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The Situation Room

Bank Bailout Reaction; McCain's $52 Billion Plan; Obama: McCain Has 'Bad Ideas'; Biden Talks Economy to Ohio Crowd

Aired October 14, 2008 - 16:00   ET

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

WOLF BLITZER, CNN ANCHOR: Happening now, we're following breaking news. Caution at the closing bell as the feds take extraordinary action to ease the credit crisis. This hour, what the government's new investment in the nation's banks means for all of us.
Plus, the battle of the economists in chief. John McCain rolls out new tax cut proposals and tries to fuel doubts about Barack Obama's financial plan.

And the McCain camp seizes on accusations of voter registration fraud. It's targeting the activist group known as ACORN and its ties to Barack Obama. Does McCain have a link to ACORN as well?

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

The U.S. government is getting directly involved in the nation's banking industry and Wall Street doesn't seem sure what to make of the move. The Dow Jones industrials closed down about 70 points just seconds ago after surging more than 400 points this morning.

The Bush administration announced today that it will buy shares in the nation's leading banks. Nine institutions at first. It will cost about $250 billion of the $700 billion approved to bail out the financial system.

The president conceded that the partial nationalization of big banks is a last resort aimed at freeing up frozen lines of credit. He says he and his economic team want to be clear that the intervention won't last forever.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: They will make clear that the government's role will be limited and temporary. And they will make clear that these measures are not intended to take over the free market, but to preserve it.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

HENRY PAULSON, TREASURY SECRETARY: We regret having to take these actions. Today's actions are not what we ever wanted to do, but today's actions are what we must do to restore confidence in our financial system.

(END VIDEO CLIP)

BLITZER: Our business correspondent, Ali Velshi, is here. He's watching all of this unfold.

The response by the federal government this morning, pretty dramatic stuff. The markets not necessarily reacting as favorably as some had thought.

ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: Two different stories. The markets, first of all, remember that from Friday night's lows, after eight days of straight losses, to this morning's highs, I mean, we were up 20 percent. So if you were very fearful about these markets, you were taking advantage of these gains to sell out.

You might still have suffered a loss, but there are a lot of people still bailing out of the market. So market trading is sort of its own issue right now separate from what's going on. As for the government...

BLITZER: In other words, they may have discounted yesterday.

VELSHI: Right.

BLITZER: They thought this was coming and as a result the markets went way up yesterday.

VELSHI: Right.

BLITZER: And today it sort of leveled off.

VELSHI: Today it sort of leveled off. And you're going to see these big swings. We've seen them every day. There's a great deal of volatility in the markets.

On the other side, you're seeing a shift in the administration away from what was a very unsavory bailout. What people didn't really like, this idea of buying toxic loans into emphasizing investment in banks, recapitalization, they call it, giving healthy banks -- by the way, these nine banks are healthy banks -- plus others money, investing in them, taking stock in return, and trying to get the credit markets to unfreeze that way.

And for a blink of an eye we actually saw credit markets unfreezing today. So it seems to be reacting. Of course, the U.S. is reacting to a plan that was implemented in Britain and in Europe. It does seem to be working, but it's a bit of a shift. It's not just buying bad loans now. It's actually investing in healthy banks with the hope that investors, taxpayers might get a return on this.

BLITZER: The whole notion that yesterday was Columbus Day, a bank holiday, so it was not necessarily indicative of what this would mean in freeing up the credit.

VELSHI: Right.

BLITZER: That ended today because there was no banking holiday, and the credit...

VELSHI: U.S. credit markets were closed. The stock markets were open yesterday.

BLITZER: Right. Are you seeing any positive economic news out there as a result of any of this?

VELSHI: There's one piece of economic news that's floating around, and that is that with the price of homes continuing to drop -- and we've continued to see that -- there are upticks in home buying in other places. But right now all eyes are on the main issue here, and that is the credit markets. Are companies and banks able to borrow from each other on a short-term basis, whether that is overnight or for a week? That's what we're all paying attention to.

Now, once this all passes -- and this financial crisis will pass, the credit markets will come unfrozen -- the next thing we're going to do is go back to those things we've been looking at -- housing, jobs, and other measures of the economy, all of which are not great. That's also part of the problem with the economy.

BLITZER: And more breaking news we're following, Ali, The Associated Press now reporting that this year's budget deficit, it's soaring to $454.8 billion, almost half a trillion dollars, reflecting the weak economy of the stimulus program, if you will. That's a huge, huge number.

VELSHI: Remember, when that stimulus program came out, it was supposed to go -- they were hoping that it would be spent. In many cases people's debt had accumulated so much that they paid that off, thereby not contributing to economic growth. So we can expect that -- Morgan Stanley just a couple of hours ago came out and said -- maybe a little late to the party -- that they're confirmed we are now in a recession.

BLITZER: Just to recap, yesterday the markets went up almost 1,000 points. Today, we're down as of right now 76 points right now.

VELSHI: But a big swing. We were up 400 points. So about a 500-point swing today.

BLITZER: We're going to get used to these swings.

VELSHI: We're going to have to get used to them. That's right.

BLITZER: Ali, stand by, because we're going to be getting back to you.

We're going to be speaking a lot more about this breaking news, the bank bailout, the market's reaction.

The chairman of President Bush's Council of Economic Advisers, Ed Lazear, and the chairman of the Senate Banking Committee, Democrat Chris Dodd of Connecticut, they're both standing by. We'll be speak with them live. Stand by for that. Twenty-one days before America votes, John McCain can't turn the page on America's economic crisis, not just yet. Today he rolled out a new $52.5 billion plan a day after Barack Obama offered some new economic proposals of his own.

CNN's Dana Bash is in Pennsylvania, where Senator McCain campaigned today.

Dana, this is the kind of thing some Republicans have been urging Senator McCain, to unveil an economic strategy.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: Exactly. Across the country Republicans have been urging Senator McCain to do that. And not just that, but do it in the way he did today, to telegraph those ideas very clearly in one speech. But, of course, Barack Obama unveiled a plan of his own already this week. And the question, Wolf, is whether or not it's too late for McCain to break through.

(BEGIN VIDEOTAPE)

BASH (voice-over): Three weeks to go and John McCain is taking another whack at luring economically distressed voters with a fresh round of tax cut proposals.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: As president, I intend to act quickly and decisively.

BASH: He offered a new $52.5 billion plan targeting jobless voters by eliminating taxes on unemployment benefits, which Barack Obama proposed a day earlier.

MCCAIN: It's unclear to me why the government taxes money it's just sent you.

BASH: McCain is also going after those at or near retirement, calling for taxes on up to $50,000 in withdrawals from IRAs and 401(k)s to be lowered to 10 percent. And for investors who lost money in the markets, he would increase the deduction allowed from $3,000 to $15,000. For those who have made money, McCain would cut the capital gains tax in half.

MCCAIN: ... the hard-earned savings. Americans should not be penalized by the erratic behavior of politicians.

BASH: McCain wasn't even done speaking when camp Obama slammed him, saying "Trickle-down ideological recipes won't strengthen our economy and grow our middle class."

Convincing voters to trust him on the economy is incredibly tough now for McCain. Here in Pennsylvania, Obama has nearly a 20-point advantage on the issue. It's why McCain's attacks on Obama may be less personal, but they are just as pointed.

MCCAIN: Even he can't turn a record of supporting higher taxes into a credible promise to cut taxes. Perhaps never in history have the American people been asked to risk so much based on so little. (END VIDEOTAPE)

BASH: Now, voters in this area where McCain spoke -- it is fiscally conservative Philadelphia, Wolf -- they should be prime tarkts for his new call to lower taxes. But locals say that he has the same problem here he really has across the country, and that is friends (ph) say that voters are so sick of President Bush, Obama may be a so-called risk they're willing to take -- Wolf.

BLITZER: Dana's standing by.

We're going to get back to you. Stand by for that.

We're also, I just want to alert our viewers, waiting to hear directly from Senator Joe Biden, the Democratic vice presidential nominee. He's in Ohio. He's going to be speaking momentarily.

We're going to go out there and hear what he has to say at this rally. Lately he's been very, very feisty. We'll hear what Senator Biden has to say. Stand by for that as well.

And Senator Barack Obama is preparing for his final presidential debate with Senator McCain tomorrow night, but he took time out from practice sessions in Ohio to comment on his opponent's new economic plan.

Let's go out to Jessica Yellin. She's over at Hofstra University out on Long Island, the site of tomorrow night's debate.

Jessica, what's Senator Obama saying specifically about Senator McCain's latest idea?

JESSICAL YELLIN, CNN CONGRESSIONAL CORRESPONDENT: Wolf, Senator Obama has some praise for McCain's new economic plan, but also some criticism. In the praise category, he says he likes the idea McCain proposed of allowing some seniors to put off withdrawing from their 401(k) plan so they're not forced to withdraw in this bad economy. It's a plan that he says he's adopting from McCain and including in his own package. But in the criticism category he had this to say...

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: There's some ideas that Senator McCain's put forward in the last couple of weeks that are very bad ideas. The idea, for example, of purchasing homes at full price from banks so that banks have no losses and taxpayers automatically have losses, that's a bad idea.

(END VIDEO CLIP)

YELLIN: Another bad idea? He said he thinks McCain's proposal to cut capital gains taxes, sort of purposeless, because he says very few people are making money in the market right now. But he says he has to review the rest of McCain's plan before he comments further.

Now, Wolf, Senator Obama did comment on something else you discussed earlier in the show. That is this topic of ACORN, that activist group that has been registering voters. And they're accused of illegally or fraudulently registering some voters.

The McCain campaign has accused Barack Obama's campaign of having close ties to this organization and has called on the Obama campaign to "rein in the group." Obama had this to say in reaction to the McCain campaign's criticisms...

(BEGIN VIDEO CLIP)

OBAMA: But this isn't a situation where there's actually people who are going to try to vote, because these are phony names. And it's doubtful that Tony Romo's going to show up in Ohio to vote. So this is another one of these distractions that gets stirred up during the course of a campaign.

(END VIDEO CLIP)

YELLIN: Well, he also said his campaign is not advised by ACORN, they have their own voter operation, and their ties to the group are essentially nominal. Barack Obama's campaign also held a conference call accusing the McCain campaign of being cynical by trying to tie ACORN to the Obama group, saying basically this is an attempt to distract from the larger effort, getting people out to the polls, getting legitimate voters to vote -- Wolf.

BLITZER: We're going to have more on this story. We're looking in-depth into ACORN and what it means in our next hour. So we'll stand by for that.

Jessica, thank you.

Jack Cafferty is off today.

Coming up, the outspoken conservative Glenn Beck, he's here live in THE SITUATION ROOM. We'll talk about what's going on. He challenged John McCain to explain why he voted for that $700 billion bailout. Is Glenn buying what Senator McCain had to say? Senator McCain was on his radio show today.

And the treasury secretary, Henry Paulson, is playing a leading role during this financial crisis. How are the financial experts grading his performance?

And don't count anyone out of this presidential race just yet. We're looking at the challenges ahead for both candidates across the map.

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

(COMMERCIAL BREAK)

BLITZER: As we just mentioned, John McCain unveiled a new economic plan to help struggling Americans. But some are wondering why he supported the recently passed $700 billion bailout plan. My next guest is one of them. The conservative commentator Glenn Beck is part of our CNN family. He's the host of a program that bears his name on Headline News. He recently came on this program, right here in THE SITUATION ROOM, and predicted that McCain's campaign is over because McCain voted for that financial rescue plan that was laden with what he described as pork barrel spending. And it's something that Glenn asked Senator McCain about today in his radio interview.

(BEGIN AUDIO CLIP)

GLENN BECK, "THE GLENN BECK PROGRAM": Why did you sign it? Why did you go with it? Why didn't you stand up and say, no, it's obscene?

MCCAIN: The stock market had just wiped out $1.2 trillion in American savings and pensions, et cetera. Hopefully this volatility will level off and yesterday's rebound, credible rebound in the market, will stabilize the market. But to do nothing at that particular point, everybody I know told me was not the right thing to do. And I agree with them.

(END AUDIO CLIP)

BLITZER: All right. Glenn is here in THE SITUATION ROOM.

He says to do nothing would have been bad, and he agreed with all those advisers saying you must support this $700 billion bailout package.

Did Senator McCain satisfy your concerns?

BECK: No. You know, values are values. You can't sell out what you truly believe.

So my question is for both of these candidates, what is it that they truly believe? What is it that they really have burning inside of them?

Me, I am willing to look at a bailout package, but that's not what they signed. They signed over the ability to write any check for Paulson. He can change it any way he wants. We have fundamentally changed capitalism.

Now, they went back and changed it again from what they signed without asking the American people, without asking our representation, and they changed it. And now what they've done is they've come into this banking system and they have purchased stock of the banks, but the banks couldn't -- didn't have the ability to say no. You had to sell them.

BLITZER: Even healthy banks were pressured...

BECK: Right.

BLITZER: ... in effect, by the Treasury. Go ahead and accept some of these. We want to buy some of your stocks, because that will encourage the less healthy banks to go forward and do the same thing.

BECK: So what kind of system is this? What is this?

BLITZER: What is it?

(CROSSTALK)

BECK: Oh, it's absolute nationalization and socialism. We are marching towards socialism.

Our country has been taken overnight because of -- and I believe this. I am one of the few that believe that we are in dire, dire trouble economically. I believe there's a possibility in the next few years we could see the Weimar Republic happen here.

BLITZER: Yes, but the point that they make is it's a bad choice between difficult options. You either partially nationalize -- it affects some of these banks. Or the credit market dries up...

BECK: I understand.

BLITZER: ... and people, small businesses, they can't get loans, they can't get mortgages. Credit cards, you know, forget about it.

BECK: Wolf, I believe this is a more dire situation than I think these guys do. I have examined my life and the lives of Americans around me. And I've thought, we could be penniless here. We could absolutely be penniless.

But what tools do you need to restart it? You need to have capitalist rules. You need to be able to have the republic left.

What these people are doing is they're robbing our Treasury, and they taking all of this money, printing even more, and stripping us of all our capitalist tools. This was not a failure of capitalism.

BLITZER: Because Henry Paulson, you heard him say it, and President Bush says it, as difficult and as much as they hate doing this, the alternative would be even worse. And that's what Senator McCain said to you today as well.

BECK: I believe this situation is as bad as President Bush does. Here's the problem -- you are destroying capitalism. They're putting capitalism on trial.

It's not capitalism that's failed. It's greed that's fails every single time. It's stupid policies in a government where they are greedy for their own power.

BLITZER: You still believe Senator McCain's support for the bailout package, the rescue plan, whatever you want to call it, cost him the election?

BECK: Yes, I do. However, that's changing, because the other one, if you look at the two policies, they're both marching towards socialism. And what they're doing is they're giving more and more candy away.

John McCain, his policies today I think actually made some sense. There was some semblance of why you would want to do it to correct the problem, where Obama was just, let's open up the candy store.

BLITZER: So you like McCain? You're calling him "the other one?"

BECK: I don't know. It's just bad choice, worse choice. I don't know.

BLITZER: Glenn, thanks very much for coming in.

BECK: Thank you, Wolf.

BLITZER: We're standing by, by the way, for Senator Joe Biden. He's getting ready to speak in Ohio. We're going to go there live. Once he does, Senator Biden has some strong words.

Also, the government is doing something many Americans object to. They're using all of our money to do it, putting up right now $250 billion to help major banks, the credit market.

How much say should you have in what's going on? We'll ask the White House chief economic adviser, Ed Lazear, what's going on. He's standing by live on the lawn of the White House.

And you want to support the candidate with the best economic plan for you, but the details may seem confusing. We're going to break them all down for you right here in THE SITUATION ROOM.

(NEWSBREAK)

BLITZER: Barack Obama's running mate, Senator Joe Biden, he's getting ready to speak at a rally in Ohio. We're going to go there live once he does. Stand by for that.

And right now he's arguably one of the most powerful men in the world. But how well is the treasury secretary, Henry Paulson, doing his job? You'll hear from experts. Stand by also for that.

And John McCain has a problem. It involves a key group of voters and especially where they live. John King is reviewing all of this. Our chief national correspondent will be joining us live.

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

(COMMERCIAL BREAK)

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

Happening now, voter registration fraud. A community group finds itself in the national spotlight after bogus forums turn up in several states. We're taking an in-depth look at the allegations and we're going to tell you whether there are links, serious links, to either of the presidential candidates. Also, it's being called the "Great Schlep." Young Jewish voters heading to Florida where they hope to sway the senior vote. And it's getting a lot of attention out there on the Internet. Now it may be getting some real results as well.

We'll update you on the "Great Schlep."

And sex scandal deja vu. The Florida Democrat who won the seat of disgraced Congressman Mark Foley is now battling his own scandal. We're going to give you the details of that.

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

But we begin with our top story, the critically ailing economy. It's just one of the issues consuming President Bush in these, the final months of his presidency.

Let's go to the White House. Our correspondent Elaine Quijano is standing by live.

Elaine, is all of this taking a toll on the president?

ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Well, it's certainly an enormous burden, Wolf, for any president, but for this one especially.

President Bush has said many times that he is sprinting to the finish of his term. That sprint, though, has been marked by some big hurdles along the way.

(BEGIN VIDEOTAPE)

QUIJANO (voice-over): In the twilight of his presidency, George W. Bush has a lengthy to-do list.

BUSH: We have got a couple of more hard months to go.

QUIJANO: Front and center, boosting the battered economy.

BUSH: The American people can have confidence about our long- term economic future.

QUIJANO: For weeks, President Bush and his advisers have been consumed with trying to lead the way out of the global financial crisis.

BUSH: Nations around the world are working together to overcome this challenge.

QUIJANO: One might think this would be a quiet time for any president in the waning months of his term. But that would be wrong, says presidential historian Stephen Hess.

STEPHEN HESS, PRESIDENTIAL HISTORIAN, BROOKINGS INSTITUTION: Very often, it's quite the contrary, either just because the world doesn't go on our schedule and doesn't stop because the president is -- is changing, or, sometimes, because other nations want to take advantage of that.

QUIJANO: In fact, President Bush is facing a host of challenges on the foreign policy front, including Iraq, where violence has dropped off sharply, but the U.S. has yet to reach an agreement over the long-term presence of American troops in that country.

In Afghanistan, deadly insurgent attacks continue against U.S. and NATO forces. And, in neighboring Pakistan, the U.S. is trying to loosen the Taliban's grip on tribal areas. All those issues remain top priorities.

DANA PERINO, WHITE HOUSE PRESS SECRETARY: At the White House, you don't have the luxury of even having a back-burner.

QUIJANO: And all of it unfinished.

HESS: A president would like to close -- drop the curtain on the third act, and everything is nicely concluded. But it's not. You're always going to leave some problems, some very serious problems, to your successor.

(END VIDEOTAPE)

QUIJANO: Right now, though, a main focus continues to be the global financial crisis.

At Camp David this weekend, in fact, President Bush will be hosting France's president, as well as the head of the European Union, where the financial crisis, Wolf, will be at the top of the agenda -- Wolf.

BLITZER: All right, President Sarkozy coming to the United States.

Thanks very much, Elaine, for that.

Let's talk a little bit more about the breaking news, what's going on.

Joining us is Edward Lazear. He's the chief White House economic adviser.

Mr. Lazear, thanks very much for coming in.

EDWARD LAZEAR, CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS: Nice to be with you, Wolf. Thank you.

BLITZER: I want to get to this breaking news, first of all, on the budget deficit. The Associated Press is now reporting that it will be a record $454.8 billion, as of right now.

First of all, is that number accurate?

LAZEAR: We think the number is accurate. The deficit, of course, is always an issue. And it's something that we worry about. The primary reason why the number is high is that we decided that we needed to engage in economic stimulus, because we thought the economy was slowing. And, then, the second reason is that, when the economy slows, tax revenues don't come in at the same pace. And that also increases the deficit.

BLITZER: Because there's real concern out there, Mr. Lazear, that that number, almost a half-a-trillion-dollar budget deficit, could go up and up and up, given the slowness -- slowdown in the economy, fears of a recession. Would that be your expectation?

LAZEAR: Well, it wouldn't be the expectation, but that's certainly the fear.

In fact, that's the reason why we have engaged in the kinds of policies that we are doing right now. We want to make sure that the economy grows, rather than slows, and so that we do have the tax revenues coming in. That's one aspect of it.

Of course, the main reason is to make sure that people have jobs and that wages continue to grow.

BLITZER: Buying stocks, as the president announced today and the treasury secretary, Henry Paulson, elaborated -- elaborated on today, $250 billion in equity stocks in these major banks in the United States.

Looking back over the past month, shall we say, do you think that other steps could have been taken to avoid this kind of very dramatic step? It's the first time, I believe, this has been done since the Great Depression.

LAZEAR: Well, it's difficult to know whether, in hindsight, one could have done something in a better way than we're doing it right now.

But I don't think that's the issue. I think the key issue is to make sure that we take the kinds of actions that will get the economy going again. Remember, the key problem right now is that neither businesses, nor individuals are able to get the kinds of loans that they need. And that's what we're focused on.

We believe that the plan that we put into place this morning will be effective in making that happen, and will do so at a minimum of taxpayer dollars.

BLITZER: When someone like Warren Buffett decides to spend a few billion dollars and buy up equity or stock in a major corporation to try to help that corporation out, they almost always get a seat on the board.

Should the U.S. taxpayer be allowed to have representation on the boards of these banks that are now getting help from the financial -- from the federal government?

LAZEAR: We think not. The goal of this program is not to take over the private sector. The goal of this program is to make sure that the private sector has the funds that it needs to do what it does best. And, so, what we would like to do is, we would like to make sure that we do that in a way that doesn't take over the -- the management of those organizations.

Now, that said, banks are heavily regulated already, and the financial institutions that we're talking about now will face regulation to make sure that they don't spend the taxpayers' money in ways that are foolish.

But we don't want to try to manage those organizations. That's not the -- that's not the approach.

BLITZER: Well, when you say foolish, spending money, will that be translated into new restrictions, shall we say, on CEO compensation for these banks that are getting help in the form of billions of dollars from U.S. taxpayers?

LAZEAR: Well, there will certainly be restrictions on CEO compensation. That's part of the deal that was what Congress legislated a couple of weeks ago. And we will certainly follow those policies.

In addition to that, there are a number of other regulations that all banks face through the Federal Reserve, through FDIC. Those are in place to make sure that banks don't undertake risky investments, and do that with taxpayer dollars, particularly at this stage of the game. So, that's going to be, I think, an effective tool.

We do have regulation. You know, we can always look back and say, gee, should we have -- should we have done something differently? That discussion will play out over the next year or so, I would guess. And it will be a lively discussion, with a lot of people having views on both sides.

But, right now, the focus has to be getting us through the night, getting things going, and doing it in an effective way.

BLITZER: So, just a -- but, very quickly, just to be precise, let's say Citigroup or one of these big banks that's going to get help from the U.S. government, will their top corporate executives have smaller paychecks?

LAZEAR: Well, there will be limitations on those, particularly in the form of golden parachutes that was specific in the legislation. And we will abide by those terms.

BLITZER: Mr. Lazear, thanks for coming in. And good luck.

LAZEAR: Thank you very much.

BLITZER: All seven tossup states on CNN's electoral map have something in common. We're taking a closer look at where those battlegrounds stand right now, compared to past elections. I think you're going to want to see this.

And a new cash infusion, as we have been reporting, is in the works, not for the economy, but something else right now, for the McCain campaign. Coming up in our "Strategy Session": Will it be money well spent?

And confusion on the battlefield in Iraq again -- there's a brand-new video that is raising serious questions about how two U.S. soldiers died.

(COMMERCIAL BREAK)

BLITZER: Democratic vice presidential nominee Joe Biden is in Saint Clairsville, Ohio, speaking about the economy. He's getting excited.

Let's listen in.

(JOINED IN PROGRESS)

SEN. JOSEPH BIDEN (D-DE), VICE PRESIDENTIAL NOMINEE: ... He's got a great idea, free spending on education and innovation. That's a good idea when you want to make the economy grow.

Ladies and gentlemen, the problem is -- and I mean this sincerely -- I don't think John understands. I don't think he gets it. There's no difference between what he's proposing and what's been going on for the last eight years.

John McCain and Sarah Palin may call themselves mavericks.

(LAUGHTER)

BIDEN: Well, I want to tell you, my good friend Bob Casey, the senator from the adjacent state of Pennsylvania, he had a great line. He said, you can't call yourself a maverick when all you have been in a sidekick for the last eight years.

(CHEERING AND APPLAUSE)

BIDEN: The only new idea John came up with, he came up with in the last debate. He said he wants to take $300 billion of your money and bail out the very people who took your money.

He wants to make sure that we buy mortgages at what, in fact, they were paid for, meaning that all those outfits, like Countrywide, are going to stop negotiating with anybody, because the government is going to come and bail them out.

Ladies and gentlemen, when Sarah Palin looked at me during the debate and she said, well, I was only in second grade when Senator Biden was elected...

(LAUGHTER)

BIDEN: It's true. (LAUGHTER)

BIDEN: Well, I should have said to her what I thought of. She was only in sixth grade the last time John had a good idea.

(LAUGHTER)

(CHEERING AND APPLAUSE)

BLITZER: All right, a little flavor from the campaign trail -- Joe Biden on the stump, making the case for his campaign and against Senator McCain.

Let's take a closer look right now at the electoral map and the challenges for both of these presidential candidates over the course of the next three weeks.

Right now, CNN considers seven states to be what we call tossups, Colorado, Florida, Missouri, Nevada, North Carolina, and Ohio. They have a total of 100 electoral votes. Those are at stake. All seven states voted for President Bush in 2004. And now, by CNN's estimate, those seven states could go either way.

Let's zero in on four of those states right now where we have averaged some recent polling data. In Florida, for example, right now, Obama has what looks like to be a three-point advantage in our poll of polls. In Nevada right now, Barack Obama leads John McCain by four percentage points among likely voters.

In Ohio right now, Obama is up, as you can see, by just two points, a critical battleground state. In Virginia right now, it's a four-point advantage for Barack Obama.

Our senior political analyst, Bill Schneider, is looking and studying all these numbers. These seven states are going to be critical, I assume, in deciding the presidency.

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: And, as you said, they all voted for Bush in 2004, and they're now all tossup states, which says something very important. It says that the battleground in this election are states that Republicans were counting on. They're all Bush states. There are no Kerry states now from 2004 that are -- that appear to be in question.

BLITZER: Including Pennsylvania, where the...

SCHNEIDER: Yes.

BLITZER: ... the margin for Senator Obama seems to be pretty impressive, although there's no indication yet -- at least we're not seeing an indication -- that Senator McCain is ready to do in Pennsylvania what he did the other day in Michigan, namely, concede, and try to take his people, his money, resources out of Pennsylvania, and move them to some of these seven other states.

SCHNEIDER: Right. BLITZER: Is that right?

SCHNEIDER: That is correct.

There was some talk earlier in the campaign that New Hampshire, Pennsylvania, Michigan, and Minnesota -- all of them were Democratic states last time -- they might be contested this time. The republicans were making an effort -- pulled out of Michigan. And, right now, we're classifying all those as likely Democratic states.

So, the whole battleground is former Republican territory.

BLITZER: Interesting.

All right. Stand by. We have still got 21 days to go.

SCHNEIDER: Right.

BLITZER: And a lot could happen in the course of 21 days.

In our "Strategy Session": The RNC, Republican National Committee, has its own bailout plan. The national party may take out a $5 million loan to help endangered Republican Senate seats. Stand by.

And Senator Chris Dodd, he's the Democrats' point man on banking issues. We're going to get his take on this latest White House plan to directly invest in nine U.S. banks. And that's just for starters.

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

(COMMERCIAL BREAK)

BLITZER: Polls show Barack Obama ahead of John McCain in a number of those key battleground states, as we just saw. But, with three weeks to go, 21 days until the election, how safe is that lead for Senator Obama?

Let's discuss in our "Strategy Session."

Joining us, the Democratic strategist and CNN contributor Paul Begala, and Republican strategist John Feehery.

Guys, thanks very much for coming in.

Paul, let me put some numbers up on the -- on the wall there, and -- and -- and we will discuss. Going back in 2000, in the state of Florida, exactly 21 days, exactly 21 days before the election, in our likely choice for voters, we had Gore at 46 percent in Florida, Bush 43 percent, a three-point advantage for Gore. We all know what happened in the end in Florida back in 2000.

Right now, in our poll of polls in Florida, we have Obama at 49 percent, McCain at 46 percent, a three-point spread, similar to what it was 21 days before the election in 2000.

What does this say to you?

PAUL BEGALA, CNN POLITICAL ANALYST: It tells me that the Obama campaign and the Democrats cannot rest on their laurels.

You know, and I don't think they are. I mean, I have been in touch with those -- with those campaigns. But, you know, particularly in Florida, the lesson from Gore is, you have to win by so much that even the Supreme Court can't steal it from you.

You know, I will never turn loose of that. I will never -- quote -- "get over it." The Supreme Court stole the election from Al Gore. He won Florida overwhelmingly, but tens of thousands of Floridians were disenfranchised, many of them minorities, many of them -- most of them Democrats.

But -- so, I think that waving the bloody shirt of Gore 2000 could be very effective. I will also point out they have deployed one of my favorite assets in the Democratic Party, Bill and Hillary Clinton, right?

President Clinton went down there. He campaigned with two crowds who particularly like him, the Bubbas and the bubbies, right?

(LAUGHTER)

BEGALA: Working-class folks and Jewish Floridians, where he is very, very popular.

Hillary has been to -- get this -- Boca Raton, Tamarac, Miami Beach, Orlando, Kissimmee, and Tampa, all for Barack Obama. So, they know what they're doing in Florida. They know...

(CROSSTALK)

BLITZER: A lot of bubbies, a lot of bubbies down there, bubbies Yiddish for grandmothers.

(LAUGHTER)

BLITZER: And Zaidies for grandfathers. We're going to have more on that in the next hour.

But, John, let's take a look at Ohio right now. Ohio, four years ago, we remember how critically important Ohio was. At this point, 21 days before the election, Bush and Kerry were tied in our likely- voters poll, 48 percent, 48 percent. Right now, in our CNN poll of polls, the average, we have Obama 48 percent, McCain 46 percent. That's within the margin of error.

What does this say to you about the critically important state of Ohio?

JOHN FEEHERY, REPUBLICAN STRATEGIST: You know, I think, in my view, what's going on here, this race is so close, despite John McCain having such a bad couple of weeks. So, for John McCain, actually, this helps John McCain in one sense. What he said today, he's got Barack right where he wants him. And that's because Barack Obama -- the attention is going to shift to Barack Obama. And I think that's a positive think for John McCain, where people are going to say, what kind of president is he? How much is he going to raise my taxes? How are his plans going to impact the economy?

So, this is a good news, in one sense. They're a little bit overconfident. I think the Obama campaign, as they were saying, they're starting to measure the drapes. But they also -- the attention of the media will start focusing on Barack Obama.

And my own personal theory is, whoever the attention is -- the media's attention is on last in this campaign is going to lose. And if it's going to be on Barack Obama, at the end, that's probably a good thing for John McCain.

BLITZER: What do you think about that theory, Paul?

BEGALA: I think it's a good theory, Wolf. I think that Feehery knows what he's talking about. I'm glad he's not working for Senator McCain.

I think, if you noticed, there was a rough patch, you know, after the Republican Convention, and McCain was doing better. And he was leading in many of the polls. And I think that the Obama campaign understood that this cannot become simply a referendum on Barack Obama. What Obama and Joe Biden have done -- you saw in that clip of Joe there in Saint Clairsville, Ohio -- they are making this a referendum on McCain and Bush.

They keep linking Senator McCain to President Bush. You heard Joe Biden quoting his friend, my former client Bob Casey, saying, if you vote 91 percent of the time with George Bush, you're not a maverick; you're a sidekick.

So, this will be the tension, right? The McCain campaign, if they're smart, they will listen to Feehery, and say, let's make it a referendum on Obama.

The Obama campaign is smart, I know. And both Barack and Joe Biden are making this a referendum on McCain and Bush.

BLITZER: What -- what -- if you were to giving him some advice for tomorrow night's last presidential debate, John, what would you say to Senator McCain right now?

FEEHERY: Oh, have a conversation with the American people. Don't personally attack Barack Obama. Stick to some issues.

I think, also, tout his plan today on senior citizens. In Pennsylvania, Florida, Ohio, a lot of senior citizens, they were the ones that got hit the hardest by the -- the financial meltdown. They need to -- he needs to focus on that during this debate. If he does, and has a really good conversation with the American people, he will do well. BLITZER: John, thanks very much.

Paul, thanks to you, as well.

The fight for a handful of battleground states -- the biggest battle may be happening in the suburbs right now. Our own John King, he's standing by live in one of those battleground states, Missouri. That's coming up next.

Plus: John McCain and Barack Obama both unveiling economic plans this week. Which one is better? We're going to help you decide for yourself.

Plus, a rare look at what it's like to be a soldier in battle. This firefight had a tragic ending.

(COMMERCIAL BREAK)

BLITZER: On our "Political Ticker" today: John McCain may be looking for you, a key voting bloc he needs to help him win the White House, but that -- he's not doing necessarily all that well in these days.

Let's go to our chief national correspondent, John King. He's in the battleground state of Missouri right now, in Saint Louis.

We're talking, John, about suburban voters. And you have been talking to them.

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Wolf, America's presidential elections are increasingly settled in the suburbs. And, if they're close, the key battlegrounds are those suburban collars. In Pennsylvania, it's just outside the city of Philadelphia. Here in Missouri, it's the suburbs of Kansas City, and, more importantly, the more populous suburbs surrounding where I am, the city of Saint Louis.

We have been visiting with voters out there, looking at polling data. And John McCain has a clear problem. And, Wolf, it's not just the volatile economy.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Do you need anything else?

KING (voice-over): Getting Molly (ph) off to school is part of the morning routine, a push to stay late for extra credit.

UNIDENTIFIED FEMALE: When are you going to find out about staying after?

KING: And a few jokes about the election now just three weeks away.

UNIDENTIFIED FEMALE: Who are you voting for?

KING: In Susan McGraw's rear-view mirror, two votes for George W. Bush.

But, in this campaign struggle for the suburbs, she is leaning Obama, despite scoring things in McCain's favor on the issue of leadership and experience.

SUSAN MCGRAW, MISSOURI VOTER: I feel like, the state that we're in right now, we need something different. And to get different, you have to do different. And, so, that's why I'm leaning towards him.

KING: In big, diverse states like Missouri, close elections are usually decided in the suburbs. And, three weeks out, McCain has a problem here and in other key battleground states. Republicans don't expect to win among suburban women, but the margin matters.

Four years ago, Democrat John Kerry had just a narrow edge, 51 percent to 48 percent, and President Bush won reelection. But the latest CNN polling shows Barack Obama with a big 56 percent to 44 percent lead among suburban women. And among the reasons are significant doubts about the woman McCain chose to share the Republican ticket.

MCGRAW: It's not that I'm so rah-rah Obama. But, you know, Sarah Palin, I -- I feel like, when she talks, she's like OK, John, I pulled that one off.

And it's -- this is too important. I hate to say it, but Sarah Palin has really -- she scares me.

KING: Stacey Newman feels the same way, but says picking Palin hurt McCain with a key target constituency, women who voted for Hillary Clinton in the Democratic primaries.

Newman is a longtime Democrat who says the Obama campaign has done little to reach out to prominent Clinton supporters.

STACEY NEWMAN, FORMER HILLARY CLINTON SUPPORTER: I don't know if it's the arrogance that we are going to vote Democrat anyway, so why do we need to spend, you know, more energy on us? But, yes, there's a disappointment.

KING: But, while she was an all-but-certain Democratic vote in any event, Newman says friends who were once open to considering McCain are now contributing to a new blog opposing the McCain/Palin ticket.

NEWMAN: So, it's been more of the -- you know, the -- Palin, in terms of inciting us to realize that, wait a minute, we have to support the Democrat, even though we are not as emotionally tied.

(END VIDEOTAPE)

KING: Now, the McCain campaign, of course, points out that Sarah Palin has helped solidify the conservative Republican base and that she has considerable appeal among white men.

But, Wolf, when you travel into the suburbs, and if you know how important they are in presidential politics, if John McCain does not close that gap among suburban women, it is very hard to see him winning this election -- Wolf.

BLITZER: And John is going to be back with us later.

Thank you, John.

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