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The Situation Room

White House Fiscal Cliff Meeting Ends; How We Ended Up on "The Cliff"; Awaiting Obama Statement; Secret Eavesdropping to Stop Terrorists

Aired December 28, 2012 - 17:00   ET



Happening now, the uniquely Washington version of Let's Make a Deal. We have the latest from this afternoon's big meeting in the Oval Office.

Who's eavesdropping on your e-mail and cell phone? The government may be. Find out what Congress is quietly doing that has civil libertarians up in arms.

And a plea for help describes horrifying working conditions, but it may be a hoax, and very dirty international politics.

Welcome to our viewers in the United States and around the world.

Wolf Blitzer is off today.

I'm Candy Crowley.


We begin with the latest fallout from this afternoon's big meeting at the White House. Republican and Democratic leaders of the House and Senate met with President Obama to discuss ways to avoid the hundreds of billions of dollars worth of tax increases and spending cuts that hit in just four days.

The meeting broke up about 45 minutes ago.

CNN Radio Capitol Hill correspondent, Lisa Desjardins, awaited the leaders' arrival -- Lisa, let's just talk...


CROWLEY: -- about what we can look for out of this meeting.

Who should we be watching to know if there's any chance at all we could get a deal before the clock strikes midnight on the 31st?

DESJARDINS: Right. I think the key player right now to watch, Candy, is Mitch McConnell, the Republican leader of the Senate.

But I'm happy to say that in the last two minutes, we've been getting more information about this meeting, potentially more information about what's happening next.

Our Capitol Hill producer, Deidre Walsh, was there when some of the leaders returned. And she spoke to Democratic leader, Nancy Pelosi, who said this meeting was constructive and candid.

And here's what's especially interesting, Candy. Nancy Pelosi told reporters that the president led a meeting which ended with Senators Reid and McConnell agreeing to try and work something out between the two of them.

So now it seems like we've gone from a process that was President Obama and Speaker Boehner, and then today to five leaders, back to two. And those two, for the moment, seem to be Senator Reid and Senator McConnell.

Also, I had a source in Senator McConnell's office that I just got off the phone with. He said we should be getting a statement from the Republican leader of the Senate any time now.

So that statement will tell us a lot -- Candy.

CROWLEY: It will, but we also know that even though it's -- it's in the Senate hands -- the Senate hands now, which -- which is basically where Speaker Boehner tossed it once he couldn't get his Plan B...


CROWLEY: -- passed, even by his own caucus, or approved by his own caucus, what -- it doesn't mean that Speaker Boehner is out of the mix, right?


CROWLEY: Because he's still going to have to pass -- whatever they pass in the Senate, he's going to have to have enough votes in the House to get it passed, and, particularly, he -- he needs at least a sizable vote in his own caucus.

DESJARDINS: That's right.

CROWLEY: So he's not entirely out of this, is he?

DESJARDINS: No, not at all. And I think you're familiar with this, and, unfortunately, a lot of our viewers are, too. These are essentially meetings to have meetings to have meetings. The White House meeting today was to try and set up an even smaller group, now Senators Reid and McConnell, to try and work out the very beginnings of a possible deal.

I don't think anyone expects those two senators alone to forge this deal. What they've got to do is try and figure out what can get the votes in the Senate. Then, of course, you would expect them to bring in Speaker Boehner, especially, see whether he can get the votes with his caucus, and then grow from there; bring in, of course, Leader Pelosi. I think it's really meetings to have meetings. They're moving in inches.

We also know Senator Reid, when he returned to the Capitol, also, our producer, Deidre Walsh, was there. She reports that Senator Reid said the next 24 hours are critical -- and, Candy, if you don't mind, that reminds me of something that I heard from Senator Ben Nelson today. If we can, let's play that sound bite.

This was from just a few hours ago.


DESJARDINS: Ben Nelson. And we have -- we don't have that sound bite ready at the moment. I'm sorry about that.

But essentially, what Senator Nelson said was the next 24 hours are the window. If something doesn't happen in this next day, then there may be no chance of getting a fiscal cliff deal by Feb -- by January 1st.

So that's along the lines of what Senator Reid is also saying.

So here we are, critical hours yet again.

CROWLEY: Yes, yet again. They're moving in inches and they are running out of days...


CROWLEY: -- Lisa, as you well know.

We'll get back to you when you get that statement...


CROWLEY: -- from Senator McDonnell.

Thanks so much.

DESJARDINS: You've got it.

CROWLEY: CNN chief business correspondent, Ali Velshi, has a closer look at how lawmakers and Pres -- the -- President Obama got themselves into this mess in the first place.



GEORGE BUSH, PRESIDENT OF THE UNITED STATES: And now we have passed a bold package of tax relief for America's families and businesses.

(END VIDEO CLIP) ALI VELSHI, CNN ANCHOR (voice-over): It starts more than a decade ago, when then President George W. Bush initiated a series of tax cuts for all Americans.

But it's a deal with the devil. The cuts, which are politically expedient, but costly to government, expire in 10 years time.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Both Houses of Congress have now passed a package of tax relief that will protect the middle class.


VELSHI: When it came time for the cuts to expire, the U.S. is just emerging from the worst recession since the Great Depression. So President Obama agreed to extend the tax cuts for two more years, in exchange for Congress extending federal emergency unemployment benefits.

Those cuts are expensive. If they're extended, by 2020, the Bush era tax cuts will be responsible for more than half the total national debt. Democrats insist that taxes go up for the wealthy, but stay in place permanently for those earning less than $250,000 a year.

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: We need to stop the job killing tax hikes and we need to start cutting spending now.

VELSHI: Republicans refuse to play ball. They say no higher rates on the rich, no tax hikes on anyone, based on an ideology that calls for government to be as small as possible. Now, its roots are as old as American politics, but today, the philosophy's main spokesman is this man -- Grover Norquist, president of Americans for Tax Reform. Norquist's pledge, signed by almost all Republicans in Congress, forbids signatories from raising taxes ever, under any circumstances.

Things come to a head in the summer of 2011. Republicans demand the government reduce its deficit as a condition for raising the nation's debt ceiling. Without a deal, the U.S. would lose its ability to borrow money. Both Democrats and Republicans deploy scorched earth tactics that nearly shut down the government and, ultimately, cost America its AAA credit rating for the first time in history.

But in a last minute compromise, both sides agree to a trillion dollars in spending cuts up front, and another $1.2 trillion in cuts to be decided by a special Congressional super committee.

But a poison pill was attached. If the super committee can't reach a deal, automatic across the board cuts, known as the sequester, would go into effect starting January, 2013, at the exact moment when those Bush tax cuts, extended for two years, if you remember, would expire. So the point is we could have all seen this coming. And some of us did. We yelled at the top of our lungs about it, but we were drowned out by the election. It seems common sense and good governance often get drowned out by seemingly endless and continuous elections in America. This time, there may be a serious price to pay for it.


CROWLEY: If we go off the fiscal cliff, will you notice an immediate change to your wallet?

We want to get a reality check from Stephen Moore.

He's a member of "The Wall Street Journal's" editorial board and author of "Who's the Fairest of Them All?: The Truth about Opportunity, Taxes and Wealth in America."

Stephen, thanks for being here.

So we have spent six month talking to lawmakers, Republican and Democrat, going, this can't happen. If -- we can't go off the fiscal cliff, we've got to meet this deadline.

Now what we're hearing, it's not that bad, you're not going to really feel an impact, we've got time.

Which is it?

STEPHEN MOORE, EDITORIAL BOARD MEMBER, "THE WALL STREET JOURNAL": Look, I don't think it's the end of the world if we go over this cliff. And I do think it would probably get resolved in the weeks ahead.

But this is kind of a black eye, I think, for our whole political system, if -- if -- just think about this. Here we are, what, two or three days away from the start of the year, without any American business or investor or worker knowing what the payroll tax is going to be, what the income tax is going to be, the investment taxes are going to be. I mean this just isn't a -- a very good way to run a country. And it's almost like banana republic politics.

CROWLEY: It's good -- my dad used to say, no way to run a railroad.

MOORE: That's exactly right.

CROWLEY: Nor is it a way to run a government.

Does the I -- let's talk, first, about a couple of things, this whole idea that tax rates on everyone will go up.

Does the IRS, does the Treasury Department have the ability to sort of say, look, here's some guidance, keep -- keep -- keep withholding where it is? MOORE: Well, the IRS is in turmoil right now. They don't know what to do. They're putting out kind of mixed signals about whether they can get the tax forms done, whether they can advise businesses what to do.

Now, I do think, for those people who are really worried, the middle class people who are worried about their tax bill going up, I do think if we don't get this solved in the last day -- and I think, actually, there's a decent chance we may get a resolution to this on -- on December 31st.

But if we don't, I think some time in January, I do think there will be some resolution. And I think what Republicans said -- and I think even the president would go along with this -- is whatever we decide to do, let's make the tax cuts retroactive to the first of the year, so people aren't going to face that giant tax increase.

CROWLEY: But what does that first paycheck look like two weeks...

MOORE: It could...

CROWLEY: -- into January?

MOORE: -- it could be -- you know, you could have that additional money withheld from your paycheck, because the law changes. The -- the tax law changes, so that everyone's tax rates -- this is assuming we do go over the cliff. Everyone is facing a higher tax increase, not just Bill Gates, not just Warren Buffett, but anyone with an income over about $25,000.

And don't forget, by the way, the payroll tax goes up, too. Remember, we did that payroll tax...


CROWLEY: The -- the money taken out for...

MOORE: So every worker is going to get hit.

CROWLEY: -- Social Security taxes...

MOORE: Yes, exactly.

CROWLEY: -- which doesn't, no one's talking about. So that says to me, those are going back up anyway.

MOORE: Probably.

CROWLEY: That's about a thousand dollar cost...

MOORE: Probably.

CROWLEY: -- for an average family.

MOORE: And that's a big hit, too. Yes. CROWLEY: Right.

So -- so let me ask you, the -- there's the actual what will happen on January 1st. And it doesn't sound like people have to worry about, you know, their taxes and -- most people.

But what about the psychological impact?

Haven't we already seen it in Christmas buying?


CROWLEY: Haven't we already seen it in hiring?

Won't we continue to see it?

You know, won't consumer confidence take a hit?

Won't businesses still say, I don't know, I don't know what's happening...

MOORE: It already has.

CROWLEY: -- and I don't want to hire?

MOORE: It already has, Candy. You've seen it, you know, we -- this year's Christmas shopping season was lackluster at best. You mentioned businesses. I talk to small businessmen and women all the time. They say we're not hiring now, we're -- we're just canceling a lot of our plans to make new expenditures, which you need to do if you want a vibrant economy.

And, of course, you know this, Candy, where have we really seen the impact?

In the stock market, in the last couple of weeks.

So, yes, this -- this is not a good way to run a railroad. And the economy is already taking a hit because of all of this turmoil in Washington.

And -- and, as I said, I think -- you know, look, I'm a Republican, but I think both parties take a black eye here, because nobody comes out of this looking very good.

CROWLEY: Yes. I mean our polling all shows that the Republicans will take the biggest hit.


CROWLEY: But if you're going to take a political hit, do it at the end of an election season rather than in the middle.

MOORE: That's true.

CROWLEY: So, you know, who knows how much... MOORE: And, by the way...


MOORE: -- the economy takes the hit. If we get -- you know, there are a lot of economists who believe -- I guess I'd put myself in this -- in this camp. If we don't get this resolved for several months -- and, you know sometimes these political fights go on and on. This is at the core of what these two parties believe in.

I do think that -- that these tax increases could possibly cause a dreaded double dip recession. And that would really hurt families.

CROWLEY: So when -- if we don't have to push the panic button New Year's Day...

MOORE: Right.

CROWLEY: -- when is it?

When does it become...

MOORE: It progresses...

CROWLEY: -- (INAUDIBLE) you're sitting at home looking at this, thinking what's going on?

When does that person in Peoria or Boise feel the effects?

MOORE: I think starting at the end of the month, next month (INAUDIBLE)...

CROWLEY: The end of January.

MOORE: -- these guys can't get it together, we're going to have to totally change our family finances, because we don't know how much taxes we're going to pay. For the average middle class family, Candy, we're talking about, through the year, a $2,000 to $2,500 increase in their tax bill.

CROWLEY: Yes, that's plenty.

Stephen Moore, who, by the way, thinks that they still can get a deal...

MOORE: Yes. I...

CROWLEY: -- before the end of the year...

MOORE: (INAUDIBLE) what a great New Year's Day that would be.

CROWLEY: -- the last remaining optimist in Washington, DC.

Thank you for joining us, Stephen.

MOORE: Thank you. CROWLEY: I appreciate it.

That meeting at the White House has broken up. We are beginning to get little bits and pieces from the Capitol Hill attendees. We are told that the ball now appears to be in the court of Senator Reid, who is the Democratic leader in the Senate, and Senator Mitch McConnell, who is the Republican leader. We are also told that Speaker Boehner made it plain in that meeting at the White House that he wouldn't bring anything up for a vote until it first passed the Senate.

We want to bring in our sen -- our chief White House correspondent, Jessica Yellin -- Jessica, what are you picking up?

What's the -- what's the next thing we're going to see unfold?

JESSICA YELLIN, CNN CORRESPONDENT: Well, everybody is getting their word in. And the next person to speak will be President Obama. He will be speaking in the Briefing Room at 5:45 this evening. That's about half an hour from now.

I would expect, just based on how he's handled situations like this in the past, it probably will not be a very lengthy statement. My expectation would be he would probably in -- remind the American people and members of Congress that there is not much time to go, that they have the basics for a deal and urge everybody to get this done quickly.

But we will hear what the president is -- what he has on his mind in just under 30 minutes now. So we can wait until he says it himself -- Candy.

CROWLEY: Yes. Even if he talks briefly, you always can read a lot in -- he picks his words very carefully. So I suspect, Jessica, we're going to get kind of the tone of that meeting.

YELLIN: From his body language, from his mood, yes. We've seen him come out of these meetings and speak to the press before and convey a sense of deep, deep frustration in the past. And we've also seen him come out with a sense of positive optimism. So we'll wait to read the tea leaves.

You know, so far, not a whole lot of optimism, but, well, maybe things will change. We can always hope.

CROWLEY: We can.

Jessica Yellin, we will see you in a bit.

Thanks very much.

The government's ability to eavesdrop on your conversations -- the bill that opponents say is too secretive, supporters say America needs to get terrorists -- details next.

Also, why parts of a transportation lifeline are in danger of shutting down. (COMMERCIAL BREAK)

CROWLEY: This is Senator Mitch McConnell. He's the Republican leader in the Senate.


SEN. MITCH MCCONNELL, R-KY, MINORITY LEADER: In the hopes that we can come forward as early as Sunday and have a recommendation that I can make to my conference and the majority leader can make to his conference. And so, we'll be working hard to try to see if we can get there in the next 24 hours. And so, I'm hopeful and optimistic.

SEN. HARRY REID, D-NV, MAJORITY LEADER: I'm going to do everything that I can. I'm confident that Sen. McConnell will do the same. But everybody, whatever we come up with, it's going to be imperfect and some people aren't going to like it. Some people like it less, but that's where we are. And I feel confident that we have an obligation to do the best we can and that was made very clear in the White House.

We're going to do the best we can for the caucuses that we have and the country that's waiting for us to make a decision.


CROWLEY: So, that was the U.S. Senate floor. Obviously, that was Sen. Harry Reid you just saw. What the two of them basically said was what we had learned from the meeting from other places and that is that over the next 24 hours, we may learn whether there's going to be a deal or whether this is going to bleed on over into 2013.

It is now up to Senator Reid and Sen. McConnell, too, as you heard Sen. McConnell say, it's going to be something I can sell to my caucus and it has to be something he can sell to his. And then, you heard Senator Reid said, look, it's going to be imperfect and some people aren't going to like it. They think that much we knew already.

So, 24 hours, those two men trying to come up with something that will not just pass their caucuses, but also passed by enough in the House to avoid this fiscal cliff. So, we will keep you abreast of that again. We expect to hear from the president at 5:45 eastern time this evening in about, what is it, 15 -- 25 minutes.

Now, despite what you might think, Congress is getting some work done. Today, the Senate approved and sent President Obama a bill that reauthorizes secret eavesdropping on people's electronic communications in search of possible terrorists. In doing so, lawmakers brushed aside concerns about violating everyone else's privacy. CNNs Brian Todd joins us for a closer look -- Brian.

BRIAN TODD, CNN CORRESPONDENT: Well, Candy, with all the buzz around the fiscal cliff, this did not get much attention until today. The vote in the Senate was not close and without much fanfare. One of the most hotly disputed tactics on the war on terror will keep right ongoing. (BEGIN VIDEOTAPE)

TODD (voice-over): He ordered it just after 9/11 and it became one of the most controversial tactics used by former president, George W. Bush, and his security team to fight the war on terror. The secret wire tapping without warrants of communications between U.S. residents and people overseas suspected of being terrorists.

It drew fire because, sometimes, the communications of innocent Americans got caught up. In 2008, the practice was authorized by Congress but with limitations. A warrant is now required to target an American, including Americans who are abroad. But it's still a hugely controversial program, and the Senate just approved the five-year extension of it. It'll be signed by President Obama.

JULIAN SANCHEZ, CATO INSTITUTE: Something with an enormous potential for abuse certainly given rather ugly history of the use of intelligence surveillance for illegitimate political purposes under presidents of both parties over many decades.

TODD: Julian Sanchez and other civil libertarians believe there are still way too many innocent people being monitored. Members of Congress who oppose the extension say this classified program is also too secretive and they pushed for more disclosure.

SEN. RON WYDEN, (D) INTELLIGENCE COMMITTEE: I think we ought to know whether for purposes of the fights on amendments act, you know, generally, how many Americans are being swept up under the legislation.

TODD: But there won't be more disclosure because that got voted down. Dianne Feinstein, the Democrat who chairs the Senate Intelligence Committee, warned that shedding more light on who's being surveilled would destroy the wire tapping program, which she says has worked well.

SEN. DIANNE FEINSTEIN, (D) INTELLIGENCE CHAIR: In four years, a hundred arrests to prevent something from happening in the United States, some of which comes from this program. So, I think it's a vital program.

TODD: Conservative analyst, Cliff May, says a wide dragnet is worth the cost.

CLIFF MAY, FOUNDATION FOR DEFENSE OF DEMOCRACIES: Let's suppose you're a Pakistani immigrant here. You don't have your green card yet. You call your uncle in Lahore, yes, you could get caught up and maybe your uncle is just a tailor in Lahore, but if he's a member of the Taliban, it's true, maybe, there's going to be somebody in the federal government who thinks we need to ask some questions of this person.

TODD: But if you're the person here talking to the uncle in Lahore and you're completely innocent, you're still caught up in this -- MAY: You're not caught up in the sense you're going to jail. You're not caught up in the sense that anything bad is going to happen to you.


TODD (on-camera): But there are concerns about that. Civil libertarian, Julian Sanchez, points out the national security agency which does most of this surveillance has a massive new data center in Utah where it stores all of its intercepts, even innocuous communications. Sanchez worries that in the future, anyone with a security clearance who has ill intentions could access that data center and pull private communication of innocent people.

Now, in response to that concern, we contacted the NSA. A spokesperson for that agency e-mailed us this statement about that data center in Utah, quote, "Its operations will be lawfully conducted in accordance with U.S. laws and policies. Without a doubt, one of the biggest misconceptions about NSA is that we are unlawfully listening in on or reading e-mails of U.S. citizens. This is simply not the case."

NSA is unwavering in its respect for U.S. laws and American's civil liberties -- Candy.

CROWLEY: And Dianne Feinstein, as you said, the chairman of the Senate Intelligence Committee has issued her own reassurances about Americans being, you know, spied upon.

TODD: She has. She issued a statement today saying that this program has strong privacy protections in her committee. The intelligence committee is going to conduct what she calls, quote, "intensive oversight". Still, a ton of sensitivity about this program, Candy. Look, seven years after President Bush -- after we found out that President Bush and his team were doing this, very controversial then. It remains controversial.

CROWLEY: Certainly does that, although, a lot of other things really did sort of shove it off the center stage.

TODD: Right under --

CROWLEY: Thanks so much, Brian Todd. Appreciate it.

Even after the cleanup, this week's snowstorm will leave behind some new entries in the record book. Stand by for the latest.


CROWLEY: You are looking at a split screen actually of the exterior of the White House as well as the press briefing room. Reporters starting to gather there, and that's because the president is expected in that briefing room at 5:45 p.m. eastern time. A little over 20 -- a little under 20 minutes from now to give his version of what went on in the meeting he just held with leaders on Capitol Hill. We do know that it has now been put to the Senate leader to try to come up with some sort of compromise. We're going to get the president's version of what went on.

We've just learned now some sad news. That victim of the gang rape in India has died. Lisa Sylvester is monitoring that and some of the other top stories in the SITUATION ROOM right now -- Lisa.

LISA SYLVESTER, CNN CORRESPONDENT: Yes. This is just one of those really terribly sad stories, Candy. Officials say the 23-year- old woman who suffered a gang rape and severe injuries on a New Delhi bus two weeks died a short while ago at a Singapore (ph) hospital. Earlier, they said she was experiencing organ failure. Her attack led to mass protests across India where reported rape cases have increased drastically over the last 40 years.

And former South African president, Nelson Mandela, is home after a long hospital stay. In an exclusive interview with CNN, his granddaughter said he's well, alert, and playing with his grandchildren. She says social media rumors that Mandela is, quote, "close to death." All those rumors are hurtful, and she asked them to stop.

The Nobel Prize winner now in his 90s was hospitalized for a lung infection and gallstone surgery.

And OK. Have you had enough of snow? I know winter is just started, but snow now covers 65 percent of the lower 48 U.S. states and more could be on the way this weekend. Forecasters are predicting two to four inches from the Midwest to New Jersey. The northeast could even see more.

In Montreal, they are digging out of an all-time daily record, storm dump (ph) a whopping of 17.7 inches of snow, which is unbelievable. But I'm sure a lot of people who have the holiday plans, the New Year's Eve plans are going to be keeping a close eye on the weather, Candy.

CROWLEY: Yes. Good news for skiers, but by the way, all that snow and not a flake in Washington on the ground.


SYLVESTER: Well, we're supposed to get some precipitation tomorrow morning. So, we'll see what happens with that, Candy.

CROWLEY: Thanks, Lisa.

And now, a desperate plea reinforces what many fear about working conditions in China, but here's the rub. It may be a hoax.


CROWLEY: The U.S. government is investigating a claim that may be nothing more than a hoax but even if these specific allegations are disapproved, they speak to a larger concern about working conditions in China.

A return appearance here from CNN's Lisa Sylvester.


Because you've been asking questions about this story.

LISA SYLVESTER, CNN CORRESPONDENT: Yes. And the first thing that we should say is, you know, is it a hoax or is this a cry for help. It is a letter purportedly from a Chinese labor camp tucked in the most unlikely place and now this letter is getting lots of attention online.


SYLVESTER (voice-over): Julie Keith says she found the letter in a box of Halloween decorations. The Halloween graveyard kit sat in her storage room for about a year until she dusted it off in October and when she opened it all she could say was wow.

JULIE KEITH, UNCOVERED LETTER: It was definitely hidden. The -- the headstones were, you know, approximately 18 inches tall, 12 inches wide and there were two of them put together and the note was slipped in the middle of them. And then that whole package was wrapped in sealed cellophane.

SYLVESTER: The note written in a neat hand with some broken English says, "Sir, if you occasionally buy this product, please kindly re-send this letter to the World Human Rights Organization." The letter goes on to say the product was produced by the Masanjia Labor Camp in Shenyang, China. "People who work here have to work 15 hours a day without Saturday, Sunday break, and any holidays. Otherwise they will suffer torturement, beat, and rude remark."

Julie Keith posted the letter on her Facebook page asking friends what should she do with it. She has since turned over the letter and the box it came in to Immigration and Customs Enforcement. The case is under investigation.

It is illegal under U.S. law to import products made by forced labor. Keith is convinced the letter is real but neither CNN nor U.S. officials have been able to confirm its authenticity. Still, the letter is generating a look at China's controversial labor camps. A U.N. Human Rights Council report estimates that about 190,000 Chinese are in labor camps. The offenders are often accused of petty crimes and can be detained up to four years without any judicial process.

CNN's Beijing bureau chief Jaime Florcruz has written about the camps.

JAIME FLORCRUZ, CNN BEIJING BUREAU CHIEF: The idea is they are being allowed to work or being re-educated through labor while under detention. There has been a push by some sectors in China to reform or even rescind such labor camps.

SYLVESTER: There is a Masanjia Labor Camp. The Chinese embassy in Washington did not return CNN's calls but an official in Beijing who did not want to be identified told us it's unlikely the letter is legitimate because the labor camps make products for the local Chinese market, not destined for overseas.

The Halloween decoration was marketed and sold under the K-Mart brand. K-Mart's parent company Sears Holdings released a statement saying its vendors and suppliers comply with local laws, adding, quote, "Although we found no evidence that production was subcontracted to a labor camp during a recent audit of the factory that produced the Halloween decoration, our investigation continues."


SYLVESTER: And Immigration and Customs Enforcement confirmed it is also looking into these allegations as well, but typically these investigations, they can take months because you have to follow the production line. A company may have a contractor who uses a subcontractor who in turn uses another subcontractor, and so it might take quite a bit of time, Candy, before we get to the bottom of all of this.

CROWLEY: That's interesting because the letter might be a hoax but the problem we know is all too real.

SYLVESTER: The problem is very real. I mean -- and it's not so much whether or not this woman, you know, made up this letter. That's not what Immigration and Customs Enforcement thinks but, you know, that somebody in the production chain, maybe it was in the packaging or somewhere else slipped this in as opposed to coming in from a labor camp. And who knows? Again, that's just going to take some time, Candy.

CROWLEY: To be continued. Thank, Lisa.

Opposition activists in Syria report at least 101 deaths in today's fighting. But there's also an important sign Syrian President Bashar al-Assad may be losing the support of one of his most important backers, Russia, which has vetoed get tough resolutions in the U.N., now wants to talk things over with the leader of the Syrian opposition.

Joining me now is Nick Paton Walsh to talk a little more about this story.

So, Nick, we've got this Russian plan from a purely diplomatic point of view. Is there any chance they can get agreement on it?

NICK PATON WALSH, CNN INTERNATIONAL CORRESPONDENT: It already is facing problems. We've heard from the Syrian political opposition's leader, Moaz al-Khatib, that he's happy to talk but doesn't want to go to Moscow. He wants to go to an Arab state with a clear agenda. We hear the Egyptians standing along side Sergey Lavrov earlier saying they want to see this plan result in Bashar al-Assad leaving power.

And then the three Syrian army on the ground themselves saying they want no truck (ph) with negotiations at all but it's simply buying time for Bashar al-Assad to kill more Syrians in their eyes.

So it's already facing severe problems, Candy, but I think the net result of this in the eyes of many observers was never really about getting these names on the paper to try and negotiate a peaceful end to this settlement. What it does is show that the Russians who have, for the past two weeks, been disparaging the potential future of Bashar al-Assad as the leader of Syria and now willing both to talk to the opposition and perhaps maybe through this unsettle those around Assad who may have been waiting for that moment to perhaps turn tail and flee -- Candy.

CROWLEY: So it is progress of some sort, certainly it sounds like, even if it's not the agreement itself. So I guess the question is, if the men in suits, the diplomats arrive with a plan, are the rebels on the ground or, for that matter, the government troops on the ground going to listen to them?

WALSH: That's your major problem at this moment in time. The political leadership, these diplomats take shuffling have been going on for months now, very little fruit from that itself. And then there's the question, of course, yes, will that apply, too, on the ground at all. The Free Syrian Army all saying they don't want anything to do with this. But that's just one spokesman for a very fractured movement that's already bickering amongst itself.

So it is highly unlikely that now the rebels in the ascendancy at the moment moving to take a key air base that might perhaps actually cut off much of their ability of the regime to supply forces in the north and give them much better control over top of the country that they would suddenly agree to negotiate a settlement.

For them it's about removing Bashar al-Assad violently ending him and his regime, and I think this particular bout diplomacy may serve to weaken Assad but certainly not negotiate his departure -- Candy.

CROWLEY: So I take it from all this, Nick, that we are certainly not there in terms of peace for Syria. This has been going on for some time.

Nick Paton Walsh, thanks for watching this for us. Have a good new year. We will talk to you on the other side.

OK. What we are -- just to wrap up what's going on with the fiscal cliff negotiations, we know there was a meeting at the White House today between the president and the top four leaders in Congress.

That is the White House Briefing Room and the reason you see all those reporters that in about six and a half minutes we expect the president to appear to give us his version of what went on during that meeting. We do know that the ball now appears to be in the court of the Senate where the two top leaders, the Republican and the Democrat, will try to work something out in the next 24 hours. Of course CNN is going to carry this live so stick with us again, 5:45 p.m. Eastern Time. Several minutes from now.

We expect to hear the president's side of what went on in that White House meeting with the four leaders on Capitol Hill.

We'll be right back.


CROWLEY: President Obama is about to make a statement about his meeting with congressional leaders this afternoon. On the right hand side of your screen, of course, is the press room inside the White House. They're waiting -- we've got, you know, three or four more minutes. But this thing -- time is a little fungible at the White House sometimes. So we expect it in the next several minutes.

Right now I want to bring in our Lisa (INAUDIBLE) who is up on Capitol Hill.

And we already have a little bit about -- what went on, Lisa. What can you tell us?

LISA DESJARDINS, CNN RADIO CAPITAL HILL CORRESPONDENT: Right. It sounds like what happened is the president went in with sort of his own plan A and plan B in that meeting. We've heard this from reporting from Jessica Yellin that the president was going to again present the same deal he offered in the past week. And if Republicans didn't like that and also didn't have a counterproposal, he was going to demand an up-or-down vote.

Well, what's interesting, Candy, is it didn't get to that point. Instead of the president pushing for that up-or-down vote, which sounds to me like it was sort of a do-or-die, last tactic, it didn't get there. Instead, these five -- these four men and one woman decided that they still had one last chance, that they talked over various ideas, various possible proposals.

And in the end because it seems the fate of this fiscal cliff deal rests with the Senate acting first -- we know that from the House speaker and also just because of procedure -- they decided that the two lead senators should in fact meet and try and figure out a deal that can pass that body first.

This is the first progress we've had actually in weeks but of course we don't know what will come of it. Senators Reid and McConnell now have about a day, maybe a little bit more, to try and come up with a deal.

And, Candy, we've just been getting from the Senate radio/TV gallery an idea of the schedule. It sounds like the Senate may not come in tomorrow, which makes a lot of sense because Senators Reid and McConnell have to figure out a potential deal behind closed doors and then the Senate may reconvene Sunday around lunchtime. That's a potential plan. It's set in stone yet but that's what we're hearing for now.

CROWLEY: Lisa, stick with me a bit. I want to bring in our chief White House correspondent Jessica Yellin.

Jessica, have you been able to pick up any intel at all or are we now just awaiting the president's word?

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: Hi, Candy. I do have a little bit of information and we are still awaiting the president. I'm told from a source familiar with the meeting that it was -- this will come as a surprise to you -- constructive but this person also said that the president did, as we expected, according to a source, outline the proposal to increase taxes for those people -- households who make more $250,000 or more and extend unemployment insurance.

And the president reiterated that he believes that this measure could pass both the House and the Senate. But he asked McConnell -- Republican Senate minority leader Mitch McConnell and Speaker Boehner what they wanted to do, how they wanted to proceed, and I'm told the central sticking points from this source's perspective were -- regarding tax rates, in other words, at what level taxes should increase. And the estate tax, whether there would be a specific to keep the estate tax from going up.

Now, as we know, Reid and McConnell are going to work out an agreement. But the next element of this is that the president, I'm told, said that if Senators Reid and McConnell cannot come to a deal, that the president did ask that Republicans allow his alternate proposal to come to a vote, the $250,000 measure, because the White House believes and Democrats broadly believe that that could pass in both the House and the Senate -- candy.

CROWLEY: So Jessica Yellin watching this from the White House as we await the president.

I want to give you a couple of statements that we got up on Capitol Hill. These from Senator Reid and Senator McConnell, the respectively majority and minority leaders in the Senate. The two men who are going to be talking over the next 24 hours to try to fix this fiscal cliff thing.

Here's what they had to say.


SEN. HARRY REID (D), MAJORITY LEADER: We had a long meeting in the White House it was very constructive. We hope that it will bear fruit, that that is what we hoped a lot. I think that the next 24 hours will be very instructive as to what we're able to accomplish.


UNIDENTIFIED REPORTER: Was there discussion of a concrete proposal?

REID: We talked about a lot of things. There's no concrete proposal at this time. We have a number of different directions we're going to try to take and we're going to see what can be worked out.

SEN. MITCH MCCONNELL (R), MINORITY LEADER: The White House, we are engaged in discussions, the majority leader and myself and the White House, in the hopes that we can come forward as early as Sunday and have a recommendation that I can make to my conference and the majority leader can make to his conference, and so we'll be working hard to try to see if we can get there in the next 24 hours. And so I'm hopeful and optimistic.


CROWLEY: Wow. Hopeful and optimistic. That sounds pretty good.

I have standing by with me here waiting for the president's version of what went on in that meeting, our chief White House correspondent Jessica Yellin, and CNN Radio Capitol Hill correspondent, Lisa Desjardins.

Jessica, first to you. Honestly, I thought this was the -- they're not calling each other names, which yesterday was going on, and, you know, optimistic and hopeful sounds about as good as it's gotten.

YELLIN: Yes. There were more positive noises coming from all sides right now. And we are all looking for tea leaves to read so that is encouraging. But I don't know, given the amount of time left and the pressures on every party involved, if positive and hopeful is enough at this time.

CROWLEY: Might not get us there.

YELLIN: Yes. Might not get us there. I will also add that some Republicans are insisting that there was never a discussion of this $250,000 or a proposal coming to the floor. There's a dispute over that. So maybe the president will clarify that in his remarks. Not surprising that not all sides agreed to even what happened in a meeting -- Candy.

CROWLEY: No, we shouldn't be surprised by that.

Lisa, let me bring you back in. From the point of view on Capitol Hill, what do we look for next? I mean, these two men, obviously they don't have to be in the same room but in kind of from the next 48 hours we're sort of at a standstill here.

DESJARDINS: Right. I think what we're going to be looking for, at least what my life is probably going to be like in the next day, will be standing outside of doorways, seeing who's going to whose offices, making a lot of phone calls, seeing if these two leaders are meeting in person or over the phone. I think we're going to be waiting until -- just a guess here, Candy, of course, Sunday morning until we see the full presentation of something.

When he's speaking on the floor, Leader McConnell said the earliest that he thinks they could present something is Sunday. And of course as I reported, we don't expect the Senate to necessarily be in session tomorrow. The senators may have the day off except for the two working on this deal.

So I think we're going to try -- everyone will be fighting furiously to get all the details. We'll fit all the calls we can to our sources, but with these -- just these two men and their staff trying to work this out for time being, we may not get any details of an emerging deal until as soon as -- as Sunday.

CROWLEY: So there still is time, Jessica, for this but it cannot be and will not be that kind of mega deal that everybody thought might be possible months ago?

YELLIN: No, that's right, Candy. And that's a big disappointment here at the White House and on Capitol Hill. It will not -- even if they get this done it will not include broad tax reform. It will not include measures to bring down the deficit over the next 10 years.

What any smaller deal at this point might include -- would include is some way to extend low tax rates for middle income Americans. The White House is insistent it would include a way to extend unemployment benefits perhaps the Republicans insistent some way to keep down estate tax rates and then other more sort of in the weeds issues that involved how doctors who accept Medicare are paid and patches in the tax code. We would have to put off to another day the biggest issues of tax reform of deficit reduction -- Candy.

CROWLEY: Yes, the so-called doc fix is certainly one of those things important in the medical community and important to patients who are on Medicare because it involves how much money the doctors actually get for treating a patient.

Lisa, let me bring you in. We should say we expect to see the president in less than a minute. But Lisa, the other thing that can't be in this is anything about entitlements. And that's the huge issue for Republicans.

DESJARDINS: Right. We had just a news conference today, the only Republicans that came to the mic today -- came to the microphone to talk about entitlements here on the Senate side, about Medicare. They see that as the gaping hole in the United States budget and many of them are frustrated that so far there really has not been any specific plan from the White House to try and deal with it.

Also remember, Candy, unemployment benefits run out tomorrow. So the fiscal cliff actually starts tonight.

CROWLEY: And, Jessica, it was an interesting statement put out recently by a Republican thinker who said that he thinks the president -- actually -- and speaking of the president, there he is.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Good afternoon, everybody. For the past couple of months, I've been working with leaders of both parties to try and forge an agreement that would grow our economy and shrink the deficit. A balanced plan that would cut spending in a responsible way but also ask the wealthiest Americans to pay a little more. And above all, protect our middle class and everybody who's striving to get into the middle class.

I still want to get this done. It's the right thing to do for our families, for our businesses and for our entire economy. But the hour for immediate action is here. It is now. We're now at the point where in just four days, every Americans' tax rates are scheduled to go up by law. Every American's paycheck will get considerably smaller and that would be the wrong thing to do for our economy.

It would be bad for middle class families and it would be bad for businesses that -- depend on family spending. Fortunately, Congress can prevent it from happening if they act right now. I just had a good and constructive discussion here at the White House with Senate and House leadership about how to prevent this tax hike on the middle class. And I'm optimistic we may still be able to reach an agreement that can pass both Houses in time.

Senators Reid and McConnell are working on such an agreement as we speak. But if an agreement isn't reached in time between Senator Reid and Senator McConnell, then I will urge Senator Reid to bring to the floor a basic package for an up-or-down vote, one that protects the middle class from an income tax hike, extends the vital lifeline of unemployment insurance to two million Americans looking for a job and lays the groundwork for future cooperation on more economic growth and deficit reduction.

Guys, I can hear you over here.

I believe such a proposal could pass both Houses with bipartisan majorities, as long as those leaders allow it to actually come to a vote. If members of the House or the Senate want to vote no, they can. But we should let everybody vote. That's the way this is supposed to work. If you can get a majority in the House and you can get a majority in the Senate, then we should be able to pass a bill.

So the American people are watching what we do here. Obviously their patience is already thin. This is deja vu all over again. America wonders why it is that in this town, for some reason, you can't get stuff done in an organized timetable, why everything always has to wait until the last minute. We all were now at the last minute. And the American people are not going to have any patience for a politically self-inflicted wound to our economy, not right now.

The economy is growing, but sustaining that trend is going to require elected officials to do their jobs. The housing market is recovering but that could be impacted if folks are seeing smaller paychecks. The unemployment rate is the lowest it's been since 2008. But already you're seeing businesses and consumers starting to hold back because of the dysfunction that they see in Washington.

Economists, business leaders, all think that we're poised to grow in 2013, as long as politics in Washington don't get in the way of America's progress. So we've got to get this done.

I just want to repeat. We had a constructive meeting today. Senators Reid and McConnell are discussing a potential agreement where we can get a bipartisan bill out of the Senate over to the House and done in a timely fashion so that we met the December 31st deadline.

But given how things have been working in this town, we always have to wait and see until it actually happens. The one thing that the American people should not have to wait and see is some sort of action. So if we don't see an agreement between the two leaders in the Senate, I expect a bill to go on the floor -- and I've asked Senator Reid to do this. Put a bill on the floor that makes sure that taxes on middle class families don't go up, that unemployment insurance is still available for two million people, and that lays the groundwork then for additional deficit reduction and economic growth steps that we can take in the new year.

But let's not miss this deadline. That's the bare minimum that we should be able to get done. And it shouldn't be that hard since Democrats and Republicans both say they don't want to see taxes go up on middle class families.

I just have to repeat, outside of Washington, nobody understands how it is that this seems to be a repeat pattern over and over again. Ordinary folks, they do their jobs. They meet deadlines. They sit down and they discuss things and then things happen. If there are disagreements, they sort through the disagreements.

The notion that our elected leadership can't do the same thing is mind-boggling to them. It needs to stop. So I'm modestly optimistic that an agreement can be achieved. Nobody's going to get 100 percent of what they want. But let's make sure that middle class families and the American economy and in fact the world economy aren't adversely impacted because people can't do their jobs.

All right? Thank you very much, everybody.


CROWLEY: President Obama's take on what went on, modestly optimistic after constructive talks, I believe that was the -- those are the quotes.

I have with me, Ron Brownstein, CNN contributor.

You know, Ron, it's not how it works in Washington, the straight up-or-down vote.



CROWLEY: And when he said, well, straight up-or-down vote, that's how it should work. But it's not how it works in Washington.

BROWNSTEIN: It hasn't for a long time.


BROWNSTEIN: Look, there are two separate things here. There's the filibuster in the Senate. But what is even a bigger obstacles is what is known informally as the Hastert rule in the House, which says that the majority party will not bring a bill to the floor unless it has support from a majority of the majority. And it has always been hard to see, Candy, a bill that a majority of House Republicans would vote for that would be acceptable to President Obama.

So in many ways, I felt for really months that the only two choices were going over the cliff or abandoning that Hastert rule and John Boehner being willing to bring up a bill that -- that would pass primarily with Democratic votes, that won't be opposed by a majority of Republicans. Still not sure he's there but it did sound, you know, a little more optimistic on the relative gauge that we've had than we've seen in the last couple of weeks.

CROWLEY: So the next step they're going to -- they're now running out of venues to discuss this.


CROWLEY: They've discussed this at the White House. They tried to get a deal between Speaker Boehner and the white -- and President Obama. Now it's gone to the Senate. And we're going to see Harry Reid and Mitch McConnell try to work something out. And after that, they have run out of both time and places to go for a deal.

BROWNSTEIN: Right. Right. And look, I mean, you know, most of the time, when there's stalemate, it probably is tougher for the Democrats than Republicans because Democrats are the party of activist government. They want things to happen. When things don't happen, they're kind of the loser. In this case, it is hard to see how the Republicans are better off after the --after the -- after the cliff, if we go over.

CROWLEY: We're going to have more right after a quick break.