ARENA: Now, it is unclear whether the report on the investigation will be made public, Wolf. Before they went into that closed session, some lawmakers questions whether there were legal issues to be considered.

And we are told that that can't even be debated until they are back in open session, so this could be an all-nighter. Hopefully, we will find out more in the next few hours, Wolf.

BLITZER: Thanks very much, Kelli, for that.

Let's get some more on this story. It's a potential cloud hanging over Governor Palin's head. We are joined by one of her former aides. Meg Stapleton is joining us now from Anchorage.

Meg, thanks very much for coming in.


Do you have any indication, are you getting any word what might be in this report?


Wolf, at this point, all we know is what you just heard, as well as the fact that, a couple hours ago, they were only about 10 percent of the way through it. We do know that the report was distributed yesterday less than 24 hours after a bunch more information was injected into -- into the investigation and inquiry, including more than 2,000 pages from one of the governor's special assistants to public safety.

So, there is a lot of information that these legislators are no doubt poring over right now.

BLITZER: Do you have confidence in these legislators, that this is a fair and impartial panel, no matter what they conclude?

STAPLETON: Well, I think we are on the record as saying that, no doubt, whatever the conclusion is, this has been extremely politicized. And even the chairman, the Democrat and Obama supporter, has said that politics was injected into this to an extent he never predicted and never saw coming.

So, I think that, in terms of fairness, this has been politicized and. It has become literally a political circus up here. And we have got just too many people who prejudged a conclusion back when the governor was named as vice presidential nominee. And they concluded at that time that this was going to be damaging to the administration and watch out for that October surprise.

And when you have people who are conducting this investigation and people who are directing this investigation judging the conclusion of it before it has even begun, you can certainly be suspicious of its outcome.

BLITZER: What about Todd Palin? The accusation is, he had no business getting involved in state affairs, as the spouse of the governor. How do you respond to those charges? STAPLETON: Well, Wolf, Todd submitted an interrogatory on Wednesday. And that is essentially a couple dozen pages full of Todd's version of what happened and his involvement in terms of Wooten, Monegan, any questions regarding a number of employees that the independent investigator questioned.

Todd is someone who was protecting his family and was only trying to protect his family from a rogue trooper who had threatened to kill the governor's dad, who had abused Todd's sister-in-law, and so there are a number of things. He Tasered his 10-year-old stepson. There were a number of concerns on behalf of Todd Palin. And he did what any spouse would do and what any family member would do to protect his family.

And that is what this is about. And that is what Todd wrote about in his interrogatory. He said that it was always his understanding that this governor did have problems with Walt Monegan, that there were a number of issues raised over the course of many months, that they had policy and budget differences, but that, when it came to Wooten and his involvement with Wooten, he was merely going through the appropriate channels, the channels that he was directed to go through and by law is direct to go through. And that is through the commissioner and through the commissioner and the Department of Public Safety in terms of raising any concerns about trooper behavior.

BLITZER: We now heard Senator McCain try to calm down some of these people at his rallies who have been very, very -- at least some of them making what some would consider to be incitement statements involving Barack Obama.

We have not yet heard that from Governor Palin. You know her well. You worked with her for some time. Should she be doing the same thing, calming down some of these really ardent supporters of the Republican ticket, and saying, you know what, saying in effect what Senator McCain just said, that Senator Obama is a good man, a decent man, and let's just have a respectful campaign?

STAPLETON: Look, I think, Wolf, the bottom line is that this governor wants to talk about the issue, but at issue and at the heart of the issue is the judgment and the character of an individual, and what this governor is doing is just simply laying out the facts and concerns that she has.

If anyone is going to the extent of inciting a crowd, certainly, the governor would want to make sure to bring it back to the issues at heart and make sure that people are just questioning what is at hand. And that is the judgment of two senators and in their decisions and on their record and what has been the record in the United States Senate.

BLITZER: So you would expect her to do what Senator McCain did and calm everyone down?

STAPLETON: I think that she would certainly want to make sure that we are absolutely talking about the issues and the judgment that goes into those issues.

BLITZER: Meg Stapleton in Anchorage, thanks very much, Meg, for coming in again.

STAPLETON: Thank you.

BLITZER: A global recession, everyone wants to know when it's going to end. Ali Velshi, he standing by. He will look back to see what lies ahead.

And officials scrambling right now to correct a typographical error on a absentee ballot. One letter of the alphabet makes all the difference.

And it was supposed to lift spirits, but tragedy strikes at a famous balloon festival.

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



BLITZER: The financial losses, as you know, they are growing. The anticipation is building. When will the markets hit rock bottom?

Our senior business correspondent, Ali Velshi, is looking for clues from past recessions.

And investors are feeding on fears. Is there any way for the current president or the next president to restore confidence? The best political team on television is standing by. And we will discuss whether John McCain's supporters need to chill out.

Stay with us. You are in THE SITUATION ROOM.


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

Happening now: The economic pain reaches around the world. We all want to know when good times will return. Ali Velshi has possible answers from recessions past.

Americans are deeply worried about their jobs, their homes, their savings. Can Barack Obama or John McCain calm their fears? I will ask the best political team on television.

And a mistake on an absentee ballot. One candidate's name is misspelled, and it makes all the difference in the world.

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

Let's get back to the breaking news this day. The Dow Jones Industrials closing down 128 points after a wild seesaw of a day. The Dow has now plunged for eight straight days, a total loss of almost 2400 points.

Let's go to our senior business correspondent, Ali Velshi -- Ali? ALI VELSHI, CNN CORRESPONDENT: Wolf, investors are relieved to be done with the worst week in the history of the Dow. And it did bounce along between that 8000 and the 8500 mark in what many investors say might be the formation of the bottom of this market -- the opportunity for people to start getting in.

But that doesn't mean that this is the end of the recession we're in. We spoke to our friend Lakshman Achuthan of the Economic Cycle Research Institute. He literally wrote the book on economic cycles.

And we wanted to look at previous recessions, where we might be in this one that we're in.

We went all the way back to 1973 and 1975. That was a global recession and it lasted 16 months.

Then you look at 1980. That was just a U.S. recession in the beginning of 1980, and it lasted six months.

1981-1982, however, was another one of those global recessions. And look at that -- it lasted 16 months again.

Then we move up there, 1991. We had a U.S. recession and that lasted eight months.

And then in 2001, the last recession we were in, it lasted eight months.

So you can see that localized U.S. recessions are eight months and six months, but those globalized recessions are much longer -- 16 months.

So in 2008, what we know now -- we may not have known this before, but what we know now is that we are in a global recession. And as a result of that, this could be one of those longer ones.

There are some people, including Lakshman Achuthan, who thinks it started some time earlier this year, maybe the beginning of the year. Which means if it is the same pattern that we've seen in history, we may only be about halfway through this -- Wolf.

BLITZER: Ali Velshi working the story for us.

Thank you.

So which candidate is best suited to calm voters about this very anxious and very troubling economy?

Let's discuss this and more with our senior political analyst, Gloria Borger; Steve Hayes the weekly writer for "The Weekly Standard;" and our CNN political contributor, Dana Milbank of "The Washington Post."

Guys, thanks very much for coming in.

Gloria, who is going to be FDR as opposed to Herbert Hoover after the election? in other words, there's a lot of concern out there someone needs to reassure nervous Americans out there.

What's the political fallout from this?

GLORIA BORGER, SENIOR POLITICAL ANALYST: Well, you know, obviously the Democrat has the advantage right now, because you've had eight years of George W. Bush. People tend to blame the person who was in power. However, they're angry at everyone.

I think what you've seen in the presidential debates is a very calm Barack Obama. And, of course, on the campaign trail now, he's calling John McCain erratic.

McCain, I think, is trying to tell voters that he would be very different from George W. Bush. He's thrown a few programs out there -- a couple new programs out there to try and help seniors today, seniors In particular, with their 401(k)s.

But I think that right now, the advantage would have to go to the Democrats.

What do you think, Steve?


I mean I think -- you know, Barack Obama has handled this, I think, it very well temperamentally. He has seemed calm. Every time we see him on television, every time we all show a clip of him speaking, he seems in command, he seems in control.

I think that one potential problem area for him is, you know, all of his proposed programs -- his proposed new spending is the kind of thing that will require additional taxes. And I think that has -- contributes to the markets being on edge, contributes to angst among small business owners, things like that.

BLITZER: Do you think that there are already -- let me bring Dana in.

Do you think there -- that some of the markets are already taking that into effect, this notion that if Barack Obama is elected president, he's going to go ahead to raise taxes?

DANA MILBANK, "WASHINGTON POST" STAFF WRITER AND AUTHOR: I think the markets are reflecting that the -- all of the political leaders right now have been rather weak on this question. I mean we have many candidates for a Hoover out there. More Hoovers than an appliance store. But we really don't have an FDR right now.

You see every time the president opens his mouth, the markets plunge. You've got John McCain, who is almost acting as if nothing is going on out there and not addressing it directly.

And then Obama, clearly doing better than the other two, but still being rather timid.

BLITZER: John McCain is...


BLITZER: Hold on a second, Dana.

John McCain is coming out with specific proposals. He did one the other day at the debate. He did another one today.

MILBANK: Yes, specific proposals on how to deal with the larger system. But he's not coming out on a regular basis -- the second day in a row, I believe, that he did not get out there and address the market plunge. So in terms of...

BORGER: Well...

MILBANK: ...trying to restore confidence into the market, he's not even playing in that game.

HAYES: Yes, and, Wolf, you know, I think if you look at it from a policy perspective, there are a lot of conservatives who would argue that, in fact, there are a lot of FDRs out there. I mean you look at the kinds of government intervention that we're talking about, coming from Republicans and, you know, people who were once conservatives, these are massive government interventions that have a lot of conservatives, you know, very -- very nervous.

BORGER: You know, can I just say, sort of on a broader scale, what's kind of astonishing to me is the irrelevancy of the sitting president right now. And this -- I think if you look at this and you say this could -- is a danger of a weak presidency. Because when the president of the United States goes out to reassure the American public -- you have a political campaign going on, that's true. But when a president goes out and his approval rating is at 26 percent, he can do nothing. And that's dangerous, very dangerous.

BLITZER: And then a guy...

UNIDENTIFIED MALE: And he's done it 20 times now.

BLITZER: And we're just getting word from the Associated Press in right now that the Treasury secretary, Henry Paulson, is announcing that the Bush administration will, in fact, move forward with a new plan to actually buy stock in financial institutions.

We're going to take a quick break. We're going to tell you what's going on, because this is a major new step by the Bush administration in this economic meltdown -- in this crisis that's going on. Stand by.

Also, Barack Obama's prime time plan -- he's buying 30 minutes of TV time right before the election -- a huge investment.

Will it pay off?

And the McCain campaign tapping into Republican anger. Some say it will help, others see some signs of danger.

Plus, the race for the White House giving "Saturday Night Live" its best season in years. We're going to take you behind-the-scenes.

Stay with us.

Lots of news, including breaking news, right here in THE SITUATION ROOM.


ANNOUNCER: This is CNN breaking news.

BLITZER: The breaking news we're following, the Treasury secretary, Henry Paulson, just announcing a dramatic new plan. The Bush administration going forward with a plan to buy stock in financial institutions here in the United States.

Let's go to Ali Velshi, our senior business correspondent -- Ali, tell our viewers the enormity of what this potentially means.

VELSHI: Yes, this is a big deal. We've got confirmation now from the Treasury Department, Henry Paulson has said that they are willing to use some of the $700 billion to help financial institutions in the United States by buying equity in them. We had sort of hinted at this -- that we had received hints of this yesterday, that the U.S. Treasury -- the U.S. government would actually buy stock in the financial institutions. And that the issue here is that means they would give them money, but instead of those being loans, the government would actually get stock in these companies and be able to participate in any up side that would come from having contributed to this.

Secretary Paulson, in a statement, is saying: "As we develop the plans to purchase equity" -- that is, in those financial institutions -- "We are working to develop a standardized program that is open to a broad array of financial institutions."

And what they want to do is be able to buy stock in companies, but also do so in a way that encourages other people to buy stock in those companies. The government is not looking to take ownership stakes in public companies. A lot of people have referred to this as nationalization or looking like what has been done in Britain, for instance, or in Germany, where they've nationalized major financial institutions.

The government has made it clear they're not looking at ownership stakes. They are looking at buying stock in these companies.

This was part of the bailout plan. They've been given the authority to do that. So it would come out of the existing $700 billion.

There were some questions about whether the purchase of bank stock would be separate and apart from that. It wouldn't, Wolf. They're talking about using money that has been authorized in that $700 billion to buy stock in bank companies and, as a result, have some ownership on it.

For taxpayers, that means there might be some positive return, because if the stock of those bank companies goes up, theoretically, the Treasury gets that money back. And that deducts that -- you can deduct that off of the amount that one might consider a bailout.

BLITZER: I noticed they made this announcement -- a dramatic announcement for the U.S. government now to go forward and buy stock in some of these financial institutions after the markets closed here in the United States. I suspect if they would have done that earlier in the day, it would have had a dramatic positive impact on the markets, right?

VELSHI: And, you know, Wolf, I have to tell you, even though it doesn't look like a positive day on the market -- it was the eighth straight loss and it was -- this has capped the worst week of the history of the Dow. One thing you have to remember is to be down 128 points, given the fact that oil was down $9 -- down to below $75 a barrel, the biggest drag on the Dow today was Exxon Mobil and Chevron.

So, in other words, there was actually a lot of upward momentum. A lot of stocks were actually up today for the first time in eight days.

So it looks to me like investors and professionals are seeing that maybe -- maybe -- and I don't want to predict this -- but maybe we're starting to explore the bottom of this market.

It looks like all of these things that are being thrown at the market are starting to gain the confidence of investors.

BLITZER: Stand by, Ali.

I know the Treasury secretary is going to be making a statement shortly.

I want to bring back the best political team on television to assess.

Steve Hayes, what do you think about this announcement from the Treasury secretary?

HAYES: Well, I think it's a little hard to know without knowing more of the details. But I'd be very interested in exploring the kinds of things that Ali was talking about -- how the government is buying these stocks, yet not taking ownership in these companies.

It seems to me, there's a tension there. And I'd want to hear more about why, if the government is accumulating these stocks, it doesn't have, then, some ownership.

BLITZER: Well, because, Dana, you know, if you're a stockholder, you're an owner of that company. If the U.S. government is going to start buying stock, whether in Goldman Sachs or Citigroup or some of these other financial institutions, they're going to at least be part owners. MILBANK: That's true. This was a suggestion made early on during the bailout debate, rejected at the time, but now coming back into play here.

I think what you're seeing is they're basically throwing all these things at the wall to see what will stick. The president went through this whole laundry list this morning out in the Rose Garden. The markets reacted, losing a few hundred points over the course of 15 minutes there. I think that was saying, we need to see something more here. This is the next sort of proffer here.

BLITZER: Well, they're taking dramatic steps, Gloria, and they're hoping every one works. So far, as we see them, the markets are not necessarily responding all that positively...

BORGER: Right.

BLITZER: ...and there's deep concern not only of a recession, but a deep and long recession.

BORGER: Well, I think they're trying to do two things here. They're trying to reassure the American people, but they're trying to reassure the markets, as well.

And I thought this was part of their -- something they were allowed to do as part of the Treasury plan, right, Ali?

I think that they -- they don't need permission to do this. They can do this.

VELSHI: No, that's correct.

This has been authorized.

BORGER: Right.

VELSHI: They authorized, as part of this plan, the ability -- and it was part of a selling point, actually...

BORGER: Right.

VELSHI: say -- there were a lot of people who said we're just going to bail people out and give them loans and if they fail, what are we going to get out of it?

This was part of s a selling point to say no, we can take stock in those companies...

BORGER: Equity.

VELSHI: ...and, as a result, if the bailout helps those companies, there's a piece of the action.

The other thing, by the way, Wolf, is that if the government does buy stock or in any other way aid a financial institution in this country, it automatically now, under the terms of this agreement does give them some input into the executive compensation.

So this was all tied to a lot of the concerns that a lot of those Congress members had about this bailout.

They are authorized to do this.

BORGER: Right.

BLITZER: Steve, will conservatives be concerned that -- of a "socialization" of the business sector out there?

HAYES: Absolutely. I mean I think -- you know, one of the key questions -- and I don't know the answer to this, maybe Ali does -- is at what point and by what mechanism the government would then give up its ownership or its stock in these companies if there -- if we return to some sort of financial equilibrium.

It seems to me that's going to be a key question to get conservatives to support this. And without an answer to that question, they simply won't.

BLITZER: Hold on, guys, for a moment, because Lou Dobbs is standing by.

He's going to have a lot more on this coming up at the top of the hour -- Lou, what do you think of this dramatic proposal from Henry Paulson that's just been announced?

LOU DOBBS, HOST, "LOU DOBBS TONIGHT": Well, I think the most encouraging about it is it does exactly what the former FDIC chairman, Bill Isaac, has been saying for some time now should be the step taken. And that is the recapitalization of financial institutions. We broke that story on our broadcast Monday, coming from the Treasury Department as the source.

It is a strong and positive move. And it's a coordinated move and it's beginning to make some sense. It's been -- I think there's been a clear sign that we're going to move toward recapitalization and that the Treasury Department would, because they had not done anything under the bailout. People have been cheering the bailout when, in fact, there was nothing to the bailout -- the Wall Street bailout, as had been enunciated by Hank Paulson. It's one of the reasons we've seen the Dow has sell-off almost 2500 points in a week.

So this is a very positive step. It is the beginning of rationality in the response of this government to this crisis.

BLITZER: So would you expect, Ali, for people -- if the government is buying stock in these financial institutions, these banks, these investment houses or whatever, on Monday, for regular folks out there, as they say, buy, buy, buy, because if the government is buying, the prices are inevitably going to go up?

VELSHI: Two completely different ways to look at this. One is you can say, yes, we're going to shore up some financial institutions. The government is going to invest some money and that should mean that those financial institutions that were in danger might actually be saved.

The other way to look at this, and you mentioned it a little bit earlier, is the concern about government intervention into the running of private corporations. Some people might see this as nationalization. And a lot of people identify that as not being a positive thing. Governments running private institutions, in some people's minds, is not associated with great success and financial success.

So we have to see how this sort of plays out. One of those questions is about what is the government's exit strategy?

BORGER: Right.

VELSHI: Do we get stuck owning these banks forever?


VELSHI: How do we do that?

BORGER: Right.

VELSHI: So those are two very interesting concerns.


BORGER: That's the question that, I can tell you, that Congress is going to be asking. It's OK that we get in, but how do we get out?

DOBBS: Wolf, if I may...


BLITZER: Yes, Lou, I know you want to -- yes, go ahead, Lou.

DOBBS: There will be absolutely no ideological discussion along these lines. We are looking at a full blown crisis in these credit markets, of which the equity markets are an expression.

The -- everyone understands that we've got to take intelligent responses, make intelligent responses here to what is a crisis. The politics and the ideology is already baked. That's done with the passage of the Wall Street bailout, as much as it's repugnant to many people on both economic terms and ideological terms.

The issue now is resolving that credit market crisis and getting this country turned around as quickly as possible.

BLITZER: We're standing by to hear from Henry Paulson. We'll go there live once he starts speaking.

But, Dana, what do you think?

How is this going to play out over the next, what, 24, 25 days?

MILBANK: I think Lou is right about the politics of it. Ideology has been completely tossed out of the window. Here we have an idea that was basically a nonstarter when people were dealing with it 10 days ago and they've sort of inched to the point where this is absolutely, positively has to be done right now.

I suspect on the campaign trail, anything that will stop the bleeding here will be of some short-term benefit to John McCain. But this is just an overwhelming tidal wave that's going against him at this point.

BLITZER: You think so, Steve?

HAYES: Yes, I think so. I think he's -- he's had a tough time, we've seen, over the past three weeks. He's had a very tough time coming up with an issue or a proposal that allows him to break through and show some leadership on this.

BLITZER: All right. Hold on, Steve.

Here comes Henry Paulson, the Treasury secretary, about to make this statement.

We'll listen in.


At today's meeting of the today at the G-7 finance ministers and central bank governors, we finalized an aggressive action plan to address the turmoil in the global financial markets and the stresses in our financial institutions.

This action plan provides a coherent framework that will direct our individual and collective policy steps to provide liquidity to markets, strengthen financial institutions, protect savers and enforce investor protections.

The G-7 is compelled to robust international partnership and cooperation. Never has it been more important to find collective solutions to ensure stable and efficient financial markets and restore the health of the world economy.

Global financial market conditions are severely strained. In the United States, our economy has been facing a prolonged period of uncertainty and our financial markets are experiencing unprecedented and extraordinary challenges.

A root cause of this situation is the housing correction and a lack of confidence in mortgage assets, as well as a lack of confidence in many of the financial institutions that hold these assets.

We are squarely focused on the immediate need to stabilize our financial markets and recognize that investor confidence is critical to restore liquidity and enhance the stability of our financial system.

As recent developments have demonstrated, the market turmoil is a global event. Governments around the world are taking actions to address financial market developments and international cooperation and coordination has been robust. It critical for governments to continue to take individual and collective actions to provide much need liquidity, strengthen financial institutions, enhance market stability and develop a comprehensive regulatory response. We must continue to closely coordinate our actions and work within a common framework, so that the action of one country does not come at the expense of others or the stability of a system as a whole.

Central banks around the world have acted together to provide additional liquidity for financial institutions, taking the necessary steps to support the global economy. The Federal Reserve has established swap lines with nine central banks to reduce pressures in global short-term U.S. dollar markets. Additionally, the U.S. Treasury implemented a temporary guarantee program for the U.S. money market mutual fund industry.

Here in the United States, the members of the president's working group on financial markets, the PWG, made it clear that we will coordinate the use of our existing and new authorities to restore market confidence. Other countries are considering appropriate programs given their national circumstances, and we pledge to stay in close contact as they move forward with their plans.

I briefed my colleagues on the work we are pursuing to implement swiftly and thoughtfully the new financial rescue package. We are developing strategies to use the authority to purchase and ensure mortgage assets and to purchase equity in financial institutions, as deemed necessary to promote financial market stability.

As we develop plans to purchase equity, as in the approach we are taking to broad mortgage aspect purchases, we are working to develop a standardized program that is open to a broad array of financial institutions. Such a program would be designed to encourage the raising of new private equity capital to complement public capital.

Consistent with the legislation, any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to market standard terms to protect our rights as investors.

Securities investors around the world have taken measures to enhance market stability by addressing market abuse. Here in the United States, we have taken steps to protect the savings of American people by increasing deposit insurance limits and the European Union member states have raised individual positive limits to an E.U.-wide minimum.

The G-7 and others are working together through the Financial Stability Forum, the SFF, to ensure a comprehensive international regulatory response to the financial market turmoil. FSF Chairman Mario Draghi reported to us on the good progress he's been making in improving prudential (ph) supervision and regulation, increasing disclosure and transparency and enhancing accounting frameworks.

I am committed to making sure this work continues. We are also committed to tackling the next steps laid out by Chairman Draghi to be done by the end of this year and our ambitious agenda for 2009.

I thank you.

And now let me take your questions.


QUESTION: Mr. Paulson, since we know that Japan and China are the two biggest holders of the U.S. Treasury, do you think it's possible the U.S. may be seeking help from these two countries?

PAULSON: We are in close coordination and communication with Japan and China and other investors around the world. And we've all been -- I think people have been very mutually supportive. And so we work together closely and I expect us to continue to do so.


QUESTION: How can you be sure that (INAUDIBLE) consistent from one country to another?

What do you think of that speech (INAUDIBLE) guarantee the (INAUDIBLE)?

PAULSON: Well, obviously, the -- what we commented on was there's an E.U. minimum for individual accounts. I told you what our focus is here. Individual countries are going to have different needs and they're going to approach the problems differently.

But the point that we all emphasize is we've got the same objectives. And as we pursue those objectives, it's very important not to pursue policies that are going to undermine, you know, global stability or other nations' policies. And I think we're committed to that goal.


QUESTION: Mr. Secretary, a number of market partisans were hoping that you would produce a plan to secure access to funding on the part of financial institutions, either by providing some sovereign guarantees or potentially some mechanism -- central clearinghouses or other mechanisms for the interbank market.

Could you explain what the strategy is to ensure that banks have continued access to funds?

PAULSON: Well, let me begin by saying that I think you saw a different statement from us this time, those of you who have been reading communiques for a long time, because we focused on five points. And these were strong action plans. And it was, I think, very clear, as it emerged from this meeting, that we all saw the need to do these five action steps.

And the first was liquidity, particularly in the interbank markets...

BLITZER: All right. We're going to break away from Henry Paulson.

But we have the news. You heard him say it right here just moments ago, that the U.S. government -- the Bush administration is now going to start buying stock in financial institutions in the United States to try to help recover what's going on.

Ali, put this in English for us. Give us the enormity of what he just announced.

VELSHI: OK. There are two ways for any company to raise money. They either get money in exchange for giving somebody stock or partial ownership in their company or they borrow money. Borrowing money puts you into the debt market. That's what this credit freeze that we've been seeing. Stock puts you into the stock market.

So basically the government is saying that they are looking at the option not just of loaning troubled financial services companies or troubled banks money, they are going to invest in them. They're going to give them money in exchange for stock, which gives the government some degree of ownership in U.S. banks.

Now, that is approved under this bailout that was -- the $700 billion bailout that was authorized. We have heard rumor and discussion that the Treasury was thinking about it. Now Henry Paulson is saying the government will move ahead and make investment in certain U.S. banks.

BLITZER: All right, Lou Dobbs, are you encouraged?

DOBBS: Oh, I don't think anyone could fail to be. And to be clear, the reason that the Treasury is doing this -- recapitalization -- let's take the $700 billion, hypothetically, that has been approved for the Wall Street bailout, put that in as capital. It gives you a 10 one ratio in lending.

In other words, there would be a $7 trillion powerful impetus into the credit markets as a result of this, if that were the number -- it is not -- versus simply $700 billion, which, in that scenario, seems like something of a lighter sum, doesn't it -- Wolf.

BLITZER: I know you're going to have a lot more, Lou, in just a couple of moments on your show.

Stand by for that.

Gloria, let's talk a little bit about what might this mean politically.

BORGER: Well, you know, I think this is something that both candidates would probably buy into because it was part of the bailout package. And I think that both of them, like all of us, would hope that it would -- that it would help Americans in their 401(k)s and the stock market and stop the erratic stock market.

So, you know, I am assuming that the reaction to this would be that it's a tourniquet and that it would work and most folks would be for it.

BLITZER: We all thought that the AIG bailout would turn things around, Dana. Then there was what they did with Bear Stearns and all of that. And then the $700 bailout was supposed to turn things around. Now we're hoping this will do it.

MILBANK: Well, there's a sense that, ultimately, they're finally getting a little closer by throwing all these things up there.

There aren't too many silver linings in this whole cloud. But one of them is looking at a guy like Hank Paulson there. We're actually blessed in that this is not -- the president is not running for reelection and these proposals are not seen in a political prism and that gives the possibility that both candidates can jump on board here, because whatever people feel about the Bush administration, you can't doubt that Hank Paulson and Ben Bernanke are acting in the best interests of the country, as opposed to it, in an election year.

BLITZER: We know Ben Bernanke stays on in the next administration. There's even some talk Obama, Steve, might keep Henry Paulson as his Treasury secretary, at least for an interim period.

HAYES: You know, I was actually listening -- I was thinking the same thing as I was listening to Henry Paulson talk and wondering if there could be some sort of an arrangement where they have a co- secretary of the Treasury or they have, you know, some sort of an overlap to sort of bridge the gap. Because it does seem -- I mean I think there will be some politics on this on the margins, when you look at House candidates who are, you know, nervous about taking over -- having the government take over as much of the market.

BLITZER: All right, guys, thanks very much.

Good discussion.

The breaking news -- we're going to continue to follow it.

I'm Wolf Blitzer here in THE SITUATION ROOM.

Up next, "LOU DOBBS TONIGHT" -- Lou.


Tonight, the worst week ever for the stock market. Treasury Secretary Paulson has just announced a plan to buy shares in ailing financial institutions, recapitalizing those institutions.

I'll be joined by three of the country's smartest economic thinkers here tonight.

And President Bush telling the American people again to be patient, as the crisis worsens. We'll be reporting on that and the lack of leadership in Washington throughout this crisis.

Also tonight, the McCain campaign hammers Senator Obama for his links with a left-wing activist organization called ACORN -- accused of election fraud all across the country.

We'll have the very latest.

And three top political analysts join us to discuss that and a great deal more, all the day's news and much more, from an Independent perspective, tonight, straight ahead.