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The Situation Room

Buffalo Airport Safety Concerns; President Obama in Canada; California Avoids Budget Disaster

Aired February 19, 2009 - 16:00   ET

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

WOLF BLITZER, CNN ANCHOR: President Obama, north of the border, finding reinforcement for his troop buildup in Afghanistan. This hour, what came out of his meeting with the Canadian prime minister just a short while ago?

Plus, a surprising new call for an apology from President Obama for a war he didn't start. Should the new commander in chief make amends for the U.S. invasion of Iraq?

And a bronze bust of an historic British figure gets booted from the Oval Office. What's behind the snub of Winston Churchill?

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

But we begin with breaking news right now, a warning that was issued only weeks before that fatal plane crash in Buffalo.

Let's go to CNN's Drew Griffin. He's breaking this story for us.

What's going on, Drew?

DREW GRIFFIN, CNN INVESTIGATIVE CORRESPONDENT: It was a warning issued by Southwest Airlines dealing with the navigational system at the Buffalo airport. It was sent January 30th to all of Southwest Airline's pilots, talking about the approach to Runway 23, Wolf, the same runway which the Colgan Air Flight 3407 was on when it crashed February 12th last week.

This alert issued again today by the Pilots Association of Southwest, and also posted in crew lounges. What it says is there's a problem with the signal from the ILS system which is able to guide pilots in under instrument landing conditions.

Now, Southwest Airlines was saying that as its planes were approaching from the north and landing to the right, that their planes were having a problem with that signal and they were urging some corrective action because they were experiencing, or could experience, a pitch, a rise in the plane before the plane could stall. That is the same type of scenario outlined by the NTSB that Flight 3407 took just before crashing.

The distinction is that the Southwest planes were landing from the north, turning right. The Colgan Air flight was coming from the south, turning left. I am told there is a distinction in the signal between that, but we are still in contact with the FAA. The NTSB aware of this. And also, with the airport, we're trying to get some clarification.

But at least indications are one airline, Southwest Airline, issuing this alert to its pilots, that there is a problem with the navigation system at Runway 23 -- Wolf.

BLITZER: Drew, I know you spoke to the NTSB, the National Transportation Safety Board. What did they say about this?

GRIFFIN: They would only say that they're aware of this, that they were aware of this situation, but advised us to talk to the FAA if any alerts were issued prior to the crash concerning this. We've had calls into the FAA, we're waiting return calls as they try to investigate this, but again, the NTSB would only say they are aware.

BLITZER: Thanks very much, Drew. We'll stay on top of this story, a disturbing story, indeed.

Drew Griffin reporting.

President Obama's first trip outside the United States since taking his office is more than a ceremonial "get to know you" session. Both Mr. Obama and the Canadian prime minister, Stephen Harper, are now grappling with enormous challenges, including the global economic crisis and the deteriorating situation in Afghanistan. They wrapped up a news conference just a little while ago.

Let's go to our White House correspondent, Dan Lothian. He's traveling with the president in Ottawa, Canada.

How did it go, Dan?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, ,they met for about two hours. It was a working lunch. And coming out of that, both leaders saying that they did have a commitment to fighting the global economic crisis, but they also announced what they're calling a "clean energy dialogue," where senior officials from both countries will sit down and try to come up with some options for clean energy technology to fight global greenhouse gases.

In addition, they also talked about Afghanistan. As you know, Wolf, the president has talked about increasing troops into Afghanistan, some 17,000 troops. Here in Canada, the government has set a deadline for pulling out their ground troops by 2011. The president said he's respect that decision.

(BEGIN VIDEO CLIP)

BARACK H. OBAMA, PRESIDENT OF THE UNITED STATES: I certainly did not press the prime minister on any additional commitments beyond the ones that have already been made. All I did was to compliment Canada on not only the troops that are there, the 108 that have fallen as a consequence of engagement in Afghanistan, but also the fact that Canada's largest foreign aid recipient is Afghanistan. There has been extraordinary effort there, and we just wanted to make sure that we were saying thank you.

(END VIDEO CLIP)

LOTHIAN: Now, Canada and the United States, huge global trade partners. About $1.5 billion worth of commerce goes back and forth each day, so obviously trade was a key issue here today.

They did talked about NAFTA. And as you know, Wolf, back on the campaign trail, the president talked about wanting to renegotiate NAFTA. Well, a different tone today. He said that he wants to "grow trade, not contract it" -- Wolf.

BLITZER: All right, Dan. Thanks very much.

We're going to have more on this story coming up later this hour.

But in California right now, an epic budget battle is over and a financial disaster has been avoided. Governor Arnold Schwarzenegger celebrated by taking down a tally of 106 days the legislature had failed to act. The budget passed early today. It closes California's $42 billion deficit and saves literally thousands and thousands of jobs in California.

Let's go to Los Angeles. CNN's Ted Rowlands is standing by with more -- Ted.

TED ROWLANDS, CNN CORRESPONDENT: A huge sigh of relief, Wolf, by a lot of folks. Basically, for the last three months, it has been partisan bickering. Finally today, lawmakers came up with a budget.

(BEGIN VIDEOTAPE)

ROWLANDS (voice-over): In the wee hours of the morning, Democratic lawmakers begged for one more vote from Republicans to pass a California state budget.

UNIDENTIFIED MALE: One vote -- one vote is worth billions of dollars.

ROWLANDS: Ten thousand pink slips were scheduled to go out and hundreds of construction jobs halted if nothing was passed by this morning. Eventually, Republican Abel Maldonado broke ranks.

ABEL MALDONADO (R), CALIFORNIA STATE SENATE: I know that there will be dire political ramifications for me when I cast this vote. But the ramifications to the people of California are far much greater.

ROWLANDS: In exchange for his vote, Maldonado forced Democrats into agreeing to drop a proposed 12-cents-a-gallon sales tax on gasoline, and he added constitutional amendments to reform the state election process, bringing to an end an embarrassing three months of partisan bickering.

GLORIA ROMERO (D), CALIFORNIA STATE SENATE: This is a disgusting process. This is not good government. This is not political reform.

ROWLANDS: The budget calls for more than $14 million in tax increases, including a sales tax hike and an income tax increase. Spending will be slashed by more than $15 billion, including cuts to education.

After the vote, Governor Arnold Schwarzenegger took down the sign outside his office counting the days the state has gone without a budget.

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: This is a historic budget, and not only did they pass a great budget, but also a great reform package.

(END VIDEOTAPE)

ROWLANDS: Part of the problem in this state is that lawmakers are basically paralyzed by their own party. You go against your party in California, they will come against you next time you're up for re- election. Part of this budget does call for election reform, opening up the primaries. The hope is that eventually, there could be more bipartisan communication to avoid horrific situations like the state has just been through -- Wolf.

BLITZER: All right, Ted. Thanks very much.

Ted Rowlands in Los Angeles.

All right. There's breaking news to report right now from the stock market. A new low.

Let's go to CNN's Susan Lisovicz. She's watching the Dow Jones industrials.

This is about the worth it's been in how many years, Susan?

SUSAN LISOVICZ, CNN BUSINESS CORRESPONDENT: Six years, Wolf. You know, the sell-off itself may not look like anything particularly monumental, but it's really the level that we're looking at here.

The Dow Jones Industrial Average is the most closely watched stock average in the world. It's only 30 stocks. It's the cream of the crop in corporate America. It's got everything from Wal-Mart to Exxon, Citigroup, American Express, Hewlett-Packard. It's got those companies in there.

And for the last couple of days, it has been bumping against its lows of this current bear market set in November. That is when the three major averages all hit those lows -- the Nasdaq and the S&P 500. It was hitting them, but not closing below them.

Where it ended today -- you see it's 7,465 -- is the lowest since October 9th of 2002. And yes, that was the last bear market.

And basically, investors are worried. You know, there's two basic motivations that really push stocks in one direction or another. It's fear and greed.

There's a lot of fear in the marketplace now. A lot of things that haven't been done before, or if they have been done, we haven't seen them in decades, the types of federal programs that are occurring.

This, as we get new numbers that really just show the depth of the recession, whether it's the number of Americans continuing to collect unemployment, or Hewlett-Packard saying that -- curbing its forecast for the year, a weak manufacturing report. These are things that we hear day by day, and they continue to affect stock market sentiment. And so what the market will be looking for is the next support level -- Wolf.

BLITZER: All right. We'll watch it. I suppose a lot of people, though, are losing confidence in the stock market and they're taking their money out and just buying T bills, or something they think to be safe, at least relatively safe right now.

Susan, thanks very much.

LISOVICZ: You're welcome.

BLITZER: Let's check in with Jack Cafferty. He has "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Alaska Governor Sarah Palin owes back taxes on almost $17,000 she received from the state in per diem funds while living in her Wasilla home. The state of Alaska decided this week the payments were not legitimate business expenses and that employees must treat them as income and pay taxes on them.

You may remember, the revelation of these payments became an issue in last year's campaign. It didn't exactly jive with Palin's so-called image as a conservative government reformer.

At the time, her office insisted she was entitled to these per diem payments. The state of Alaska has decided otherwise.

Palin collected most of these payments before being named to the GOP ticket as John McCain's running mate. The expenses were paid when she stayed at her Wasilla home and commuted to her Anchorage office, instead of staying in the governor's mansion in Juneau. The Associated Press found Palin continued to charge the state for meals and other incidentals even after losing the general election in November.

Now, this is rich. Palin's office says they don't know if she's still collecting a per diem and they don't know if she will continue to do so. And they claim her taxes are a personal matter even though she's a public official and tax money belongs to the public. And she will not say how much she owes.

The Alaska governor had also previously charged the state more than $21,000 for having her kids travel along with her, claiming they were acting on state business -- her children. Even though some of the events that she took them to, the kids weren't even invited.

So here's the question. Should Governor Sarah Palin have to disclose how much money she owes in back taxes?

I mean, it's all the thing this year, government officials owing back taxes. I would guess she ought to fess up on her end.

Go to cnn.com/caffertyfile and do what you do best.

BLITZER: I think a lot of people will agree with you, Jack. No doubt.

All right. Thanks very much.

The Obama administration is urging banks to step up to the plate so the president's plan to help homeowners will succeed. You work and hard and play by the rules. Will you be rewarded?

I'll ask the housing secretary, Shaun Donovan. He's standing by live.

Plus, she may be tapped to overhaul America's health care system, but is the Kansas governor, Kathleen Sebelius, qualified for the job?

And President Obama's first test on the world stage. Listen for yourself as he takes questions on Afghanistan, the economy, the environment.

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

(COMMERCIAL BREAK)

BLITZER: Who qualifies, who doesn't qualify? That's what many of you are wondering now that the Obama administration's unveiled its very ambition plan to help American homeowners. The $75 billion effort the administration hopes will help up to nine million homeowners.

Joining us now is the man who will play a central role in implementing this plan. He's Shaun Donovan, the secretary of Housing and Urban Development.

Mr. Secretary, thanks for coming in.

SHAUN DONOVAN, SECRETARY, HOUSING AND URBAN DEVELOPMENT: It's great to be with you, Wolf.

BLITZER: All right. We've got a lot -- from our viewers -- a lot of practical questions. If you give us a direct answer, you'll reassure a lot of folks out there.

A lot of people are concerned that they work really hard, they struggle to make their mortgage payments every month. Sometimes they get a second job to make their mortgage payments. They don't go on vacations. They don't go out to dinner. They just want to make those mortgage payments.

They feel their neighbor who maybe isn't working that hard is going to get a bonanza from the federal government and they're going to still play by the old rules. What do you say to those folks?

DONOVAN: Well, I would say, the great thing about this plan is it's going to help them as well. First of all, interest rates have been at historic lows, and we're going to make sure they stay that way.

Also, one of the things for borrowers who are struggling to pay, but have been paying, up to now modification plans from lenders haven't reached them. Our plan changes that and makes sure that if you're struggling to make your payment, but you're still current, this plan can help you as well.

BLITZER: How do you weed out those who are just trying to game the system, take advantage of the system, and say, you know what, Uncle Sam will take care of me?

DONOVAN: Well, you know what? First of all, no owner -- no investor owners or flippers are going to be eligible for the program.

BLITZER: People who flip houses just to make money.

DONOVAN: That's exactly right. They aren't eligible under this program.

And second of all, we're going to make absolutely sure that we verify people's incomes, that we make sure that those mortgages are legitimate mortgages before we modify them. So you can rest assured we'll be watching to make sure we don't do that.

BLITZER: And what about those folks out there who bought, let's say, a $600,000 home knowing they can only afford really a $300,000 home, but they said, what the hell, I'll go for it?

DONOVAN: Well, you know what? Those folks that are so deep under water, that aren't going to be able to be sustainable in home ownership, they're not going to qualify for the program as well.

But Wolf, I think one thing is very important for the American people to understand -- is that even if you're current on your payment, you're not struggling to pay your mortgage, but your next door neighbor is being foreclosed, a recent study shows that that can lower the value of your house by up to 9 percent. That's $20,000.

We believe this plan will help to raise values of houses by $6,000 on average across this country. So this is important to do to stop foreclosures for everyone, not just those who are at risk.

BLITZER: Is there anything for the folks out there who don't own a home but who are renting an apartment or renting a house, and they simply are struggling right now and they're about to be kicked out? Is there anything in this housing plan that you have that's going to help them?

DONOVAN: I'm glad you asked, Wolf, because one thing few people recognize is, about a third of the folks who are displaced by foreclosures are renters. And so one of the key things in the recovery bill that the president signed on Tuesday is a record level of support to prevent homelessness among renters in particular, but also some homeowners who are really at risk of foreclosure, the most at risk of all the folks here. And that's going to be a great boon to local communities that are trying to avoid the problems of shelters going up and families at risk...

(CROSSTALK)

BLITZER: But I just want to be precise -- only those people who are renting an apartment or a house that's foreclosed will get some benefit, or will people who are renting from big landlords and they can't make their rent, will they get any benefit?

DONOVAN: I'm glad you asked that. These benefits are available to any renter, anybody who's at risk of homelessness, whether they're in a foreclosed home or not. So it will help them too.

BLITZER: All right. That's good to know.

The banks, especially those banks who have received billions from the U.S. government in guarantees, the bailout, as they say, what are you going to do to make sure that they offer these loans, that they cooperate? Because there's some suggestion out there they're not going to want to do it and that maybe a judge is going to have to come in and force them to do it.

DONOVAN: Well, let's be clear. The president made -- said yesterday that anybody, any lending institution that takes these funds from TARP, is required to participate in the modification program. No ifs ands or buts. That was very, very clear.

BLITZER: All right. Shaun Donovan, we'll leave it there.

Good luck. A lot of people are counting on you and the administration to help them.

DONOVAN: Thank you, Wolf. Good to be with you.

BLITZER: Shaun Donovan is the secretary of Housing and Urban Development.

In surprising comments, Hillary Clinton reveals how the U.S. is worried about what might happen in North Korea. The secretary of state warns of a possible leadership crisis that could cause more provocative behavior.

And Dubai bars a female Israeli athlete from playing tennis there, but it's now letting a male Israeli tennis player come in. Is there an explanation? What's going on?

We'll have the latest, right here in THE SITUATION ROOM.

(NEWSBREAK)

(COMMERCIAL BREAK)

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

Happening now, tainted contributions. A fugitive tycoon nowhere to be found. His firm accused of bilking investors out of billions. Did some of that money go to Washington politicians?

Standing trial. The Iraqi journalist who hurled his shoe at President George W. Bush in the insult seen and hear around the world, now he's telling the court why he did it. And wait until you hear his reason.

And searching for answers to that horrific and deadly plane crash in Buffalo. We're retracing the plane's last flight.

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

America's neighbor to the north is warmly, very warmly embracing President Obama. Now more on our top story.

The president of the United States in Canada for the very first foreign trip of his presidency. He and the Canadian prime minister, Stephen Harper, met to discuss important issues involving the two nations. And they answered questions from reporters, especially questions involving war.

Listen to this.

(BEGIN VIDEO CLIP)

QUESTION: Thank you, Mr. President and Mr. Prime Minister. I have Afghanistan questions for you both.

Mr. President, General McKiernan requested 30,000 extra troops. Your new order calls for 17,000.

How likely is it that you will make up that difference after the review you mentioned? And more importantly, how long can we expect all U.S. combat troops to be in Afghanistan?

And Mr. Prime Minister, based on your discussions today, are you reconsidering the 2011 deadline for troop withdrawal? And are you also thinking about increasing economic aid to Afghanistan?

BARACK H. OBAMA, PRESIDENT OF THE UNITED STATES: Well, David, the precise reason that we're doing a review is because I think that over the last several years, we took our eye off the ball. And there's a consensus of a -- that there's a deteriorating situation in Afghanistan.

I don't want to prejudge that review. I ordered the additional troops because I felt it was necessary to stabilize the situation there in advance of the elections that are coming up. But we have 60 days of work to do. That review, which will be wide ranging, will then result in a report that's presented to me. And from -- at that point, we will be able to, I think, provide you with some clearer direction in terms of how we intend to approach Afghanistan. In terms of length, how long might be there, obviously that's going to be contingent on the strategy we develop out of this review. And I'm not prejudging that as well.

I should mention just to preempt or to anticipate prime minister Harper's -- the question directed at him -- that I certainly did not press the prime minister any additional commitments beyond the ones that have already been made. All I did was to compliment Canada on not only the troops that are there -- the 108 that have fallen as a consequence of engagement in Afghanistan -- but also the fact that Canada's foreign aid recipient is Afghanistan. There has been extraordinary effort there, and we just wanted to make sure that we were saying thank you.

STEPHEN HARPER, CANADIAN PRIME MINISTER: Just very quickly, as you probably know, it was just last year that we were able to get through parliament a bipartisan resolution extending our military engagement in Afghanistan for additional close to four years at that point.

As we move forward, we anticipate an even greater engagement on economic development. That's part of the strategy that we adopted. I would just say this. You know, obviously, we're operating within a parliamentary resolution. I would just say this. In terms of the United States looking at its own future engagement, we are highly appreciative of the fact United States is going to be a partner with us on the ground in Kandahar.

The goal of our military engagement -- its principle goal, right now, beyond day-to-day security, is the training of the Afghan army, so the Afghans, themselves, can become responsible for their day-to- day security in that country.

I'm strongly of the view, having led, you know, as a government leader having been responsible, now, for a military mission in Kandahar province, that we are not in the long term, through our own efforts, going to establish peace and security in Afghanistan; that, that job ultimately can be done only by the Afghans, themselves. So, I would hope that all strategies that come forward have the idea of an end date, of a transition to Afghan responsibility for security, and to greater Western partnership for economic development.

(END VIDEO CLIP)

BLITZER: The prime minister of Canada and president of the United States at a news conference in Ottawa.

Meanwhile, the United States and Britain share one of the closest relationships among any two nations, but something President Obama has done has some Britons wondering, where is the love?

Let's bring in Zain Verjee. She's here to explain what is going on.

What is going on, Zain?

(LAUGHTER)

ZAIN VERJEE, CNN STATE DEPARTMENT CORRESPONDENT: Well, where is the love, indeed?

Well, the president made a decision: Lincoln's in, and Churchill's out.

(BEGIN VIDEOTAPE)

VERJEE (voice-over): Abraham Lincoln beat out Sir Winston Churchill for a prime spot in President Obama's Oval Office. A bronze bust of the famous British prime minister has been sent back, disrespectful, says Nile Gardiner of the conservative Heritage Foundation.

NILE GARDINER, MARGARET THATCHER CENTER FOR FREEDOM DIRECTOR, HERITAGE FOUNDATION: My view is that this is -- you know, it's a -- it's a real disgrace, actually. It sends completely the wrong signal toward Britain. It's being viewed in the U.K. as very insulting and a very insensitive move by -- by the White House.

VERJEE: The British loaned it to President Bush in a show of solidarity after 9/11, to be returned at the end of his term. But they have told the White House they're welcome to keep it for another four years.

GARDINER: I do believe the bust should be returned to the Oval Office. There's no reason why you can't have busts of both Lincoln and Churchill sitting in the Oval Office.

VERJEE: Churchill is sitting at the British Embassy residence right now. The White House has no comment. But the Britain Embassy tells CNN that they understand the decision and enjoy a good relationship with the Obama administration.

Despite the Oval Office decorating changes, the U.S. has special ties with Britain. Britain has thousands of troops fighting with Americans in Iraq and Afghanistan.

(END VIDEOTAPE)

VERJEE: And what would Sir Winston himself say about all this? Well, he was once quoted as saying, everyone has his day, and some days last longer than others -- Wolf.

BLITZER: All right, so, what's going to happen to the bust of Winston Churchill?

VERJEE: Well, I spoke to someone at the Britain Embassy. They say it's going to stay here in Washington at the ambassador's residence.

BLITZER: At the ambassador's -- up on Massachusetts Avenue...

(CROSSTALK)

VERJEE: Right, just down from the vice president's...

BLITZER: A good place for it.

(LAUGHTER)

BLITZER: Thanks very much.

She's a popular Democrat in a very red state, but the Kansas governor, Kathleen Sebelius, have what it takes to overhaul America's health care system? We're looking at a leading prospect for an open job in the Obama Cabinet.

Hillary Clinton warns there's yet another reason to worry about the threat from North Korea. She's in the region right now, and she's offering some surprising remarks.

And the breaking news this hour: a warning of safety concerns at the Buffalo Airport just weeks before a deadly commuter crash. Pilot experience also is being investigated. We will have a report from inside a cockpit simulator.

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

(COMMERCIAL BREAK)

BLITZER: Team Obama is scrambling to find a new health and human services secretary, after Tom Daschle pulled his nomination because of tax troubles. The president may find a recruit within the ranks of the nation's governors.

Let's go to our national political correspondent, Jessica Yellin. She's got more on what's going on.

What's going on?

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: Well, Wolf, you know, the Obama administration is being especially cautious with their Cabinet picks, after so many of their appointees have had to back out. So, this is not a done deal. But sources tell me Kathleen Sebelius, governor of Kansas, is a leading candidate to run the Department of Health and Human Services.

(BEGIN VIDEOTAPE)

YELLIN (voice-over): Health care reform is at the top of President Obama's agenda. He's already signed a bill expanding health coverage for kids and plans to lay the groundwork for further reform next week. All he needs is a secretary of health and human services.

Could this be his woman?

GOV. KATHLEEN SEBELIUS (D), KANSAS: And, if you come from Kansas, go home and vote.

(CHEERING AND APPLAUSE)

YELLIN: Kansas Governor Kathleen Sebelius was an early supporter of then candidate Obama.

OBAMA: Which may explain why I just love your governor in Kansas.

YELLIN: A rare breed, she's a popular Democratic governor in a very red state. She has a history of working with Republicans. She's posed for "Vogue" -- the photo made a splash in "The Kansas City Star" -- and delivered the Democratic response to President Bush's last State of the Union address. Her focus? Health care reform.

SEBELIUS: We know that we're stronger as a nation when our people have access to the highest-quality, most affordable health care.

YELLIN: As state insurance commissioner, Sebelius fought Blue Cross/Blue Shield to keep premiums down. And, as governor, she has pushed for a cigarette tax to finance more health coverage. A Catholic, she's drawn the wrath of the church for her views on abortion.

Progressive groups are pulling for her. Ron Pollack has encouraged the White House to select Sebelius.

RON POLLACK, EXECUTIVE DIRECTOR, FAMILIES USA: She represents the knowledge, background, caring that I think is necessary for that position.

YELLIN: But critics point out she has no experience working with Congress, has not gotten major health care reform passed in her state, and insist she has mismanaged Kansas' budget.

SEBELIUS: We will pay our bills. We have always intended to pay our bills.

YELLIN: In fact, she just averted a Kansas budget crisis that would have frozen state workers' paychecks.

(END VIDEOTAPE)

YELLIN: Now, my sources tell me that, if Sebelius were to get the job, she likely would not take the title of health care czar, which Tom Daschle was going to get had he become HHS secretary. That role overseeing health care reform would likely be handled by others on the White House staff.

And, now, Wolf, Sebelius' office tells me that she's simply focused on her job as governor.

BLITZER: That's what they always say...

YELLIN: They always say.

BLITZER: ... until they get the job.

(LAUGHTER)

BLITZER: All right, thanks, Jessica. Thanks very much.

North Korea's Kim Jong Il has long ruled his country, but questions about his health are raising this question: Who might replace Kim Jong Il if he's no longer able to rule?

Hillary Clinton is making some surprising comments on the matter as she tours Asia. Today, the secretary of state said the U.S. is worried about a possible succession crisis.

CNN's foreign affairs correspondent, Jill Dougherty, is traveling with Secretary Clinton -- Jill.

(BEGIN VIDEOTAPE)

JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT: Wolf, Secretary of State Hillary Clinton made those comments on her way to Seoul, South Korea. She came back to talk to reporters, and she said that the U.S. and its allies are monitoring a possible succession crisis in North Korea.

There have been those reports that the leader of North Korea, Kim Jong Il, suffered a stroke last year. The North has been making very threatening comments to South Korea. And then there have been the more recent reports about the possibility that the North might be test-launching a long-range missile.

Secretary Clinton said, everyone is trying to read the tea leaves. The leadership situation there is somewhat unclear. And she said, if there is a succession, even a peaceful succession, it could create more uncertainty. And then she said that could encourage even more provocative behavior by North Korea -- Wolf.

(END VIDEOTAPE)

BLITZER: All right, Jill, thanks very much -- Jill Dougherty traveling with the secretary.

We also have some new information coming in to THE SITUATION ROOM right now about how the U.S. Navy is dealing with those suspected Somali pirates already in custody.

Let's go to our Pentagon correspondent, Barbara Starr. She's working the story for us.

Barbara, what do we know?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, Wolf, for the first time now, the Navy cannot just arrest pirates, but it can hold on to them and plan to turn them over to Kenya for prosecution. But, Wolf, none of it is working out exactly as the Navy planned.

(BEGIN VIDEOTAPE)

STARR (voice-over): The U.S. Navy captured these suspected pirates off the coast of Somalia last week, where pirates have been ruling the waves. But stopping them isn't working out exactly as planned. A deal negotiated by former Assistant Secretary of State Mark Kimmitt would have Kenya prosecute the captured pirates.

MARK KIMMITT, FORMER ASSISTANT SECRETARY OF STATE: We envisioned that it would be quite rapid from the time the pirates were apprehended to the time they were handed over to a local authority.

STARR: But now a number of problems. The U.S. Navy says there's no time limit on how long it can hold pirates. Details are also still being worked out about what was thought to be simple rules of evidence that Kimmitt says were all in place.

KIMMITT: If there is an act observed on the water that can be interpreted as piracy, whether they're attempting to take a ship, shooting at your own ship, that that would be sufficient for the American craft and the American sailors to act.

STARR: But now the Navy may have to release some of the men. They weren't actually seen trying to hijack a ship. And even though the men were captured days ago, there's no final plan on how either to send them to Kenya or release them back to Somalia.

(END VIDEOTAPE)

STARR: So, Wolf, all of this now, once again, raising questions about the legal rights of people held in U.S. military detention. The whole idea had been that this agreement with Kenya would stop the pirates, because they know they would be sent to Kenya for prosecution. So far, that's not happening. And, so far, the pirates are not stopped -- Wolf.

BLITZER: It's a real serious problem out there. All right, thanks, Barbara, very much.

The Iraq war certainly has bitterly divided many people in the world, but should President Obama apologize for the U.S.-led invasion of Iraq? A famous Noble Peace Prize winner suggests the president should.

And fresh intrigue surrounding that billionaire accused of a multibillion-dollar scheme. It turns out that Allen Stanford had contributed lots of money to political figures, including Barack Obama and John McCain's campaign.

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

(COMMERCIAL BREAK)

ANNOUNCER: This is CNN breaking news.

BLITZER: He's been charged, he's been accused of conducting a $9.2 billion -- $9.2 billion investment fraud scheme. No charges yet, but that's the allegation. But he's been on the loose for the past several days, as authorities have been looking for him, but there's a new development right now.

Let's go to CNN's Brian Todd.

Brian, what do we know about Robert Allen Stanford?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, the FBI has just issued a statement saying that, essentially, they have located Mr. Stanford in the Fredericksburg, Virginia, area.

FBI agents, according to FBI statement, served Mr. Stanford with court orders related to the SEC civil filing again him. As you mentioned, he's charged by the SEC with defrauding clients of more than $9 billion.

According to this statement by the FBI just in, they have located Mr. Stanford in Fredericksburg, Virginia, served him with papers -- court orders related to this SEC filing. Unclear whether they physically have him in custody or not at this very moment, but we're working to confirm some of those details. But it looks like this financier, who had been missing for the past several days, found near Fredericksburg, Virginia -- Wolf.

BLITZER: And a lot of people, their life savings simply gone, at least for now. We will see what happens.

Brian's going to have much more on this story coming up at the top of the hour.

Brian Todd, thank you.

Let's get to our "Strategy Session" right now.

Joining us, our CNN contributor the Democratic Donna Brazile, and the Republican strategist Tucker Eskew.

Thanks to both of you for coming in.

Donna, there's growing outrage, at least among some folks, who say, you know what, they struggle all the time to make their mortgage payments. They don't go on vacations. They take a second job. They don't go out to dinner. They're playing by the rules, but their neighbors down the street are now potentially going to get a free ride, because they don't work as hard as they do.

What do you think about that, that -- that fear out there, that outrage that seems to be developing?

DONNA BRAZILE, CNN POLITICAL ANALYST: Wolf, first of all, it's -- it's kind of unfair to -- to call those homeowners who find themselves now on the brink of foreclosures as, somehow or another, you know, getting a handout.

These are honest, hardworking taxpaying Americans who thought that they really got a good deal, and later found out that they couldn't afford their adjustable-rate mortgages that they were sold. Some were given predatory loans, when they qualified for conventional loans.

And according to the Center For Responsible Living -- Lending -- every 13 seconds, 60,000 Americans find out that they cannot stay in their homes. This month alone, 330,000 Americans will find themselves in some form of foreclosure.

So, if we want to fix the economy, we have to fix the housing crisis. This is a good plan. It's a great start. Members of Congress will -- will have to give to tinker with it to give those homeowners a lifeline. But, if we fix this crisis, Wolf, we can stabilize the housing market.

BLITZER: Should the Obama administration, Tucker, be fearful of a potential backlash out there?

TUCKER ESKEW, REPUBLICAN STRATEGIST: They should. I think there's one building, Wolf.

It's not helped by reports in "The Wall Street Journal" that the administration wants to trot out Hollywood celebrities to help sell this. I think the Oscars will be replete with evidence that Hollywood doesn't still have much connection with average Americans.

Look, Republicans and Democrats in this town who understand the situation know we have got to do something about housing. It's central to our economic recovery. But this administration won't work too successfully with celebrities.

And an upcoming financial responsibility summit better have some look-in-the-mirror moments before it can be proclaimed a success. There's evidence that some of these defaults get refinanced, and as many as 55 to 60 percent of them are then going back into default within a couple of months.

BLITZER: All right.

ESKEW: So, taxpayers should be concerned.

BLITZER: There's another story out there.

And I want -- Donna, I want you to weigh in. The South African archbishop, Desmond Tutu, in an interview with the BBC -- he's the Nobel Peace Prize winner -- he says this. He says that President Obama should apologize for the U.S. invading Iraq.

"Obama, too, could easily squander the goodwill that his election generated if he disappoints. It would be wonderful if the U.S. president could apologize for the U.S.-led invasion of Iraq on behalf of the American people."

I was pretty surprised when I heard Bishop Tutu say that. But what do you think?

BRAZILE: Well, first of all, President Obama opposed the war.

But, Wolf, you know, 4,000-plus Americans have -- brave soldiers, men and women, have lost their lives. Tens of thousands came back wounded. I'm more interested and I think most Americans should be interested in making sure that President Obama gets it right, to sit down with those who are in command, General Petraeus and many others, to continue this review and begin to bring our troops home in a reasonable and orderly fashion.

So, I -- I think the best way to strengthen our allies and to rebuild America's image across the world is to get it right and to do it in a very responsible way.

BLITZER: Yes, I was surprised -- I was surprised...

BRAZILE: And I like Bishop Tutu. I have to tell you that.

BLITZER: I was surprised by his comments, because, as we all know, President Obama, then a legislator in Illinois, he opposed the war from the beginning.

ESKEW: And, if -- if I may, regardless of that, there was enormous sacrifice by Americans. Bishop Tutu's advice should be ignored, unless this president wants to go back to a Jimmy Carter era of politics.

He did, though, say something interesting in the same indeed. He indicated that he wanted President Obama to crack down on dictators in Africa, something President Bush did a lot of, holding them responsible for their activities. I didn't hear much from Bishop Tutu when President Bush did that, but I was glad to hear him say it.

So, I kind of felt like President Reagan. Paraphrasing him in the '80s, asked about Tutu, he said, "Tutu? So, so."

That's about how I feel today about the bishop.

BLITZER: Tucker, thank you.

BRAZILE: Well, it's so sad that you would say that.

Bishop Tutu is a -- really a moral voice, a champion for human rights. And, during the Bush administration, he did applaud the president for the efforts he made in Africa to reduce malaria and other diseases.

ESKEW: He's wrong about Iraq, but I take your point, Donna.

BLITZER: Guys, thanks very much.

BRAZILE: Thank you.

BLITZER: We're following the breaking news this hour: A fugitive financier has been found. We have been looking into the money he gave to some big-name political figures and whether the feds were too slow to investigate allegations of fraud. Where was the SEC?

And find out what is almost as important to Michelle Obama as hanging out with her daughters.

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

(COMMERCIAL BREAK)

BLITZER: Let's check back with Jack Cafferty for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: The question this hour is, should Sarah Palin have to disclose how much money she owes in back taxes?

Austin writes: "Yes. We know how much Daschle and Geithner owed. Why not Palin? And, by the way, where's the outrage from Republicans calling for her resignation? Funny how paying taxes isn't such a fiendish issue when it's one of theirs."

Wally in Las Vegas: "Governor Palin has been caught skirting the very laws she is sworn to uphold. She knows perfectly well charging per diem while being at home and writing off charges for family members, travel, lodging and food is wrong. She feels she is the exception to all the rules."

Bill: "Do the math, Jack. You already know how much she received, $17,000. It shouldn't be too difficult, especially for a Democrat, to figure out how much the taxes owed are. Still not sure? Ask anybody in Obama's Cabinet. They seem to be experts on back taxes."

Eric in New York: "Hey, Jack, I got a great idea. Let's take up a collection, pay her back taxes for her, on condition that she take her family and move to another country, never to return."

George in New Hampshire: "Of course, Jack, you blithering fool, she should disclose her back taxes. Come to think of it, she would make a perfect Cabinet secretary for President Obama. She could exchange tax ideas with Tom Daschle, Tim Geithner and a few others. Viva Sarah."

Tim writes: "She should not have to pay back taxes. She should have to pay the $17,000 back to the state in full, with interest. Per diem is paid outside a normal salary. If they just add it to her salary, she, in effect, gave herself a $17,000 raise. I would more than happily pay some taxes on money if I could decide how much to give myself."

Chryssa in Boise writes: "Yes, but not until she runs again in 2012. I want it to be fresh in her supporters' minds."

And Gary in South Carolina says: "I prefer she didn't. In fact, I wish I would never hear anything from her again, ever. It would be worth $17,000."

If you didn't see your e-mail here, you can go to my blog at CNN.com/caffertyfile. Look for yours there, among hundreds of others -- Wolf.

BLITZER: Jack, thank you.

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