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The Situation Room

Fiscal Cliff Rhetoric; Obama Meets With Romney; Interview with Israeli Ambassador to the United States Michael Oren; Before the Cameras Versus Behind Closed Doors; America's Next Top Diplomat; Iran Trading Oil for Solid Gold; Scandals Rock Military's Top Brass; Hollywood Spotlight on Same-Sex Marriage

Aired November 29, 2012 - 16:00   ET

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

WOLF BLITZER, CNN ANCHOR: Happening now: hard words, as President Obama and congressional Republicans accuse each other of pushing the country closer and closer to the so-called fiscal cliff.

We're also getting new details right now about what happened today when Mitt Romney had lunch with President Obama over at the White House.

And in the Middle East, joy and flag waving because of an impending decision at the United Nations. I will ask Israel's ambassador to the United States why he thinks -- why his country thinks the U.N.'s possibly action is a bad idea.

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

We begin with today's hard words in the negotiations to avoid the so- called fiscal cliff, that steep across-the-board spending cut and tax increase scheduled to hit in just 33 days. In a scathing assessment today, the speaker of the House, John Boehner, says there's been no substantive progress on a deal.

President Obama's spokesman counters that Republicans need to realize there can be no deal without tax rates going up for top earners.

Let's go live to our chief White House correspondent, Jessica Yellin. She's got more on the latest developments.

Tough talk from both sides, Jessica.

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: Tough talk and some bright lines, Wolf.

On the same day that Treasury Secretary Tim Geithner went up to Capitol Hill to meet with both Democrats and Republicans to talk about these negotiations, there is tense body language and tough words on both sides of Pennsylvania Avenue.

(BEGIN VIDEOTAPE)

YELLIN (voice-over): They're starting to sound dug-in on Capitol Hill. REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: All eyes are on the White House. The country doesn't need a victory lap. It needs leadership.

YELLIN: At the White House.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: This is available not just here, but to everyone in the world who has an Internet connection. And I know things are done the old-fashioned way sometimes on Capitol Hill, but I believe they have electricity and Internet connections and they can get this.

YELLIN: Speaker John Boehner and President Obama spoke for almost half-an-hour Wednesday evening.

BOEHNER: Well, we had a very nice conversation last night. It was direct and straightforward.

YELLIN: CNN has learned the president told the speaker there's no deal unless Republicans agree to let the tax rates go back up for families who earn more than $250,000 a year, what the president campaigned on. But in recent days, there's been talk of getting revenue by capping deductions or bringing in more money through tax reform.

It's clear for the White House, those proposals wouldn't be enough. It has to be tax rates for the wealthiest.

Speaking to Wolf Blitzer, Goldman Sachs CEO is the latest business leader to say that should not stand in the way of a deal.

LLOYD BLANKFEIN, CEO, GOLDMAN SACHS: I think if that's what it took to make the math work, when you look at the entitlement side and when you look at the revenue side, I wouldn't preclude that.

YELLIN: But Speaker Boehner is pushing back, saying the real debate shouldn't be about taxes. It should be about cutting spending.

BOEHNER: Despite the claims that the president supports a balanced approach, the Democrats have yet to get serious about real spending cuts.

YELLIN: But wait, says the White House. And they point to cuts proposed in their last budget.

CARNEY: And where are your spending cut proposals? You know, it must be a rhetorical questions because those who ask it know that we have put forward very specific spending cut proposals.

(END VIDEOTAPE)

YELLIN: Wolf, if you need any more evidence that both sides sound more dug-in, another source familiar with the phone call between the president and Speaker Boehner tells me that conversations between staff were much more productive before the two leaders spoke last night. This person says the White House was showing more flexibility on ways to raise revenue before the president had that phone call. Now, Democrats insist that's just not true. Democrats have been clear all along that rates must go up. They say Republicans just haven't wanted to hear it -- Wolf.

BLITZER: But we are hearing, though, there could be potentially some flexibility as to how high the upper rates should go up. Right now, the top rate as you know is 35 percent. It was 39.6 percent, Jessica, during the Clinton administration. Now there's some suggestion what if they compromise, have it go up to 36 percent or 37 percent?

Is that something you're hearing the White House would potentially be open to, not 39.6 percent, but maybe 37 percent?

YELLIN: This seems like an area, yes, for wiggle room, Wolf, not because they say so, but because of what they won't say. When we asked that question, the White House does not say that it must only go back up to that high Clinton rate. And so it seems that there could be some flexibility in how high -- what level it has to go back to.

BLITZER: Yes. And that would be for those earning more than $250,000 a year. Jessica, thanks very much.

We're also learning more about what President Obama and Mitt Romney talked about over lunch at the White House this afternoon.

Our national political correspondent, Jim Acosta, is getting some details. They also released the menu of what they were eating. But give us the substance.

JIM ACOSTA, CNN CORRESPONDENT: That's right.

Turkey chili was apparently on the menu, perhaps some Thanksgiving leftovers. I did talk to a Republican source who said this was a friendly meeting between the president and Mitt Romney.

But Mitt Romney slipped in and out of Washington so quickly and quietly, it was a sign that, yes, he was ready to accept the president's offer to show some bipartisanship, but perhaps not quite ready to jump back on the national stage.

(BEGIN VIDEOTAPE)

ACOSTA (voice-over): It seems the most unexpected moment of the day came as Mitt Romney's vehicle arrived at the White House. As a window was rolled down, an unknown man approached the vehicle and started shouting, until he was whisked away by the Secret Service.

Still, the ever punctual Romney was right on time for his private lunch with the president. And by private, the White House means just that. No reporters.

QUESTION: Any chance your briefing might be interrupted by a joint appearance?

CARNEY: No.

(LAUGHTER)

QUESTION: To view them together -- we have seen other presidents and those that they have defeated in presidential election contests together. Why not something for the historical record, visually or...

(CROSSTALK)

CARNEY: I think there's at least some chance we will release a photograph, which will go into the historical record. I think it's a private lunch. And we're going to leave it at that.

ACOSTA: The White House released this photo and put out a brief statement on the lunch, saying: "The focus of their discussion was on America's leadership in the world and the importance of maintaining that leadership position in the future."

This kind of post-election bipartisanship is nothing new. Four years ago, it was then president-elect Obama and John McCain.

SEN. HARRY REID (D-NV), MAJORITY LEADER: I think that sends a great message to the American people. These two men were involved in a very bitter election for -- to be president of the United States. I think it speaks well of both of them that they would sit down and have lunch together.

ACOSTA: Earlier in the day, the former GOP nominee met with his one- time running mate Paul Ryan at this D.C. hotel, where an aide to the Wisconsin congressman says he "had a constructive and positive conversation with Mitt Romney this morning. In addition to sharing updates from their families and reflections from the campaign, their forward-looking conversation focused on resolving the critical fiscal and economic challenges ahead," translation, fiscal cliff.

It's a challenge Romney might have faced had he won. But as one of his strategists said on CBS, mistakes were made.

STUART STEVENS, FORMER ROMNEY STRATEGIST: I think we should have done a better job reaching out to women voters. The governor has a great record on women's issues. We should have done a better job articulating that record. And we should have done a better job reaching out to Hispanic voters.

ACOSTA: As workers were busy building the seating that will be used in President Obama's next inaugural, Romney slipped out a side entrance of the White House leaving the capital's focus squarely on the man who won.

(END VIDEOTAPE)

ACOSTA: As for that incident that occurred as Romney arrived at the White House, the Secret Service did arrest a man for assault of a police officer. A spokesman says he was combative with uniformed Secret Service agents and interfered with Mitt Romney's vehicle entering the White House. And I did talk to -- well, just very briefly with one Romney aide, saying, hey, can you give us some color, give us a readout as to what went on this lunch? You know what he forwarded me? The White House statement, which can be translated as, call me maybe. There wasn't a whole lot in there, Wolf.

BLITZER: Yes. One line did jump -- another line did jump out at me from that White House statement. "They pledged to stay in touch particularly if opportunities to work together on shared interests arise in the future."

That's a pretty hopeful sign.

ACOSTA: That does leave the door open in the event that Mitt Romney wants to work with the president or the president wants Mitt Romney to work with him on some of these fiscal issues. And as the president has noted before, Mitt Romney has some expertise in that area.

But if you look at all of the body language today, how Mitt Romney came in and out of Washington so quickly, so quietly without leaving much of a footprint, it seems like there's a long way to go before some kind of arrangement like that might be made.

BLITZER: Yes. I suspect, at some point, not now, not next month or whatever, at some point, they will work together on some projects.

ACOSTA: Time heals all wounds.

BLITZER: Yes, it certainly does. Thank you.

Despite U.S. objections, the United Nations is getting ready to give the Palestinians another step toward full international recognition. Palestinians in the Middle East certainly are overjoyed. Israel's ambassador to the United States standing by to join us to explain why his country thinks the U.N. action is a mistake.

(COMMERCIAL BREAK)

BLITZER: Any moment now, we're expecting a United Nations vote that could have some significant implications in the Middle East.

We're watching it very closely, especially after years of failing to win U.N. recognition as a fully independent state. The Palestinian Authority has now lined up plenty of support to have its status upgraded, be declared what's called a non-member observer state of the United Nations.

Let's go live to our U.N. correspondent, Richard Roth.

What's the status of that resolution right now, Richard?

RICHARD ROTH, CNN SENIOR U.N. CORRESPONDENT: Thanks, Wolf.

This resolution's going to be voted on shortly. The Israeli ambassador to the U.N. is now speaking. We did hear from the Palestinian leader, President Abbas, who's getting some more diplomatic clout for himself for this move, unlike Hamas' war with Israel in the last few weeks.

Here's a portion of what President Abbas told the General Assembly.

(BEGIN VIDEO CLIP)

MAHMOUD ABBAS, PALESTINIAN AUTHORITY PRESIDENT (through translator): I affirm that our people will not relinquish their inalienable national rights, as defined by United Nations resolutions. And our people cling to the right to defend themselves against aggression and occupation.

And they will continue their popular peaceful resistance. This is what we can do to continue popular peaceful resistance and their epic steadfastness and will continue to build on their land and they will end the division and cling to their national unity.

(END VIDEO CLIP)

ROTH: The Palestinian leader said now is the time, enough aggression, enough settlements. That's the Palestinian view.

Israeli Ambassador Prosor also speaking now in response, saying, we have offered, Israel's offered various terms of negotiations, not been accepted.

Look, Wolf, the backdrop to this, the U.S. tried hard to lobby to stop this from happening. It still went down. Some diplomats see it as an embarrassment to President Obama. Last year, the threat of a U.S. veto stopped the Palestinians from getting what they really wanted, which was full membership.

This is U.N. different terminology. They're getting closer to a state. Some say it's symbolic. Others say it opens the door to U.N. or affiliated groups, like the International Criminal Court, where the Palestinians could go after Israeli soldiers, or vice versa -- Wolf.

BLITZER: Richard Roth, watching what's going on -- once they have a final vote, Richard, let us know.

Gaining status at the U.N. as a nonmember observer state certainly gives the Palestinians access to other important global organizations, including -- as Richard mentioned -- the International Criminal Court. Here in Washington, at the same time, a bipartisan group of U.S. senators warned they might cut off U.S. aid to the Palestinians if they were ever to use that access to make trouble for Israel.

Listen to this.

(BEGIN VIDEO CLIP)

SEN. LINDSEY GRAHAM (R-SC), ARMED SERVICES COMMITTEE: It won't be very long until the Palestinians begin to use the U.N. as a club against Israel rather than seeking peace. And our big fear is that the International Criminal Court would be available to the Palestinians potentially to file complaints against the IDF and every other institution in Israel and would marginalize the Jewish state. (END VIDEO CLIP)

BLITZER: All right. Let's discuss what's going on with the Israeli ambassador to the United States, Michael Oren.

Mr. Ambassador, thanks for coming in.

Is this a big deal or little deal? Because I've heard from various Israelis, some say it's not such a big deal, let it happen.

MICHAEL OREN, ISRAELI AMBASSADOR TO THE UNITED STATES: Well, diplomatically, Wolf, it's a no deal. The fact that Abu Mazen gets up in front of the General Assembly and gets approval for a virtual Palestinian state does not bring the Palestinians any closer to real statehood. They've declared the state twice before. There's no Palestinian state today.

There's only one route to Palestinian statehood and that's the route that leads back through a negotiating table, sitting with us, just like I'm sitting with you and discussing the issues that divide us -- whether it be security, borders, Jerusalem.

BLITZER: This isn't full membership as an independent state. It's what they call a nonmember observer state status. So it's just a step towards full independence. But isn't that what you want -- a two- state solution Israel living along side a new state of Palestine?

OREN: It's exactly what we want is a two-state solution, but a two- state solution that's negotiated. Not a two-state solution where one side declares that it's getting the territory without giving us the peace.

BLITZER: It doesn't necessarily stop negotiations from taking place, does it?

OREN: If the Palestinians decide tomorrow that they want to sit down with the same negotiating table with us, they'll find Israel being an eager and serious partner.

BLITZER: So, practically speaking, it really doesn't do anything other than undermining your desire for these kinds of negotiations.

OREN: Well, it doesn't help any. Put it that way. It's a delay. It's a diversion.

We've been waiting four years for the Palestinians to join us at the negotiating table. They have, so far, refused. So, we're saddened by this. We're disappointed. We're frustrated.

But no, we're still the partner. And if the Palestinians want to come back and negotiate with us seriously, we will reciprocate.

BLITZER: I heard Ehud Barak, the defense minister, the outgoing defense minister of Israel, with Leon Panetta, the secretary of defense, just a little while ago. He didn't -- Ehud Barak didn't seem overly concerned about this -- about this development. OREN: I think he too was saddened. He said it was a mistake. It was a mistake on the part of the Palestinians. That's I think -- I think it was well-phrased. It was a mistake.

BLITZER: Are you going to punish the Palestinian Authority by withholding tax revenue or anything along those lines? There have been reports that you would consider that.

OREN: Well, I think we have to first see how the Palestinians move forward. If they move forward against us in an aggressive way, trying to declare Israeli soldiers, say, as war criminals, we're going to have to defend ourselves, just the way defend ourselves against Hamas rockets a few days ago. But again, if they're willing to sit down with us, we will talk to them.

BLITZER: And you have assurances from the U.S. government, the Obama administration, that it will vote against this resolution.

OREN: They do. The president has given us unequivocal support and has said categorically that the only means to a two-state solution, for true peace between Israel and the Palestinians is by direct negotiations without preconditions.

BLITZER: You've heard Lindsey Graham that he's got some other senators up there, warning if the Palestinians use this as an opportunity for example to go to the International Criminal Court, they would consider cutting U.S. aid. There are hundreds of millions of dollars a year in various forms of assistance to the Palestinian Authority on the West Bank.

Would that be smart?

I say that in a sense that the Palestinian Authority is the moderate element of the Palestinian movement. They want a two-state solution unlike Hamas which doesn't recognize Israel's right to exist. Don't you want to elevate the Palestinian Authority at the expense of Hamas?

OREN: Well, we have great friends on Capitol Hill, both in the Senate and in the Congress and on both sides of the aisle. And we deeply appreciate their support.

Right now, Wolf, we're engaged with a very intense talk with the administration about ways both of getting these negotiations restarted, getting the Palestinians back to the negotiating table perhaps defending Israel if we have to be defended against any Palestinian moves to somehow condemn our soldiers as war criminals. And that's our major focus right now.

BLITZER: Because despite all the rhetoric, angry rhetoric from Mahmoud Abbas at the General Assembly today, the rhetoric coming from some Israeli leaders, basically there's a good relationship between the Israeli government and the Palestinian Authority.

OREN: Well, we have a working relationship with the Palestinian Authority. We cooperate on security matters. We're interacting in many, many ways every day, whether it'd be in commerce or providing electricity and water to the Palestinian areas. We are neighbors.

BLITZER: But you'd rather see them strengthened as opposed to Hamas.

OREN: Indeed. But, again, the way to strengthen them is for them to come to the negotiating table. What we've learned, Wolf, during this recent defense operation against Hamas in Gaza, you know, Hamas -- they had this big victory parade and declared they were strong. But at the end of the day they have no power unless they're engaged in negotiations with us.

Who was the strongest player in that whole period? It was Egypt. Egypt was strong because Egypt has peace with Israel.

The way to be strong in our area is not by making war. It's not by making unilateral declarations in the U.N. that have no meaning. The way to gain strength is to be a partner in negotiations.

BLITZER: Is that cease-fire holding?

OREN: Cease-fire's holding so far.

BLITZER: And you thank Egypt's President Mohamed Morsy for that?

OREN: We think Egypt played a very constructive role in that.

BLITZER: What do you think of him, the new Egyptian president?

OREN: Well, I think he's been so far now proving to be a constructive partner certainly as it proven in the last -- in this last operation.

BLITZER: Is he honoring the peace treaty with Israel?

OREN: I think there's peace between Egypt and Israel on a daily basis, yes.

BLITZER: What about Syria? What would you like to see the government of Israel as far as Syria is concerned? Because it's intense what's going on right now. About 40,000 people have been killed over the past year and a half.

OREN: It's horrible. It's a terrible tragedy. We, the people of Israel, look at the people of Syria with great respect, even awe standing up and risking and even giving their lives for freedom from the terrible Bashar al-Assad regime.

We want him to go. We want him to go, Wolf. We've long wanted him to depart.

He is an ally of Iran. He has not only killed 40,000 of his own people, he's tried to make a secret nuclear military program. He's helped in providing tens and tens of thousands of missiles to terrorists both in Lebanon and Gaza.

He is a loose cannon. We want him gone. We want to see a Democratic and peaceful in Syria. BLITZER: What can you tell us about this "Washington Post" report that the U.S. Army Corps of Engineers is about to build a top secret underground facility at an Israeli air base outside of Tel Aviv.

OREN: Know nothing about it whatsoever.

BLITZER: You don't know anything about it or you don't want to say anything?

OREN: No, no -- I saw the story, don't know anything about it.

BLITZER: It must have a ring of truth to it.

OREN: Why, because it's in a newspaper?

BLITZER: No, because there's so many details.

OREN: No, nothing about it.

BLITZER: About which U.S. facilities would be involved in all of that.

OREN: We have superb security relationship with the United States both with the Army, the Air Force -- all branches of the U.S. military. We're in constant contact with them.

I've just now come from the Pentagon. As you are aware, our minister of defense, Ehud Barak, received the highest civil honor given by the secretary of defense to any civilian, the distinguished Civil Service Medal. And I think that stands as a symbol of the deep and multifaceted relations between our two militaries.

BLITZER: We're out of time. You're a historian. He just said, Ehud Barack, I heard him, that U.S.-Israeli military relations, in his opinion, have never been better. Do you agree?

OREN: I agree.

BLITZER: Michael Oren, the ambassador of the Israel to the United States -- thanks for coming in.

OREN: Thank you, Wolf.

BLITZER: In the wake of the scandal surrounding General David Petraeus' affair and the investigations into several other high profile generals, does the U.S. military need an ethics boot camp? And more than a decade after a deadly crash, a U.S. airline gets its day in court.

(COMMERCIAL BREAK)

BLITZER: A major U.S. airline scored a partial victory in France today.

Lisa Sylvester's monitoring that and some other top stories in THE SITUATION ROOM right now. What's the latest, Lisa?

LISA SYLVESTER, CNN CORRESPONDENT: Wolf, a French appeals court cleared Continental Airlines of criminal responsibility for the crash of a Concord jet 12 years ago. While it said the criminal charges were unjustified, the airline still must pay civil penalties of more than $1 million. The court agreed that the Concord ran over a strip of metal that had fallen off of a Continental plane, causing it to blow a tire as it took off from Charles de Gaulle Airport. One hundred thirteen people died in that crash.

And Black Friday sales, rather, may have been a little too good for Toys "R" Us. After offering incentive after incentive to shop early -- well, it seems the company hasn't been able to keep up with demand. Its Facebook page has plenty of people now complaining. Many of them placed orders online only to find out that the company later canceled those purchases because it didn't have enough in stock.

And the original Batmobile -- yes, it could be yours for at least a few hundred thousand dollars. The Batmobile used in the 1960s Batman TV series, it is expected to go on the auction block in January. It was customized from a 1955 Lincoln concept car.

On TV, this car could shoot flames, squirt oil, fire off tire slashers. But the car is not actually designed to do any of those things. But it is still a very good looking car.

And I'm sure it's going to fetch a pretty penny, Wolf. Good looking -- but it's not available actually until January.

I was going to say it'd be a nice little gift for the holidays. But it doesn't auction off until January.

BLITZER: It's a nice collector's item.

SYLVESTER: Absolutely.

BLITZER: Thank you.

When it comes to avoiding the so-called fiscal cliff, where do we stand in Washington's version of let's make a deal? We're going to break down the negotiations with two top political strategists, Ari Fleischer and Paul Begala. They are both standing by live right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Let's get right to our "Strategy Session." Joining us two CNN contributors, the Democratic strategist Paul Begala and Ari Fleischer, the former Bush White House press secretary.

Let me start with you, Ari. I'm going to play a little clip. This is a clip from John Boehner. He was talking earlier today about these negotiations to avoid going over the fiscal cliff.

(BEGIN VIDEO CLIP) REPRESENTATIVE JOHN BOEHNER (R), HOUSE SPEAKER: So right now all eyes are on the White House. Our country doesn't need a victory lap. It needs leadership. It's time for the president, congressional Democrats to tell the American people what spending cuts they're really willing to make.

(END VIDEO CLIP)

BLITZER: So here's the question, Ari. Why go public with those kinds of concessions? Don't you make those kinds of concessions in private negotiations as opposed to speaking publicly about them right now and giving away your own leverage, if you will?

ARI FLEISCHER, CNN CONTRIBUTOR: Yes, you do. You have to make those in the private talks. Not in the public maneuvering that's going on. But I also worry that it's not being said in the private talks and that's why you're hearing Speaker Boehner say what he's saying.

Wolf, I'm getting a growing sense from the people that I talk to that there's a real exasperation that where we are where we were in 2011 with nothing happening in these talks. That can happen for a little while, but we are running out of time.

There's not a lot of time to get this done and get it fixed before December 31st. There are a lot of things that have to happen after it's announced to get it done, passed and signed into law. So there's little time left. Not a lot.

BLITZER: You're absolutely right. There's not a whole lot of time left. Paul, some people say it always looks bleaker just before there's a deal. Other people say it always looks bleaker just before it collapses. What do you say?

PAUL BEGALA, CNN CONTRIBUTOR: Right. John McCain is famous for quoting saying it's always darkest before it's completely perfectly black. And I think that's what it is now. The first step in this deal is the easiest.

And that is extend the Bush tax cuts for 98 percent of Americans, but require the 2 percent of the most privileged of us, upper income Americans, to return to the Clinton-era rates, which would raise marginal tax rates on the rich from 36 percent to 39.6 percent, not confiscatory, but a real downpayment toward deficit reduction.

That's the easy part, Wolf, 70 plus percent of the American people support that. They can't even come to terms with that. They seem to have not noticed the Republicans that we did have an election. The president campaigned on this question of continuing tax cuts for the middle class.

But raising them back to the Clinton rates -- returning to the Clinton rates for the top 2 percent, he pledged that he would veto anything but that and he will. So until the Republicans agree to those Clinton-era rates, we are going to go off the fiscal cliff.

BLITZER: You know, it's interesting, Ari, you'll remember this because you were the White House press secretary in 2001 and 2003 when those Bush-era tax rates were approved basically by Republicans, very few Democrats voted to approve those Bush-era tax cuts.

So why not do what Tom Cole, the Republican congressman from Oklahoma says, what Paul just said, go ahead, declare victory, say, look, all these Democrats are now on board. They support for 98 percent of the American people the Bush-era tax rates for a long time to come, declare victory and move on.

FLEISCHER: Well, number one, Wolf, actually those tax cuts were bipartisan, 12 senators -- Democratic senators voted for them, which is a pretty good number. More than 60 senators voted for the Bush tax cuts across the board.

Number two, let me surprise you with this, I don't disagree what Congressman Cole said and I don't agree about going over the fiscal cliff, that Paul said, but I do agree that the smart move for the Republicans to make is to recognize they don't have leverage on the taxes.

I'm very worried that the exact same thing that happened last time on the payroll tax cut about to expire and it did expire, Republicans tucked their tails, reversed themselves under pressure. President Obama won the issue. How can Republicans oppose cutting taxes for 98 percent of the American people?

That's what this is going to come down to if it goes beyond January 1st and I think Republicans are going to cave again if that happens. So the smart move is take taxes off the table and then the only thing left is what will the president do on spending and entitlements?

Don't forget, Wolf and Paul, none of this tax talk has any impact on the sequester unless they cut spending, we are still facing massive cuts to the pentagon, doctors and hospitals. Taxes are a separate debate. Solve it, settle it and then we can focus on spending before December 31st.

BLITZER: Hold your fire, Paul because we're going to continue this conversation. We have more to talk about. Should President Obama back off plans to nominate Susan Rice, for example, as the next secretary of state?

Who are his other options? Are Republicans secretly plotting for one of their own? More with Ari and Paul when we come back.

(COMMERCIAL BREAK)

BLITZER: Let's get right back to our "Strategy Session." Once again, Paul Begala and Ari Fleischer joining us. Paul, do you think it's smart for the president to pick a fight with the Republicans in the Senate, and go ahead and nominate Susan Rice to be the next secretary of state?

BEGALA: Well, it's his obligation as president to pick the person he thinks would be best. If he decides Ambassador Rice would be the best and I think the tea leaves are pointing there then he has a duty to nominate her.

You can't cave in to the kind of -- I think political posturing you're seeing. The election's over. These are honorable people. Senator McCain, Senator Ayotte, Senator Graham, they're smart people. They love their country.

But I do hope everybody just takes a breath and asks the question, if he nominates Ambassador Rice, is she qualified to be secretary of state? Of course, the answer is yes. You know, today one of America's closest allies, Israel, is under assault at the United Nations.

You had Ambassador Oren on here a moment ago, Americans ought to be united on national security and foreign policy and this is a time we ought to be united. I just don't see any gain frankly for the country and certainly not for the Republican Party in attacking Ambassador Rice.

BLITZER: What do you think, Ari?

FLEISCHER: Well -- of 15 years working in Congress, six years in the Senate where confirmations, nominations get confirmed and I spent two and a half at the White House, I've got to say after all that time, I believe in the power of the executive.

I think the president largely should get his way with nominees. He has the right to put people in place who see things his way even if the minority party disagrees with those policies. I think people should be resistant if there's something seriously wrong with who they are, their character, their ethics or their record.

These things have to get thought through and argued about, but I lean in the direction presidents get their people and they want to make their choice. It would be a fight. It would be a slap. I can see on the one hand it goes back to your previous question, Wolf.

If the president actually meets with Republicans in the middle and reforms entitlements, acts as a moderate and governs as a moderate, then he can fight for his base on some other issues and pick a fight on Susan Rice. It does sort of come together.

So I would not begrudge him for doing that. But if he governs as an obstructionist to Republicans on everything, we're going to get nothing done over the next several years.

BLITZER: It would leave an opening if he doesn't pick Susan Rice, Paul, a crass political question if he were to name John Kerry, for example, the senator from Massachusetts as his secretary of state, he would be confirmed presumably.

Would that open the door for a Republican to be the next senator though from Massachusetts? I'm speaking about the current senator, the outgoing Senator Scott Brown who's still pretty popular there.

BEGALA: Well, he is popular. That's a great point. I know he was just defeated, but he is a formidable political talent. I honestly have no idea if that's playing a role in these deliberations.

Clearly, John Kerry is qualified to be the secretary of state as well. My best guess is it's exactly what Ari was saying, which is the president is asking who is most in sync with my foreign policy and Ambassador Rice is someone who helped formulate the Obama foreign policy.

So, of course, she would articulate in advance it will. I think Senator Kerry would too. Democrats are now in a position where we have an embarrassment of riches. I really hope they don't start worrying about this or that political matter.

Frankly, even those top rounds where able and talented Republican, if Democrats can't win elections in Massachusetts, there's something fundamentally wrong with what we're doing.

BLITZER: He did win the last time, Scott Brown. Not this time but the time before he won in Massachusetts. We got to leave it there. Paul, Ari, guys thank you.

The search is now on the for the country's latest multimillionaire. In the next hour, we'll have the latest on where the winning tickets in the Powerball lottery were sold.

And coming up next, accusations a U.S. ally is now helping Iran cheat on international economic sanctions by helping sell its oil for gold.

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BLITZER: We're seeing fresh signs right now that the latest round of sanctions against Iran is working. Kicked out of the international banking system, it's increasingly difficult for Iran to move cash around to buy and sell in the world market.

As CNN's Ivan Watson reports, Iranians are changing how they do business thanks to their neighbor Turkey.

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IVAN WATSON, CNN CORRESPONDENT (voice-over): Istanbul's grand bazaar, for centuries it's been a center for international trade, a place to buy carpets and jewels, silks and spices. In modern times Turkey's exports have been dominated by cars shipped primarily to Europe.

But that changed last April when suddenly gold became Turkey's number one export. That's strange because Turkey is not a gold producing country. Even stranger, the destination for billions of dollars worth of gold became Turkey's neighbor to the east, Iran.

(on camera): Iran has basically been cut off from international electronic banking forcing it to adopt older forms of international trade. A senior Turkish government official says Iran has effectively been bartering oil and gas for billions of dollars worth of gold from Turkey.

(voice-over): This month, Deputy Prime Minister Ali Babacan became the first official to confirm that the spike in Turkey's gold exports was linked to a gas for gold trade aimed at evading U.S. sanctions against Iran.

ATILLA YESILADA, ANALYST, GLOBAL SOURCE TURKEY: Turkey is the big hole, the big gap in the wall of sanctions.

WATSON: Babacan's announcement put to rest questions some economists have been asking for months.

YESILADA: Our gold has always been there. Iranians never paid any interest to it upon until the last year when they were kicked out of the banking system. Until Babacan's spoke, the government denied the fact that this was an effort to circumvent the sanctions.

WATSON: Over the last year, the U.S. and its European allies have imposed an economic blockade on Iran, punishment they say for Iran's nuclear program. Iran denies U.S. accusations it is secretly developing nuclear weapons. The sanctions have put America's close ally, Turkey, in a tough spot.

The Turks are heavily dependent on Iranian energy. Asked about gold sales to Iran, the U.S. Treasury Department told CNN anyone who helps the Iranian government acquire dollars or gold could be punished with American economic sanctions. But don't expect that to stop Iran from finding ways around the U.S.-led blockade.

BEHZAD YAGHMAIAN, POLITICAL ECONOMIST, RAMAPO COLLEGE: Even the most powerful states have limited power in controlling international transactions and international trade. And in the case of Iran and turkey is an indication of that.

WATSON: It's not clear if Iran and Turkey are still swapping oil for gold. But taking a page from history, Iran is likely to continue using techniques honed in the grand bazaar like bartering to keep its economy alive. Ivan Watson, CNN, Istanbul.

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BLITZER: Just about everything in the U.S. military is regimented and tightly controlled. But after the David Petraeus affair and stumbles by other high profile generals, does the U.S. military need more than just a review of the rules?

Let's go to our Pentagon correspondent Barbara Starr. Barbara, some are suggesting the military needs some sort of ethics boot camp, what's going on?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, you know, Wolf, with so many officers misbehaving these days, in fact it could come to just that.

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STARR (voice-over): Pentagon investigators have zeroed in now on specific potentially inappropriate e-mails General John Allen, the commander of the Afghanistan war wrote to Jill Kelley. She's the socialite who gave her e-mails to the FBI, some that turned out to be from Cia Director David Petraeus' mistress.

Allen, whose nomination to be military chief of NATO is on hold, faces uncertainty. No one knows what the investigation will recommend. High profile problems with some of America's most senior military officers now a matter for the White House.

This week, President Obama is to receive an initial report from the Pentagon on fixing ethics training for senior officers. The majority of them do obey the rules, but it may not be enough.

GENERAL JAMES "SPIDER" MARKS, U.S. ARMY (RETIRED): But if there's a perception of a problem with the American public for the military then there's a big problem.

STARR: Marks says there are no excuses.

MARKS: Clearly everybody knows that when you pick up a cell phone, put something down on the internet, you are subject to monitoring.

STARR: The Navy just fired two top officials at its prestigious postgraduate school in Monterey, California. Officials say they deliberately mismanaged money. Rear Admiral Charles Goet this month was temporarily relieved of duty as head of an aircraft carrier strike group sailing in the Middle East.

A military official told CNN there were multiple complaints about him from subordinates. The admiral declined to comment on the pending investigation. The Navy has removed 23 junior and senior officers from command so for this year several for alcohol offenses.

The Marines removed six, the Army 11. The most serious case, Army Brigadier General Jeffrey Sinclaire is charged with sexual assault.

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STARR: The navy told us, you know, no matter how embarrassing it gets with those relatively high numbers, it's going to continue to announce when it relieves commanders of duty.

Because they say with those ships at sea far from home, if a commander isn't doing his job appropriately, the lives of thousands of sailors could be at risk.

So they're willing to put the information out there. The president gets a report from the Pentagon this weekend, Wolf, about what to do about all of this.

BLITZER: Let us know what he decides to do about it. He's the commander in chief. Barbara, thank you.

It turns out some of Hollywood's brightest stars have more political clout than others. You're going to find out who they are, how they're using it when we come back.

(COMMERCIAL BREAK) BLITZER: So will the United States Supreme Court weigh-in on whether same sex couples have the right to get married? The justices meet tomorrow to decide on a number of appeals. But many of the biggest names in show business, they are weighing in as CNN's entertainment correspondent Kareen Wynter reports.

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KAREEN WYNTER, CNN ENTERTAINMENT CORRESPONDENT (voice-over): If the fight for marriage equality is a war, many in Hollywood are on the front line.

BRAD PITT, ACTOR: What make this nation great is our freedoms and the idea of equality.

LADY GAGA, SINGER: We must demand full equality for all.

MATT DAMON, ACTOR: It's about time the Supreme Court weighed in on it and hopefully it will come down in favor of it.

WYNTER: From movies to music to television, the list of world famous entertainers who publicly support same sex marriage is long.

UNIDENTIFIED MALE: We've been talking about this for a long time.

WYNTER: The cast of TV's "Modern Family" lined up to support co-star Jessie Tyler Ferguson and his fiance, Justin Midcup at a fundraiser for the cause.

UNIDENTIFIED MALE: It's an uphill battle. Justin actually works in the field. He lives that every day.

WYNTER: He works for the American Foundation for Equal Rights, which was created in 2008 to sponsor the lawsuit filed by two California couples challenging Prop 8, the state's ban on same sex marriage. His board is full of entertainment heavyweights.

UNIDENTIFIED MALE: Hollywood is incredibly supportive.

WYNTER: Jason Stewart is the national co-chair of the LGBT Committee for SAG-AFTRA, the world's largest actors union.

UNIDENTIFIED MALE: People like Brad Pitt, Angelina Jolie, you know, both of them said they wouldn't get married until gay marriage was legal. They paid Brad Pitt $7 million or $10 million, trillion dollars for Chanel. His opinion really means something.

WYNTER (on camera): But how much does a celebrity endorsement mean, it turns out there's a marketing tool that insiders use that gives them an idea. It's called the DBI, the Davey Brown Index. The weekly nationwide poll tracks thousands of famous people across eight attributes including awareness, trust and influence.

UNIDENTIFIED MALE: It's a must.

WYNTER (voice-over): Brad Pitt has a 98 percent awareness ranking and out of nearly 3,000 celebrities, he's the 25th biggest influencer. Morgan Freeman is number eight.

UNIDENTIFIED MALE: We are standing together for the right of gay and lesbian Americans.

WYNTER: In fact, of the 10 celebrities currently ranked as the most influential, six are outspoken supporters of same sex marriage.

KATY PERRY, SINGER: I think that respect should be all across the board.

WYNTER: With one in particular grabbing the most headlines.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: I think same sex couples should be able to get married.

UNIDENTIFIED MALE: As a gay man, I got to tell you it just hit me right in my heart.

WYNTER: So while it might be difficult to say exactly how much a star's opinion matters, there's no question they do have influence. And many of the world's most famous influencers support marriage equality. Kareen Wynter, CNN, Hollywood.

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