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The Situation Room

New Gospel for GOP Values Voters; Attacks on Consumer "Bulldog"; Student Loan Debt In U.S. Soars; Fuel for U.S.-China Trade War; Rushing to Retire; DC Tests Obama Education Policy; Lady Gaga Takes on U.S. Senate; Palin for President?; Terror Threats to Pope?

Aired September 17, 2010 - 17:00   ET

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

SUZANNE MALVEAUX, GUEST HOST: Thanks, Rick.

Happening now, Republican outsides pierce the heart of the political establishment. They're here in Washington putting their stamp on the party's message to value voters. And they may be setting the stage for the 2012 presidential race.

Also, those trapped minors in Chile are a small step closer to freedom. We're going to have the very latest on the rescue operation and when their underground nightmare may finally be over.

And U.S. senators, beware. Lady Gaga has your number. But her star power may not be enough to guarantee the repeal of "Don't Ask, Don't Tell."

Wolf Blitzer is off today. I'm Suzanne Malveaux, and you're in THE SITUATION ROOM.

Some are calling her the new poster girl for the Tea Party phenomenon. She just appeared front and center at a traditional showcase for hard core conservatives. Christine O'Donnell is making her first appearance here in Washington since winning the GOP Senate nomination in Delaware and upsetting the party establishment. She preached a new kind of gospel at the values voter summit, the Tea Party's anti-government mantra. I want you to take a listen.

(BEGIN VIDEO CLIP)

CHRISTINE O'DONNELL, (R) DELAWARE SENATE CANDIDATE: This is America. And the ruling class elites may try, but they will never have the last word on liberty. There's something about our national DNA that insists on shouting at those who would be our masters, you're not the boss of me. The small elite don't get us. They call us wacky. They call us wing nuts. We call us we, the people.

(END VIDEO CLIP)

MALVEAUX: I want to bring in our senior political analyst, Gloria Borger. Gloria, you were watching this. You were listening to this. Give us a sense of the response? I mean, how did the crowd respond to her message?

GLORIA BORGER, SENIOR POLITICAL ANALYST: She was clearly very well receive received as you saw. And today's event, not only just O'Donnell, but all the speakers were really embracing all of those Tea Party themes that we've heard so much about during this campaign season already. Anti anti-big government, anti-health care, Anti-any kind of bailout. But the thing that was interesting about what we just heard from O'Donnell was this class warfare argument. The us versus them which we hear a lot from Sarah Palin.

MALVEAUX: Sure.

BORGER: And it's about the elites don't understand us. O'Donnell talked about the anti-Americanism of the so-called ruling class. So, it's not as if the cultural issues have disappeared. At the values summit, they're still there. A lot of talk about "Don't Ask, Don't Tell." But they kind of have been supplanted at this point by the Tea Party themes of anti-big government and us versus the elites in Washington.

MALVEAUX: I'm very curious as to what you think about how the Republican contenders, potentially for 2012, are shaping their own message. I want you to take a listen to Mitt Romney and Rick Santorum and how they put it.

(BEGIN VIDEO CLIP)

MITT ROMNEY, (R) FORMER PRESIDENTIAL CANDIDATE: What is occurring in America today is different than simply a shift in seats. And it's not merely the result of disappointment or anger, even though there may well be reason for both. What's being felt in America today is more profound than that, more solemn, more somber. Americans believe that Washington is threatening the very foundations of what has made America America.

RICK SANTORUM, (R) FORMER U.S. SENATOR: The size and scope of government is directly related to the virtue of her people. Go to neighborhoods in America where there is a lack of virtue. What will you find? Two things. You will find no families. No mothers and fathers together in marriage. And you will find government everywhere.

(END VIDEO CLIP)

MALVEAUX: It's interesting how he married the two values and small minimal government here. I mean that -- that's fascinating.

BORGER: Family, small government, American values.

MALVEAUX: What do you think is the challenge for the main Republican contenders?

BORGER: I think just what you heard today, they got to figure out a way to capture the enthusiasm of the Tea Party voters without in a general election look like they're captors of the Tea Party voters. And it's going to be a very difficult thing for someone to do because the Tea Party demands you to be ideologically pure to a certain degree. And when you run in a general election as a Republican, you don't want to become Barry Goldwater, you know. You want to be able to win. The person I think back to is Ronald Reagan. Ronald Reagan, remember, he was able to capture Christian conservatives when he was probably the most secular president we've known in our lifetime. And that was because he was -- he was optimistic and open and welcoming, and I think that kind of a candidate in the Republican Party would be able to do both. Clearly, Mitt Romney was trying to do that today.

MALVEAUX: Sure.

BORGER: Maybe Rick Santorum. Who knows? Sarah Palin is the natural here.

MALVEAUX: The Tea Party actually existed during the time of Ronald Reagan, how he would actually how he would do, and I wonder, how's the Tea Party position in the Republican Party? Is it really the center of power?

BORGER: Right now?

MALVEAUX: For 2012 you think?

BORGER: We don't know yet. You know, right now, it's clearly at the center of power because we see all these midterm elections. We see these Tea Party candidates. Many of them are going to win. I think the key is, we're going to have to watch to see how the senators and the Tea Party activists behave during the next couple of years because people are going to be watching them and say, OK, you're not just an interesting new movement.

For example, if they're in charge in one House or the other, how are they going to govern? And people, you know, judge you differently from when you're in charge from when you're just in the opposition. So, I think the jury is out on that.

MALVEAUX: That is the challenge. And obviously, it's fascinating to watch the Republican Party and the evolution of the Republican Party. So, thank you so much.

BORGER: We're still watching.

MALVEAUX: Thanks, Gloria.

Now, on to the president's new consumer protector. Today, he formally announced the appointment of Harvard law professor, Elizabeth Warren. As we had expected, she is charged with creating a new agency that could affect millions of Americans, all of us, by cracking down on abusive practices by credit card and mortgage lenders.

I want to go to our white house correspondent, my colleague Dan Lothian. It's official now, Dan. We know. We expected this, but it still looks like Warren is a lightning rod. How is she going to do in this new position?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: You're right. We'll have to wait and see how she will do, but she is a controversial appointment here not only because of her past roles but also because of the way that the White House brought her onboard as an adviser as an oppose to director of this consumer agency. She will answer directly to the president and to the Treasury Secretary. And she says that consumers will come first.

(BEGIN VIDEOTAPE)

LOTHIAN (voice-over): Elizabeth Warren is known as a consumer bulldog, a no nonsense style that makes some Wall Street titans tremble. Even before her appointment was formally announced, Warren fired off a warning in a blog writing the time for hiding tricks and traps in fine print is over.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: From now on, consumers will also have a powerful watchdog, a tough independent watchdog whose job it is stand up for their financial interests.

LOTHIAN: That kind of talk is what makes the Harvard law professor a darling to the people on the left but a threat to big bankers who've seen her force in the roll of overseeing the bank bailout investigation.

TIM DUNCAN, AMERICAN BUSINESS LEADERS FOR FINANCIAL REFORM: She tells it like it is. She calls them as she sees them. And she has no inclination to go to work for the banking industry or she's not looking for a financial payoff in the long run.

LOTHIAN: The new consumer financial protection agency will target abuse by mortgage lenders, credit card companies, and businesses that offer student loans. But some on Wall Street worry about more regulations that could threaten profits, a fear experts dismiss.

DUNCAN: She's not at all about adding more regulations, about adding more paperwork to transactions. In fact, she's about how do we cut that back so people can really understand what they're getting into before they sign something.

LOTHIAN: President Obama avoided a potentially contentious confirmation battle by appointing her as a special advisor instead of director. White House spokesman, Robert Gibbs, said with endless nominations still trapped in Congress, going that route would have meant more delays.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: What the president said (ph) was how do you get this agency started?

LOTHIAN: But the U.S. Chamber of Commerce lashed out in a statement, quote, "the administration has circumvented one of the very few checks on a big new agency and that this maneuver is an affront to the pledge of transparency and consumer protection."

(END VIDEOTAPE)

LOTHIAN (on-camera): Now, White House officials say that Warren's role will last several months, not years, and she will play a role in deciding who the director of the agency will be. But Robert Gibbs today during his briefing would not say whether she is on the short list to ultimately get that job -- Suzanne

MALVEAUX: And Dan, do we understand whether or not she has the authority, the power to set up an agency that really has teeth?

LOTHIAN: You know, that is such a good question. And in fact, when she came over here to the White House for the announcement really this afternoon, our colleague, Ed Henry, met her at the front gate. He asked her that very same question, and she said that she was, quote, "very confident that she could set up an agency with teeth." Why? Because she said she had been reassured of that during conversations she had with the president.

MALVEAUX: OK. Dan, thank you very much.

Everyone knows that Americans are carrying a huge amount of credit card debt, but right now, they owe even more in student loans. Student loans in this country now totals $850 billion compared to $828 billion in credit card debt. Student aid websites report that student loan debt is rising at a rate of $2,853.88 a second. Unbelievable.

China may force U.S. car makers to reveal closely top secrets. We're going to look at the backlash in the auto industry and the frustrations now within the Obama administration.

And our Mary Snow talks to a worker facing a tough very choice -- retire early or watch her pension gets cut.

(COMMERCIAL BREAK)

MALVEAUX: There is new fuel for tensions between the United States and China, the world's fastest growing economic power house. Now, the "Wall Street Journal" reports that the Beijing government may force foreign automakers to share their electric car technology if they want to produce and sell their products in China.

Now critics are accusing China of considering strong arm tactics to try to build up its own electric car industry. The Obama administration is already very frustrated with China's trade and money policies.

It was just yesterday that Treasury Secretary Tim Geithner gave China a new nudge to push the value of its currency. Joining us now our senior political analyst, David Gergen.

And, David, nice to have you here in THE SITUATION ROOM. I mean, the bottom line here is China has been devaluing its currency. Can China get away with this?

DAVID GERGEN, SENIOR POLITICAL ANALYST: They have so far. And we're going to see growing trade tensions between the U.S. and China and perhaps between Europe and China. It's important to understand, China has become our most important partner in the world -- most important bilateral relationship in the world because we have these two power houses now that have to learn to get along. But there is growing frustration in Washington and a growing danger of some sort of trade war with China because there is a sense -- and Tim Geithner yesterday testified to this, China promised to stop keeping its currency artificially low, allow it to rise, and it's risen just precious like 1 percent since they made that promise.

We have this issue now on the cars that they're saying, yes, you can come and -- there's a report that, yes, you can come and sell cars in China, but you got to give us your secrets on how you built the technology in order to get in.

Of course, that's going to cause major problems. There's another report out there, Suzanne, that just came out last week. It was in New York Times front page. And that was that essentially in the renewable energy field, China is eating our lunch. We do a lot of the original discoveries here such solar panels.

MALVEAUX: Right.

GERGEN: But China now is building solar panels fairly well. They're building windmills fairly well -- fairly well. And they're doing that creating all sorts of subsidies that are potentially illegal, look illegal.

And what's happened here is now, China has created a million jobs in renewable energy and we've got plants as in Massachusetts that are in renewable energy that are closing down and opening our plants in China. We're losing jobs here to go there.

MALVEAUX: David --

GERGEN: And that's potentially a legality.

MALVEAUX: That's a very good point. I talked to Governor Granholm of Michigan about that very point. The fact that yes, they are praising the fact that they've got these jobs that are created. But really it is China -- Chine is benefitting greatly as well.

Is this a direct affront to the Obama administration that wants to go ahead and really be the leader, the dominant leader, when it comes to building those batteries for electric cars?

GERGEN: Well, it is sure -- it sure is, I think. And the -- the president, I think, has rightly recognized in renewable energy that we've got to do more. He's been trying to put more money into that.

But everybody has got to play by the rules. And it's extremely important that we not get into, you know, really huge fights with China that it shuts down trade, it really hurts the economy.

But it does mean the Chinese have got to be more responsive and we have got to be careful not to let the rhetoric get too hot. These are the kind of problems we used to have with Japan, you know, back in the '80s.

MALVEAUX: Right. GERGEN: And it required a lot of subtle diplomacy -- deaf diplomacy on both sides, say, on automobiles.

MALVEAUX: OK.

GERGEN: And on some issues out of Silicon Valley.

MALVEAUX: All right. David, thank you so much for your insights. Appreciate it. Obviously a lot of diplomatic dancing to do.

GERGEN: Thank you.

MALVEAUX: Now to the mounting economic fears here at home where some state workers -- they're facing potential cuts to their pension plans amidst some ailing public systems.

Now what if these states do nothing to try to fix the problem?

Our Mary Snow, she is joining us more to try to help us understand the situation that some folks are in here with their own pension plans that seem to be in danger -- Mary?

MARY SNOW, CNN CORRESPONDENT: Yes, and Suzanne, this is a growing problem. States with pensions that are underfunded. And some economists have a dire outlook for what could come in the not-too- distant future.

And this week New Jersey became the latest example of the contentious battles over what to do about it.

(BEGIN VIDEOTAPE)

SNOW (voice-over): At 57, Janice Flynn was not expecting to be making trips to New Jersey State Pension Office. But with New Jersey's governor focusing on fixing the cash-strapped public pension system, Flynn rushed to retire from her state job of 30 years.

(On camera): So you saw changes coming down the pike.

JANICE FLYNN, RETIRING PUBLIC EMPLOYEE: I saw the changes coming down the pike, and I figured I have to get what I have now, preserve what I have now, and then move on.

You don't get 30 years back to regroup and re-plan a life. So, to me, the threat to my financial security was too big to gamble on.

SNOW (voice-over): Flynn retired so she won't be affected by proposed cuts to pension plans for public employees.

New Jersey Governor Chris Christie wants to scale back benefits along with raising the retirement age. It sparked a political firestorm, but Christie says, there's no choice. The pension fund is $46 billion in the red.

GOV. CHRIS CHRISTIE (R), NEW JERSEY: There may be some public employees right now who don't like me because I'm prescribing tough medicine. But when the pension system gets well in a decade, I'm going to be their favorite governor.

SNOW: Joshua Rauh, an associate professor at the Kellogg School of Management at Northwestern says New Jersey is only the tip of the iceberg. He projects pension funds for New Jersey, Illinois, Connecticut and Indiana will run out in nine years if nothing is done. Sixteen other states could be in line to follow by the year 2025.

Rauh tells us he estimates there's a $3 trillion gap between what states have promised to pay and what they actually have on hand to pay out.

JOSHUA RAUH, NORTHWESTERN UNIVERSITY: I think we're headed towards the crisis level particularly if nothing is done. The fact that, for many years, states have not had to properly reflect the cost of the benefits that they are promising has led to a large increase in unfunded liabilities.

SNOW: Besides some cash-strapped states skipping payments at times, the stock market losses of 2008 exacerbated the situation. And Rauh predicts that without states addressing their pension plans, taxpayers may ultimately pay the price.

RAUH: That's going to create a very contentious situation where taxpayers in other states that may have been more fiscally responsible are going to be asked to contribute to help out these unfunded pension promises in states that have not really in truly reflected the value of these promises.

(END VIDEOTAPE)

SNOW: And now, in the meantime, cuts to pensions are leading to legal battles, like one that's under way in Minnesota. Retirees filed a lawsuit to fight legislation that slows increases to pension benefits.

Other states, Suzanne, are closely watching it.

MALVEAUX: We're all watching that closely. Thank you very much, Mary. Appreciate it.

We are monitoring some other top stories including the word expected any time now from the FDA whether or not it's going to revoke its approval for a controversial breast cancer drug.

Plus a major milestone in the desperate effort to rescue 33 miners trapped hundreds of feet underground.

(COMMERCIAL BREAK)

MALVEAUX: I want to go straight to Fredricka Whitfield at the CNN Center in Atlanta for some news that is just coming in right now.

Fred, what are you watching?

FREDRICKA WHITFIELD, CNN CORRESPONDENT: Well, hello to you, Suzanne. Hello, everyone.

What looks as though we're about to see another big campaign season twist. Republican sources tell CNN that Senator Lisa Murkowski of Alaska is set to announce tonight that she will run as a ride-in candidate in November.

In a major upset, Murkowski lost last month's Republican primary to challenger Joe Miller who was backed by the Tea Party movement and former Alaska Governor Sarah Palin.

The 33 trapped Chilean miners are one step closer to being rescued. Officials say a bore hole reached them but it must be widened before they can actually fit through. If all goes well, the miners could be rescued in late October or early November.

The workers have been trapped since the August 5th mine collapse.

And Iranian President Mahmoud Ahmadinejad says the U.S. should free Iranians it's holding after Tehran released American hiker Sarah Shourd this week.

Ahmadinejad tells Iranian state TV that although they don't have any expectations, it's something the U.S. should do naturally and morally.

Meanwhile, U.S. Secretary of State Clinton is calling on Tehran to release the other two hikers taken at the same time as Shourd more than a year ago.

And a final decision is expected today on a controversial breast cancer drug. The Food and Drug Administration is deciding whether to revoke its approval for Avastin for breast cancer. After several trials, experts are questioning its effectiveness and side effects.

Avastin costs $8,000 a month. And without FDA approval, patients worry insurers will stop covering it for breast cancer -- Suzanne.

MALVEAUX: All right. Fred, thank you very much.

Stand by for the man who ousted the incumbent mayor of Washington, D.C. and who struck a blow to President Obama's education reform agenda. I'm going to ask Vince Gray if he plans to shake up the city, if he wins this fall.

And why Lady Gaga is calling and tweeting senators and making a video to tell the world about it.

(COMMERCIAL BREAK)

MALVEAUX: You're in THE SITUATION ROOM.

Happening now, an American scientist and his wife are being charged with trying to pass nuclear secrets to a major U.S. enemy. We're going to have the very latest.

Plus, her IQ is said to be extremely low and she could become the first woman to be executed in Virginia in nearly a century. We're going to have the details of this very controversial case.

Wolf Blitzer is off today. I'm Suzanne Malveaux, and you're IN THE SITUATION ROOM.

President Obama's controversial education policy has suffered a blow right here in his own backyard. In Tuesday's primary, Democrats in Washington ousted incumbent Mayor Adrian Fenty in the wake of a series of controversial reforms in the city's public school system.

But that isn't the only issue that the city is struggling with. I talked about that and more with the chairman of the city council and new Democratic mayoral nominee, Vince Gray.

(BEGIN VIDEOTAPE)

MALVEAUX: Chairman Gray, thank you so much for being here in THE SITUATION ROOM.

First of all, congratulations on your win. Obviously, you still have a general election, but in a predominantly democratic city like Washington, it's very likely that you will be the next mayor.

When you take a look at this city, at what we are dealing with -- we're talking about unemployment more than 10 percent, in some areas much, much higher than that, an HIV-positive rate the highest in the country, we've got poverty -- what is your first priority in terms of what you need to do for this city?

VINCENT GRAY (D), WASHINGTON D.C. MAYORAL CANDIDATE: Well, first of all, we've obviously get a team in place that will help us address these issues. At the top of my agenda, and I've indicated this during the campaign, will be a focus on getting people back to work. As you've indicated, we have virtually epidemic levels of unemployment, 10.4 percent in the city, but on the eastern end of this city, the two wards, two districts in the eastern end, 19 percent and 30 percent respectively, which means you just have large numbers out --

MALVEAUX: And young black men, it's even much higher.

GRAY: Much higher, that's right.

In addition to that, I've talked extensively about education, education reform, and I continue to -- I will continue to focus on education reform in this city.

MALVEAUX: What will you do? Obviously when it comes to education to reform, that was a major issue the opposition with Mayor Fenty as well as Michelle Rhee, the chancellor of the school system. She hired those -- I mean, fired those, rather, who were not performing well, underperforming. Are those teachers, essentially, going to get their jobs back or what is going to happen in the state of education in Washington D.C.?

GRAY: Well, we've had two groups of teachers who left, who were asked to leave, and they were under different circumstances. The first group, they were dismissed allegedly because of a budget deficit and many of those teachers did have performance evaluations that indicated they had well not just in the previous year to them, you know, being fired, but in the years prior to that. Those are people who certainly should be considered.

MALVEAUX: You will rehire those teachers?

GRAY: Well they should be considered for a return. That's what the budget law says, that they should be considered.

People who left because of performance issues, I believe that if you don't perform well and you're given a chance to improve, there has to be accountability and that is you have to leave.

MALVEAUX: So you agree with Michelle Rhee that those -- those teachers should not be allowed back into the school system.

GRAY: If people haven't performed well in the classroom, they should not be teaching.

MALVEAUX: Should Michelle Rhee, when you meet with her next week face to face, will she have a position or a job? Should she keep her job?

GRAY: Well that's something that she and I will talk about. I -- we've connected through voicemails the last couple days. I think she's going to be away for a couple days. I look forward to sitting down with her.

What I think should be remembered is that she and I have worked on education issues over the last three and a half years. We -- I -- when the reform legislation came through the council, which I was happy to support, shepherd it through, we also put education in the committee, the whole which I chair. So I've had education under me the last three and a half years, I know great deal about it, I've worked with Michelle Rhee and I think we'll have a very constructive conversation.

MALVEAUX: It was interesting to notice the election results. They were very much split among -- along racial line as well. A margin of four to one you won in the predominantly black districts, whereas Mayor Fenty, four to one again that major one in predominantly white districts.

What do you do to heal this city and to bring this city together racially?

GRAY: I think, first of all, you reach out and that's what I intend to do.

One concrete thing I intend to do is have a town hall meeting in everyone of our wards across the city. To some extent, I think the people who just don't really know me well and they are people who felt what they were getting was what they wanted. Other people who didn't , you know, who didn't vote for the mayor felt like they wanted a change.

So my job right now is to move to heal this city to bring it together. Four years ago, when I ran for the chair of the council, I ran on a theme of one city. It couldn't be more relevant at this stage and those are the efforts that we'll be making to bring this city together.

MALVEAUX: Now you were portrayed during the campaign as really kind of old school, if you will. Fenty made it a case, a point about your age difference. You at 67, a mature 67; he is now 39 years old, that he was the fresh face of Washington and that he would do things differently, bring about change.

How will you bring about change to this city?

GRAY: I think continue to do the things I've done in the past. I've been a very forward thinking leader, I believe. I was the person who spearheaded universal pre-k in the city. I did the legislation in 2008. We probably will be the first if not, you know, maybe one of the first if not the first jurisdictions in America to say that we have a seat in a public school, publically-supported program for every three and four year old.

I have a broad vision for public education from birth through 24. I intend to move forward to make that happen. So I think if people go beyond the rhetoric and look at my record, they will see somebody who has been very contemporary in the things that I've done.

MALVEAUX: The mayor has a good relationship, he and his wife, Michelle -- the other Michelle, with the Obama family, with the couple in the White House. Do you have a relationship with the Obamas?

GRAY: No, I've met the president on a couple of occasions. I look forward to reaching out to him. There are things that I hope he will do for our city.

MALVEAUX: Has he done enough?

GRAY: No, I think there's more that needs to be done. You know, I want to see him support budget autonomy so that we get to make the decisions about how we spend our own money, rather than the Congress doing that. Legislative autonomy so that the legislation passed by our legislative body locally, you know, becomes law when it's adopted. And help us with voting rights.

We have a lot of progress to be made. I'm a big supporter of Barack Obama and I want to see him step up and help us. This was a city that in the election voted for him to the tune of 93 percent.

MALVEAUX: He has more to do?

GRAY: More to do.

MALVEAUX: Has he called you? Has he congratulated you? Reached out to you? GRAY: I've not heard directly from him. I've heard from a couple people in his administration. I would love to hear directly from the president.

MALVEAUX: Thank you for joining us. Appreciate it good luck to you.

GRAY: Delighted, thank you.

(END VIDEOTAPE)

MALVEAUX: It's not quite as out there as a costume made out of meat, but Lady Gaga is pushing boundaries again, and pushing the buttons of the U.S. Senate.

And terror arrests, more of the pope's historic visit to England.

(COMMERCIAL BREAK)

MALVEAUX: Even if you're not all that familiar with Lady Gaga's music, you probably have at least some passing knowledge of her outrageous costumes and performances. Now, imagine Lady Gaga trying to influence members of a group that's rarely considered cutting edge, that's right, the United States Senate.

Our senior congressional correspondent Dana Bash is here. This is a fun story. This is a crazy story. What is up with Lady Gaga and the Senate?

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: It's a fun story about a controversial issue. Lady Gaga and controversy and shopping, they go hand in hand. Like other Hollywood celebrities, Lady Gaga has been pushing for a long time for a repeal on the Pentagon's "Don't Ask, Don't Tell" policy on gays.

It's a very critical time for the Senate. There's a vote on Tuesday. Activist groups have mobilized for a huge grassroots effort to lobby senators. She posted a lengthy video on her YouTube page, not only to make her case but to show her followers how to get involved. She called her senators from New York -- or she tried to.

(BEGIN VIDEO CLIP)

LADY GAGA: Hi, may I please be transferred to Chuck Schumer's office.

VOICEMAIL OPERATOR: Mailbox belonging to Senator Schumer's office -- is full. Good-bye.

LADY GAGA: I have called both of the senators that operate in my district. I will not stop calling until I reach them.

Our fight is a continuum of the ever-present equal rights movement. Every day we fight to abolish laws that harbor hatred and discrimination against all people, laws that infringe on our civil liberties. (END VIDEO CLIP)

BASH: She's obviously very serious about the issue. It's interesting to hear on YouTube and the click, you know, from the senator's office.

MALVEAUX: She got the antiquated capitol system.

BASH: Yes.

MALVEAUX: Couldn't be more stark. Do we know how that vote is going?

BASH: Democrats in the Senate only have 59 now. They are literally one vote short of the 60 they need to break a Republican filibuster. Nothing is ever straightforward in the Senate. The battle to start debate in the defense bill that authorizes the Pentagon to repeal the "Don't Ask, Don't Tell" policy.

The Republicans are going to block this bill, they say, for several reasons or at least try because the Democrats are holding this vote because they want to have political votes like this to appease key constituents, key constituencies, rather, Suzanne, that really are mad at Democrats for inaction. The gay community is one of them.

MALVEAUX: I have to ask you this before we go. What happened? How did she respond when she couldn't get in touch with her senators? Have we seen another YouTube video? Where does this go from here?

BASH: Where do you think? Twitter. Here's what happened.

Senator Gellibrand saw this video and so she posted a tweet. She said, Lady Gaga, thanks for calling. I couldn't agree more and I'm helping to lead the fight to repeal DADT. Do you have moment to talk later today?

And Lady Gaga tweeted back. She tweeted Chuck Schumer and Senator Gellibrand, thanks for supporting me. It means so much that you support us on this issue. Let's get this passed. Talk Monday?

We'll see if they talk. Reality check, she's preaching to the choir. These are her senators from New York. She's trying to show people how to do this with their own senators but they already support them.

MALVEAUX: I wonder if they'll pay attention to other folks, folks who don't have a following, not like the Lady Gaga, the fame, the outfits, that will be a good test as well. That'll be a good task to see a follow up.

BASH: We'll see, thanks.

MALVEAUX: Fascinating.

We'll have a check of some of the other top stories. What is behind this doctored photo of the Egyptian president? Plus new twists in what was a tense relationship between former President Bill Clinton and California gubernatorial candidate Jerry Brown. Why it seems they're now letting bygones be bygones.

(COMMERCIAL BREAK)

MALVEAUX: Fredricka Whitfield is monitoring some of the top stories coming in THE SITUATION ROOM right now.

Hi Fred, what are you working on?

WHITFIELD: Hello again, Suzanne. Hello, everyone.

Sarah Palin is serving up more reason to think she'll run for president in 2012, the former governor of Alaska and vice presidential nominee is the headliner at a big Republican Party dinner in Iowa tonight. Palin is proving to be the biggest draw ever for the annual dinner in the state that holds the first presidential primary season contest. More than 1,000 tickets have been sold.

And Vice President Joe Biden went to his home state of Delaware today to try to help Democrats hold on to his old Senate seat. He appeared with Democratic nominee Chris Coons who will face off against the Republicans' controversial nominee, Christine O'Donnell. Some Democrats and some Republicans say O'Donnell can't win in November. Biden urged Coons' supporters not to take anything for granted.

If you need any more proof that Bill Clinton has made up with former presidential rival Jerry Brown, well, here it is. Clinton will appear with the California gubernatorial candidate next month. Tensions from their 1992 presidential race resurfaced just last week when Brown joked about Clinton's involvement in the Monica Lewinsky scandal. He later apologized. Suzanne?

MALVEAUX: All right. It looks like they're putting that to rest. Thanks Fred. They're all chummy right now.

Speaking of Bill Clinton, Wolf Blitzer will be sitting down with the former president for a rare one-on-one interview at the Clinton Global Initiative in New York next week. You're going see that interview right here on Tuesday.

Former President Bill Clinton is offering President Obama new advice. You're going to want to hear what he has to say about it.

And comedians Jon Stewart and Steven Colbert are planning major rallies in Washington. The details are up ahead.

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MALVEAUX: Sarah Palin is in Iowa today to headline a key Republican dinner. Could it be a signal she is considering a presidential run in 2012?

Well, joining us to talk about that and more in today's strategy session, two CNN's political contributors, Democratic strategist James Carville and national talk radio show host Bill Bennett. Thank you for being in THE SITUATION ROOM on this Friday afternoon.

Real quick, Sarah Palin going off to headline this Republican Ronald Reagan event this evening. She has been endorsing a lot of tea party candidates and doing fairly well, but does this translate into potential success in Iowa for a presidential bid? Bill?

BILL BENNETT, CNN CONTRIBUTOR: It could. It is possible. Main thing it does is to get some buzz going. She turns out a lot of people. A lot of people like her, and it adds to the conservatives among a lot of Republicans, so it is a good thing.

But remember, we have to do this as we approach Iowa. It is not a lock and not a lock in the Republican Party. George Bush won it, and Reagan got the nomination, and Dole won it, and Bush got the nomination, and Huckabee won it, and McCain got the nomination. We're a long way from that. So it turns out that a lot of people turn out for the dinner and a lot of attention, that is good.

MALVEAUX: James you and I spent a lot of time in Iowa during the campaign and obviously Hillary Clinton, she could bring in the crowds with the best of them all of the time, but ultimately, it didn't translate into getting those votes. What do you think that Sarah Palin needs the do to make that transition?

JAMES CARVILLE, CNN CONTRIBUTOR: Well, also, Obama can draw a pretty fair country crowd in his day. Look, there is no doubt that she is a potent force in the Republican Party, and she is going in and endorsing the candidates, and they are winning.

And you know, I have always thought that she would probably have won, that would be good for the media and CNN and we will see. She is a dynamic force over there, and obviously, she is the biggest draw in the history of that Reagan day dinner which saying something about the power. She is a powerful person.

MALVEAUX: And Bill, despite that she has gotten an awful lot of play, we have seen her with the tea party candidates all of the time, on television and at the rallies, but recently, we have seen the poll numbers and the approval numbers dip. Is she doing herself a disservice here?

BENNETT: Well, I don't know if she is, but she is going around where she is invited and getting healthy fees where she goes, so she is doing what makes sense for her.

MALVEAUX: Is she hurting herself politically do you think?

BENNETT: Well, one of the obsessions is with Sarah Palin is not just the base, but the media. James hinted at the media, love to talk about her, and a lot of people love to criticize her and praise her and she is a fascinating and interesting figure and easy on the eyes and potent force on the party. So --

MALVEAUX: You have James laughing.

BENNETT: Well, I mean -- we can say it is politically incorrect to say so, but it works, you know.

CARVILLE: It is. Yes, no, look, she has -- let me just say this, and I will say, she is a really attractive woman, but on top of that, she's dynamic and you never know what is going to happen with, and come on, she is compelling. I would not vote for her, because of that, but she is compelling as she can be.

BENNETT: Close to an endorsement here. This is close to an endorsement here.

CARVILLE: Not endorsement. I want her to run. I don't think so, but, I think that again, just to watch her, she is the most -- she is very, very compelling. I mean, you can't -- you know. One of the things that makes her compelling, you never know what is going to come out of her mouth next.

MALVEAUX: You are not no trouble here, James. You are on solid ground.

BENNETT: And who do you want to see Jack Greene or Sarah Palin?

MALVEAUX: Let's talk real quick, Bill Clinton gave advice to President Obama entering the midterm elections, and saying, you need to get out there and talk about your record, and what you have accomplished the last two years, and you are not getting across the people.

I want you to listen to what former President Bill Clinton said.

(BEGIN VIDEO CLIP)

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATE: I'd like to see the president going around the country and explain it just like I did, and say, we stopped digging, and then talk about what we have to do now.

How are we going to get out of this? How are America's best days ahead? How are we going to reduce the role of government in the economy and have a private sector that works again?

(END VIDEO CLIP)

MALVEAUX: James, should President Obama be listening to President Clinton, you know, because he has something to learn from the 1994 huge loss to the Democratic Party or should he ignore him for that very reason?

CARVILLE: Well, first of all, I think that any Democrat who does not listen to President Clinton would be not very smart and do so at their own peril. I would listen to him in a phone conversation, but that is, gee, him validating and saying, you need to talk about all of the good things that you did. You don't brag on yourself enough. That is the way for somebody else to brag on you.

It is not a trick, but it is a device to get something out there. And it is not a bad one and President Clinton has been out campaigning for Democrats around the country, but if I were President Obama and I suspected he does, I would probably get his best advice on the telephone as opposed to CNN, but that is my guess.

MALVEAUX: Bill, one of the things that President Clinton does advise President Obama to do is to focus on where the jobs are, the small businesses and try to open up ways to get the cash, the money and loosen it up from the banks and the other financial institutions, and is that where he needs to focus first?

BENNETT: Well, it's a very interesting quote and I will defer to James who is much closer to it. I don't think the review of history suggests it was a great idea when Clinton went out in '94 talking about the contract on America and so on. I don't think that was a successful strategy, but I think the president is right that President Obama should go out and talk in just the way that Bill Clinton described, the role of the private sector and reducing the size of the government, but the problem is that President Obama may choke on those words. Bill Clinton didn't, but Barack Obama might.

MALVEAUX: We've got to leave it there. Bill Bennett, James Carville, thank you both. Have a good weekend.

Terror arrests in Britain, was Pope Benedict in any danger? Stand by for the latest on his trip and the controversy surrounding it.

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