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The Situation Room

Envoy Ousted Amid Controversy; Growing Concern for Afghan Stability; Living in a Refugee Camp; Oval Office Gets Makeover; Sarah Palin's Hunter Image; Obama Steps Up Election Rhetoric

Aired September 04, 2010 - 18:00   ET

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

WOLF BLITZER, CNN ANCHOR, THE SITUATION ROOM: With the clock ticking toward mid-term elections in just two months, President Obama is stepping up efforts to turn around the economy. But with growing fear of a double-dip recession, what are his options? I'll ask Moody's chief economist, Mark Zandi.

Also, children holding on to hope in the middle of a disaster; CNN's Doctor Sanjay Gupta is in Pakistan with the youngest flood victims.

And blowing up tanks, literally. How inflatable artillery could change everything we know about waging war.

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

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: As I've said from the start, there's no quick fix to the worst recession we've experienced since the Great Depression. The hard truth is that it took years to create our current economic problems. And it will take more time than any of us would like to repair the damage. Millions of our neighbors are living with that painfully every day. But I want all Americans to remind themselves, there are better days ahead.

(END VIDEO CLIP)

BLITZER: President Obama speaking ahead of a Labor Day weekend, which finds more Americans without jobs. The Labor Department says the unemployment rate ticked up a 0.01 of a percent in August to 9.6 percent, as the economy shed 54,000 jobs. The loss was better than some analysts were predicting, but that's unlikely to help the president's poor approval rating when it comes to the economy.

The latest CNN/Opinion Research Corporation poll shows only 40 percent approve of president Obama's handling of the economy while 59 percent disapprove. It's a far cry from what the White House was branding as recovery summer. Let's talk about that and more with Moody's chief economist, Mark Zandi.

Thank you very much for coming in.

MARK ZANDI, CHIEF ECONOMIST, MOODY'S: Thanks, Wolf. With Labor Day now, it's the end of summer for so many folks. It was supposed to be recovery summer. That's what the White House said. What went wrong?

ZANDI: Well, as the president pointed out, we did suffer a very, very severe recession. It's going to take a while to overcome the psychological scars of that economic downturn. But I do think we also got sidetracked this spring when things started to improve by the European debt crisis. That undermined our stock market and that undermined confidence, it caused businesses to pull back, caused some households to pull back and thus, the recovery, while it is still intact, has weakened.

BLITZER: With 9.6 percent unemployment, but when you add in all the folks who have simply have given up, even looking for a job that number, realistically, is much higher. In your opinion, how high is the unemployment rate?

ZANDI: Well, if you include all of the unemployed and all of the underemployed people, for example, who work part time because they can't find a full-time job, the underemployment rate is 16.7 percent. And that would be the highest rate of underemployment since the early 1980s. And then you have to go all the way back to the Great Depression. Just to give you another number, that translates into about 25 million Americans that are either unemployed or underemployed.

BLITZER: When you talk about underemployed, someone who may have been laid off from a job, making $80,000 a year, now takes a job making $30,000 a year just to put food on the table. That's what we're talking about. That person is considered employed, even though it's not the kind of employment he or she used to have?

ZANDI: Yeah. And I'm not even considering that, if it's a full-time job. If it's someone who has been forced to a part-time position and is getting less pay as a result, I'm counting that number. The stresses go well beyond even the numbers I have articulated. I think perhaps -- likely every American has been touched in some way. If they've not lost their job, they have a family member, friend or neighbor who has. I think we're all being affected by this.

If we take a look and break down the August unemployment numbers by categories, among whites, 8.7 percent; among blacks, 16.3 percent; Hispanics, 12 percent. Why is there a -- this discrepancy in this day and age?

ZANDI: Well, a lot depends on your skill level, your educational attainment. So, the higher your skill set, the more education you have, the better you have done. Now, everyone has been affected from top to bottom. Unemployment rates are very high, unusually high for college-educated workers. But the more skill and education you have, the lower your unemployment rate is.

BLITZER: Where do you see the unemployment number going in the next few months, let's say over the next year? ZANDI: It's going to rise. We're getting underlying job growth today is less than 100,000 a month. We need more than 150,000 a month just to maintain a stable rate of employment. So the unemployment rate is going to rise and I wouldn't be surprised if it's back in the double digits by the end of the year.

BLITZER: Like 10 percent, 10.5 percent, is that what you are talking about?

ZANDI: Yes, I think it will be over 10 percent come December, January and the peak probably will be closer to 10.5 percent by early next year.

BLITZER: And will it stay at that level throughout 2011?

ZANDI: I'm hopeful that it will improve. There is some good news. Big business, mid-size companies are very profitable. And if history is any guide when we see these kind of profits, ultimately businesses get their groove back and start to hire more aggressively. I anticipate that occurring as we make our way into next year. Even under the best scenario, we're going to have very high unemployment for a very long time. We're talking five, ten years. We're not going to see any meaningful improvement for quite some time.

BLITZER: For five or ten years, is that what you're saying?

ZANDI: Yeah. I mean, to get back to full employment, what everyone would consider to be an unemployment rate that would signify to everyone who wants a job is getting a job, that's 5 or 6 percent. It's going to take a good, solid five years and perhaps longer. We need some really good policy making and a little bit of luck.

BLITZER: Because the president's message after the Friday morning unemployment numbers came out, the added message, if you listen carefully -- listen to these little clips.

(BEGIN VIDEO CLIP)

OBAMA: We are confident that we are moving in the right direction, but the key point I'm making right now is that the economy is moving in a positive direction. Jobs are being created and the evidence that we've seen during the course of this summer and over the course of the late 18 months indicate that we're moving in the right direction.

(END VIDEO CLIP)

BLITZER: Are we moving in the right direction?

ZANDI: Yes, we are. Now, just think back a year ago. It's hard to remember that far back. But we were losing hundreds of thousands of jobs. The unemployment rate was heading straight up. Trajectory was all in the wrong direction. Today we are-the president is right-we are creating jobs. It's not enough to bring down the unemployment but we are creating jobs. A year from now, next Labor Day, we'll be even better. But the improvement is slow. It will take a long time. We dug ourselves such a very deep hole, it will take years to dig our way out. So, yes, we're moving in the right direction. It's just too bad we're not moving in that direction more quickly.

BLITZER: Looking back over the past 18 months since President Obama took office with hindsight, we're all a lot smarter. What should we have done differently?

ZANDI: Well, I think it would have been prudent back in early '09 when we were cobbling together the stimulus package, if it were made larger, and if it was made larger by more tax cuts, a payroll tax holiday. Right now we're talking about the potential for another payroll tax holiday. If we had done something like that back in early 2009, then I think that would have made a meaningful difference.

BLITZER: Is it too late now? There's a lot of talk about yet a second stimulus package, even though they don't want to call it a stimulus package for obvious political reasons, but is it too late now for a huge stimulus package to go forward?

ZANDI: Well, it's too late for the next six to nine months. The die is cast. There's nothing the administration or Congress could do today that would make a meaningful difference with respect to the job market between now and next spring.

But there are many things they could do that would make a difference with respect to that long-term unemployment problem I just mentioned. So, there are things that can be done and should be done. We should nail down these tax cuts that are expiring at the end of the year, unless Congress and the administration do something. The president has made a point about passing the small business bill in front of Congress. That should be done. I do think it makes some logical sense to start talking about a large infrastructure spending program for the out years that is paid for. We have to pay for it, but I think that makes sense as well.

BLITZER: You have said in the past and I assume you still agree that when it comes to the tax rates, they should continue as is, even though they're supposed to go into -- they're supposed to expire at the end of this year. You don't want any it tax increases in 2011, even for people making more than $250,000 a year?

ZANDI: Exactly. You know, my view, the recovery is just too fragile. We can't take a chance. If we go back into recession, there is no reasonable policy response. Don't take a gamble. Keep everyone's tax rates where they are in 2011. When we're into 2012, 13 and the economy has its groove back, we're off and running, then allow those tax rates for upper income individuals to revert back to where they were. Because at that point we need to address our next big problem, that is our long-term fiscal situation.

BLITZER: Mark Zandi is the chief economist from Moody's.

Mark, thanks very much.

ZANDI: Thank you.

BLITZER: Amid all of this President Obama is about to hold his first news conference, full scale news conference in almost four months. We'll talk about that with our political contributors, Democratic strategist Paul Begala and Republican strategist Ed Rollins.

Also, young disaster victims clinging to hopes of a better life; CNN's Doctor Sanjay Gupta is in Pakistan's flood zone with an emotional story.

And Russia's military investing in a different kind of air power, details of the country's efforts to build an inflatable army.

(COMMERCIAL BREAK)

BLITZER: President Obama is preparing to hold his first full-scale news conference in almost four months. The Q&A is scheduled for Friday in the White House East Room. I talked about that and much more with our CNN political contributors, Democratic strategist Paul Begala and Republican strategist, Ed Rollins.

(BEGIN VIDEOTAPE)

BLITZER: Is this a big deal or little deal, he's finally going to start taking some questions from that White House press corps, Paul?

PAUL BEGALA, CNN DEMOCRATIC POLITICAL CONTRIBUTOR: I think it's always good. I like when presidents do this. It focuses the mind, it focuses the staff, and it focuses the president and will require him actually to figure out where he stands on a few things that are kind of percolating through the system. So, I love when they do this. I used to love the dry runs, try to predict what kind of evil nasty questions you would be asking President Clinton, Wolf, back in my day. Didn't succeed very much on that, but I think it's great. I think it is good for the president and it's good for the country.

BLITZER: What do you think, Ed?

ED ROLLINS, CNN REPUBLICAN POLITICAL CONTRIBUTOR: It's always good for the president to go before the public. I mean, Gibbs obviously has the daily duty and he's not being as effective as he can be. The president has not had great press conferences though, and I think he needs a good one if he is going to set a tone here for this fall campaign.

BLITZER: Well, when you say Gibbs isn't as effective as he can be, speak -- elaborate a little bit, Ed. What do you mean by that?

ROLLINS: I think he hasn't gotten out of the campaign mode. He has to use you to basically communicate to the American public what their story is. And I think he's too combative and I think he has gotten more and more combative as time has gone on.

BLITZER: Let's talk about Larry Sabato. A gay, you guys both know. He's a political analyst over at the University of Virginia Center of Politics. He has this new crystal ball, he's looking at to November 2nd. He says, "Given what we can see at this moment, Republicans have a good chance to win the House by picking up as many as 47 seats net, remember you need 39 in order to have John Boehner become the Speaker of the House. In the Senate Republicans have an outside shot of winning full control, that would be plus 10, but are more likely to end up with plus eight or maybe plus nine."

Is he on target, Paul?

BEGALA: First off, he is a highly respected guy, Larry Sabato at the UVA. Not the University of Texas, but not a bad school, UVA.

I can't say he has any ax to grind. I've been saying all year, Wolf, on your program, I've been telling Democrats my strategy is three words. Build an ark. This could be Category 4. It could be Category 5. We should have Chad Myers tracking the storm that's coming to hit the Democrats.

But here his what they need to do. Don't sit there passively and wait for the storm to hit. They need to build an ark. They need to get out in front of this. By which I mean, put the Republicans on trial. Embrace the fact that it looks like Congress may well switch. And say what would the Republicans do? Well, privatize Social Security, cut taxes for the rich, and ship jobs overseas. That seems to be the Republican economic plan, at least in the eyes of Democrats, they need to start making, like this press conference next Friday? Let's see how fast before President Obama starts talking about shipping jobs overseas and Social Security being privatized. If he's on those kinds of messages, it will tell us that the Democrats are getting on the offense.

BLITZER: But in reality, Ed, you know, and so does Paul, that Republicans can talk about all those things if they want to. But getting that done with the president of the United States in the White House and the veto pen, it's a lot more difficult even if you have the majority in the House, and even in the Senate. The president can veto that kind of legislation.

ROLLINS: Yeah. I don't think anything is going to happen. I think everyone now is worried about getting re-elected. When you look at whether it is Larry Sabato, I have great respect for, or Charlie Cook, who is one of the great analysts, everybody has 70, 80 Democrat members who are basically in vulnerable seats. Rahm Emanuel did a very effective job with Paul's help in 2006 and 2008 recruiting candidates that won 50 plus seats and they were Republican seats. Most of these seats now are in jeopardy, particularly if Republicans turn out, there is a lot of animosity toward Obama. Our side has intensified. We still have to win them. I never take them until we win them.

BLITZER: We heard what Paul says, the president and the Democrats need to do between now and November 2nd. What advice do you have for them?

ROLLINS: I'm not going to give them any advice. Paul gives them great advice. What I'm going to say to my side, is basically, you have to articulate what it is that you're about. That you're going to go there and make sure that more of this big spending and deficit spending and more of these programs like the health care are not going to be implemented and the bottom line here is that you're going to go fight ordinary people out there, the middle class that obviously are suffering. And really go out and aggressively draw the line in the sand and say, electing us creates a block on what the Obama and Pelosi and them want to do.

BLITZER: Where did the Democrats go wrong over the past year and a half, Paul? Why did it come down to a popular president, the Democrats with decisive majorities, lopsided majorities, in the House and the Senate? And now they're facing a blood bath. Where did the Democrats go wrong?

BEGALA: You no he what our buddy James Carville would say. It's still the economy, stupid.

When you have 9.5 percent official unemployment, and it is really 15, 16 percent, if you count people who have given up, or who are taking jobs that are below their skill levels, or part time. You have 15, 16 percent unemployment, they're going to want to run you out of power. I think the Democrats have, first and foremost, a reality problem. They have a terrible economy. That's the most important thing.

They also have a political problem, but that's secondary. I think the way to address, though, as I said before, is put the Republicans on trial. Don't try to tell the country you've done such a great job on everything when things are so bad. Instead say those guys are worse. And that's probably -- it's a little negative message, but I like negative politics. I know Rollins is a very gentle soul.

(LAUGHTER)

BLITZER: He loves negative politics, too, and was pretty good at that kind of stuff. As were you, I must say.

BEGALA: He's a boxer. He can kick my butt still.

ROLLINS: I doubt that. Let me just say I do love this environment for us. I suffered through many -- I'm a little older than Paul and have been through a lot of these. They're cycles. This is a good cycle for us. If we do get the majority back, we do get close in the Senate, we have to make things happen. The one good thing about this is it will force the White House to come and deal with Republicans in a real way. They didn't have to deal with Republicans when they had majorities in the House and Senate. They have to deal with us either way, whether we have the majority or are close.

BLITZER: Did you notice, guys, the White House announced that the president is going to go back to Ohio next week, yet again. That key battleground state. I think he and his people are looking ahead to 2012 a little bit. We'll discuss that on another occasion.

Paul Begala, Ed Rollins, thanks very much.

ROLLINS: Thanks, take care.

BEGALA: Thank you.

BLITZER: Thanks very much.

(END VIDEOTAPE) BLITZER: It could change the face of war as we know it. Ahead, a look at why Russia's military is literally blowing up its own artillery.

And it is the most unusual rumor. Why some are saying Sarah Palin doesn't hunt.

(COMMERCIAL BREAK)

BLITZER: What if we could potentially change the face of war? Russia's military is doing just that, by literally inflating its own artillery. Here is CNN's Senior International Correspondent, Matthew Chance.

(BEGIN VIDEOTAPE)

MATTHEW CHANCE, CNN INT'L. CORRESPONDENT (voice over): The pride of Russia's military on parade in the capital. This former superpower has a bizarre military secret. In a field outside Moscow, it's being blown up, literally.

In the event of war, inflatable hardware like this fake missile launcher could be deployed on the front lines. Tanks, too, are available in blow-up form designed to confuse and mislead Russia's enemies. The trick, say the manufacturers, is in the detail.

Oh, right, an additional fuel tank. Whoa. On this -- why would you need an additional fuel tank for an inflatable?

UNIDENTIFIED MALE: Because we have several tanks, and the real thing, something snap this one --

CHANCE: So it's just to make it look more realistic?

UNIDENTIFIED MALE: Yes, yes.

CHANCE: OK. The company's workshop design teams draw up the complex patterns needed to produce convincing fakes. The entire arsenal is already being stitched together from blow-up fighter jets to artillery guns to radars.

(On camera): Well, the interesting thing is that the Russian military has now ordered large numbers of these inflatables, specifically replicas of the latest battle tank and its most sophisticated missile systems. For Russia, it seems that fooling the enemy may be an important part of a future war strategy. Critics say that the money could be better spent on improving Russia's real decrepit hardware. For now these pop-up fakes are proving a cheap stand-in for the real thing. Matthew Chance, Moscow.

(END VIDEOTAPE)

BLITZER: The U.S. has spent billions to fight terrorism and the Taliban in Afghanistan. Now, President Karzai's brother makes a starting demand that at least one diplomatic expert says smacks of corruption. And later, when the president's away, interior designers will play. The Oval Office gets a new look.

(COMMERCIAL BREAK)

BLITZER: There's been a shake-up at the Afghan embassy here in Washington, D.C., where the Afghan ambassador suddenly has been ordered to vacate his post amid a controversy swirling back home. Ambassador Said Jawad is here in THE SITUATION ROOM to talk about what's going on. Mr. Ambassador, thanks very much for coming in. I assume you're still the ambassador right now but they've told you it's over. Why?

SAID JAWAD, AFGHAN AMBASSADOR TO U.S.: Well, first, I served as ambassador the past seven years, where we established the embassy from the ground up, and I am very grateful for the support I have received from friends, here, particularly, to make this happen.

Seven years is a long time to serve as ambassador. So, my term will be ending by September 22nd. Usually, the terms of the ambassadors are between three to five years. So it's fairly normal for ambassadors to end their term at some point.

BLITZER: But there's been some controversy because this was a sudden shock to a lot of people and many U.S. officials are telling me they were shocked to hear this as well. They say it raises questions about President Hamid Karzai. What's going on over there?

JAWAD: I was not given an explanation about the reason of the end of my term, basically. But as I mentioned, seven years is a long time. And I did expect to have to, at some point, leave this job.

BLITZER: Did they give you advance warning that this was happening. That your tour of duty would be over, or did they suddenly just say it's over?

JAWAD: No, they have asked me to come back to Afghanistan to join the ministry of foreign affairs and my tour of duty would be over September 22nd.

BLITZER: They just told you that. Let me read to you from "The Washington Post" story about your leaving.

"Karzai has made a series of hasty firings in the past few months. Last week he dismissed a deputy attorney general, who had been involved in corruption investigations of government officials. In June Karzai abruptly fired the interior minister, Hanif Atmar and the intelligence chief, Amrullah Saleh."

And what some U.S. officials are saying to me is it seems President Karzai to be behaving somewhat bizarrely right now. They're surprised by what he is doing.

SAID JAWAD, AFGHAN AMBASSADOR TO U.S.: I -- my report to the ministry of foreign affairs. The authority of rule actually is in charge of appointment and removal of the ambassador is the Ministry of Foreign Affairs.

As far as the other dismissal of some very, very qualified officials in Afghanistan, I really cannot comment. It was a different situation, different condition, but, as I mentioned, I had the privilege, actually, of serving Afghanistan, being the face of a new Afghanistan.

And here establishing the embassy from the ground up and making it one of the most successful embassies of Afghanistan abroad.

BLITZER: And all of a sudden, they tell you to go home. Here is another quote from the article in "The Washington Post" because I want you to respond to this.

"Jawad," that's you, "has been the subject of what he called a smear campaign in Afghanistan over the past few weeks. Several afghan websites published photographs that purported to show people consuming alcohol and women dancing in sleeveless dresses at an embassy party to celebrate the Muslim holy month of Ramadan."

You've seen all those accusations that Muslims are not supposed to drink alcohol and certainly women are not supposed to be sleeveless. What do you say about those smears that were leveled against you back in Afghanistan?

JAWAD: First, these were completely false accusations, doctored pictures that portrayed as if there was an event at the embassy of Afghanistan on the second day of the holy month of Ramadan. While I was in Columbia and Brazil during that time and they never had an event at the embassy, pictures were doctored. Those are fabricated.

BLITZER: So who was out to get you, spreading these rumors and these smears?

JAWAD: A few hard-working, Afghan that are left in the Afghan government are subject to a broad smear campaign both by the opportunistics inside the government and also the fanatics outside the government.

So, there is a war in Afghanistan. So, they use misinformation, disinformation and propaganda in different ways. But at the same time, you also have hundreds and thousands of messages of support for what we have accomplished, what we have done in here. We have been here a long time and people know what we stand for.

BLITZER: Will you go back to Kabul, to Afghanistan right now to serve in the foreign ministry?

JAWAD: I will serve Afghanistan, certainly. I am not a career diplomat. I joined the government from the private sector for a vision of building a peaceful, prosperous Afghanistan.

I will continue to work for that vision, but if it is outside the government or inside government, I have not decided yet. But I never have been part of the government for a long time. My past is private sector. BLITZER: Because some reports are saying you're going to stay here in the United States.

JAWAD: Yes, I will stay here for a transition because my family lives here. My son is going to school. For a short time, I will be here and then I will make the decision.

BLITZER: Mr. Ambassador, we wish you only the best and we wish, of course, the people of Afghanistan only the best. We wish, of course, the people of Afghanistan only the best. We hope there is peace, security and democracy in Afghanistan one day.

JAWAD: Thank you very much. Appreciate it.

The U.S. investment in Afghanistan is massive in both military and money and lives lost. Now the brother of this man, President Hamid Karzai, wants the U.S. to step up again, this time, to rescue a bank. I'll talk to one former diplomat who calls his request revolting.

And they are the most vulnerable victims of Pakistan's flood disaster. How the children of Pakistan cling to hope for their future.

And the oval office gets an Obama overhaul. We'll take a closer look at the presidential office face lifts, past and present.

(COMMERCIAL BREAK)

BLITZER: The Afghan President Hamid Karzai's brother wants the U.S. to bail out the banking system in Afghanistan. Joining us now is Peter Galbraith, a former United Nations special representative to Afghanistan.

Peter, this is a very weird story right now. What is going on with this bank in Kabul and this desire by the brother of Hamid Karzai for the U.S. taxpayers to bill out the bank?

PETER GALBRAITH, FORMER U.N. SPECIAL REPRESENTATIVE TO AFGHANISTAN: Wolf, you have to admire Mahmoud Karzai's chutzpah in this case.

The Kabul Bank, which is the largest in the country, it turns out that $160 million went missing, was looted by the top officials of the bank to buy real estate in Dubai, luxury real estate in Dubai for them and other top politicians, including, apparently, members of the Karzai family.

Depositors having heard this news have rushed the bank to try to get their money back. It isn't there and now Mahmoud Karzai, who owns 7 percent of this bank, would like U.S. taxpayers to bail them out.

This is part of a larger picture of the Karzai family. One of Karzai's other brothers, Hamid Wally Karzai is the power broker in the strategically important Kandahar Province. He runs a private militia. U.S. officials believe he is involved in drug dealing and doing deals with the Taliban and Hamid Karzai himself stole the last election.

I think this is a level of corruption, and dishonesty that is frankly revolting. I think many Americans should be asking what are our troops fighting for, and more importantly, it makes it extremely difficult for us to accomplish our mission when this is our partner.

BLITZER: Listen to Robert Gates, the secretary of defense in Kabul this week, and he said this, and I want to play this clip. Listen to this.

(BEGIN VIDEO CLIP)

ROBERT GATES, DEFENSE SECRETARY: We learned our lesson in turning our back on Afghanistan in 1989 and we have no intention of doing so again.

(END VIDEO CLIP)

BLITZER: He says the U.S. is not going to pull out. What -- how do you react when you hear that?

GALBRAITH: Well, the problem is that we have 100,000 troops, we're spending $120 billion a year on a mission to defeat the Taliban in a counterinsurgency strategy where all of the architects, Secretary Gates included, say that the central feature for success is a credible Afghan partner.

And the partner we have runs the second most corrupt country in the world. He is clearly personally corrupt. He is ineffective. He is known by diplomats as the mayor of Kabul. He is illegitimate. He stole his last election and under those circumstances, there's no prospect for success --

BLITZER: And what should the Obama administration do?

GALBRAITH: Well, it made a huge mistake by tripling the number of troops there and if you are -- and it is really immoral to be sending troops to fight in a mission that they can't succeed at because, again, you don't have that credible partner.

So what I would say is to change the mission to something that is achievable, namely protecting the non-pashtun parts of the country where the Taliban is not present and Kabul. And that you do with 10,000 troops instead of 100,000.

BLITZER: I've heard how U.S. officials in recent days say to me, Peter, that they're worried about Karzai that he seems to be acting in a rather bizarre way, firing one intelligence chief, getting rid of anticorruption chief and now firing his longtime U.S. ambassador. Do you see Karzai becoming more erratic?

GALBRAITH: He has a long history of being erratic, of temper tantrums and now he realizes that he has the U.S. over the barrel and he could do what he wants.

This is the product of a big mistake the U.S. made last year when it went along with the U.N. in covering up the massive fraud in Afghanistan's presidential elections. And Karzai realizes that his weakness is actually -- means the U.S. has to back him up. He came to the U.S. There was a love offensive from President Obama and his top officials. He really thinks he has a blank check.

The trouble is with this weird behavior, this corruption that involves him and his family, it is undermining the chances for success.

BLITZER: So on this issue --

GALBRAITH: Not only undermining --

BLITZER: Sorry for interrupting, but on this issue of what the strategy should be, I hear what you're saying. And it seems to be in total disagreement with General Petraeus.

GALBRAITH: Well, General Petraeus, if he were here, he would say to you, we are -- our strategy is a counterinsurgency strategy. It is one that U.S. troops cannot do by themselves. They need to have a credible Afghan partner.

And so the only question is, is the government of Hamid Karzai a credible partner? And, frankly, I know that many of the officials in the Obama administration privately, they know that -- they see exactly what we all see, what is exemplified by this scandal at the Kabul Bank.

They see a corrupt, ineffective government and they are worried. But, of course, Petraeus would put a public face on it and say something different, but I suspect in his heart he knows, and in private he knows what the score is.

BLITZER: I guess President Karzai's brother would say this bank is too big to fail, but that refers to another part of the story. Peter Galbraith, thank you very much for joining us.

GALBRAITH: Wolf, good to be with you.

BLITZER: Pakistan's raging floodwaters are taking a devastating toll on children. Our own Dr. Sanjay Gupta is on the ground with a firsthand report.

Plus the White House oval office gets a makeover, but it isn't the first time.

(COMMERCIAL BREAK)

BLITZER: U.S. is launching an assistance program in flood-ravaged Pakistan to help the families devastated by the disaster. United Nations warns that children are especially at risk from the floods with aid funding slowing down.

CNN's chief medical correspondent, Dr. Sanjay Gupta, is witnessing the crisis firsthand at refugee camps and tells us in this touching peace that Pakistan's children are holding on to their hopes for the future.

(BEGIN VIDEOTAPE)

DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT (voice-over): (Inaudible) is now getting something millions across Pakistan cannot, medical care. It's amazing, because up until a couple of days ago, his life looked like this then he got sick, very sick.

A parent's love for their son took over. Knowing he would die, they took a gamble, left everything they had behind and just started moving, somewhere, anywhere.

(on camera): We've probably never seen them lined like this before, but this is a line for people waiting to get into the hospital. You see garbage all around the place. They stay here, all day long, waiting.

A lot of people have infectious diseases that are associated with drinking contaminated water. It's what we've been talking about. This is a diarrheal treatment center specifically for children. Let's go take a look.

(voice-over): (Fiaz) finally made it inside.

(on camera): Your town is completely covered in water? He has been sick for some time. He was saying he was sick before the flood and just became much worse during the flooding.

(voice-over): Three years old, weighs just 10 pounds. He is so small. For comparison, I have a 3-year-old daughter. She weighs closer to 30 pounds. (Fiaz) is so fragile.

Young children have weaker immune systems. They become more easily dehydrated. Like millions of people around the country, he didn't have a choice when he got thirsty, killer water or none at all. Imagine drinking that.

I have covered so many natural disasters. There's always fear of a second wave of disease, but access to clean water helped control that risk after the Haiti quake. In Pakistan, though, the second wave, it's already here.

(on camera): It's so hard to see these little kids so sick on these dusty, dirty tables, IVs hanging. This baby is so small. All you see is her little foot hanging out with an IV, again.

Another child here, and these children are sick. This is a diarrheal treatment center to take care of them. Some of these children have come from a flood. Some of them are just citizens of Pakistan, dealing with these issues on a pretty regular basis.

(voice-over): Killer water, just consider the impact, already a million people with crippling diarrhea and respiratory infections, malaria, 65,000 cases and the World Health Organization projecting hundreds of thousands of patients with cholera, dysentery and typhoid.

Pakistan could literally be held hostage by killer water and all of this disproportionately affecting Pakistan's next generation, like little 3-year-old Fiaz.

(on camera: You can check things to see how dehydrated they are. Push on the tips of their fingers and the blood doesn't come back quickly. He's so dehydrated. He has a very weak pulse as well. His poor little mouth is so dry, but he's in the right place. He's one of the lucky ones. Dr. Sanjay Gupta, CNN, Karachi, Pakistan.

(END VIDEOTAPE)

BLITZER: And to get more information on ways you can make a difference and help provide relief for the flood victims in Pakistan including the kids, visit our impact your world page at cnn.com/impact. I want to thank Dr. Gupta for that excellent report.

It's a most unusual rumor. Why some are saying Sarah Palin doesn't hunt.

(COMMERCIAL BREAK)

BLITZER: The White House oval office has undergone a major makeover. Renovations took place while the first family was away on vacation.

But It certainly isn't the first time the room has gotten a new look. Many presidents have had a chance to make their mark. Our Tom Foreman has a closer look at how it's evolved since the early 1900s - Tom.

TOM FOREMAN, CNN CORRESPONDENT: Hey, Wolf, you know, really the oval office has become to represent the views of any given president.

Back to 1909 when Howard Taft was in office there, what a time this was. He had the sea green carpet, walls over here, the earliest days of the oval office itself, which was an addition to the old White House.

Then we move on through time. Here's John Kennedy's oval office. He had to decorate then bright red carpet. The carpet is one of the key things that get changed over time.

Lyndon Johnson came in, nice reflection here of the times. Look at the bank of TVs that were installed back then, really the dawning of the age of television news with people paying a lot of attention to it.

Moving on to Jimmy Carter, 1977, you may remember at this time, following Nixon there was a sense that he had that he wanted to put away the idea of the imperial presidency and so sort of a plain look, a few features you'll see all the time.

Though, this desk, the resolute desk was actually made from the timbers of a British ship from the mid-1850s that the Americans rescued from the arctic seas, restored, returned to Britain.

It actually averted a war at the time because there were growing tensions. The gift was a way of relieving those tensions and the queen returned the favor by having a desk made out of part of timbers of the ship, which has stayed through many presidents. Ronald Reagan had one of the most elegant traditional-looking oval offices as you can imagine with the white sofa, the resolute desk, of course, still in place.

Bill Clinton really had to my mind one of the showiest oval offices we've had in a long time. Look at the upholstery here, the rug, very bright and strong dynamic. This painting on the wall is something you'll see a lot of. This is actually one of my favorites. I'm a big art lover. This is called "Avenue in the Rain." It's shown up in several White House oval offices.

We move on to George W. Bush, somewhere between the Clinton look and the Reagan look, and then we move on to what we have now. Look at the changes they've made here.

A very homey looking oval office for President Obama and he shops in New York, I can tell you that. The furniture here, the table here, the lamps over here, all came from New York. The upholstery was from Pennsylvania.

The rug, however, was made in Michigan and it's embroidered around the edges with famous sayings by Martin Luther King, Abraham Lincoln, a lot of folks that he admires.

And of course, he changed the overall look of it, but again, he went with a very homey look in here, most of the items as I said came from New York. But in the end, he also still has some traditional looks.

He has the resolute desk as I mentioned before and up here, you can see there's the "Avenue in the Rain," a Frederick Remington sculpture is over here.

But overall, Wolf, a room that reflects what would someone says is a scholarly air and the homey feeling that he wants to have in his White House especially a White House that has two young children in it, which as you know is somewhat rare in this country.

So this is the new look that he is enjoying now as he heads toward the completion of his second year in office - Wolf.

BLITZER: Tom Foreman, thanks very much. The White House makes the point of saying no taxpayer money was involved in this redecoration, all coming from private funds.

Say it isn't so. Sarah Palin doesn't hunt? Jeanne Moos stalks this most unusual rumor.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN NATIONAL CORRESPONDENT (voice-over): When you think of Sarah Palin, it's one of the first things to pop into your mind.

UNIDENTIFIED MALE: A hunter.

UNIDENTIFIED FEMALE: Good hunting.

UNIDENTIFIED FEMALE: Moose hunting, salmon fishing, pistol packing.

UNIDENTIFIED MALE: Holding a dead blooded moose.

MOOS: Actually it was a dead caribou in the famous photo, but now according to an article in "Vanity Fair" citing an unnamed long-time friend of the Palins, that woman has never hunted.

The picture of her with a caribou she says she shot, she got out of the RV to pose for a picture. It's all a joke. Sarah Palin not a caribou killer, not a stalker of moose? Didn't she prepare a moose stew for Greta Van Sustreen?

UNIDENTIFIED FEMALE: Who shot the moose?

UNIDENTIFIED FEMALE: I think my dad did or maybe my mom did.

MOOS: But that anonymous family friend says of Palin's husband, Todd was calling everyone he knew the day before. You got any moose? Desperate.

UNIDENTIFIED FEMALE: How many caribou do you think you've shot?

UNIDENTIFIED FEMALE: Just a few.

MOOS: But she sure tried to shoot down the "Vanity Fair" reporter while she was on Sean Hannity's radio show.

SARAH PALIN (via phone): Impotent, gutless reporters take anonymous sources and cite them.

MOOS: But hunting for the truth is even more elusive than hunting for moose. For instance, here's what Palin's dad said shortly after she became the VP nominee.

CHUCK HEATH, PALIN'S FATHER: I remember every time she'd come home from college, she'd say, let's go bird hunting. She's shot several big-game animals.

TINA FEY, COMEDIAN: Sarah Palin is a tough lady. She kills things.

UNIDENTIFIED FEMALE: I can't wait to kill with you.

MOOS: Anyway, we need Sarah Palin, the moose slayer, for our computer games, for our impersonators.

UNIDENTIFIED FEMALE: We have spotted our prey, the Barack Obama-ous king of the liberals.

MOOS: Even for the prankster who called her up pretending to be French President Nicolas Sarkozy -

UNIDENTIFIED MALE: You know we have a lot in common because definitely one of my favorite activities is to hunt too.

PALIN: Very good. We should go hunting together. MOOS: And it's not just the tractors, fans, too, need the moose- shooting mama. Even the moose shooting mama herself, clings to her guns and her red meat. Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

BLITZER: Thank you, Jeanne. I'm Wolf Blitzer. Join us weekdays in "The Situation Room" from 5:00 to 7:00 p.m. Eastern and every Saturday at 6:00 p.m. Eastern right here on CNN. At this time every weekend on CNN International. The news continues next on CNN.