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The Situation Room
Facing Financial Crisis; Joe Biden's Replacement; Guantanamo Detainee Transferred to Yemen
Aired November 24, 2008 - 17:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MILES O'BRIEN, CNN ANCHOR: Happening now, Barack Obama unveils his e-team -- an A-list of experts charged with figuring out to turn around an economy in meltdown.
Also, an apparent power struggle taking shape between the incoming and outgoing presidents -- bound together by financial crisis.
And security on monumental scale -- we'll go inside the massive undertaking of safeguarding the Obama inauguration.
Wolf Blitzer is off today. I'm Miles O'Brien. You are in THE SITUATION ROOM.
He's got the team. Now they're formulating the plan. And President-Elect Barack Obama is warning there's not minute to waste. Today, Obama introduced the experts he has tapped to lead the country out of the worst financial crisis since the Great Depression. No specifics yet on how they'll do that yet, but the goals are there -- by necessity ambitious.
(BEGIN VIDEO CLIP)
SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: We have a consensus -- which is pretty rare -- between conservative economists and liberal economists that we need a big stimulus package that will jolt the economy back into shape and that is focused on the 2.5 million jobs that I intend to create during the first part of my administration.
(END VIDEO CLIP)
O'BRIEN: We're covering all the latest transition developments with CNN's Mary Snow, CNN senior political correspondent, Candy Crowley, and CNN's Kate Bolduan.
Let's begin with Mary -- Mary, what do we know about the plan?
MARY SNOW, CNN CORRESPONDENT: Well, as you said, not a lot of details. But the way that Obama describes it, it's a stimulus plan to strengthen both Wall Street and Main street. We spoke with some economists to see whether or not it will work.
SNOW (voice-over): On this, President-Elect Barack Obama is clear -- he wants stimulus package right away. What remains a question mark is how much it will cost.
OBAMA: It is going to be of a size and scope that is necessary to get this economy back on track.
SNOW: Obama said it will take what he calls extraordinary policy responses to tackle an economic crisis of historic proportion. His goals -- stabilizing the financial system to get credit flowing again, addressing the growing foreclosure crisis, helping the auto industry and creating two-and-a-half million jobs by the end of 2010. Can it work? Analyst Jared Seiberg studies public policy in the markets. He says it's step in the right direction, but...
JARET SEIBERG, STANFORD GROUP: This is everything you would want to hear except for the details. So right now, we're pretty happy, but we'd like to see more details so we know where that spending is going to go and how quickly it can occur.
SNOW: Obama wants to spend money on infrastructure -- building roads and bridges, modernizing schools and investing in clean energy. Nobel Prize winning economist Joseph Stiglitz says it will be important to target areas where spending projects can get underway quickly.
JOSEPH STIGLITZ, COLUMBIA UNIVERSITY: Some of the construction crews that used to be building houses, those construction crews can be used to repair some of the schools that are in very bad condition -- schools that need real -- real spending.
SNOW: He and other economists say Obama will need to not cave to pressure from critics questioning whether the country can afford to spend right now as the deficit balloons.
JAY ROSENGARD, HARVARD KENNEDY SCHOOL: It would be more dangerous now to try to balance the budget. I think this was the mistake that was made during the Great Depression, where the government cut its budget and the Fed increased interest rates.
SNOW: Now, as for the future, one economist we spoke with says at this point, under good circumstances -- best case scenario -- the economy could begin to recover in 2010. He says it may be necessary, depending on what happens, that Obama will need to create as many as five million jobs -- not two-and-a-half million -- to get the economy rolling again.
O'BRIEN: Wow! Tall order. How soon could we see those jobs?
SNOW: You know, some economists say between six and 12 months we could start to see the impact. But as you know, with the clean energy jobs, it could take a while for them to get underway.
O'BRIEN: Yes. It takes time. It's not like dot-com, where you just sort of spring it out of nowhere.
SNOW: Exactly. O'BRIEN: All right. Mary Snow, thank you very much.
For more on Obama's newly named economic team, we want to bring in our senior political correspondent, Candy Crowley -- Candy, this was the move the country, of course, was waiting for. Not lot of surprises in the names. But nonetheless, for many people, reassuring.
CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Absolutely. And that's what the Obama team had in mind. They wanted a display of power, but they also wanted to project the image of calm. Everybody knows that consumer confidence is huge part of this. They must be happy that the markets rallied on Friday, again today, a good day on the market -- because they know that that also sends a signal to consumers.
So the point of this, of course, was to show these people saying, listen, here are the grownups we're going to have in charge. Here's how we're going to approach it. Now, as you know, Obama was very cautious in that mini news conference he gave afterwards. And as has been his habit for some time now, is he warning people not to expect overnight miracles.
(BEGIN VIDEO CLIP)
OBAMA: This not be easy. There are no short cuts or quick fixes to this crisis, which has been many years in the making. And the economy is likely to get worse before it gets better. Full recovery will not happen immediately. And to make the investments we need, we'll have to scour our federal budget line by line and make meaningful cuts and sacrifices, as well.
(END VIDEO CLIP)
CROWLEY: Sure not as gloomy as Tom Friedman, Miles. But this is definitely a president who is looking at this for the long haul. And this was the first of both symbolic and substantive steps that he has taken to try to reassure the public that he's on the job, saying, listen, I've already started them on coming up with a stimulus package, although, as you know, very few details about that.
O'BRIEN: Hard to get gloomier than Tom Friedman. Boy, that was black hole stuff.
O'BRIEN: All right, let's -- let's talk about looking ahead and the confirmation process. Do you see any land mines out there?
CROWLEY: I don't. You know, they have been -- these names, as you know, have been out there. Not only that, they have shopped them around on Capitol Hill. They understand that, at this point, Republicans in general, and Democrats, certainly, are all for the confirmation of the Treasury secretary. As for Larry Summers, very interesting. These two men have worked together before in the Clinton administration. Summers has been described to me as kind of a mentor to the new Treasury secretary. So they've worked together before.
Summers is rather blunt, not exactly always the most mellow of people. He's gotten himself in trouble some at Harvard, where he was, with some comments that people thought were over the top about women and feminism. So it's nice that he's going to be in the White House. He doesn't need confirmation. He's going to be a senior adviser. I'm told he's brilliant guy. So they seem to have put the right mix in -- two people who can work together, two people who have the ear of the president. Only one of them needs confirmation and nobody sees any trouble with that.
O'BRIEN: All right. And the more confirmable one, if you will, is on that panel.
O'BRIEN: All right. Candy Crowley, thank you very much.
In just the last few hours, we learned who will replace Vice President-Elect Joe Biden in the Senate. CNN's Kate Bolduan live on Capitol Hill with more on that. Who's the next senator from Delaware -- Kate?
KATE BOLDUAN, CNN CORRESPONDENT: Hey there, Miles.
Well, it has been a subject of speculation since Joe Biden moved from Delaware -- Senator Biden -- to Vice President-Elect Biden -- who will take over his Senate seat?
Well, today, Delaware's governor announced Biden's former chief of staff, Ted Kaufman, will be replacing him in the Senate. Kaufman worked in Biden's Senate office for over 20 years and then went on to teach at Duke University Law School and was also a senior adviser to Biden during the presidential campaign.
However, this appointment is already renewing questions over whether this is a way of keeping the track open for Biden's son Beau to take the seat. He's currently Delaware's attorney general and serving with the National Guard in Iraq right now.
Even though Joe Biden's term doesn't end until 2014, under Delaware law, the appointed senator serves only until the next federal election, which is 2010. And Kaufman has already said he won't be seeking re-election. Listen here.
(BEGIN VIDEO CLIP)
TED KAUFMAN, FORMER BIDEN AIDE: I just think that -- that these two years, I should concentrate -- that's what I like about it. I can concentrate on the issues. And I think that Delaware has right to elect a new senator in 2010 with a totally level playing field. So I'm very comfortable with serving two years.
(END VIDEO CLIP)
BOLDUAN: Now, Delaware's Lieutenant governor, John Carney, who was widely viewed as a top candidate for the seat, released statement today saying he's disappointed. One top aide adding, "Kaufman is well- respected, but seen as placeholder" -- Miles.
O'BRIEN: Kate Bolduan in Washington. Thank you very much.
Jack Cafferty here with "The Cafferty File" -- Jack.
JACK CAFFERTY, CNN ANCHOR: It looks like a setup to me.
O'BRIEN: Yes, you might say dynasty might be in the making in Delaware.
O'BRIEN: Who knows?
CAFFERTY: There are stimulus packages and then there are stimulus packages. You remember the one Bush, Pelosi and Reid put together a while back -- $168 billion, a few hundred dollars in most people's pockets. It did its job at the time, gave the economy a short-term jolt. But its effects are long since gone and the economy, of course, now is a whole lot worse than it was then.
So stand by for stimulus two. Congressional Democrats insist they will have stimulus package ready for Barack Obama to sign the day he's inaugurated.
New York Senator Chuck Schumer told ABC's "This Week" that this time, the package could total $700 billion. Gee, another $700 billion. That's a pretty round number in Washington these days, right? $700 billion is what Congress committed last month to bail out the troubled financial institutions. It's an amount slightly higher than the total that we've spent on the war in Iraq over the last six years.
But it doesn't really matter, does it? It's money we don't have anyway. Just add it to the national debt and let the grandkids handle it later. David Axelrod, Obama's chief political adviser, said Sunday the cost of Obama's rescue plan will be pricey. He also hinted the president-elect may hold off on raising taxes for the wealthy and instead allow the Bush tax cuts to simply expire in 2010. That's despite Obama's many promises that he made over and over again on the campaign trail to immediately roll back the Bush tax cuts for people making more than a quarter of a million dollars year. However, conventional wisdom says it's never a good idea to raise taxes during an economic slow down. And boy, do we have one of those.
So here's the question: Should President-Elect Obama hold off raising taxes on the wealthy for two years? Go to CNN.com/caffertyfile and you can post a comment on my blog -- Miles.
O'BRIEN: Where did they come up with the number $700 billion? That -- that's just...
O'BRIEN: ...out of a hat. CAFFERTY: I don't know.
CAFFERTY: I just don't know.
CAFFERTY: It's -- nobody knows.
O'BRIEN: Nobody knows.
O'BRIEN: Jack, thank you very much.
We look forward to those responses.
President Bush offers him high praise, some others have only sharp criticism, including Steve Forbes, who calls Henry Paulson "the worst Treasury secretary of modern times." Steve Forbes is here to explain that and more.
Also, extreme security on massive scale -- what's being done to make sure the Obama inauguration goes off without hitch.
And can one man change the state of race relations in this country -- inside Americans' high hopes for the Obama presidency.
O'BRIEN: Laying blame for the country's financial crisis -- how much, if any, does secretary -- Treasury Secretary Henry Paulson deserve in the wave credit or blame?
Steve Forbes is here to talk about that and more. He is the president and CEO of Forbes, editor-in-chief of the magazine and a former Republican presidential candidate. Mr. Forbes, good to have you with us.
STEVE FORBES, PRESIDENT & CEO, "FORBES" MAGAZINE: Good to be with you, Miles. Thank you.
O'BRIEN: Let's -- let's pull up a little piece of tape here from this morning in Washington -- the president with Hank Paulson. Take a look.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: It's important for the American people to know that we will safeguard the financial system as the first step necessary for financial -- for economic recovery. And, also, Mr. Secretary, thanks for your hard work.
HENRY PAULSON, U.S. TREASURY SECRETARY: Thank you.
BUSH: Appreciate it.
(END VIDEO CLIP)
O'BRIEN: All right.
Was that a "Brownie, you've done heck of job" moment?
FORBES: Well, I think it was trying to provide cover. But if you actually look at the record of what this man has done, he's mishandled this crisis from the get go -- first, with the weak dollar that helped bring the crisis on and then perpetuated it; then with a crazy accounting rule called mark to market, that has gratuitously destroyed bank balance sheets. Most of the write-offs that you hear about are book write-offs, not cash write-offs. But it destroyed banks. Now it's destroying insurance companies. Then with Fannie and Freddie, since the government's taken them over, why not give them an explicit government guarantee so we can get 4.5 and 5 percent mortgages?
O'BRIEN: Well, what...
FORBES: If Paulson would do that, that would revive the housing market.
O'BRIEN: Well, Mr. Forbes, you mean you're saying it's just an arcane accounting rule that has caused all this?
FORBES: Yes, it is.
FORBES: And it's amazing...
O'BRIEN: Well, explain it.
FORBES: ...that the...
O'BRIEN: Can you explain it in lay terms, what's going on?
FORBES: Sure. What it is, it says that banks and insurance companies have these assets and that they must mark the assets up or down according to the market. Well, that's fine for a publicly traded stock like Time Warner, News Corp or General Electric, but quite another when you don't have a market, as you don't have for these subprime mortgages. So what price do you mark this stuff to?
Pick a number. Well, accountants and regulators are telling banks and insurance companies, mark it down to the lowest level possible. So the $600 billion of losses that banks and insurers have announced, almost all of it is book losses, not cash losses.
O'BRIEN: So can that be...
FORBES: We've never done this before.
O'BRIEN: Can that be fixed? Can that be changed?
FORBES: Sure. The Treasury secretary and the SEC can do it in heart beat, say we're suspending mark to market.
O'BRIEN: But it hasn't been done.
Why wouldn't they do it, then?
FORBES: I don't know. The Europeans have backed off from it. But we haven't. It's inexplicable.
And when people look back on this period, as they do in other periods of history, at great disasters, they're going to ask what were these people thinking?
O'BRIEN: Let's -- let's move on here a little bit. Picking up the paper this morning, people reading about Citigroup getting this huge bailout. And I imagine lot of people in Detroit are kind of scratching their head going, wait a minute, that just kind of happened overnight, under cover of weekend darkness. And the automakers do not know if they're going to get any sort of bailout. Should the auto industry be treated differently than big banks like Citigroup?
FORBES: Well, sadly, yes. Banks, by their very nature, are fragile institutions, no matter how large they are. Back in the 19th century, 150, 130 years ago, people like Walter Badgett were talking about this, that you need lenders of last resort for these institutions, especially in a time of panic. And so, yes, they are different animals and they have to be treated differently.
O'BRIEN: All right. So tough luck, Detroit, I guess, huh?
FORBES: No. Detroit is a case where part of their problems -- they had lot of -- made a lot of poor decisions over the years. But a big part of the problem -- O'BRIEN: Well, certainly...
FORBES: ...was caused by government...
FORBES: ...by government. So...
O'BRIEN: ...subprime mortgages weren't great decisions, were they?
FORBES: No, they weren't.
FORBES: But in terms of Detroit itself...
FORBES: ...if they agreed to restructure, especially some of their labor agreements, their executive compensation and reforming fuel-efficiency standards so that these companies would be allowed -- like Ford and G.M. are very profitable in normal times overseas -- allowed to bring their small, fuel-efficient, attractive cars here into the United States and have those cars count as part of their fuel-efficient standards. They can't do it right now so they have to try to make these cars here, which they can't do as well they do in Europe. It's crazy.
O'BRIEN: That's a tough conundrum right there. Let's talk about these bailouts and how the money is controlled -- in other words, the rules of the game. Is the money just being doled out willy-nilly or do you think that the government is doing a proper job in controlling how it is spent?
FORBES: Well, what the government had to do first, given the destruction of bank balance sheets, was to rebuild those balance sheets. And that's what that first infusion -- that first round of that $350 billion -- was supposed to do. In the case of Citigroup, they needed a lot more than what that first round was going to do.
Now, one of the things that -- especially if they correct this mark to market insanity -- one of the things they can start to put pressure on the banks to do, once they know they're not going to be destroyed, is to start lending money again. You got the money from Uncle Sam, start getting it out to solvent borrowers.
And that's where getting Fannie and Freddie to do 4.5, 5 percent mortgages, which would revive the housing market, banks would get fees again, the system would start to work again.
O'BRIEN: All right. Steve Forbes, some good advice. I hope somebody is listening out there. I was, anyhow. Thank you for your time.
FORBES: Thank you very much.
O'BRIEN: Thank you for your time.
Only weeks separate their presidencies and now some see signs of a power struggle between George W. Bush and Barack Obama -- how the financial crisis is heating things up.
Plus, this is an interesting one -- they're calling it musical mystery.
How did this piano end up in remote area perfectly in tune, ready to play?
O'BRIEN: Welcome back to THE SITUATION ROOM.
Zain Verjee is watching some stories for us. Lots going on -- Zain, what do you have?
ZAIN VERJEE, CNN CORRESPONDENT: Hi, Miles. NATO is ruling out a military blockade to stop Somali pirates. The International Association of Independent Tanker Owners has pushed for a blockade because of the continuing pirate attacks along Somalia's coast. Fifteen ships with nearly 300 crew members are now being held for ransom. Today, the Indian Navy released a photo showing the outcome of battle between an Indian warship and vessels carrying Somalia pirates just off the coast of Oman. When the battle was over, the pirates' mother ship had sunk.
Tiger Woods' endorsement deal with General Motors is coming to a screeching halt. General Motors says that it's ending the deal with the golf superstar after nine years. The company says it's looking for ways to reduce costs as it tries to survive its worst sales downturn in a quarter century. It says Woods wants more personal time, as he and his wife are expecting their second child. Woods' agent says the decision was absolutely mutual.
Police in Cape Cod, Massachusetts want to find out how a piano ended up in the middle of the woods. A woman walking on a trail found the piano over the weekend and it was in perfect condition, in tune and sitting upright with its bench, as if it was just waiting to be played. It took a group of people and a truck to move it out of the area. And police are trying to figure out who moved it there -- in there in the first place and why.
(BEGIN VIDEO CLIP)
SGT. DAVID JACEK, HARWICH, MASSACHUSETTS POLICE: It's hard to tell right now. I mean, usually if it's going to be dumped, it will be over on its side and in pieces. But like you said, it's in pretty good shape and somebody took the care to set it up and just take it out of whatever truck they brought it there in and to set it up on the, you know, in the conventional manner without breaking it.
(END VIDEO CLIP)
VERJEE: Police say they're going to try and track down the last person who owned the piano by using the serial number.
And shuttle astronauts are in the midst of their final spacewalk of the current Endeavor mission to the International Space Station. Miles is a real big expert on this.
VERJEE: Miles, you laugh, but it's true. What's going on right now?
O'BRIEN: No pianos spotted up there, for sure.
O'BRIEN: We're about four hours into this space walk. Shane Kimbrough and Stephen Bowen out there. That's a live picture of Houston. That's not in space. We don't have any pictures from them right now. But take a look at some of these wonderful images that came down. There's Kimbrough as they were doing a colossal lube job on the solar arrays for the in International Space Station. That task is pretty much done. Hopefully, that will help with some bulky solar rays there.
They're putting some TV cameras on the outside. We'll be glad of those additional views. We still d know the fate -- oh, by -- there you see them doing the lube job, using some of those very expensive tools, as we found out. Remember when that tool bag departed the other day, Zain?
O'BRIEN: A hundred thousand bucks worth of tools. And the Home Depot is a long way away.
VERJEE: What about -- what about the $200 million water machine?
O'BRIEN: Well, that's the...
O'BRIEN: Yes. That's the one that turns urine into water. And it's, suffice it to say, it has only worked halfway. And I think all of our viewers can understand that halfway in turning urine into water is definitely not good enough.
O'BRIEN: So they're still working...
O'BRIEN: They're still working on it. And it vibrates too much. The astronauts are rebolting it in. We still don't know if that's going to be big showstopper for the crew, being ramped up to six people in the spring. That's the goal, anyhow. But you've got to have that machine working first.
Thank you, Zain, for your interest in space.
All eyes turn to the next president as he prepares to confront the financial crisis, while the current president reminds us all he's still the decider for seven more weeks. Now there's an apparent power struggle.
Also, new details are emerging about how Barack Obama's team convinced Hillary Clinton to be a part of the cabinet.
Plus, a Princeton grad with Harvard Law degree -- so what will Michelle Obama do when she gets to the White House?
What can we expect from the next first lady?
(COMMERCIAL BREAK) O'BRIEN: Happening now, President Bush throws the weight of his office behind Sunday's Citigroup rescue and the man who recommended it, Treasury Secretary Henry Paulson. Is that the right move at the right time?
Snipers, high tech surveillance and multiple counter measures -- tight security plans in the works for the Obama inauguration in January. We'll give you a preview of just how tight.
And now that the U.S. has elected its first African-American president, hopes run high that the country has outgrown its racial divide. Some say those hopes, though, a little too high.
Wolf Blitzer is off today. I'm Miles O'Brien. You are in THE SITUATION ROOM.
ANNOUNCER: This is CNN BREAKING NEWS.
O'BRIEN: We're following breaking news about the man who was once Osama bin Laden's driver and bodyguard.
Let's get straight to our Pentagon correspondent Barbara Starr. Barbara, what are you hearing.
BARBARA STARR, CNN CORRESPONDENT: CNN has confirmed from multiple U.S. sources that Salim Hamdan, the Yemeni man in Guantanamo Bay for being Osama bin Laden's driver, bodyguard and weapons courier today he is leaving the detention facility at Guantanamo Bay. The U.S. is transferring him today to Yemeni control. Is he being flown back to Yemen today and will serve the rest of his time in a Yemen jail.
This may shock many Americans who will be absolutely dumb founded to find Osama bin Laden's driver is being released. Behind the scenes, this had been somewhat expected. He had been sentenced to a 66-month term over the summer and essentially time served. Essentially his time at Guantanamo Bay was going to run out by the end of the year. And the U.S. was looking, frankly, for somewhere to put him.
It all started out that he was a terrorist mastermind. Well, now, not so much apparently. This is really being read inside the U.S. government as basically throwing their hands up, not really knowing what to do with him. They're sending him back to Yemen and it must be pointed out Yemen is a country that does not have a long- standing reputation of holding onto the terrorists it puts in jail -- Miles?
O'BRIEN: Oh, boy. We'll leave it at that. Barbara Starr with that breaking news. Thank you very much.
On one side, President Bush goes very public after the announcement of another big financial bailout. On the other side, President-Elect Obama introduces the economic team which will inherit the results of his predecessor's actions.
CNN White House correspondent Elaine Quijano joining us now. Is there a bit of tug of war going on here, Elaine?
ELAINE QUIJANO, CNN CORRESPONDENT: It's interesting, Miles. It might seem as though there might be some kind of power play brewing here, but the bottom line is that it is the current administration that holds the power of the purse.
QUIJANO (voice-over): With just eight weeks left in office, the outgoing president stood with his outgoing treasury secretary. To defend government financial rescues like the just announced multibillion dollar package for Citigroup.
BUSH: We have made these kind of decisions in the past. Made one last night. And if need be, we're going to make these kinds of decisions to safeguard our financial system in the future.
QUIJANO: The president made it a point to say he spoke with President-Elect Obama about the Citigroup decision, but Mr. Bush also made clear right now he is the sole decider.
BUSH: And I told the president-elect when I first met him, that anytime we were to make a big decision during this transition, he will be informed. As will his team.
QUIJANO: Analysts say the Bush administration's actions right now on the financial front are critical. Given the shakiness of the world's financial markets.
PETER MORICI, ECONOMIST: There's plenty of time for more crisis and for things to get worse. This president remains relevant. Henry Paulson remains relevant.
QUIJANO: For President-Elect Obama who announced his economic team in Chicago that means making good on financial promises his predecessor makes.
OBAMA: My administration will honor the public commitments made by the current administration to address this crisis.
QUIJANO: Amid fierce of a global recession, analysts say continuity will be essential in calming jittery markets.
MORICI: Obama is essentially going to have to honor any deals bush makes with the banks between now and then if the financial community is going to have confidence.
QUIJANO (on camera): And with President Bush saying more government financial rescues could be possible before he leaves office, President-Elect Obama today appeared to agree saying the Treasury and Federal Reserve should use authority under the $700 billion bailout plan quote "forcefully" in the coming weeks to stabilize the current situation -- Miles?
O'BRIEN: Elaine Quijano at the White House, thank you very much.
If conventional wisdom holds, we can expect announcement sometime after Thanksgiving that Barack Obama is nominating Hillary Clinton to be his secretary of state. The culmination of what many believe was a carefully planned political courtship, very public, too.
Joining us to talk more about that, Democratic strategist Jamal Simmons and Republican strategist and CNN political contributor Alex Castellanos. Good to have you both with us.
Jamal, take us inside this decision. What do we know about this courtship? So much tension between the two camps and yet, somehow it appears this is now a fully baked announcement.
JAMAL SIMMONS, DEMOCRATIC STRATEGIST: Well, there's a lot of reports about there being one-on-one conversations between these two leaders. The two of them talking on the cell phone really getting together. I know there's been some concern over at the transition office a lot of this was played out publicly, but I think all those people who were over there actually now thinking they trust President- Elect Obama's judgment on this. And that he really believes that Senator Clinton is going to be the best person to do this job and looking forward to making this all work.
So these are small minor bumps in the road between the two of them or between the two camps but they think this is going to be a good relationship.
O'BRIEN: All right. That's one of the side of the spin. Alex, let's go to the other side of the spin.
What I read on a lot of this is first of all they did it very publicly to make it difficult for Hillary Clinton to say no, and secondly in, putting Hillary Clinton sort of on the pay roll, if you will, it takes away a potential rival on the other end of Pennsylvania Avenue. Do you go along with that strategy?
ALEX CASTELLANOS, REPUBLICAN STRATEGIST: I'll tell you, I think right now Barack Obama is thinking long-term and not short term. He wants the Democratic Party not to have a Clinton and Obama wing. He wants it to be one Democratic Party run by the Obama administration. That's just basic politics. So yes, I think he's bringing her on board for that. There's real reasons for concern and differences on foreign policy. She supported the war in Iraq. And he didn't. She supported torture if necessary to protect the national interests, said she would obliterate Iran if it threatened Israel with nuclear weapons.
She's been more of the hawkish wing. One thing we should credit her with, she has been able to sublimate her own political interests, for example, to keep Bill Clinton - make him president and keep him there. She is more than capable of doing the same thing to make him successful. Her interests are now aligned with his.
SIMMONS: Let's keep in mind before we move off of this, Barack Obama's no dove. What he said was he opposed dumb wars, not all wars. So I think he and Hillary Clinton will find themselves in pretty good lock step when it comes time to deal with America's foreign policy.
O'BRIEN: So much has been said about this Lincoln "Team of Rivals" thing, the Doris Kearns Goodwin book and how Obama has been reading about Lincoln. The conventional wisdom is that he wants people who are going to challenge him.
Jamal, how much can Hillary Clinton challenge Obama without raising the specter that there is some hard feelings there?
SIMMONS: I think she'll have free rein to challenge President- Elect Obama. She's going to ...
O'BRIEN: Not publicly I bet.
SIMMONS: I'm sure not publicly, not if she wants to keep her job. But she has full rein to go into the president's office and call him directly to not have to go through intermediaries according to all these reports. Those are very important things for her to be able to do organizationally.
So Obama is surrounding himself by pretty serious heavyweights. We saw the other appointments on the economic side with Tim Geithner and Larry Summers and the one that has DC buzzing, Melody Barnes who comes out of the Kennedy - chief council of the Kennedy Judiciary Committee and was the number two at the Center for American Progress.
Melody is somebody who has been working with the Obama team. All these folks are people he is surrounding himself with who can actually help him out.
O'BRIEN: Let's go to you, Alex. The flipside of this team of rivals thing is that you have a fractious dysfunctional government. Is that a possibility here?
CASTELLANOS: It may be. I would think Barack Obama is more of the FDR model. You hear so many stories about Barack Obama that advisors brief him and leave the room, not knowing exactly where he stands. He seems to be able to internalize advice and then make his own decisions. I think as long as he's giving someone like Clinton access so she can have input, she can voice dissenting opinion, for him, he's setting up the stage to be more successful than you might think. Getting a strong personality like that and sublimating her in the internal workings, if he unites the Democratic Party that way, that's a big political plus as well as a plus for statecraft.
O'BRIEN: Alex Castellanos, Jamal Simmons, thank you very much for your time. Appreciate it.
Thousands will be watching when President-Elect Obama takes the oath of office in January. And untold numbers will be watching the thousands. We will look at the plans for protecting the president. And they are in a word extreme. But you know that. We'll give you details.
When he assumes his new post, Obama will inherit an economy in transition. He introduced his economic team today. The Obama news conference still ahead in our next hour.
You are in THE SITUATION ROOM.
O'BRIEN: It is the biggest ticket in Washington. Really the biggest ticket in the country. But anyone hoping to be a Part Of Barack Obama's Inauguration Day had better be prepared for supertight security. How tight? I think you know the answer, as least vaguely.
Homeland security correspondent Jeanne Meserve has details for us. Jeanne, tell us, I know they can't tell us everything. Do you have a sense how they're going to protect the new president?
JEANNE MESERVE, CNN CORRESPONDENT: Well, Miles, the Secret Service has a broad and deep security plan on the drawing boards which the agency hopes will keep the inauguration and all the people attending it safe from a variety of threats.
MESERVE (voice-over): Inauguration, a moment of history but also a time of risk.
FRED BURTON, FORMER STATE DEPT. SPECIAL AGENT: Any kind of contingency that you can think of the Secret Service has game boarded got a plan in place to deal with.
MESERVE: One scenario, a gunman. Countermeasures, snipers who can shoot with tremendous accuracy at a distance of 1,000 feet. Surveillance with thousands of cameras, some mounted in helicopters and police, thousands of them, some in plain clothes. In addition, every visit to an event can expect to be screened.
Another scenario, a truck bomb. Countermeasures include extensive street closures around the capital and parade route, searches of vehicles, explosive sniffing dogs.
Yet another possibility, a weapon of mass destruction. Countermeasures, monitors to sniff the air for chemical or biological hazards and what about protection against a nuclear or radiological threat?
MALCOLM WILEY, U.S. SECRET SERVICE: I won't talk about that.
MESERVE: Some questions are still off limits.
MESERVE: Another avenue for attack, the Internet. To counter that possibility, the Secret Service is partnering with other law enforcement, the military, private industry, universities, to protect critical infrastructure. Of particular concern, an attack disrupting electricity.
WILEY: It could hamper our ability to communicate with one another potentially.
MESERVE: And more.
WILEY: And more. Absolutely. And more. It could hamper the ability of elevators to move within the Capitol and if we had to protectee there, that could be an issue.
MESERVE: And security plans aren't finished yet. They will continue to evolve as the threat picture does.
MESERVE (on camera): A word of warning if you're planning to come to Washington early, if you are too early, it will be a wasted effort. The Secret Service will be kicking everybody off the Mall, the Capitol grounds and the parade route to do a security sweep the morning of the inauguration -- Miles?
O'BRIEN: No point camping out. All right. Jeanne Meserve, thank you very much.
Once sworn into office, newly elected presidents almost have always joined the inaugural parade, of course. Back in the horse and carriage days, Thomas Jefferson on the left, Andrew Jackson on the right bucked tradition and walked the parade route. Little different security considerations then you might say. In more recent history, President Jimmy Carter are surprised everyone and ditched his limo and again walked the entire route with Rosalynn and the rest of the family. He even stopped to shake a few hands along the way.
Most recently President George Bush walked briefly amid protests, bad weather and extremely tight security, of course.
President Bush just pardoned more than a dozen people. That's a ritual as the president heads out of office. We'll go back to the White House and see if we know any of the names and understand any of the implications.
And Jack Cafferty's question of the hour. Do you believe the worst of the financial crisis lies ahead? Jack will read your e- mails. You are in THE SITUATION ROOM.
O'BRIEN: Just got some news in here in THE SITUATION ROOM. The Department of Justice announcing what is part of a tradition as presidents leave office, pardons and commutations by President George W. Bush. Fourteen names here.
Elaine Quijano at the White House a little bit more. Elaine, I've been reading over this. It seems like a lot of small time criminals. One of the people was arrested and convicted for wrongful use of food stamps of all things. Unauthorized acquisition of stamps. What do you know about the people that have been pardoned and computed?
QUIJANO: I can certainly none of the names not jumping out at this point. But a little bit on the process which we should tell you is still on going as you note, a tradition here in Washington, each president is different in how they choose to handle this particular issue. A spokesman for the president saying that President Bush carefully considered recommendations for pardons and commutations on a case by case basis. Made his determinations, and Miles, the last sentence significant, he's going to continue to review clemency requests. So certainly perhaps this is the first off the approaching end of the year pardons that we certainly were expecting.
But again, none of these names at least at glance here appear to be jumping out.
O'BRIEN: All right, Elaine. Fourteen pardons and commutations. That's a very low number. Presumably there are more to come?
QUIJANO: Yes. One would expect. And certainly leaving the door open with this statement, this spokesman does, saying he'll continue to review requests. It certainly would suggest that there could very well be more to come. Still two months left as you know in this president's term. Certainly a lot more time.
O'BRIEN: All right, Elaine Quijano. Thank you very much. Elaine Quijano at the White House.
Jack, I didn't see your name here. No pardon for you.
CAFFERTY: I haven't been convicted of anything.
O'BRIEN: That's right. You beat the wrap.
CAFFERTY: The ones that are going to cause the outrage, they wait until the very last second. Remember the guy that Clinton pardoned?
O'BRIEN: Marc Rich.
CAFFERTY: It was like on the way out the door. Oh, by the way, Marc, you're off the hook. And then boom.
O'BRIEN: Got to go.
CAFFERTY: The food stamp guy you can do now. Nobody cares.
The question this hour is: Should President-Elect Obama hold off raising taxes on the wealthy for two years?
Victor in Florida writes: "No. One of the best things Obama could do right away is take steps to reduce the obscene gap between the rich and the rest of us. The fat cats had it way too good for the last eight years. Let them share in the sacrifice. We need to get our economy back in shape."
R.W. writes: "He should not do anything with taxes probably within the first year. The economy is so unstable, that if he were to raise taxes within a certain tax bracket it could trigger less buying of expensive items these people usually buy. High-end cars, multimillion dollar homes, yachts, planes that would have further detrimental on the already fragile economy."
Pedro writes: "Obama's admission that raising taxes on the top five percent would further slow economic growth and hurt job creation during a downturn begs the question, when is it a good idea to raise the taxes and hurt the economy?"
George writes: "How many middle class people do you know that have tax loopholes and offshore accounts? How many of these so-called good Americans pay their fair share of taxes? The answer to your question is, if he had the power, he ought to do it right now."
Lucy in Illinois: "No, they've had the gravy train long enough. They won't put any of the money back in the economy anyway, they'd just put it in offshore banks. Give it to the people that need it and will spend it."
And Joe writes: "Yes. Two years should be ample time for the rich to figure out how to shelter their income from the proposed tax hike."
If you didn't see your e-mail here, go to my blog at cnn.com/caffertyfile and look for yours there among hundreds of others. Somebody dropped a diamond out of their wrist watch over there.
O'BRIEN: Something's going on. They're a little concerned about their tax bracket or something. All right. Jack Cafferty, thank you very much.
President-Elect Obama announces his team to help the economic crisis. We'll play the full announcement coming up in just a moment.
You'll hear about Obama's picks in his words. That's ahead in THE SITUATION ROOM.
And you are in THE SITUATION ROOM. Stay with us.
O'BRIEN: An uptick in violence in Baghdad today where two bombings killed at least 20. An unwelcome backdrop to a pivotal, long-awaited security deal struck by the U.S. and Iraq. But outside influence from Iraq's neighbor, Iran, could still undermine the pact.
CNN's Zain Verjee has been looking into this for us. Zain, give us the back story here.
VERJEE: Hi there, Miles.
Well, Iraq's likely to give the thumbs-up to a security agreement with the U.S. They've been hashing it out for months, but one wildcard keeps undermining those efforts. Iran.
VERJEE (voice-over): Iraq is back on the boil. A suicide bombing at the checkpoint just outside the Green Zone in Baghdad and claims of Iran's interference in a critical Iraqi Parliament vote set to happen inside the Green Zone. The commander of U.S. forces in Iraq, General Ray Odierno, has said that intelligence reports suggest that they're trying to block the agreement. Iran denies those accusations.
The Iraqi president is making the hard push for a 2011 withdrawal.
UNIDENTIFIED MALE: Fundamentally, this is an Iraqi decision. And I think the Iraqis have demonstrated that they are going to be very protective of their political prerogatives in deciding which direction their country takes.
VERJEE: Iran wants U.S. troops out sooner so it can fill the power vacuum. The official Iranian news agency quotes a prominent Iranian politician saying any agreement would bring chaos. Iraqis, Sunnis and Kurds, are nervous, too, about their future without American protection.
Whatever happens, President-Elect Obama inherits Iraq, and the challenge will be how to stand up to Iran and reassemble a broken country.
VERJEE (on camera): The U.S has spent a long time thrashing out this agreement. Iraqi leaders themselves, Miles, are really playing hard ball, too. Because they're looking ahead to their elections in January and playing to their public.
O'BRIEN: All right, Zain. So what if they fail to approve it?
VERJEE: It's likely they will approve it, but if it fails and they don't approve it and extend a UN mandate to allow U.S troops to operate there, the basically all U.S. military operations could be suspended on New Year's Eve. Everyone will pull back to the bases and not be out there.
O'BRIEN: All right. We'll watch that one. Zain Verjee, thank you very much.
Another bailout for a very big bank. Is Treasury Secretary Henry Paulson having a change of heart? Lou Dobbs has been watching this one. Lou, what's this all about?
LOU DOBBS, CNN ANCHOR: I don't know what organ of his body he's doing his thinking with, but Miles, it's changing dramatically. He said that we should not be hasty, that we should be very deliberate, shouldn't make long-term mistakes that will have devastating consequences and reversed himself last week when you recall, he said he wanted to leave most of that bailout money, about half of the 7$700 billion, for the new Barack Obama administration. And then today bailing out Citibank and ponying up another $20 billion, taking on $300 billion in toxic assets, all of which just a week ago, he had intimated strongly that he would not do that. So you go figure what he's thinking with.
O'BRIEN: What do you think about this notion that's being floated out there that Timothy Geithner, who will be the treasury secretary if confirmed in the Obama administration, should go in now. What do you think about that?
DOBBS: It's ludicrous. As bad as Paulson is, we can't upend this administration entirely. What is difficult is that Geithner is at the center -- the epicenter of this economic earthquake and financial meltdown. So he's already at work, as are of course Larry Summers, who will be the chairman of President Obama's National Economic Council, and Geithner is his treasury secretary. So they're already at work. What's disturbing is the way in which this country is spending $7 trillion while not helping the people in the most pain. Those being foreclosed upon and those who are facing the loss of their jobs.
O'BRIEN: Yes. It makes a lot of people very angry. We're talking about some real money there. Lou Dobbs, thank you very much. We'll see you later here on CNN. Lou Dobbs coming up in about an hour.
Happening now, Barack Obama's economic rescue team revealed. This hour, the president-elect talks at length about what he calls a crisis of historic proportions. Safe to say that.
Plus, the final days of the Bush administration. Can a nation in financial meltdown afford to wait for the new administration to take action? What we were just talking about with Lou.
The best political team on television is standing by.