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The Situation Room

How Healthy Is Your Bank?; Pakistani Civilians Flee Fighting

Aired May 07, 2009 - 17:00   ET

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

BLITZER: As troops clash with the Taliban, tens of thousands of Pakistani civilians are now fleeing the fighting, their homes destroyed. We're going to be taking you inside a refugee camp.

And since President Obama took office, more states have sanctioned same-sex marriage.

What should the president of the United States be doing and saying about that?

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

ANNOUNCER: This is CNN breaking news.

BLITZER: Let's get right to the breaking news this hour, as the federal government finally releases the results of its so-called "stress tests" for the nation's 19 largest banks.

Let's go to our senior White House correspondent, Ed Henry.

He's got the details for us -- Ed, what do we know now?

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Wolf, I just got off a call with Treasury Secretary Timothy Geithner and Fed chairman, Ben Bernanke. They were laying out all the details -- all this new information. The key, according to the Treasury secretary, is transparency -- trying to get under the hood, a look at 19 key banks in America, find out how healthy they are.

Here are the results. Nine of these 19 banks that have been stress tested by the government do not need more capital, according to the government, over the course of the next two years, to weather this crisis. But 10 out of the 19 banks, banks like Bank of America and Citigroup, need a total of $75 billion to survive a worst case scenario over the next two years.

Now, the Treasury secretary just said the key here is using this transparency to finally instill confidence for the American people.

(BEGIN VIDEO CLIP)

TIMOTHY GEITHNER, TREASURY SECRETARY: Our hope is that with these actions today, banks are going to be able to get back to the business of banking. The leaders of our nation's banks...

(MURMURS)

GEITHNER: ...the leaders of our nation's banks have a lot to do to earn back the public's trust. And to do that, we want to see them working hard in their communities, making the loans to businesses and consumers that are going to be so important to economic recovery.

(END VIDEO CLIP)

HENRY: And here are the numbers the American people have been waiting for. For example, according to these stress tests, Bank of America needs $33.9 billion over course of the next two years to make sure they can stay afloat. Citigroup needs $5.5 billion. GMAC and auto financing, they need $11.5 billion. Wells Fargo, another big ticket there, $13.7 billion.

But the Treasury secretary kept stressing that these are worst case scenarios. They put it through what if the economy continues to get worse and worse and worse in the months ahead. They do not think it's going to get that bad and they believe these banks will be able to raise the money through private capital.

But they're also stressing the Federal Reserve -- the government will be there as a backstop just in case.

But the key is that this administration is trying to show that maybe there's a bottom here, that this is not as bad, in the months ahead, as many people predicted -- Wolf.

BLITZER: So bottom line is they think they can get the money from private sources -- the $75 billion...

HENRY: Yes.

BLITZER: ...if they need that much. But they're also making it abundantly clear, Timothy Geithner and others, if they can't raise the money from private sources, you and I, the American taxpayers, we're going to come in and bail out all those banks, is that right?

HENRY: Absolutely. But what they're saying is that they do believe they can raise this through private capital. For example, some of these banks are already selling off some good assets that will bring in some of that capital. And, again, we have to stress that they're saying these stress tests were a worst case scenario the government does not believe will play out over the next couple of years. They don't really think these banks will need $75 billion, that they'll actually need less money -- Wolf.

BLITZER: Let's hope so.

All right, thanks very much, Ed Henry.

He's over at the White House.

The federal budget weighs in at a $3.5 trillion price tag. President Obama has vowed to trim some fat. And today he put 121 programs on the chopping block. Altogether, the proposed cuts amount to only $17 billion. But the president is already taking some heat from critics on both sides.

And joining us now, the White House budget director, Peter Orszag.

A busy day, Peter.

Let's talk about the president's decision to try to find some savings in this $3.5 trillion budget for the next year.

Here's what the president told the American people last summer at the Democratic convention in Denver.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I will also go through the federal budget line by line, eliminating programs that no longer work and making the ones we do need work better and cost less.

(END VIDEO CLIP)

BLITZER: All right. You came up with some trims today that were announced by the president -- about half of 1 percent of that new budget.

Is that the best -- the best you could do?

PETER ORSZAG, WHITE HOUSE BUDGET DIRECTOR: Well, let's put this in context. I mean -- and, indeed, let's start with the biggest lines. The biggest line in the federal budget is for health care -- Medicare and Medicaid. That's why we want to get health care reform done this year in a way that brings down costs, both for the federal government and for families.

But then, in addition to that, we are going through a process of weeding out other inefficiencies in the government. There's no reason the Department of Education needs a representative in Paris, France, costing you and me $630,000 a year.

So this is going to be an ongoing process. We're going to continue to search for more savings and more efficiencies.

BLITZER: Well...

ORSZAG: But you've got to remember, we're also very focused on getting health care reform done, which really is the key to our fiscal future.

BLITZER: Yes. But in the short-term, that will cost money before you can start saving money, assuming you can get that through. But when you told the president, look, we went line by line through this $3.5 the latest budget, we came up with $17 billion in cuts, was he -- was he satisfied?

Did he say, great work, Peter, good job?

Or was he frustrated and angry that it was relatively so modest? ORSZAG: No. He thinks this is a very good start. And again, $17 billion is enough to pay for the American Opportunity Tax Credit, for the expanded Pell Grant and for the National Park Service for a year. So it's -- it's not, you know, it's not chump change.

BLITZER: $17 billion is not chump change, but, again, it's only a half of 1 percent of the total budget.

And earlier here on CNN, Tom Schatz, the president of a group called Citizens Against Government Waste -- I'm sure you're familiar with that organization. He says this is really, really a small amount of cuts that you've come up with.

I want you to listen to what he told -- told us here on CNN.

Listen to this.

(BEGIN VIDEO CLIP)

THOMAS SCHATZ, PRESIDENT, CITIZENS AGAINST GOVERNMENT WASTE: We've got a list of $270 billion in one year, $1.9 trillion over five years. It's called the prime cuts. And it's a long list of spending cuts, all of which have been vetted through the Congressional Budget Office in prior budgets. And anything on that list is something that should be added to what the president has already.

(END VIDEO CLIP)

BLITZER: He says you should have come up with about 10 percent as opposed to half of 1 percent.

Is this group reliable?

Does he know what he's talking about?

ORSZAG: Well, as you know, I used to run the Congressional Budget Office. I can -- I can assure you we have gone through exhaustively all of the lists that are out there in terms of efficiencies. We're going to continue that process. And I'm going to just come back again and say it makes sense to start with the biggest lines. That's why we want to get health care reform done this year.

BLITZER: Because Senator Judd Gregg, who was almost going to be the Commerce secretary in your administration, he was reacting really angrily today, not necessarily on the limited cuts, but on the increases in spending.

And this is how he put it.

Listen to him.

(BEGIN VIDEO CLIP)

SEN. JUDD GREGG (R), NEW HAMPSHIRE: It's like taking a -- a teaspoon of water out of a -- out of a bathtub while you keep the spigot on at full speed and the bathtub continues to fill up -- the spigot of spending, the spigot of econ -- of government growth.

(END VIDEO CLIP)

BLITZER: He's deeply worried about the deficit, the national debt. And he says the spending that you're proposing is simply out of control.

ORSZAG: Well, again, what we're trying to do is basically turn off or turn down that spigot by reducing the growth rate of health care costs over time. That's the big flow of water into that bathtub. But at the same time, there are, you know, some little holes in that bathtub and we're trying to plug them. That's what today was all about -- finding $17 billion to basically shore up the bottom of that bathtub.

BLITZER: Now, as you know, a lot of that $17 billion in proposed cuts were proposed earlier by the Bush administration and Congress rejected those cuts.

What makes you think they're going to go along with you this time?

ORSZAG: Well, first, only about a fifth of the money comes from things that were -- that were proposed by the previous administration. And, frankly, I think that's healthy. I think it's good that we're taking some the ideas they put forward and adopting them as our own when they're evidence based and they make sense. And we're going to try to get them done.

Secondly, the Congress itself is putting together lists of savings and efficiencies that it wants to achieve.

And, finally, you know, a lot of this is how one goes about doing it. We're trying to work cooperatively with the Congress. And I think prospects are good. They seem to want to find efficiencies, also.

BLITZER: Peter Orszag's got a huge job over there.

Good luck, Peter.

ORSZAG: Thank you.

BLITZER: Thanks very much for joining us.

ORSZAG: Thank you.

BLITZER: Let's go right back to Jack Cafferty for The Cafferty File -- Jack.

CAFFERTY: It is time to begin to debate legalizing marijuana in the State of California, according to the state's governor, one Arnold Schwarzenegger. As that state faces mounting deficits, Governor Schwarzenegger says he's open to talking about different ways to create revenue. Although Governor Schwarzenegger does not think the state should rush to judgment and start taxing and legalizing pot right this minute, he does say that he's interested in looking at other countries that have legalized it to see what affect it's had.

Schwarzenegger's comments come as support is growing nationwide now for legalizing pot.

In California, a recent poll found for the first time a majority of voters back legalization. One California lawmaker says that regulating and taxing marijuana would bring the state as much $1.3 billion a year in extra revenue.

Proponents say it's about more than just the money, though. They say it's about the failure of the war on drugs and it's implementing "a more enlightened policy."

One advocate told the "San Francisco Chronicle" Schwarzenegger's comments represent a "tectonic shift" in attitudes on the issue.

Quoting again: "The public is going to drag the politicians into doing what is right."

But not everybody is so sure it would be the right move. Some lawmakers say that the potential revenue would hardly make a dent in California's deficit, which could soon reach $20 billion. They say this is just a sign of Governor Schwarzenegger's growing desperation over the budget.

Here's the question -- is legalizing marijuana the answer to the government's money problems?

Go to CNN.com/caffertyfile and you can post a comment on my blog.

BLITZER: Jack Cafferty, thank you.

A jaw-dropping warning from World Health officials -- up to two billion people could become infected by swine flu if the pandemic everyone fears come to pass. We're following new outbreaks -- new developments, that is, in the outbreaks.

Also, Congressional Democrats betting on online gambling -- your next bet could be just a mouse click away under a new bill.

And it's a dilemma the first lady knows firsthand -- the plight of working parents. Michelle Obama on what they need, in her own words. That's coming up.

(COMMERCIAL BREAK)

BLITZER: Fredricka Whitfield is monitoring some other important stories incoming into THE SITUATION ROOM right now -- Fred, what's the latest?

WHITFIELD: Hello again, Wolf.

An astounding number offered today by the World Health Organization. According to the agency, as many as two billion people could be infected by the swine flu if a pandemic occurs.

(BEGIN VIDEO CLIP)

DR. KEIJI FUKUDA, WHO ASSISTANT DIRECTOR-GENERAL: If we do move into a pandemic, then our expectation is that we will see a large number of people infected worldwide. This is typically what happens in pandemic situations. And so if you look at past pandemics, it would be a reasonable estimate to say perhaps a third of the world's population would get infected with this virus.

(END VIDEO CLIP)

WHITFIELD: And last week, the World Health Organization raised its swine flu alert to level five -- just one step short of a global pandemic.

And a new U.S. Senate report says some experts believe Iran could have enough material to build a nuclear weapon within the next sixth months. The report from the Senate Foreign Relations Committee says efforts to stop Iran's nuclear program have failed so far. The report goes on to say there is no evidence to say that the Iranian government has ordered the building of a nuclear bomb.

And Los Angeles Dodgers outfielder, Manny Ramirez, is being suspended for 50 games for violating Major League baseball's drug policy. The suspension takes effect immediately. Ramirez says a non- steroid drug prescribed by a doctor for personal health reasons led to a positive drug test. The most valuable player of the 2004 World Series says he's sorry about the situation and will not appeal the suspension -- Wolf.

BLITZER: What a bombshell that was. Amazing.

All right. Thanks very much for that, Fred.

As Pakistan steps up a major offensive against the Taliban, it's appealing for international help for the thousands of refugees who are fleeing the fighting.

CNN's Ivan Watson gets a firsthand look at the growing humanitarian crisis -- Ivan.

IVAN WATSON, CNN CORRESPONDENT: Wolf, Pakistani warplanes bombed suspected Taliban targets in Pakistan's Northwest Swat Valley. Meanwhile, Taliban insurgents attacked police stations in that area. The civilian population is caught in the cross-fire and aid organizations are warning of a humanitarian crisis.

(BEGIN VIDEOTAPE)

WATSON (voice-over): Expect to see more scenes like this in the days to come -- a family of 18, tired, scared, confused, trudging into one of the new refugee camps sprouting up across Northwest Pakistan. A guard shows them an empty tent and they move in. "We left this morning when our village was being mortared," says one men of their family. "A big piece of shrapnel almost pierced my child's leg."

Five days ago, this was just an empty field. It is filling by the hour, as tens of thousands of Pakistanis flee south to escape the fighting.

Meanwhile, columns of Pakistani troops are headed north. This conflict is escalating. An already existing humanitarian crisis is getting worse.

These are the ruins of what, up until a few years ago, was a camp for refugees from neighboring Afghanistan. The Afghans are gone, but officials say now more than 49,000 Pakistanis live here. They're just a fraction of the more than half a million people uprooted by the war between Pakistani soldiers and Taliban militants over the last six months.

The natives at Jalozai camp are getting restless.

(VIDEO CLIP)

WATSON: They're angry because the monthly distribution of food aid is a few days late. "Our houses have been destroyed," this man explains. "All we have now are the clothes on our back."

It takes a few bags of flour to calm people down. The United Nations predicts this camp's population will nearly double when the next wave of displaced Pakistanis arrive.

(END VIDEO TAPE)

WATSON: And, Wolf, if the Pakistani military follows through on its threat to carry out this operation deeper into the Swat Valley, we're probably just seeing the tip of the iceberg when it comes to this exodus of homeless Pakistanis -- Wolf.

BLITZER: Ivan Watson with one of our stories from around the world, reporting for us from Islamabad, Pakistan.

The first lady, Michelle Obama, tells corporate America help working parents. She speaks candidly about the struggles she faced. We're going to hear from her, in her own words.

Plus, some of the last known photos of Marilyn Monroe on the auction block online right now.

(COMMERCIAL BREAK)

BLITZER: The first lady, Michelle Obama, talking candidly about the struggles she faced as a working mother. She shared them at a conference focused on helping people balance work and family life.

Here's the first lady in her own words today.

(BEGIN VIDEO CLIP)

MICHELLE OBAMA, FIRST LADY OF THE UNITED STATES: Many of the issues that you'll be discussing are issues that, as you know, are near and dear to my heart. I personally, as Donna described, know the challenges of leading a busy life at work and at home, trying to do a good job at both and always feeling like you're not quite living up to either. And trying not the pit one against the other -- really trying to balance it so that if people here are like me -- I call myself a 120 percenter.

If I'm not doing any job at 120 percent, I think I'm failing. So if you're trying to do that at home and at work, you find it very difficult and stressful and frustrating.

And even though my current life, trust me, is very different than it was and for most people -- and I do know that. I know that right now I am living, as challenging as it may seem, in a very blessed situation, because I have what most families don't have -- it's tons of support all around -- not just my mother, but staff and administration.

I have a chief of staff and a personal assistant. And everyone needs that. That's what we need.

(LAUGHTER)

M. OBAMA: Everyone should have a chief of staff and a set of personal assistants.

(APPLAUSE)

M. OBAMA: But one thing I know from meeting women and men across the country is that the work/life challenges that I faced aren't different from the challenges facing other families and, undoubtedly, many of you.

Twenty-two million working women don't have a single paid sick day. That means they lose money any time they have to stay home to take care of their kids. You know, imagine making that choice. And we do it all the time.

And even when I had sick leave, I found myself, you know, hoping that the kids would stay well just because I couldn't afford to take the day off because there was a meeting or something was going on. So your whole life is just contingent upon everything working perfectly.

So imagine families who don't have any sick time. So if somebody gets sick, they have to take time off and they lose the money that they can't afford.

So there are a lot of people counting on us to figure this out.

(END VIDEO CLIP)

BLITZER: And later this hour, the first lady sends a message to a very different audience. She visits "Sesame Street" and Elmo talks about their project together. Stick around for that.

Some of the last known photos of Marilyn Monroe have now surfaced on eBay.

Let's go to our Internet reporter, Abbi Tatton -- Abbi, where are these pictures coming from? ABBI TATTON, CNN INTERNET REPORTER: Wolf, they were taken from a weekend which has been discussed and dissected for decades after Marilyn Monroe's death. The date was the end of July, 1962. This would have been just days before she was found dead of an overdose at her home in L.A. The pictures Cal-Neva Lodge in Nevada, mostly showing Monroe with singer Buddy Greco, who is now putting all these photos online for auction.

In some of the photos, you see a shirtless Frank Sinatra sitting in the background, on this one reading a newspaper; in another one, looking on as these two pose for photos.

The Cal-Neva Lodge was a Rat Pack hangout that Sinatra owned at the time. In these pictures that weekend, Monroe is seen smiling and posing for photos. But her behavior that weekend has been the stuff of rumor and speculation for decades. Some reports put her heavily depressed this weekend, drinking heavily. One report even says that she overdosed on sleeping pills, even though here she's smiling and joking.

They're being called the last known photos of Marilyn Monroe alive. They're on eBay and the current bid, about $7,500 -- Wolf.

BLITZER: Well, we'll see how much they get for it.

Thanks very much for that, Abbi.

As more states sanction gay marriage, the president has been keeping relatively silent. He's under a lot of pressure, though, from gay groups to take a stand.

How long can he hold out?

Plus, some Congressional Democrats place a bet on online gambling -- what they may be risking.

And astronauts will soon have to start hitching rides into space with the Russians -- why the White House wants a full review of America's space program.

(COMMERCIAL BREAK)

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

Happening now, the search is on for the suspected killer of a Wesleyan University student. Police think he may be targeting more students and Jews.

Raging wildfires in Southern California are forcing thousands of residents from their homes. Firefighters are hard-pressed to bring the flames under control.

And the Dow tumbles almost 103 points, while the Nasdaq falls 43 points in anticipation of the banks' stress tests results.

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

A very sensitive issue -- the issue of gay rights. President Obama taking a relatively low key stance right now on what's going on.

Let's go to our senior political correspondent, Candy Crowley -- Candy, it's always a sensitive issue for politicians.

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Absolutely. And no less so now. It is completely unclear whether same-sex marriage is an issue who's time is coming. In fact, the polls would argue against that. Regardless, it's an issue that can't be ignored -- or can it?

(BEGIN VIDEOTAPE)

CROWLEY (voice-over): During the 100 plus days of the Obama administration...

UNIDENTIFIED FEMALE: Congratulations.

CROWLEY: ...three more states -- Iowa, Vermont, and now Maine -- have sanctioned same-sex marriage.

UNIDENTIFIED FEMALE: The legislators understood that this is about families. This is about committed couples.

CROWLEY: But nary a word from President Obama. Think 10 foot pole.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: Well, I think the president's position on same-sex marriage is -- has been talked about and discussed.

CROWLEY: The question is, how long can the silence last?

STEVE ELMENDORF, DEMOCRATIC STRATEGIST: The more states approve it, the more pressure will build on federal office holders, including a president, to take a stand on gay marriage.

CROWLEY: Public support for same-sex marriage has slowly grown over the years, still the latest CNN Public Opinion Corporation poll found that 44 percent of Americans support it, while 54 percent are opposed. Broken down by party, Democrats overwhelmingly favor it, Republicans overwhelmingly oppose it, but this is what makes it politically tricky. The majority of independents, largely the voters who decide elections, are opposed.

CROWLEY: So same sex marriage remains a political hot spot, circled carefully by most politicians, including the president. During the campaign, he said that he supported civil unions. Same-sex marriage did not fit his definition of marriage.

PRES. BARACK OBAMA (D), UNITED STATES: I believe that marriage is the union between a man and a woman. For me as a Christian it is also a sacred union. CROWLEY: Some in the gay community are also restless that the candidates they saw as sympathetic to their causes has seemed less so in office. He has not as promised pushed for repeals of don't ask don't tell in the military. There are complaints the president has not adequately funded AIDS prevention programs. Openly gay people have been given substantial positions in the administration, but some activists hope for a cabinet seat. And the selection of Rick Warren, an Evangelist who opposes gay marriage, to speak at the inauguration still wrangles some in the gay community. Still there is a willingness to be patient. Washington lobbyists and democratic strategist Steve Elmendorf.

ELMENDORF: I think people are very clear that Barack Obama is the most pro-gay president we've had. He's great on 90 percent of the issues that the gay community cares about. At some point they're going to hope that he changes on the 10 percent.

CROWLEY: Elmendorf adds that the majority in the gay community understand that the president has a lot on his plate right now, there is time.

(END VIDEOTAPE)

CROWLEY: In the end, on many of the issues of particular concern to gays, the president is likely to deliver, but given the current political dynamics, his support for gay marriage remains a non- starter. That will take a lot of time. Wolf?

WOLF BLITZER, CNN ANCHOR: All right Candy. Thanks very much.

Let's talk about this and more with our CNN political contributors. The Democratic strategist Paul Begala and the Republican strategist Mary Matalin.

Mary, you're a republican but give this president and his team some advice on how they should handle this sensitive issue of gay marriage. More and more states decides it's only a matter of fairness.

MARY MATALIN, REPUBLICAN STRATEGIST: What he doesn't want to do is deal with it right now. They don't like to be told they have too many things on their plate. It's not how many, it's what kind. You don't want to have issues that are sure fire in your base and unifying your opponents and to have this issue in combination with impending Supreme Court on top of an intelligence fight, it's not calibrated contentions.

BLITZER: The increasing frustration is that he's not speaking out, not taking a stance and they really want him to do so. You saw that front page story "The New York Times" today.

PAUL BEGALA, DEMOCRATIC STRATEGIST: Mary's right. The president has to choose priorities and he has a lot right now. The gay rights movement and marriage equality is advancing quite nicely without Barack Obama's help. We didn't see in the polling, the time series. Four years ago, only 32 percent of Americans supported gay marriage. Today, 49 percent do. That's taken off like a rocket. The majority of Americans --

BLITZER: Do you think this president some day will say, I support gay marriage?

BEGALA: Yes. In 1962 Martin Luther King was asked about interracial marriage. He said I want to be the white man's brother, not brother-in-law. Well Barack Obama's parents were already married for three years when Dr. King said he was against interracial marriage. It took another five years for the Supreme Court to say no, this is America.

BLITZER: What do you think a matter of time before the president of the United States comes down and decides not only on civil unions and equal rights, but gay marriage?

MATALIN: It's accelerated beyond even marriage. When Dean was running it was Dean from Vermont and now even those numbers I think even say republican numbers civil unions. Okay, people get it, they don't want discrimination, but this is an in your face issue. No discrimination of any kind, committed relationships.

BLITZER: During the campaign, he said repeatedly as did Hillary Clinton, the other Democrats, that they would try to do away with the don't ask, don't tell policy in the military, allowing lesbians and gays to serve openly. So far, he hasn't taken any action on that.

BEGALA: The Clinton administration put that policy in and that time, that was the cutting edge of change. Well today, it's retrograde. We're drumming good, qualified people out of the military just because they're gay.

BLITZER: So what do you want him to do?

BEGALA: As Dick Cheney said it's an old chestnut and we should do away with it. I mean if Dick Cheney can be for letting - General Powell has switched his position now pro-equality in the military, but it's a matter of timing and priorities. I think this president will fully integrate the military, but I don't think -- I understand how the activists want to move.

BLITZER: There's a story moving right now on huffingtonpost.com and the headline is Obama to fire his first gay Arabic linguist, a West Point grad named Dan Troy who came out of the closet, announced he's gay, learned Arabic, served in Iraq, came home and now, he's about to be kicked out of the military because he says he's gay. This is the story that will resonate with folks out there.

MATALIN: Yes, it will. If he wants to deal with this issue as he's calibrating his intentions, that's a better fight than gay marriage. That one strikes people as unfair and stupid relative to the security news that we have.

BLITZER: Most of the Democrats say you need those people; you need Arabic language speakers in the U.S. military and can't just get rid of them after spending thousands of dollars in taxpayer money to give them an education, then say get lost. BEGALA: It's un-American to kick people out who want to serve our country. Mary's right. The point of the spear here doesn't have to be the president. He is the commander ...

BLITZER: Wait a second. When Harry Truman with a sign of a pen said no more discrimination against African-Americans in the United States military, it's over, no more segregation, no more separate black units, it's over in the U.S. military, he signed an executive order and it was over.

BEGALA: That's right. And when this president does that, he needs to surround himself with General Powell, the other chiefs of staff, with others who can speak with greater credibility. When Bill Clinton recognized relations with Vietnam, he didn't do it alone. He had John McCain on one side, John Kerry, Bob Kerry who earned the Medal of Honor on the other.

BLITZER: Let's say he's going to sign some order. It's more complicated because you might need legislation to reverse the don't ask, don't tell, how would you advise him to do it politically?

MATALIN: Take more time. Something that's missing in politics today, patience. The population is coming along, but it's not just on who's because it's an equal rights kind of issue, but on fairness. That is unfair, it's un-American, it's unsafe.

BLITZER: To take someone like this West Point grad and kick him out because he says he's gay.

MATALIN: Pick your spots. Wait for more people to come along. The numbers are changing. Make a case over time. Have the support. I don't know why they're forcing this issue on him now. He really has too many things.

BLITZER: He does have a huge amount on his plate right now when you think about the economic crisis, the national security crisis. He wants to do health care, education. Should he just kick this issue to the sidelines?

BEGALA: He still has to do with it. Harry Truman had a lot of issues. As you pointed out, he integrated the military. John Kennedy integrated the coast guard. He had a lot of issues going on. Lyndon Johnson, he had a lot of stuff going on. Equal rights has to be somewhere on this president's agenda. Doesn't have to be the first 150 days. By the time my son is married to Mary's daughter, they will look back on this and laugh.

MATALIN: There's a fair number of libertarian conservatives and independents. This is not, it's the wings of both parties that are not where the country is. He should reach out to everybody.

BLITZER: Thanks very much. Good discussion.

Tomorrow, the president of Afghanistan, Hamid Karzai, will be my special guest here in THE SITUATION ROOM. What do you want to ask him? You can submit your video questions to us ireport.com/situationroom and we'll try to include some of your questions.

Place your bets. You may be able to do that very soon on your computer. We have new details of legalizing online gambling in the United States and who's behind it.

And will Americans return to the moon or could the country be left without any space vehicles for years.

(COMMERCIAL BREAK)

BLITZER: Congressional Democrats are trying to legalize online gambling. What's going on? What's the fallout? CNN's Samantha Hayes is here in THE SITUATION ROOM. You've been looking into this problem.

SAMANTHA HAYES, CNN CORRESPONDENT: There's a lot of money at stake here. Pricewaterhouse Cooper estimates the U.S. government could gain nearly $50 billion over ten years.

(BEGIN VIDEOTAPE)

HAYES: What stays in Vegas is obvious. Money. But the government could cash in if online gambling is made legal. Congressman Barney Frank is sponsoring legislation to do just that.

REP. BARNEY FRANK (D), MASSACHUSETTS: Clearly, it's in the billions of dollars. This is an important activity and as with other forms if it doesn't work, is to seed a lot of money to people.

HAYES: Congressman Frank who last year received $43,000 in campaign contributions from the gaming industry says there will be safeguards if the legislation is passed.

FRANK: Yes, clearly, we want to restrict young people's access. We have other things where people underage aren't allowed to do things on the internet, from sexual material to alcohol to cigarettes.

HAYES: But he's already facing opposition from family groups, the major sports leagues and organizations that say his bills amount to government promotion of dangerous behavior.

LES BERNAL, STOP PREDATORY GAMBLING: By legalizing if this is infringing on a whole class of people with addictive personalities. There's lots of other products in the marketplace that government restricts for that very reason.

HAYES: Many Republicans in congress agree, saying it would override states' rights and put children at risk.

REP. SPENCER BACHUS (R), ALABAMA: This bill really impose the will of the congress on people and their right to decide that in each state. We've always said as a society, there's certain things we're not going to expose our youth to.

HAYES: But Congresswoman Shelly Berkley doesn't see a problem.

REP. SHELLY BERKLEY (D), NEVADA: I can tell you as a representative of Las Vegas having grown up in a gaming environment, I managed to turn out just fine and so did my kids.

(END VIDEOTAPE)

HAYES: The American Gaming Association, which is the lobbying arm of casinos, they're actually not taking a position on this. Apparently, that's because there is a differing opinion in their own ranks.

BLITZER: How much they stand to lose if people can just gamble online as opposed to going to an actual casino. That's explains the no position. Thanks very much for that, Sam.

Astronauts will soon have to start hitching rides with the Russians. The space shuttle is near the end of its life span and the United States does not have a replacement. The White House has asked for a full assessment of NASA including sending astronauts back to the moon. What's behind all of this. We asked a man who knows a lot about space. Our own John Zarrella has been covering this story for a while.

John, what's the latest?

JOHN ZARRELLA, CNN CORRESPONDENT: The administration is ordering this review because it wants to make sure that NASA is building the right next generation spacecraft and there is reason for caution. Technical and money issues have already kept into the development.

(BEGIN VIDEOTAPE)

ZARRELLA: At the Kennedy space center, the facility is nearly ready. This is where Orion the next spacecraft to carry astronauts is supposed to be built.

LLOYD GREGG, ORION ASSOCIATION PROGRAM MANAGER: We're going to be utilizing the shuttle workers to come work on this. It reduces cost of the program, too, because now, you've got two programs paying for one thing.

ZARRELLA: Sounds great, but already, there have been issues with key components. Issues that have caused the Obama administration to order a blue ribbon panel review. Some design changes are being forced to the rocket. The Orion capsule would carry astronauts to the space station and to the moon, is being downsized. It will carry four crew members instead of six. Work on Aries and Orion will not stop while the independent panel reviews whether this program is the best way to go for the money.

CHRISTOPHER SCOLESE, ACTING NASA ADMINISTRATOR: If we're on the wrong path, we should change. If you're asking me do I think we're on the wrong path, no.

ZARRELLA: Even if the review board ultimately signs off in August, there will still be a five-year lag time between the end of shuttle flights next year and the beginning of Aries in 2015.

SEN. BILL NELSON (D), FLORIDA: It's going to be devastating to individuals and to America that we have to rely on the Russians to get to our own space station.

ZARRELLA: Privately NASA officials say they could have cut the time between of shuttle and beginning of Aries if the program would have been funded better. Now, they're just hoping to make 2015.

(END VIDEOTAPE)

ZARRELLA: All this comes while NASA is waiting for the administration to name a permanent NASA administrator. An interim administrator has been in since the beginning of January. As for going to the moon, Wolf, the closest timeline right now if everything goes well would be somewhere around 2025. Wolf?

BLITZER: That's a long time from now. John Zarrella on that in Florida, thank you very much.

It's been decades by the way, since the last trip to the moon, but astronauts have left their calling card. Take a look at this. This silicon disk was left by Apollo 11 crew members back in 1969. "Apollo 15" left this plaque lifting the name of dead astronauts and cosmonauts, next to it a tin figure representing the fallen. And a year later, look at this, "Apollo 16" astronaut Charles Duke left behind a shrink-wrapped photo of his family.

Michelle Obama visits with Elmo.

(BEGIN VIDEO CLIP)

ELMO: Mrs. Obama, what to do today on "Sesame Street"?

(END VIDEO CLIP)

BLITZER: All right, you're not going to believe what the first lady has to say about her visit to "Sesame Street," but we're going to play it for you.

And millions of patient records stolen from a government website. The hacker says he wants $10 million. Is your social security number, your prescription drug information at a risk?

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

(COMMERCIAL BREAK)

BLITZER: Let's get right back to Jack for "the Cafferty File." Jack?

JACK CAFFERTY, CNN CORRESPONDENT: The question this hour -- is legalizing marijuana the answer to the government's money problems?

Ray in Tennessee says, "It won't solve the problem of the deficit but it would help a little whit revenues. More importantly, our court system would rid itself of a huge burden created by petty pot violations. Think of the money that would be saved by not having to bust, try and jail these people. It's a win/win situation." M. writes, "There are too many people making too much money from this drug being illegal; cops, prisons, courts and all the people they employ take home good paychecks from weed."

Tim in Texas, "Would you start smoking pot if it was legalized, Jack? How about Wolf? Does the fact that it is not legal prevent anyone from smoking it? the point here is that whether it's legal or not has no effect on whether people use it or not. So why not make it legal and tax it? For a billion dollars a year, you could pay 20,000 schoolteachers a salary of $50,000."

Kathy in Alabama says, "Legalizing pot won't eliminate government deficits. But it is a viable idea to discuss. If anything, legalizing pot would pacify large segments of the population into not worrying so much about deficits. I've never encountered aggression or anger in a pot smoker, but I've seen a lot of bruises and broken lives caused by alcoholics."

Sam in Orlando says, "Absolutely. Marijuana should be legalized and taxed, that's more money. Satisfying munchies means more money. Taxing rolling paper means more money. Less violent crimes equals less need for enforcement resources and that means more money. We could have a more friendly society, crooks and cops hugging and holding hands while sharing some fine government ganja. It would be beautiful."

And Guy in Atlanta writes, "Dude, I was going to post something but I forgot what it was. Have a nice day."

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

BLITZER: Guy in Atlanta, very funny guy. All right, thanks very much for that, Jack.

The first lady of the United States, Michelle Obama, teaming up with one of the biggest stars of children's television.

MICHELLE OBAMA, FIRST LADY: I'm going to take a walk around "Sesame Street."

ELMO: Mrs. Obama, I want to take a stroll, too.

(COMMERCIAL BREAK)

BLITZER: Michelle Obama certainly not a stay-at-home first mom, among her stops this week, "Sesame Street." She and Elmo taped an announcement on healthy living. Watch this.

(BEGIN VIDEO CLIP)

OBAMA: Hi, everyone.

ELMO: Mrs. Obama, want to do today on "Sesame Street"?

OBAMA: Well, first, I want to get some exercise. So I'm going to take a walk around Sesame Street.

ELMO: If Mrs. Obama exercises, I want to exercise, too, yay, exercise!

OBAMA: If you want your child to have healthy habits, practice healthy habits, too, because you are your child's best role model.

ELMO: Come on, Mrs. Obama.

UNIDENTIFIED MALE: More for information on how to encourage healthy habits in your child, visit sesamestreet.org.

(END VIDEO CLIP)

BLITZER: Did she enjoy her visit to "Sesame Street"? Listen to what she said afterwards.

(BEGIN VIDEO CLIP)

OBAMA: I was just at "Sesame Street," I'm sorry and I never thought I would be on "Sesame Street" with Elmo and Big Bird, and I was thrilled. I'm still thrilled. I'm on a high. I think it's probably the best thing I've done so far in the white house.

(END VIDEO CLIP)

BLITZER: Elmo and Big Bird, too, and Cookie Monster.

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

Happening now, fear and fight, are key American allies crack down on extremists and thousands of innocent civilians are running now for their lives.

President Obama wants to save you $17 billion, but critics, even his supporters, may be fighting his plan. The best political team to television standing by to weigh in.

And lock your doors and avoid going outside, that warning to students at a major college and nearby residents. A suspected killer may be hunting students and may be hunting Jews.

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