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The Situation Room

Gaza: Brief Lull Then Full Fury; Gaza Weapon Mystery; An Extraordinary Gathering; Obama Creates New Position; Approval Ratings Jump; Bush to Lose Secret Service; Egypt to Broker Gaza Talks

Aired January 07, 2009 - 17:00   ET


WOLF BLITZER, CNN ANCHOR: Happening now, breaking news -- a brief period of relative calm in Gaza shattered again by violence, but long enough to get some desperately needed relief supplies into the war zone.
Pakistan fires its national security adviser right after he acknowledges ties between his country and the bloody terror attacks in Mumbai. This as explosive phone transcripts seem to reveal new details of that deadly rampage.

And the ultimate power lunch -- Barack Obama meets with President Bush and three former presidents.

But with dire forecasts about the economy, is the president-elect trying manage expectations for his own administration?

I'm Wolf Blitzer.


But first, breaking news. A brief lull in the fighting brings some relief to Gaza. But as the bombs and rockets fall, Israel and Hamas resisting calls for a full cease-fire.

In related developments, this is what's happening. It was immediately broken -- that cease-fire -- by exchanges of fire. But a temporary truce called by Israel did last long enough for dozens of trucks to carry food and fuel into Gaza and for medics to recover bodies.

After dropping leaflets telling residents to leave, the Israeli Air Force bombed targets in the Gaza town of Rafah, where tunnels run under Gaza's border with Egypt. The Israeli military says Hamas fired at least 16 rockets at Israeli -- some falling on the towns of Beersheba and Ashkelon.

Israel and Hamas are each setting tough terms for a full cease- fire, but the United States -- the Bush administration right now throwing its weight behind an Egyptian-French move.

Here's the secretary of State, Condoleezza Rice.


CONDOLEEZZA RICE, U.S. SECRETARY OF STATE: We are very much applauding the efforts of a number of states, particularly the effort that President Mubarak has undertaken on behalf of Egypt. And we're supporting that initiative. I've been in very close discussions with my Arab colleagues, but also with the Israelis, about the importance of moving that initiative forward.


BLITZER: With this war once again at full pitch, CNN's Paula Hancocks is over on the border between Israel and Gaza -- Paula?

PAULA HANCOCKS, CNN CORRESPONDENT: Wolf, three hours of cease- fire still leaves 21 hours for violence. Aid agencies say that it is a start, but it's nowhere near enough.


HANCOCKS (voice-over): Three hours of relative calm in Gaza before a return to death and destruction. Israel agreed to stop firing briefly, to allow more than 80 trucks of desperately needed humanitarian aide into Gaza to be distributed.

CHRIS GUINNESS, UNRWA SPOKESMAN: We are feeding 750,000 people on a permanent basis. More than three hours a day is needed for that.

HANCOCKS: Gazans rushed to buy food and fuel, and to bury their dead, before returning home to wait for the familiar sound of explosions.

The chorus of international criticism of Israel's onslaught is becoming louder, since artillery shells killed at least 40 near a U.N.-run school Tuesday. Israel says it was returning fire. The U.N. disagrees.

The sound of air strikes and shelling marks the end of the lull. But Israel says it welcomes the Egyptian-French initiative for a more permanent cease-fire.

MARK REGEV, ISRAELI GOVERNMENT SPOKESMAN: It's clear that if Hamas is just allowed to rearm, then you don't have a solution at all. Then you've got further violence down the line. That does no one any good. We have to create mechanisms that work that prevent Hamas from rearming.

HANCOCKS: The progress is slow and success is not guaranteed.

MUSHIR AL-MASRI, HAMAS LEGISLATOR (THROUGH TRANSLATOR): There will be no success to any initiative as long as it would not secure the immediate end of the aggression against our people, lifting the closure and opening of the crossings -- first of all, the Rafah crossing.


HANCOCKS: And the Hamas rockets kept coming -- fewer in number, but still striking deep inside Israel. The lull is a distant memory and a permanent cease-fire a distant dream for Gaza. So a twelfth sleepless night for one-and-a-half million people -- Wolf.

BLITZER: All right, Paula.

Be careful over there.

Beyond the casualty toll, this war has triggered a humanitarian crisis. In Israel, where a million people are within Hamas rocket range, schools and public institutions near the border have been closed.

But in Gaza, it's truly a nightmare. Relief agencies say two thirds of the population is without electricity right now and fuel is in very short supply. A U.N. Agency reports 800,000 people have no running water. Food is getting into Gaza, but distribution is a problem -- leaving many short of basic items. Hospitals operate on generators, but are short of medicine, blood and other supplies.

Starbursts lighting up the skies over Gaza -- there's controversy right now growing over just what types of munitions are these and how they are being used.

Our Pentagon correspondent, Barbara Starr, has been looking into this.


BARBARA STARR, CNN PENTAGON CORRESPONDENT (voice-over): Questions are being asked -- what is this weapon the Israelis exploded several times over Gaza?

We showed the video to a defense expert.

JOHN PIKE, GLOBALSECURITY.ORG: White phosphorous. Willy peat (ph) white phosphorus shells, obviously. There's nothing else like it. That's obviously what it is. No doubt whatsoever.

STARR: But an Israeli official told CNN: "I can tell you with certainty that white phosphorus is absolutely not being used."

Israeli officials insist this is just smoke used to mask Israeli movements on the ground.

Home rights activists believe the Israeli Defense Forces are using white phosphorus -- an incendiary material that can badly burn anyone in its path.

FRED ABRAHAMS, HUMAN RIGHTS WATCH: But in populated, closed areas, as in Gaza, where civilians can be affected from the burning particles, then it raises very, very serious concerns.

STARR: International protocols prohibit the use of incendiary weapons against civilian populations. In this video, it's not clear if the burning material falls on populated areas.

In 2005, the U.S. military acknowledged using white phosphorous in Fallujah to flush out insurgents. Now, the Israelis may be using a similar strategy with a different goal.

PIKE: Hamas combatants are going to see all these bright burning particles coming at them. They're going to put their heads down. They're going to stay indoors. And that's going to give the Israel troops tens of seconds in which they can displace, they can move around out in the open.


STARR: Wolf, whatever these weapons are all about, the Israeli Defense Forces insist they abide by all international laws regarding the use of weapons and ammunition -- Wolf.

BLITZER: All right, Barbara.

Thank you.

Barack Obama hailed it as an extraordinary gathering -- all of the U.S. Presidents at the White House for the first time in some 28 years, coming together to share their collective wisdom with the president-elect.


SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: I just want to thank the president for hosting us. This is an extraordinary gathering. All the gentlemen here understands both the pressures and possibilities of this office. And for me to have the opportunity to get advice, good council and fellowship with these individuals is extraordinary. And I'm very grateful for all of them.

But, again, thank you Mr. President, for hosting us.


BLITZER: Our senior political correspondent, Candy Crowley, is here in THE SITUATION ROOM.

It was a great photo-op in the Oval Office -- but was it really more than just that?

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Well, it was more than a photo-op. It was -- first of all, all of these men have, in one way or another, have dealt with the Middle East. They know the players. They certainly can give him some insight into, look, this personality is this way.

All of them have dealt with -- Jimmy Carter, an energy crisis; George Bush, the first one, has dealt with a tumbling economy. They all know how tough is it to wrangle a bureaucracy to the ground.

So, certainly, those can be helpful experiences. But more than that, remember what week this is for Barack Obama. He's trying to sell his stimulus plan.

And what else is he trying to sell? Listen, Republicans, come on board. And there he is with Republicans and Democrats alike. So it's -- I think it's part of the sales job. It certainly was set up before this week. But as Barack Obama moves into his presidency, he needs to sell that stimulus bill not just to Democrats, but to Republicans, as well. Here's a nice bipartisan picture as part of that tactic.

BLITZER: And the president-elect also announced the appointment of his first -- of the first -- the nation's first chief performance officer. He said it's one of the most important jobs he could come up with.

How important is it?

CROWLEY: Well, listen, it's important. I'm sure we'll see how. As you know, others have sort of attempted this. And, again, it's a huge bureaucracy and hard to go through line by line. But that's what they're promising.

But more than that, again, within the context of this week, politically, it is the selling of the stimulus package.

And what is bothering conservative Democrats and Republicans?

That $1 trillion debt and the prospect that you might add another trillion or two to it. But a humongous stimulus package.

So here's Barack Obama saying I care so much about that deficit; I see it, too; we're going to get a handle on it and here's the person I'm putting in charge in a brand new position.

So that is also a signal to those worried about that package.

BLITZER: And help me understand this. Everyone I know who has ever worked in the federal government -- everyone says that they see so much waste -- so much waste out there, that they can't believe it.

Why is it so hard -- because they all promise, we're going to get rid of waste and save the taxpayers a lot of money -- why is it so hard to actually deliver?

CROWLEY: Well, first of all, there are constituencies that don't want to change in any kind of bureaucracy or company, as you know. And, as well, it's just large. And it's not just in Washington, it's all over the country there are federal employees.

Now, you know, the president's nominee or appointee certainly has the background. And she has said listen, I know how to get those people who have those ideas involved in all of this.

But it is -- it is humongous. I think what they really would like to do is begin to chip away at it.

BLITZER: Yah. I hope they can do it.

CROWLEY: Yes. BLITZER: It would save us some money, because these deficits -- they're breathtaking, when you think about it.

CROWLEY: Good luck.

BLITZER: All right, Candy.


BLITZER: Thanks very much.

Let's go to Jack Cafferty.

He's got "The Cafferty File," where there is never, ever any waste -- Jack.

JACK CAFFERTY, CNN ANCHOR: President-Elect Barack Obama and his staff defended Obama's selection of Leon Panetta to run the CIA. Word of that nomination apparently leaked out before the transition team notified senator -- senior senators.

Senate Intelligence Committee Chair Dianne Feinstein said she learned about it from "The New York Times" and made it very clear she was not happy about not being notified.

Incoming Vice President Joe Biden called the lack of notification a mistake. It probably was.

Today, Feinstein she that she will support Panetta's nomination.

But it's not just how it happened that's a problem. Leon Panetta is an outsider. Critics point out he has no intelligence experience. Obama was in damage control almost immediately -- apologizing for not letting Feinstein know in advance. He said Panetta will change the practices at the CIA that have tarnished that agency. He also pointed out Panetta had to evaluate intelligence daily during his two years in the White House during the Clinton administration.

Whether to pick somebody from within the agency or an outsider for that post is not a new dilemma for an incoming president. Many past CIA directors have risen through the ranks within the agency. But President Kennedy picked an outsider for the job and it didn't spell the end of the CIA.

So here's the question: Should the director of the Central Intelligence Agency come from within that agency or be installed from the outside?

Go to, where you can post a comment on my blog -- Wolf.

BLITZER: Jack, thank you.

There are new concerns -- at least some are expressing these concerns -- about the safety of the 43rd president after he leaves office. (BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The future President Bush -- former President Bush -- I think he is at very, very at very serious risk.


BLITZER: So why is the soon to be ex-president about to lose his bodyguards after just 10 years?

Also, terrorists staging a deadly attack on Mumbai and getting real time commando advice on the phone to kill what they said was for -- horrified (ph).

Plus, flexible and lenient -- words you don't necessarily associate with the IRS -- why the agency is now offering to help you in these tough times.

Stay with us.



BLITZER: Let's get some more now on that historic gathering of the president, the president-elect and three former presidents at the White House today.

Our senior political analyst, Bill Schneider, is standing by live. He's got more on this -- what message, Bill, can we take away from this historic meeting?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, maybe that time heals all wounds.


SCHNEIDER (voice-over): Time has been kind to the former presidents who gathered for lunch at the White House Wednesday. When Jimmy Carter was defeated for reelection in 1980, his job approval rating was in the 30s.

What do people think of Carter now?

Sixty-four percent say they approve of the way he handled the presidency. Among those old enough to remember his presidency -- people 50 and older -- Carter gets 60 percent approval.

When the first President Bush was defeated in 1992, his approval rating was also in the 30s. And now -- 60.

Bill Clinton ended his presidency on a high note. His job approval was in the 60s. It still is.

Gatherings of former presidents at the White House have been rare -- most recently in 2000 to celebrate an anniversary. BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: In the entire 200 years of the White House history, never before have this many former presidents and first ladies gathered in this great room.

SCHNEIDER: By hosting the lunch, the current President Bush said he was trying to convey a message.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: One message that I have and I think we all share is that we want you to succeed.

SCHNEIDER: And maybe another message -- time heals all wounds. He'd better hope so. President Bush's approval rating was a dismal 27 last month.

President-Elect Obama suggested the gathering.

OBAMA: All of the gentlemen here understands both the pressures and possibilities of this office.

SCHNEIDER: Maybe he had a message, too -- look at me. Obama's approval rating last month for the way he's been handling the transition -- 82 percent.


SCHNEIDER: Now, remember how the bible says Abraham begat Isaac and Isaac begat Jacob and so on?

Well, that kind of describes the relationship among the former presidents. Jimmy Carter's failures begat Ronald Reagan. Ron Reagan's successes begat the election of his vice president, the elder George Bush.

Bush's failures begat the election of Bill Clinton.

Clinton's successes almost begat the election of his vice president in 2000.

But Clinton's scandalous failure begat the current President Bush.

And Bush's failures have begat Barack Obama.

Quite a family gathering -- Wolf.

BLITZER: And good words.

Thank you.

Bill Schneider, thanks for that biblical reference.

His predecessors in the White House will have Secret Service protection for as long as they live. But George W. Bush may have to find some other means of security beginning a decade from now -- Brian Todd, what has changed?

What's going on?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, Congress, at one point, was looking for ways to save a lot of money that was being spent on protecting former presidents for the rest of their lives. They addressed that issue, but that was before September 11th. And some experts are worried now that the man who is about to leave the White House could eventually be at risk.


TODD (voice-over): George W. Bush will soon join the ranks of ex-presidents. But unlike the others, under a law passed by Congress, he'll be the first former president whose Secret Service protection will expire after 10 years.

WILLIAM PICKLE, FORMER SECRET SERVICE AGENT: That law is going to have to be changed. I would hope it's changed. The future President Bush -- or former President Bush -- I think he is a very, very -- at very serious risk.

TODD: The law was changed by Congress in the 1990s to lower the cost of protecting former presidents. But that was before 9/11 and America at war with terrorists.

DAVID BRINKLEY, PRESIDENTIAL HISTORIAN: So our current president, I think, is certainly a target.

I mean when you look at the -- the war he's taken on against al Qaeda and terrorists around the world, there is nothing they'd rather do than have him as a trophy -- a tit for a tat.

TODD: It's no idle threat. When ex-president George Bush traveled to Kuwait in 1993, an assassination plot against his motorcade was discovered.

PICKLE: One of the vehicles that was to be in the president's -- the former president's motorcade -- had been taken and it had essentially been stripped of all lining and interior and had been completely filled in with explosives.

TODD: It was believed to be on Saddam Hussein's orders, which his son remembered years later when making the case to remove the Iraqi dictator.

BUSH: This is the guy that tried to kill my dad at one time.


TODD: A Secret Service spokesman tells us his agcy will proceed as instructed by Congress and in 10 years, look at the intelligence and make a recommendation. A White House spokesman says President Bush is confident that if circumstances require it, a future administration will extend the security coverage for him beyond the expiration date -- Wolf.

BLITZER: How much are we really talking about, the security that Congress decided that -- to eliminate after 10 years?

TODD: It is believed to be in the tens of millions of dollars per year. But the Secret Service will not discuss that specifically for security reasons.

Now, Congress eventually -- I mean they did look at this, because at one point they thought what about protecting presidential spouses?

They specifically looked at the case of Lady Bird Johnson -- does she -- she's no longer in the spotlight, did she deserve to be protected for the rest of her life or did she -- was it fitting that she be protected for the rest of her life?

And that's what they came up with -- you know, this way to save money.

But now, clearly, President Bush may be vulnerable in 10 years.

BLITZER: Thanks very much, Brian, for that.

Could we be looking at a kinder, gentler IRS?

Tax collectors may be willing to help some people facing tough times.

Are you one of them?

This is information you want to know. Ali Velshi is standing by.

Plus, which do you think is better -- the Grand Canyon, Loch Ness or the Great Barrier Reef?

You get to decide the seven wonders of nature.

Stay with us.



ANNOUNCER: This is CNN breaking news.

BLITZER: All right. There are new developments coming in involving the horrible situation unfolding in Gaza right now.

Over at the United Nations, the Associated Press now reporting the Egyptian ambassador to the U.N. is saying that representatives from Israel, the Palestinians and Hamas have all agree to meet Thursday, presumably at the United Nations, for talks brokered by Egypt. There's an Egyptian-French proposal out there for an immediate cease-fire. We'll go to the United Nations and get more information shortly on what exactly is going on. It looks like diplomats are working in overdrive right now, at that emergency session of the U.N. Security Council.

Let's check in with Fredricka Whitfield one more time right now. She's monitoring some other important stories incoming into THE SITUATION ROOM right now -- Fred, what's the latest?


Well, nervous investors pushing stocks down in a major way. The Dow Jones Industrial Average fell 245 points, closing the day at 8770. Experts blame the losses on bleak financial reports from several major companies, including Intel and CNN parent company, Time Warner.

The natural gas supply from Russia to Europe came to a screeching halt today, while temperatures in the region plummeted. Russia blames neighboring Ukraine, claiming it shut export pipelines. Ukraine insists Russia shut off the supply. The U.S. is siding with Ukraine, warning Russia that using gas to threaten its neighbors will undermine its international standing. Energy representatives from Russia and Ukraine are scheduled to meet tomorrow.

And German banks agreed today to rescue the business holdings of a billionaire businessman two days after he committed suicide. Seventy-four-year-old Adolf Merckle was hit by a train after apparently throwing himself onto the tracks Monday. His family says the businessman was despondent after his companies lost billions of dollars in the economic downturn -- Wolf.

BLITZER: Thanks very much, Fred.

We'll get back to you.

A controversial appointee moves closer to taking his Senate seat, but lawmakers back home in Illinois have lots of questions for Roland Burris about his ties to the governor accused of trying to sell that Senate seat.

Also, President Bush promised to cut it in half. Instead, Barack Obama will inherit a federal deficit of more than a trillion dollars for this year alone.

And it's making headlines across the country -- CNN's own chief medical correspondent, Dr. Sanjay Gupta, being considered as a nation's next surgeon general. Jamal Simmons and Alex Castellanos -- they're standing by to discuss that and more.

Stay with us.




Happening now, a change of heart on Capitol Hill. Democratic leaders now opening the door for Roland Burris to be seated in the United States Senate, despite their concerns over his connection to the embattled Illinois governor, Rod Blagojevich. We have a live report coming up.

Government debt breaking into uncharted territory -- the federal deficit expected to hit a record $1.2 trillion this year alone.

Can the federal government ever bail itself out?

And CNN's chief medical correspondent, Dr. Sanjay Gupta, possibly becoming the chief voice of public health policy in the United States.

Will Dr. Gupta be tapped to become the nation's next surgeon general?

I'm Wolf Blitzer.


ANNOUNCER: This is CNN breaking news.

BLITZER: But there are dramatic developments happening right now in the United Nations. The Security Council meeting in emergency session.

Richard Roth, our senior U.N. Reporter/correspondent, is on the scene for us -- Richard, the Egyptian ambassador announcing word of potentially a dramatic meeting tomorrow where you are, at the U.N..


If there's a meeting, it won't be here. It will be in Egypt. And this was promoted heavily by Egypt -- that there might be a three way dialogue between Israel, the Palestinians and Hamas.

But the Egyptian U.N. Ambassador, who is currently speaking to reporters right now, he said they would be technical experts meeting -- a technical delegation. He said, look, I'm here in New York. But he is the U.N. ambassador. He is here for important talks regarding a cease-fire resolution and that is what he is saying. He thinks there will be some sort of meeting, but perhaps at a lower level, in Egypt tomorrow.

BLITZER: And we're talking about a direct face-to-face meeting involving representatives -- technical representatives from Hamas and technical representatives from Israel?

Is that what he's saying?

ROTH: That's what he's saying, but I'm going to remain skeptical at the moment.

But we know that there was a heavy drive by the Egyptians to -- at the failure of the pace of negotiations here in New York -- to get this track going and that's been what many delegates here from around the world have been hoping that the solution was not going to be here in New York. It was going to be in the region of dialogue. Doesn't mean the fighting is going to end because any kind of three way talking there, they're not going to come up with an immediate agreement. There are too many differences. We'll see. Could be a low level, but it could be a start. BLITZER: Wow. All right. Thanks very much, Richard; Richard Roth reporting for us.

Senate leaders are under new pressure to let the controversial appointee from Illinois join their ranks. The Congressional black caucus has voted unanimously to support seating Roland Burris even though some say the office is tainted by allegations of the Illinois governor trying to sell it. State lawmakers are eager to talk to Burris about his ties to the embattled governor. Drew Griffin of CNN's special investigations unit has been looking into this part of the story for us.

And Drew, what are you finding out?

DREW GRIFFIN, CNN SPECIAL INVESTIGATIONS CORRESPONDENT: Roland Burris is going to have to go to Springfield tomorrow, under oath, and go before the impeachment panel looking into impeaching Governor Rod Blagojevich, Wolf. Roland Burris says and told that panel that he only had one limited conversation with the governor about that Senate seat before he was appointed but records show the two men have long ties to each other and lots of money changing hands.


GRIFFIN (voice-over): Republicans in Springfield want Burris to explain how he got the appointment from Illinois' tainted governor. Records are beginning to reveal state contracts, political contributions and even the job for the governor's wife that at least raised questions by Republicans that Burris may have paid to play.

JIM DURKIN (R), ILLINOIS STATE ASSEMBLY: They want Mr. Burris to under oath, talk about that, about exactly when his interest in this seat, when he became interested in the seat, how back it went, who did he talk to and exactly the communications that went back and forth between him and the governor and any type of documentations which he may have given to the governor.

GRIFFIN: The governor stands accused but not indicted in an investigation focused on the use of public office for personal gain, including alleged trying to sell the Senate seat vacated by President- elect Obama. Illinois Republicans want to know if Burris was paid to play. Their possible evidence, sate records show Burris and his lobbying firm contributed more than $20,000 to Governor Blagojevich's political campaigns. Two years ago, Roland Burris hosted a $1,000 a plate fundraiser for the governor. Burris' consulting firm won nearly $300,000 in state contracts over the last four years. And just this September, the governor's wife, Patty Blagojevich, was hired in an $80,000 a year job with the Chicago Christian Industrial League where Burris is lobbying partner is a board member. Today in a press conference, Burris said his selection had nothing to do with money or a pay to play scheme.

ROLAND BURRIS (D), ILLINOIS SENATE APPOINTEE: Certainly no pay to play involved because I don't have no money.

(END VIDEOTAPE) GRIFFIN: And Wolf, Illinois Republicans say that vague answer is exactly why they want Burris to appear tomorrow under oath and on the record before he's allowed to become Illinois's next U.S. senator, but they admit they don't think they can stop it from happening.

BLITZER: Yes it looks like that train has left the station. All right. Thanks, Drew, for that.

Meanwhile, a stunning new estimate for the federal deficit, $1.2 trillion. That's a new record by far. That's for one year. For one year alone. Let's talk about that and more with Democratic strategist, Jamal Simmons and CNN contributor and Republican strategist, Alex Castellanos.

You know, when, Alex I'll start with you, when President Bush was running for re-election in 2004, he promised by the end of his term, he would cut that deficit in half, that annual deficit. It was then about $300 billion or $400 billion. He said it would be cut in half to around 150 or $200 billion. He's leaving Obama with $1.2 trillion in a federal annual deficit. What happened?

ALEX CASTELLANOS, REPUBLICAN STRATEGIST: For one thing, there was a war.

BLITZER: There was a war before that, too.

CASTELLANOS: But there's no excuse. I think if you ask most Republicans what they're most disappointed in is that we haven't been able to control spending the last four years or eight years and that's a real problem because now, you'd love to have that in the bank to stimulate the economy and not go into debt.

BLITZER: Let me play a little clip from President Bush in 2004 when he was running for re-election.


BUSH: And the economy's getting better and as the economy gets better, it enables us to send up a budget to Congress that does cut the deficit in half.


BLITZER: Obviously, it didn't exactly work out. The deficit, the annual budget deficit is going to be at least three times greater than it was back in 2004.

JAMAL SIMMONS, DEMOCRATIC STRATEGIST: That's right. You can't absolve Bush for those tax cuts that he gave back in 2001. Those tax cuts without cutting government spending meant that we were spending - we were not spending enough money in and we were spending more money on the war and we're spending more money now that we're in this economic problem, we're spending more money dealing with the economic problem. That would have been money that we had in the treasury.

CASTELLANOS: Not exactly. That's actually the part Bush got right. If you haven't planted seeds, you don't get any food. You don't grow the economy. That's one of the few reasons we've actually had some tax revenue coming in. Even Barack Obama understands that right now because what's he want to do? He wants to cut the taxes for 95 percent of Americans. He knows we have to put more money in people's pockets to keep the economy growing.

SIMMONS: The problem is that deficit was growing at the time we could have been holding onto that money. When Bill Clinton left office, we had a surplus. Two years after George Bush was in office we already were in deficit.

BLITZER: The whole point is that, I guess when you look at these numbers, it is staggering to think of what's going on.

CASTELLANOS: There's a political danger here for Barack Obama, too, as well as just the danger to the country. This is the drinking problem, the hangover problem. When you're drinking too much, you're afraid to stop because you'll get a hangover. The cure is not to drink more. There is going to be a hangover here. This is like trying to cure the last economic bubble with the next economic bubble.

BLITZER: Because he's saying ...

CASTELLANOS: At the end of the day, somebody's going to have to pay this bill.

BLITZER: Barack Obama said it yesterday and repeated it today, that he sees trillion dollar annual deficits in the federal budget not only for this year but he says for years to come.

SIMMONS: That's right. That means that we are borrowing money from the next generation and people like me, from the next generation borrowing money. That means that at some point, people around the world who are loaning us all this money may decide this isn't a safe bet and so that's going to take the money away. What happens is the private sector, which needs money to be in the banking system so that they can invest in the things that are going to help grow the economy, won't have that money because the federal government is borrowing.

BLITZER: It's not just borrowing money from our children and grandchildren, it's borrowing money from China and the United Arab Emirates and Saudi Arabia and other countries.

CASTELLANOS: There's a political arrogance here, that Republicans are looking in and wonder what the next two years are going to bring, one party rule. This is going through unchecked because Democrats control the house, the Senate and the presidency. They own this. But the arrogance of this is saying, the economy doesn't know what it needs. The American people don't know what they need. We in government, we're so smart that we know what you need so Barack Obama and the Democrats are going to own this for good or ill.

SIMMONS: And keep in mind Wolf there also is the high interest payments we'll be paying back later, which means the federal government will have less money to deal with the problems. BLITZER: You guys think we've heard some bad news already, wait until Friday when the job losses for the month of December come out and then they add up the jobs that have been lost throughout 2008, that's going to be a very sober number, sobering.

CASTELLANOS: We're all betting that the Obama bubble never pops. Bubbles don't have a history working that way.

BLITZER: What does that mean?

CASTELLANOS: That means he's pouring money into this economy at a rate we've never seen in American history and we're going to try to spend our way out of a recession. Again, it's that hangover. If we keep drinking, we'll never have a hangover. I'm not sure that's going to work.

SIMMONS: We're also in the middle of a big crisis in terms of the economists. We have to do what it takes now or else there won't be a hangover.

BLITZER: What a headache for Barack Obama and his team coming in less than two weeks from now. All right. Guys, thanks very much.

It's the government agency almost no one wants to deal with, but now the IRS is vowing to turn over a new leaf, promising to cut back and offer you some slack, taxpayers who might need some help right now.

Plus, an American expert on abductions. His family now fears he's been kidnapped in Mexico. You're going to hear their emotional plea, right here on THE SITUATION ROOM.


BLITZER: An epidemic of abductions in Mexico. Now, there's fear that an American kidnapping consultant may be among the latest victims. CNN's John Zarrella is working this story for us.

Wow. John, what do we know?

JOHN ZARRELLA, CNN CORRESPONDENT: You know Wolf, there is a family here in Miami tonight who is pleading for any information on a loved one they believe has been kidnapped. What's hard to believe about this story is who it is, who they believe is kidnapped.


ZARRELLA (voice-over): Vanished. Imagine how you would feel if the person you loved simply disappeared.

JACKIE BATISTA, SISTER: Words cannot describe the pain that we are going through in not knowing where he is or what has happened to him.

ZARRELLA: After taking a phone call, Felix Batista walked out of a restaurant on December 10th. According to Mexican authorities, security camera video shows him voluntarily getting into a car. That was it. Gone.

LOURDES BATISTA, WIFE: Ever since then, we have learned nothing of him.

ZARRELLA: But of all people, Batista is the last person you would ever expect to be kidnapped. He's an internationally respected U.S. anti-kidnapping consultant. He was in Mexico taking part in a seminar on how not to get kidnapped. In an interview last summer, Batista himself gave a grim assessment of how kidnappings go in Mexico.

FELIX BATISTA, KIDNAPPING CONSULTANT (through translator): In Mexico, there are more problems, problems with negotiations. Bad things happen to victims. They are killed, raped, or mutilated.

ZARRELLA: His family has been quiet, saying nothing, hoping to hear from him or who took him. But the silence remained deafening. Now, they are going public.

BATISTA: Please, let him go. Let him return to his family. He has never done anyone any harm. I beg you with all the strength in my heart, to please have mercy.

ZARRELLA: During the past year, kidnappings and violence have risen dramatically in Mexico, but while his family believes there can be no other explanation, Mexican authorities say they have no information or evidence that in fact, Batista was kidnapped.


ZARRELLA: In that same interview he gave last summer, he talked about how kidnappings go in Mexico and how they usually only last a few days. He's now been gone almost a month. And there are some questions that remain unanswered. Who made the phone call to him and why did he get in that car? Wolf?

BLITZER: All right. If you get answers let us know, John. Thank you very much.

Here are a word you don't normally associate with the IRS, leniency. That's exactly what government tax collectors may be extending to some people facing some really hard times. Our senior business correspondent, Ali Velshi, is joining us right now. He has a new book, "Gimme My Money Back, Your Guide to Beating the Financial Crisis."

Ali, let's talk about what the IRS is planning on doing to help a lot of folks out there who are in deep trouble.

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: They won't entirely give you your money back, but you remember five, six, ten years ago, when you heard about the IRS and tax returns, they were coming down on somebody, they were auditing, they were being generally mean and they really changed their face of view a few years ago.

There's something called taxpayers advocate. They work for the Treasury Department. They make recommendations to the IRS. The IRS has taken some of those recommendations. They've announced some changes. If you are in hardship for a few particular reasons, the IRS is going change their approach to you if you can't pay your taxes. If you've had an agreement to pay your taxes and you're not making it you will be able to kind of deal with the IRS or at least they won't harass you as much.

Let me tell you the groups we're talking about. If you've recently lost your job, the IRS will be kinder with you. If you rely entirely on social security payments, they'll also give you a break. And if you have high unforeseen medical costs because Wolf high medical costs are the leading cause of bankruptcy in this country.

What will they do? If you fall into one of those categories, they're going to do a few things. They're going to cease sending you endless notices and making collection phone calls. It doesn't mean you're off the hook, they're just going easier on you. The phone calls will end. The notices will end. The seizure activity will cease as well. They will not add levies and extra penalties. They're also going to broaden the group of people who can apply for something called an offer in compromise, where you settle for less than you owe. You make a deal to pay them. They also, if you have a house, they can use as collateral, they'll negotiate with you on that. So, generally a kinder, gentler approach to people who have legitimate reasons for having difficulties paying their taxes, Wolf.

BLITZER: Good to hear all that stuff. Thank you, Ali, for that.

It's already going to be an historic inauguration, but now, there's another unprecedented part of the big day. Unprecedented shutdowns. Parts of the nation's capitol virtually sealed off. We have new details just coming in.

And Laura Bush unveils a presidential tradition, the white house china. We're going to show you some of the oddest and most expensive white house china.

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


BLITZER: Washington's population may double, triple or more for the presidential inauguration and it will certainly feel like that. Our homeland security correspondent Jeanne Meserve is here.

Security is going to be amazing, but what do we know?

JEANNE MESERVE, CNN HOMELAND SECURITY CORRESPONDENT: Traffic is going to be a mess. I'd tell you to fasten your seat belt, but you don't want to be in your car, not on inauguration day. The traffic in this city is always difficult. It's the fourth most congested city in the nation but on inauguration day, massive street closes for security reasons, and also because there will just be such a crush of cars, a couple million people with vehicles.

So here we have the Washington region. You see the capitol beltway running around it. Two major routes coming into the city, all inbound traffic on 395, from the Washington beltway to Washington, shut down as of 2:00 a.m. Traffic on 66 from the Washington beltway into the city, shut down. Now, of course, there's geography here. We have a river between Virginia and the District of Columbia. The only way to get across it, the bridges. The bridges will all be shut down. Every single one of them in red shut. If you live in Virginia, or coming in from the south, the only way to drive into this city will be to go around to the north and come in from Maryland. Of course, it's going to be jammed. And then when you get downtown, you're going to have parking restrictions and on inauguration day you'll have a lot of street closings, not just along the Washington mall, but the area around it. It is simply going to be a mess. The recommendation? Take public transportation if you can. Buses will be able to get in those chartered buses, or walk. So bring your walking shoes.

BLITZER: Here's the recommendation I have, a little self- serving, watch it on CNN. We're going to be live all weekend, all day Monday and Tuesday, January 20th. If you've got high definition, you'll see it in HD. It's a good way to do it.

MESERVE: But if you're coming in, check the websites, headache sure what the circumstances are. Bring your walking shoes.

BLITZER: Good advice. Thanks very much Jeanne for that.

Jack Cafferty is standing by with "The Cafferty File" -- Jack?

CAFFERTY: Question this hour is, should the director of the CIA come from within the agency or be installed from the outside?

Larry writes: "This is the time to have an outsider come in and clean house. Otherwise the code of silence will cover up those who supported torture and rendition. Besides, the intelligence professionals didn't cover themselves with glory during the Bush administration. It's time for a change."

Jack writes: "Hasn't history taught us anything? Not another appointee from the Clinton era. Our intelligence agencies were neglected and ineffective then and will become impotent again."

John in Colorado: "Leon Panetta has strong high level administration skills and has experience dealing with intelligence reports on the presidential receiving end. Although he's an agency outsider, I think it would be tough to find an overall, better qualified person for the job. The Obama transition team likely forgot to consult with Senator Feinstein on his appointment, figuring it was probably better to ask for forgiveness than for permission."

James writes: "We do not have the luxury of a new director of central intelligence in need of training wheels. It will be the Porter Goss disaster all over again. Does the Obama administration consider anyone with experience as somehow tainted?"

Judy in California writes, "I like the idea of an outsider who can shake things up. So what if Feinstein got her ego in a knot. She's one of the incumbents that needs to be thrown out on her ear. As a California Democrat, I voted against her in every election and will continue to do so."

Sam in Texas writes: "We have to look at the errant intelligence gathering to understand how beneficial and an outsider might be. We cannot afford another intelligence mistake of that magnitude."

And Terry in North Carolina says: "I have some candidates for the job. These guys are great at covert operations, Elliot Spitzer, John Edwards and Bill Clinton."

If you didn't see your e-mail here, you can go to my blog, file. Look for yours there among hundreds of others.

BLITZER: Not necessarily so great since they all got caught. But that's another story. All right Jack thank you.

In 2007 a global internet vote decided the new seven man-made wonders of the world. Now the competition is on to find the seven wonders of nature. Let's go to our internet reporter Abbi Tatton. What is it?

ABBI TATTON, CNN INTERNET REPORTER: There's a list, Wolf, a short list, but that's still pretty long. 261 natural sites around the world making the short list for the seven wonders of nature. On this continent that includes the Grand Canyon, Niagara Falls is up there. In the United Kingdom, there's Scotland's Loch Ness that's the lake not the monster. Further up here Mount Everest between China and Nepal, and also in Australia, the Great Barrier Reef. A lot of those very recognizable. But the list goes on and on. In Bahrain, it's a 400-year-old tree, the tree of life. This list is being compiled by the new seven wonders. They're asking the world to vote online which of the seven should be designated. They did this in 2007 on the man- made wonders of the world. One hundred million people chose these great seven. Now the voting has started online. They've got an expert panel, Wolf, and they'll be choosing 21 finalists by the summer.

BLITZER: My sentimental favorite, Niagara Falls. It's near Buffalo where I grew up. And it is a natural wonder. Thanks very much Abbi for that.

They unleashed a very deadly terror attack on Mumbai, and now there are reports they were on the phone the entire time getting what's described as commando instructions.

Plus, the Obama phenomenon. It has some vendors raking in cash. Despite the bad economy.

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


BLITZER: Stunning new developments which may shed new light on November's Mumbai terror attacks. Pakistan has fired its national security adviser right after he linked the attacks to elements inside Pakistan. An Indian newspaper has published chilling transcripts of what are said to be real-time phone calls between the ten terrorists in Mumbai and the handlers inside Pakistan. CNN's Reza Sayah has the story from Islamabad in Pakistan.

REZA SAYAH, CNN CORRESPONDENT: This appears to be the most damning evidence of the Mumbai attacks were orchestrated by Islamic extremist groups in Pakistan. The Indian government has delivered to Islamabad what it calls a dossier of evidence from the Mumbai attacks. In that dossier transcripts of intercepted phone conversations alleged to have taken place between the Mumbai attackers and their commanders in Pakistan while the attacks were going on. The alleged statements are chilling. Here's a glimpse. "The hostages are of use only as long as you do not come under fire. If you are still threatened, then don't saddle yourself with the burden of the hostages. Immediately kill them. Everything is being recorded by the media. Inflict the maximum damage. Keep fighting. Don't be taken alive. And finally, if the hostages are killed, it will spoil relations between India and Israel."

Also on Wednesday, another major development in Islamabad. In an interview with CNN, national security adviser and former Pakistani ambassador to the U.S. acknowledged that the lone surviving gunman is indeed a Pakistani national. Something that the Pakistani government had denied all along.

MAHMUD ALI DURRANI, FIRED PAKISTANI NATIONAL SECURITY ADVISER: I take probably it would be true now that for example he had Pakistani connections. So one cannot deny it that there was zero link with Pakistan.

SAYAH: Hours after he made that statement, to CNN and other media outlets, he was sacked by the prime minister. The prime minister saying he made that statement without consulting him. This is sure to cast more doubt on a government that's under immense pressure to crack down on extremists. Wolf?

BLITZER: Reza reporting for us from Islamabad. Thank you.

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

Happening now, Barack Obama joins the exclusive president's club. While promising to break with the past of wasteful government spending.