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The Situation Room

Obama White House Takes Credit For Economic Growth; Interview With Council of Economic Advisers Chairwoman Christina Romer; President Obama Receives Fallen Troops

Aired October 29, 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: Happening now: long-awaited economic relief. The Obama White House claims credit for better-than-expected economic growth -- experts warning, however, don't go on a buying spree just yet. Stand by.

The president honors fallen troops in the dark of night. He's explaining why he wanted to see those flag-draped caskets coming in from Afghanistan.

And are critics reading too much into Arnold Schwarzenegger's veto message? We now have more on the backstory on claims that the governor dropped a hidden F-bomb.

I'm Wolf Blitzer in CNN's command center for breaking news, politics and extraordinary reports from around the world. You're in THE SITUATION ROOM.

Up first this hour, a welcome rebound after the longest slump in the economy since the Great Depression. Take a look at this. The gross domestic product grew at an annual rate of 3.5 percent in the third quarter of this year. It's the first increase in over a year and the biggest spurt in two years.

The president calls it proof his recession-fighting programs, like the economic stimulus plan and the cash for clunkers plan, they have made a difference.

Let's go to our senior White House correspondent, Ed Henry. He's watching all of this unfold from the North Lawn of the White House.

I guess there were some smiles behind you today, Ed.

ED HENRY, CNN SENIOR WHITE HOUSE CORRESPONDENT: Wolf, there certainly were, because there's been a stream of bad economic news throughout the first year of this presidency.

There's a big off-year election next week, a lot of people around the country feeling anxious about their pocketbooks. And that's why the president today started making the case that his economic policies are working.

(BEGIN VIDEOTAPE)

HENRY (voice-over): It was the best economic news the president has gotten since he took office. BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The 3.5 percent growth in the third quarter is the largest three-month gain we have seen in two years. This is obviously welcome news and affirmation that this recession is abating and the steps we have taken have made a difference.

HENRY: But unemployment is still at 9.8 percent, the worst since 1983. So, the president was careful to say the recovery still has a long way to go.

OBAMA: While this report today represents real progress, the benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we're creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well.

HENRY: That's why, Friday, the White House will unveil a report making its case the stimulus package has saved or created hundreds of thousands of jobs. Republicans insist Mr. Obama is having a hard time backing up his claims.

REP. JOHN BOEHNER (R-OH), HOUSE MINORITY LEADER: The president said when he signed the bill into law that unemployment would not exceed 8 percent. It's now nearly 10 percent. And so I'm pleased that the GDP numbers this morning were up, but the question is, where are the jobs?

AUSTAN GOOLSBEE, WHITE HOUSE ECONOMIC ADVISER: The Republicans have been playing the role of the old East German judge at the Olympics, that it doesn't matter what any report says, how many private forecasters look and say the stimulus had a big impact, that we could hit the triple lutz, and they're still going to give the administration a two.

(END VIDEOTAPE)

HENRY: But the key is that real people around the country are not necessarily feeling this good economic news, at least not yet. And that's why, especially with unemployment so high, this White House is being very careful calibrating this news.

In fact, top aides behind me have been telling me in private they're not going to be hanging any "Mission Accomplished" banners any time soon -- Wolf.

BLITZER: Not until there's some significant job recovery, right?

HENRY: That's right, absolutely. They think, though, that the fact that we're starting to see economic growth, since unemployment is a lagging indicator, that this may be paving the way a few months down the road for unemployment to start turning around. But we're certainly not there yet, Wolf.

BLITZER: And one of his top advisers, Christina Roman -- Christina Romer, I should say, is going to be joining us this hour. We will talk about the economy. She's the chair of the President's Council of Economic Advisers.

Ed Henry, thanks very much.

Some interesting timing for the report on the economic growth today. The stock market crash that triggered the Great Depression happened on this day 80 years ago. October 29, 1929 will forever be known as Black Tuesday.

Democratic leaders are applauding another important milestone in their drive for health care reform. The speaker, Nancy Pelosi, today unveiled a 2,000-page bill combining three different versions of legislation passed by three separate House committees.

It includes a controversial government-run insurance option. Pelosi says the House bill would guarantee that 96 percent of Americans have health care coverage. Among other key provisions, it would prevent insurance companies from denying coverage for preexisting conditions.

Let's go to Capitol Hill.

Our senior congressional correspondent, Dana Bash, is working this part of the story.

A significant development today. They're getting ready for a floor vote pretty soon.

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: That's right. You said it right.

It is a milestone for House Democrats and the president on his top priority. But there is still a long and treacherous road ahead.

(BEGIN VIDEOTAPE)

(MUSIC)

BASH (voice-over): A march to music down the Capitol steps, a ceremony staged to unveil a health care bill and signal momentum.

REP. NANCY PELOSI (D-CA), SPEAKER OF THE HOUSE: We are about to deliver on the promise of making affordable, quality health care available for all Americans.

BASH: After months of intense work with a divided caucus, the House Democrats say their proposal would cost $894 billion, and, according to the Congressional Budget Office, reduce the deficit by $30 billion.

It would require all Americans to get health coverage, expand Medicaid to help those who can't afford it, and provide subsidies to small businesses to cover employees.

PELOSI: The bill will expand coverage, including a public option to boost choice and competition. BASH: But the government-run insurance option is not what the speaker wanted. It allows doctors and hospitals to negotiate what the government pays. That pleases moderate Democrats, but may cost votes with liberals who prefer a public option that mandates lower rates.

REP. RAUL GRIJALVA (D), ARIZONA: I'm personally leaning no. Others are as well.

BASH: But other progressives are more pragmatic.

REP. JERROLD NADLER (D), NEW YORK: They couldn't get 218 votes for that. There's no point crying over spilt milk.

REP. ANTHONY WEINER (D), NEW YORK: We have a weaker public option. There's no disputing that. It's not what I would have liked. But I can tell you now we're going to have a sliver of competition.

BASH: How would all this be paid for? In part with cuts in Medicare spending and a 5.4 percent tax of all individuals making $500,000 a year and couples making $1 million. That income level was raised, a change aimed at calming concerns of vulnerable Democrats like Gerry Connolly.

REP. GERRY CONNOLLY (D), VIRGINIA: It will affect a lot fewer folks in my direct than the -- than the previous version.

BASH: We spent time with Connolly this summer as town hall anger raged. Then, he was undecided. Now?

CONNOLLY: And I'm pretty close to that yes.

BASH: You're there?

CONNOLLY: But I want to absolutely reserve the right to look at the bill carefully.

(END VIDEOTAPE)

BASH: Now, other moderate Democrats are more undecided than that. And they also say that they plan to read the entire bill before they say yes or no.

And that is going to take a while, Wolf, since it is nearly 2,000 pages. But House leaders promise that lawmakers will have 72 hours to read the final bill -- that is the bill that has any changes to it -- before they actually have to vote. And the leaders in the House do want to start debate next week -- Wolf.

BLITZER: Do House Republicans really matter at this point, given the lopsided Democratic majority and the fight among the Democrats themselves?

BASH: Well, probably not, because there is such a huge Democratic majority. It's just a question of whether enough of the Democrats will vote yes. And, you know, there has not been any indication right now that there are any Republicans even willing to vote for this. But I can tell you that, within minutes of the House ceremony today, the House Republicans had their own event, and they brought a prop.

They promptly printed out 2,000 pages -- or nearly 2,000 pages of this bill. And Republican after Republican pounded it, saying it's nothing more than a government takeover. That's something we have heard before.

The question, of course, is, what about their alternative? Well, we haven't seen that yet. But Republican leaders say that there will be one when it's time to vote -- Wolf.

BLITZER: Thanks very much for that, Dana Bash, up on the Hill.

Let's check in with Jack Cafferty for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Two thousand pages.

BLITZER: A mere 2,000 pages.

CAFFERTY: A mere 2,000. And you will have 72 hours to read it online. No -- who could read -- nobody reads 2,000 pages in 72 hours.

I wonder how many pages the bill was that created the Social Security Administration, or how many pages the bill was that was the Civil Rights Act that was passed by Congress? We ought to go back and look some of that stuff up. I will bet it would just boggle the mind, where we have come from.

As U.S. troops suffer the deadliest month so far in the war in Afghanistan, it seems worth asking exactly what our strategy there is. It turns out now that the United States is set to pay Taliban fighters to switch sides and stop killing our troops.

Supporters say the buyout idea is meant to separate local Taliban from their leaders, similar to a program that was used to win over insurgents in Iraq. Many of these fighters owe no particular allegiance to the Taliban, but, rather, they soldier for the paycheck and because there's no other way for them to support their families. It's a job.

But experts say, although the program may have some success, the U.S. is ultimately buying a very temporary allegiance. And you don't have to have a Ph.D. in anything to figure that out.

Speaking of payments, "The New York Times" reported yesterday the brother of Afghan President Hamid Karzai is a suspected major player in Afghanistan's drug trade and has been on the CIA payroll for eight years. This makes no sense.

U.S. officials talk about how Afghanistan's opium trade threatens the stability of the country, pays for the Taliban fighters' war against us, and corrupts the government there. Ahmed Wali Karzai says he has nothing to do with the drug trade, says he doesn't take any money from the CIA. I think I will choose to believe "The New York Times," thank you very much.

Officials also say there is evidence that the president's brother, Karzai's brother, helped to create hundreds of thousands of phony ballots and set up dozens of so-called ghost polling stations for the August election, which was considered corrupt by almost anybody except, perhaps, Ray Charles.

If it's true, no wonder Hamid Karzai won the election. And if this stuff doesn't make you scratch your head a little bit, well, it should. Here's the question.

What exactly are we doing in Afghanistan? Go to CNN.com/caffertyfile. Post a comment on my blog, but not 2,000 pages. I'm tired.

BLITZER: And if you try reading some of those paragraphs, you -- you can't read them.

CAFFERTY: It's -- it's -- it's just horrible. I mean, they make no sense, right? The legalese is so convoluted and so -- and so difficult to unravel...

BLITZER: Yes.

CAFFERTY: ... that -- that you don't even know what it means, if you're...

BLITZER: The lawyer -- the lawyers will love it.

CAFFERTY: Well, that's -- and that's what they do. They write that stuff. That's how they make their living.

BLITZER: Jack Cafferty, thank you.

(LAUGHTER)

BLITZER: President Obama goes where no president has gone in quite some time. Just ahead, his overnight trip to see fallen U.S. troops returning home, how will it affect his decision about the mission in Afghanistan?

Plus, a special House election next week mirrors a bigger fight for the heart and soul of the Republican Party. We will have a report from the New York district where conservatives right now are making a big investment.

And candid scenes from the Obama campaign in three new films -- we have clips that show a different side of the president and his family.

(COMMERCIAL BREAK)

BLITZER: Afghanistan boils with unyielding death, bloodshed, and fears it won't stop any time soon. So, today, the United Nations is ordering it staffers in Afghanistan to stay home. Yesterday, Taliban militants launched a brazen attack on a U.N. guesthouse in Kabul, killing eight people.

Meanwhile, the commander in chief salutes the fallen troops. Under cover of near darkness, early this morning, as many of us slept, President Obama personally received the 18 troops and other Americans killed in Afghanistan this week. He had hatched a plan kept secret until just before going to the base in Delaware where American forces killed overseas return to the United States.

It was something no other president has done in recent years. We will show you what happened without narration.

(BEGIN VIDEO CLIP)

OBAMA: Obviously, it was a sobering reminder of the extraordinary sacrifices that our young men and women in uniform are engaging in every single day, not only our troops, but their families as well.

Michelle and I are constantly mindful of those sacrifices. You know, the burden that both our troops and our families bear in any wartime situation is going to bear on how I see these conflicts. It is something that I think about each and every day.

(END VIDEO CLIP)

BLITZER: He's certainly thinking about it right now, as he weighs whether to dispatch thousands of additional troops to Afghanistan.

Let's bring in our senior political analyst, Gloria Borger.

It's got to have an impact on him, personally, to see the coffins, the caskets coming home.

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: You know, as we all know, this president is about to make an excruciating decision, as commander in chief, about whether to send more troops into Afghanistan.

And I think what we saw last night was very dignified and really completely appropriate way for a president to bear witness as soldiers return home, and console their families. And what he did, we are told, is march up the airplane and greet each casket as a prayer was offered. And then he eventually returned to the chapel at the base to console the families.

BLITZER: To meet with the families.

Now, his predecessor, President Bush, he often met with families, loved ones of slain troops...

BORGER: Yes.

BLITZER: ... troops killed in action. But he never went to Dover to receive the caskets, as this president did.

And, so, symbolically this represents an important decision on his part.

BORGER: Right.

And -- and I think, as he said when he was asked about it, this is a part of a decision that every commander in chief thinks about every day, because he's sending young men and women from this country into harm's way. And he is on the edge of making a decision.

There has been a lot of violence in Afghanistan and Pakistan as he makes this decision. So, I think it's something that he felt that he had to do as part of this entire process he's going through.

BLITZER: Yes.

Let's bring in Ed Henry once again, our senior White House correspondent.

Are they explaining a little bit greater detail over there at the White House, Ed, the thinking that led to this trip by the president to Dover?

HENRY: Yes.

In fact, top aides here are saying that the president had wanted to do this for some time. You will remember I asked him about it at a news conference back in February, the policy that the Bush administration had put in place about not having cameras there.

The president eventually lifted that policy, in the interest of transparency, because critics had been saying that the government was not showing the true human cost of the war in Afghanistan and the war in Iraq. And, so, aides here say that, since that policy was lifted and it was opened up, basically, as long as the families would go along with cameras being there, the president had wanted to do this.

And they came to a final decision yesterday about noon, after there had just been a horrible amount of loss of life, you will remember, between the helicopter crashes, the violence over the last few days. He felt this was the appropriate time.

My colleague Dan Lothian was here in -- late into the night digging out some of the details on how they had to do it sort of secretly at first, with the president leaving from here not, from the usual Marine One, instead using a Black Hawk helicopter, not using any lights, leaving here just before midnight to get over to Delaware.

It was obviously done under the -- a strict secrecy, for security reasons. But I think it is an opportunity and a chance for this president to really see it up close. And, obviously, this decision is weighing on him enormously, Wolf.

BLITZER: Ed Henry, thanks very much.

Gloria, thanks to you as well.

It's unclear if it's a hate crime, but what is clear is this. Two men have been shot at a synagogue. Now other Jewish places of worship are being guarded. We will tell you what we know.

And a passport is found bearing the name of a man suspected of being involved in the 9/11 attacks. Wait until you hear where it was found. Could the suspect be far behind?

(COMMERCIAL BREAK)

BLITZER: Fredricka Whitfield is monitoring some other important stories incoming to THE SITUATION ROOM right now.

Fred, what's going on?

FREDRICKA WHITFIELD, CNN CORRESPONDENT: Hello to, Wolf.

Hello, everyone.

A gunman shot two men in the legs at a Los Angeles synagogue parking garage. And authorities say they don't know if the attack was a hate crime or random act of violence. They say they picked up and then released a youth whose clothes seemed to match a loose description of what the suspect was wearing. Detectives are reviewing video from the temple.

Meanwhile, security has been stepped up at Jewish places of worship.

And construction is finally about to begin on the planned Martin Luther King memorial in Washington. Permits for the memorial on the National Mall are being issued. A private foundation will build it, then turn it over to the National Park Service. A disagreement over how to secure the site had delayed the project.

And West Virginians are officially the nation's sleepiest people. Their lack of sleep is about double the national average. A government study found that more than 19 percent of West Virginians didn't get a single good night's sleep in a 30-day period.

The reason, expert says, may be the state's high rate of obesity and heart disease, plus its poor economy. Tennessee and Kentucky round out the three sleepiest states, while people in North Dakota, California, and D.C., Wolf, get the most Z's.

BLITZER: D.C.?

WHITFIELD: So, you are a very well -- yes, I'm shocked at that, too. I would people work around the clock in the Washington, D.C. area. When do they have time for sleep?

BLITZER: Yes. That's pretty surprising.

(CROSSTALK)

WHITFIELD: Right?

BLITZER: D.C.?

WHITFIELD: Yes. And I know you sleep zero hours.

BLITZER: No.

(LAUGHTER)

WHITFIELD: You just go and go and go and go.

BLITZER: I -- I get a good night's sleep, but I'm surprised about D.C.

(LAUGHTER)

BLITZER: All right.

WHITFIELD: I'm very shocked, too.

BLITZER: Fred, thanks very much.

(LAUGHTER)

WHITFIELD: OK.

BLITZER: Blunt new remarks by the secretary of state, Hillary Clinton, in Pakistan. She's questioning why al Qaeda fugitives haven't been caught there.

Plus, President Obama says the economic stimulus package helped spur long-awaited economic growth. So, do we need another one? I will ask his economic adviser Christina Romer. She's standing by live.

(COMMERCIAL BREAK)

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

Happening now: a British couple being held by Somali pirates heard for the first time in a dramatic phone call. You're going to hear what they said about their frightening capture on the high seas.

A candid and surprising look behind the scenes of Barack Obama's campaign for president by the man who managed it -- what David Plouffe is saying about Hillary Clinton, Joe Biden, Sarah Palin, and a lot more.

And a homegrown revolt to create a separatist state, was this alleged planned for real? We're taking a close look at a Detroit- based Muslim group charged with a gun crime conspiracy.

The secretary of state, Hillary Clinton, raising a very touchy subject in Pakistan today -- she questioned why officials in that country haven't been able to find al Qaeda members hiding out there. Secretary Clinton said she finds it hard to believe that nobody in the Pakistani government knows where al Qaeda fugitives are and that they couldn't get them if they really wanted to -- her words seemingly at odds with her effort to build trust between U.S. and Pakistani officials.

Our foreign affairs correspondent, Jill Dougherty, is traveling with the secretary.

(BEGIN VIDEOTAPE)

JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT (voice-over): In Lahore, capital of Punjab, Pakistan's most populous province, the secretary of state visits a religious and architectural gem -- the 330-year-old Badshahi Mosque, part of a day of person-to-person diplomacy. Her message: the U.S. wants to deepen its relationship with Pakistan and put an end to lack of trust.

HILLARY CLINTON, SECRETARY OF STATE: Now, I know that there are people in my country and there are people in your country who don't trust the other, who do not believe that a stronger partnership between our nations will serve our mutual interests.

DOUGHERTY: At Lahore's Government College University, Clinton fields questions from students on democracy. Pakistan's and America's.

CLINTON: I mean, by definition in a democracy you have winners and losers. I have won and I have lost. And that's the way a democracy works.

DOUGHERTY (on camera): It's in events like this that Hillary Clinton is harnessing the skills she honed both as a politic and has a presidential candidate. There's no voting here, but this is one campaign she hopes she can win.

Jill Dougherty, CNN, Lahore.

(END VIDEOTAPE)

BLITZER: Here at home we heard President Obama welcome the first report of economic growth in over a year. But some economists are raising doubts about how long such a strong rebound can last.

We're joined now by the chair of the president's Council of Economic Advisers, Christina Romer.

Thanks very much for coming in.

CHRISTINA ROMER, CHAIR, COUNCIL OF ECONOMIC ADVISERS: It's great to be here.

BLITZER: How long is this going to last? 3.5 percent growth for the third quarter. What's going to happen in the fourth quarter and next year?

ROMER: Well, I think it's important to start by realizing this is a milestone. So, after what we've been through, having a quarter of 3.5 percent, real GDP growth is an important step forward.

You know, I think most of the consensus forecasts are having this kind of growth continuing, sort of in the two to three percent range is a very common consensus forecast. I think that's completely reasonable and absolutely can continue.

BLITZER: For all of next year, you think?

ROMER: Well, I mean, yes. I mean, I think we have turned the corner and I think we are on the right track. So, yes, I do anticipate that we will keep growing at a steady pace.

I think the real question is going to be how fast? And obviously the faster we can grow, the more we bring down the unemployment rate and the more we create jobs.

BLITZER: Because you yourself testified the other day before Congress that the economic stimulus package, the $787 billion package, that most of the economic growth part of it probably has already been used up and it's going to have limited effect down the road.

ROMER: No. So what I said is that we had the biggest impact on growth when the stimulus was first ramping up. That doesn't mean it doesn't continue to have an effect on growth. And absolutely, our numbers are that it does continue to raise the growth rate, just a little bit less than, you know, what we're estimating for this quarter, which was somewhere between three and four percentage points.

BLITZER: How much of this growth that we saw in this third quarter was the result of the Cash for Clunkers program, the tax credits for first-time homeowners, the economic stimulus package? I ask the question because a lot of these programs are being phased out.

ROMER: So, of course, let's keep in mind why we did all those programs. And precisely because the private sector demand wasn't there.

You know, our estimates are that certainly the Recovery Act, in its broad form, was accounting, as I said, for some three to four percentage points of real GDP growth. So, that kind of tells you that, in the absence of, it we could easily have been at zero or even negative.

Now, you mentioned the Cash for Clunkers and the first-time homebuyers. You know, they both probably were probably factors. I think Cash for Clunkers, we know, had a very big kind of impact on auto sales.

Our estimates are -- we did a report -- the CEA did a report that said maybe .4 of a percentage point was coming just from the Cash for Clunkers program. That gives you a little bit of a sense.

The other things continue, the tax cuts, state fiscal relief, the unemployment compensation. All of those things helped to hold up consumer spending.

BLITZER: One of the problems, though, is jobs. Jobs are not yet coming back. And there's great fear this could be a jobless recovery.

Let me read to you what John Boehner, the top Republican in the House of Representatives, issued a statement saying this: "President Obama and his economic team said the trillion-dollar 'stimulus' would create jobs immediately and keep the unemployment rate below eight percent. Since then, roughly three million jobs have been lost and unemployment has risen to near 10 percent."

Is he right?

ROMER: No, of course not. Right?

What is true is that the fiscal stimulus is absolutely working. It is helping to get us GDP growth.

The Council of Economic Advisers did a report back in September that said we thought employment, as of the end of August, was a million higher than it otherwise would have been. And that puts us right on track to hit what the president's target had been, which is 3.5 million jobs, relative to the baseline, by the end of next year.

BLITZER: But you suggested the other day, correct me if I'm wrong, that the unemployment number would probably stay at roughly where it is right now, 9.5 percent, let's say, throughout all of next year.

ROMER: So, what is going to matter is how fast GDP grows. And you also have to think about, you know, what is being missed here, is, of course, the baseline. Right?

What did happen is this thing turned out to be more severe than almost anyone had anticipated. We got a lot of news of just how much the economy crashed and how unemployment had risen exceptionally much, even for the behavior of GDP. And so we certainly are fighting against that kind of a downward trajectory. But we absolutely think that it's going to have an important effect on jobs.

We're going to get that direct reporting data tomorrow morning coming in from the Recovery.gov Web site, which is from the people directly getting some of the government spending, and asking them, how many jobs have you saved or created? And that will give us another read.

BLITZER: Whether you call it a second economic stimulus package or not, do you believe something along those lines is necessary right now to, A, keep the economy going and, B, to start creating new jobs?

ROMER: So, let's be clear; right? One of the steps on the way to creating jobs is obviously to get GDP growing again. Right? So we've passed that milestone.

A normal kind of cyclical pattern is one or two quarters after that, when we start to see positive job growth and unemployment starting to come down. That's still what we anticipate. So I think that's important. And then in terms of whether we need to do more, whether we need to tweak the existing fiscal stimulus like we did with the Cash for Clunkers program, rearrange some things, whether we need to do more, that's something that certainly Congress is thinking about. As good public policy, we're thinking about that, too, and various items that one might do.

The other thing that I've really been pushing is we are already seeing moves to extend some programs that are expiring. I think it's important that we -- that we put everything on the table so that we make the best choices possible. In a world of big-budget deficits, you want to spend every dollar as well as you can and get as many jobs as you can.

BLITZER: Christina Romer is the chair of the president's Council of Economic Advisers.

Thanks very much for coming in.

ROMER: Great to be with you.

BLITZER: I know you're happy on this day, but there's still a lot of work to do.

ROMER: Absolutely.

BLITZER: Appreciate it.

On Tuesday, voters in one New York congressional district may send a powerful message to the Republican Party. We're going to hear from the candidates in a race that's dividing the GOP right now.

And new insights into Michelle Obama's early questions about the presidential campaign. Donna Brazile and Tony Blankley, they're here. They'll share their take on clips from a brand new documentary.

And later, a dramatic phone call from a couple believed to have been hijacked by pirates.

(COMMERCIAL BREAK)

BLITZER: You may not live there, may never have been there, but there are major reasons why you should care about a remote area of upstate New York near Canada. Three candidates are now battling for a congressional seat, but this is no ordinary race. What happens there could dramatically impact what kind of Republican candidates you see in the near-and-long-term future.

Let's go to CNN's Mary Snow. She traveled up there to get a firsthand assessment of what's going on.

What is going on, Mary?

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, you know, we spent the day in Plattsburgh, New York, yesterday, where some see this race as sort of a litmus test for the GOP since it exposes a split between the party faithful and more conservative members. Now, this is a special election to fill the congressional seat left vacant by John McHugh, who left to become secretary of the Army. And the candidate who stirred things up says he's even surprised by all the attention being paid to this race.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: I'm calling on behalf of Doug Hoffman.

SNOW (voice-over): Armed with a conservative message and cash, supporters of businessman Doug Hoffman are hoping to jolt the Republican Party far beyond northern New York State. Hoffman is making his first foray into politics running on the conservative party ticket. He says he's motivated by the two other candidates who he says are too liberal.

DOUG HOFFMAN, NEW YORK CONSERVATIVE PARTY CONGRESSIONAL CANDIDATE: I came to the point that somebody has to stand up and fight for less taxes, less government regulations, and less spending.

SNOW: Republican candidate Dede Scozzafava says she stands for those Republican principles, but she also supports abortion and gay rights. That's led to a split by some GOP big names who put conservative orthodoxy in front of party loyalty.

Former Alaska governor Sarah Palin has weighed in, along with former GOP House majority leader Dick Armey and Minnesota Governor Tim Pawlenty, to endorse Hoffman.

Republican National Party Chairman Michael Steele and former House Speaker Newt Gingrich support Scozzafava.

(on camera): It's really a litmus test for 2010 for Republicans.

DEDE SCOZZAFAVA (R), NEW YORK CONGRESSIONAL CANDIDATE: The sad thing about all the outside attention is it's taking away from the most important issues that are here in the district. And those are the issues that are important to the voters.

SNOW (voice-over): Those issues were front and center in a debate where Hoffman was a no-show, blaming a scheduling conflict, leaving Scozzafava to debate Democrat Bill Owens, who stands to benefit from the GOP rift.

BILL OWENS (D), NEW YORK CONGRESSIONAL CANDIDATE: I think that this is a race which I'm focused on in terms of the people of this district. As I said, my primary concern and the way I will vote in Congress will be based upon the best interest of the folks in this district.

SNOW: Both the Democrat and Republican are stressing local issues because Hoffman is not. He also doesn't live in the district. He says redistricting edged him out seven years ago.

(on camera): What do you see as being the biggest local issue here in this district? HOFFMAN: The biggest local issue is who we vote for, for Congress this year.

SNOW (voice-over): Karolyn Micheels, a Democrat, finds all the outside attention problematic.

KAROLYN MICHEELS, PLATTSBURGH RESIDENT: It bothers me a lot, because, you know, living in this area, I want the congressman, the person who's going to represent us, to know about the issues of this area.

SNOW: But restaurant owner Mike Farrell, who supports Doug Hoffman, sees the race differently.

MIKE FARRELL, RESTAURANT OWNER: I love my country. I love our motto, "In God we trust." And it's not a government that we trust in. And I think that that's where the real battleground is.

(END VIDEOTAPE)

SNOW: And while that battleground focuses on divisions among Republicans, there's another big reason this race is being watched. There's a possibility that votes could be split enough that Democrat Bill Owens could win. And if that happens, he'd be the first Democrat to win this district since the 1800s, dating back to the Civil War era -- Wolf.

BLITZER: Yes, that would be an interesting development, indeed.

Outside groups, though, are coming into the district. They're really getting involved, aren't they?

SNOW: They really are, and especially among some of the conservative groups that we talked to who are pouring in manpower and money, saying they really see a lot at stake in this race.

BLITZER: They want Doug Hoffman, the conservative candidate, to win, and they're making that very, very clear.

All right. Mary, thanks very much.

President Obama's former campaign manager is fessing up. Just ahead, what David Plouffe reveals in his brand-new book, including how close the country came to having a vice president named "Clinton."

And cryptic message or coincidence? The uproar over Governor Schwarzenegger's veto statement and whether it was designed to cuss out his critics.

(COMMERCIAL BREAK)

BLITZER: Let's get to our "Strategy Session."

Joining us now, our CNN political contributor, the Democratic strategist, Donna Brazile, and Republican strategist Tony Blankley. Karl Rove, writing in "The Wall Street Journal" today, says that if the Republicans manage to win the governors' races not only in Virginia, where the Republican is ahead in the polls, but also in New Jersey, where Jon Corzine is fighting for his political life right now, he writes this: "In one of America's bluest states the race is too close to call." That would be New Jersey. "If Mr. Christie" -- Chris Christie, the Republican challenger -- "If Mr. Christie pulls out a win, it would badly shake Democratic confidence."

How badly would it shake Democrat confidence if the Republicans win in both Virginia and New Jersey next Tuesday?

DONNA BRAZILE, DEMOCRATIC STRATEGIST: Well, historically, we know that after a party wins the White House, it's very difficult to pick up these two states. George W. Bush lost both states in '01 and '05.

That said, I think that Mr. Corzine has done a great job in picking up the pieces, mobilizing the base. Vice President Biden has been there three times, the president twice. The president's going back in this weekend, into Newark and Camden, to rally the faithful.

I think it's going to be a close race, but Jon Corzine will win.

BLITZER: If Corzine loses, Tony, what do you think? What impact will that have, if any?

TONY BLANKLEY, REPUBLICAN STRATEGIST: I think the professionals, the congressmen, the Republican and Democrat, are going to take a very cold-eyed look, to what extent was it a national trend being reflected, to what extent was it a poor campaign locally or local issues? They'll make their own judgments and respond accordingly.

I would think that if Republicans pick up both, you begin to start thinking maybe there's some -- it can be over-interpreted. It's very easy to over-interpret.

I think McConnell has run a very good campaign in Virginia and Deeds has not done as well. I think it's been a pretty poor campaign, the three-way race in New Jersey. It's been very ugly. So, we can over-interpret it, but that's what we're all in the business of doing.

BLITZER: Here's what some Democrats have said to me, Donna. And I'm sure you've probably heard it.

If the Republicans won both of the states -- and we don't know what's going to happen in New Jersey or in Virginia, for that matter. But if they were to win both, it would send a powerful message to those so-called Blue Dog Democrats, the moderate, conservative Democrats who are on the fence right now on health care or some of these other sensitive issues. They're worried about their election coming up, re-election a year from now.

I assume they would get -- they would read into this something you probably wouldn't want them to read. BRAZILE: Well, I hope they don't overread the results of these two elections, because in Virginia -- and I think Tony's absolutely right -- Mr. McDonnell has run a flawless campaign. He's focused on local issues. He's somehow or another blurred the fact that he's a real conservative.

But the truth is, Wolf, this is about local issues, and we shouldn't read too much. But if in New York, we pick up that seat in New York, 23, then I think the Republicans need to really think about what's going on.

BLITZER: Hold your thought, because I want to get to this clip of this new HBO documentary on the election a year ago and Michelle Obama's concerns about her husband running for president.

Watch this.

(BEGIN VIDEO CLIP)

MICHELLE OBAMA, FIRST LADY: I had a lot of practical questions that I needed answers to before I could say definitively that this is something that I could handle.

It's funny how they do the...

How was this going to work? What would be the schedule? How often would Barack be on the road? What would be expected of me as a campaigner and spokesperson?

Now I'm really not tired. A little ice cream boost.

You want to hold on to this?

MALIA OBAMA, MICHELLE OBAMA'S DAUGHTER: Can I have a lick?

OBAMA: You can, yes.

SASHA OBAMA, MICHELLE OBAMA'S DAUGHTER: Mommy, can I have a lick?

MICHELLE OBAMA: And how would we structure our time to ensure that our girls would not be pulled out of their lives? How much would it cost us as a family? How are we financially going to handle me reducing my hours at work to be able to participate? What would the campaign do, if anything, about security?

We obviously got all those questions answered to my satisfaction. And as a result, we are now running for president.

(END VIDEO CLIP)

BLITZER: They really had great access, these documentary filmmakers in this HBO documentary that's going to be airing soon.

She does show in this clip, Tony, a very practical side of the Obama family. BLANKLEY: Well, these are always the questions. I think that, I mean, we've both known families at a pre-decision-making stage.

If you're a political creature and you marry a political creature, you've made an initial decision that that's the path. Now, whether you can reach the presidency or not, the transforming that that does to a person's life, you don't know. But once you've hooked up with a political animal, as every spouse of a politician has, I think the big decision has already been made.

Then it's a tactical question. How do we manage this chaotic existence? Which is a campaign and then perhaps the presidency.

BRAZILE: It requires an enormous amount of personal and financial sacrifices. I'll never forget the vice president, Al Gore, who I worked for, wanted to come home on weekends to see his son play football. And we used to say, well, we need to hit one more state. And it's always this push and pull.

But I thought that she went through all of the right questions. And she made the right decision to run.

BLITZER: She's a very practical woman. Indeed, a very smart woman.

All right, guys. Thanks very much. We'll continue this conversation.

A significant new find in the hunt for a suspect linked to the 9/11 attacks -- a passport found in Pakistan under rather unusual circumstances.

Also ahead, millions of cars are about to be recalled. What you need to know about your Toyota or your Lexus.

(COMMERCIAL BREAK)

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

CAFFERTY: All right. Earlier, we were watching video of Nancy Pelosi and some of the members of the House all happy, patting themselves on the back. They got a health care bill.

It's 2,000 pages long. And that's the one in the House. They've got another one -- there's John Boehner with a copy of that legislation.

Look at that thing. You need a truck just to carry that out of the office.

The Senate's working on their own version. Fact: the original draft of the legislation that created the Social Security Administration -- my producer Sarah Leta (ph) found this in about eight seconds -- the original legislation creating Social Security, it was called the 1935 Economic Security Act. It was 64 pages long. The question this hour is -- we'll have more on this, by the way, tomorrow. We're working on a little something.

The question is: What exactly are we doing in Afghanistan?

Robert writes, "We're participating in a huge extortion scheme. Afghan warlords convinced us we need to occupy the country, spend billions and billions of dollars there, or else we'll suffer a 9/11 attack. Again, we have fallen for it hook, line and sinker."

Scott in Florida writes, "There's no sane reason to be in Afghanistan. The Karzai government's beyond corrupt. The opium trade is too lucrative for the local farmers to give up. The current military policy is a complete waste of American lives. Defoliate the entire country several times a year for 10 years and drop by parachute corn and wheat seeds for the farmers to plant. Without the opium, the Taliban will melt away."

Joe writes, "We're keeping the Taliban and al Qaeda from getting access to the nukes in Pakistan."

David says, "We're supporting a burgeoning clatocracy (ph) which thrives on limited instability for lack of oversight. We have to decide whether we'll support real democracy by holding Karzai accountable to the election process and increasing stability with better strategy, or whether we remove ourselves from the situation entirely and allow the country to stabilize itself."

Jim writes, "We're certainly not attempting to win the war there. The U.S. government is aiding and abetting the Taliban by not destroying the poppy fields that provide them with the funds necessary to finance their war. American policy is actually putting weapons into the hands of our enemies."

"Explain that to the families of the fallen. It's disgusting beyond belief."

And T. writes, "Jack, what are we doing in Afghanistan? The same thing we did in Iraq, Vietnam, et cetera. If we were ever at peace, the defense contractors would need a bailout. Talk about too big to fail."

If you didn't see your e-mail here, go to my blog, CNN.com/caffertyfile.

Sixty-four pages long -- Wolf.

BLITZER: Yes. All right, Jack. Thanks very much. Good point.

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