[Don Lemon, Co-host:] A big city mayor goes to court over lies he allegedly told under oath, and it was about sex. We're watching the courtroom where Detroit Mayor Kwame Kilpatrick is due to appear for arraignment. That should happen at any minute.
[Betty Nguyen, Co-host:] Yes. And in the meantime, John McCain is about to tell the nation what he thinks went so terribly wrong with the housing market. We're going to hear his speech in Orange County, California, this hour.
[Lemon:] It is certainly a busy hour. We're also waiting for Hillary Clinton to speak at a town hall meeting. She'll do that near Pittsburgh. Hang on tight. We'll catch you up on all the day's live events this afternoon, right here in the CNN NEWSROOM. Hello, everyone. I'm Don Lemon, live at the CNN world headquarters in Atlanta.
[Nguyen:] What a busy day it is.
[Lemon:] Yes.
[Nguyen:] Hi, everybody. I'm Betty Nguyen, in for Kyra Phillips. She is still on assignment in Iraq.
[Lemon:] As we wait for John McCain we want to get to this story, until he shows up. Steamy text messages. Lies under oath. A major cover-up. All of it allegedly part of a big-time scandal engulfing a big city mayor. Live pictures now from Detroit. You see this courtroom. This is where Mayor Kwame Kilpatrick and his former chief of staff face arraignment on multiple felony charges. CNN's Susan Roesgen is at that courthouse. And Susan, we want to know, as we're looking at these live pictures, what can we expect from this today?
[Susan Roesgen, Cnn Correspondent:] Well, the arraignment itself, Don, shouldn't take more than five minutes. The judge is going to line up the charges the criminal counts, the felony criminal counts against the mayor. He's going to let the mayor know how much of a prison term each of those counts carries, and then he's going to set the bond for the mayor. But while it should only take about five minutes, it's going to be an unprecedented five minutes in the history of this city. No mayor here has ever faced felony criminal charges. The case started with an affair between the mayor and his former chief of staff. And then there were allegations of a cover-up. And then the city had to pay more than $8 million to two police officers who blew the whistle.
[Kym Worthy, Prosecutor, Wayne County, Michigan:] It's not just about the sexual affair. It's about lying under oath. It's about misleading the public. It's about betraying the public trust. It's about using $8.4 million of the taxpayers' money to cover up that information from coming out. And it's also about firing three police officers, that were doing their jobs, for investigating.
[Kwame Kilpatrick, Mayor Of Detroit:] I look forward to complete exoneration once all the facts surrounding this matter have been brought forth. In the meantime, I will remain focused.
[Roesgen:] So once once again here, this city has been shocked by everything that's happened here. Two police officers, later joined by a third, who sued the city. Taxpayer money, Don, had to go, more than $8 million, to pay because they had been wrongfully terminated. And now we're waiting here to see what happens in court, this short arraignment. But I can tell you that this is a live signal that's being seen here in Detroit. People here around the lunch hour are watching this. They've been riveted by this case. And the general public will not be allowed in the courtroom. It's only going to be media, the mayor and his lawyers, and his personal security team. And then after him, Christine Beatty, the now-former chief of staff who he had an affair with Don.
[Lemon:] Very interesting. And not only there people are watching it, Susan, but they're watching this all over the country, probably all over the world. And this is not just about, you know, an affair, or text steamy text messages, even though that is the titillating part of it. But it was all about a scandal, about cover-up, about money having been paid to police officers, millions of dollars, when the city of Detroit is in financial straits already.
[Roesgen:] That's right, Don. And there was so much hope here for this particular mayor, 37 years old, a Detroit native, one of the youngest mayors to lead such a big city. He had brought the Super Bowl here to this city, brought a lot of business here, and now this.
[Lemon:] Yes.
[Roesgen:] So we have the city council here calling for his resignation. Both local papers calling for his resignation. They say his credibility has been destroyed, no matter what happens. But as you heard him say, he plans to fight the charges.
[Lemon:] Yes, he certainly does. And we will be watching. Susan Roesgen in Detroit. Susan, thank you very much. Scott, do we have that picture of the courtroom? Can we get back to that? Because we want to tell our viewers, as soon as that happens, that arraignment happens we're looking at live pictures in Detroit we're going to take you there live. Also, we're going to talk about what the mayor faces, what his chief of staff faces as far as charges, as far as possibly going to prison. We're going to talk about that with civil rights attorney and law professor Avery Friedman is going to join us in a little bit. And then this one: someone who knows the mayor, who's been covering him. The national spotlight, not just on Mayor Kilpatrick but also on the people he represents. Will his ordeal become their ordeal? One of Detroit's top radio hosts, as I said, Betty, Mildred Gaddis she's been covering him for years she takes us inside Detroit. Betty will interview her live at 2:30 Eastern. You don't want to miss that.
[Nguyen:] Well, he spent last week globetrotting, showing off his foreign relations skills. And right now John McCain is in Southern California to talk about the No. 1 issue at home. That, of course, the economy. He admits it isn't his best subject. And we are waiting for him to take to the microphone at a meeting of business leaders in Orange County. It is safe to speculate that he'll talk about the Bear Stearns debacle, the mortgage crisis, and the possibility of the "R" word, that being recession. Well, Hillary Clinton is also speaking this hour. She is in a Pittsburgh suburb for a town hall meeting. She'll no doubt talk about the economy, as well. Now yesterday at the University of Pennsylvania, she criticized President Bush for what she says was his slow reaction to the mortgage crisis. Of course, the very important Pennsylvania primary is just four weeks away.
[Lemon:] And leading our political ticker today, Hillary Clinton's bad memories of Bosnia. Clinton says she misspoke when describing a dramatic arrival in the Bosnian city of Tuzla 12 years ago when she was first lady. Video from that day shows Clinton and her entourage walking calmly from their plane toward a group on the tarmac. Well, these were her comments last week in Washington.
[Sen. Hillary Clinton , Presidential Candidate:] I remember landing under sniper fire. There was supposed to be some kind of a greeting ceremony at the airport, but instead we just ran with our heads down to get into the vehicles, to get to our base.
[Lemon:] While speaking to the "Philadelphia Daily News," Clinton calls her earlier comments a misstatement. But she adds, before landing in Bosnia, quote, "I was told we had to land a certain way. We had to have our bulletproof stuff on because of the threat of sniper fire." Well, Clinton supporter James Carville isn't backing down. He is standing by his controversial comments, comparing Bill Richardson's endorsement of Barack Obama to Judas' betrayal of Jesus.
[James Carville, Democratic Strategist:] My view is, is that this was a particularly disloyal thing to do. And that's my view. I was speaking for myself, not speaking for anybody else. That's my judgment then; it's my judgment now. And I found in my life that, if you think something and you feel it, then you ought to say it. And I did.
[Lemon:] Richardson calls Carville's comments "gutter politics." The New Mexico governor, who had to give up his own campaign for president, served in Bill Clinton's cabinet. After months of almost nonstop campaigning, Barack Obama is taking a break. There you see him. Check out these exclusive pictures of the Democratic front-runner on a quick vacation in the Virgin Islands. He's there with his family, and he gets back to work tomorrow. Hope he enjoyed his respite. All the latest campaign news available at your fingertips. Just go to CNNpolitics.com. We also have analysis from the best political team on television. That and more at CNNpolitics.com.
[Nguyen:] Well, more true confessions from New York's new governor. Now, he's already acknowledged extramarital affairs, but now David Paterson is talking about his past drug use. In an interview on a New York-based political show, Paterson said he tried cocaine and marijuana as a young man.
[David Paterson, Governor Of New York:] Marijuana? Yes. Cocaine? Yes.
[Unidentified Male:] You have used cocaine, Governor?
[Paterson:] I'd say I was about 22 or 23. I tried it a couple of times, yes.
[Unidentified Male:] When is the last time that is that the only time you tried cocaine, Governor?
[Paterson:] Yes, around that time. Couple of times. And marijuana, probably when I was about 20. I don't think I touched marijuana since the late '70s.
[Nguyen:] Well, Paterson added that many Americans tried drugs during the '70s and went on to lead responsible lives.
[Lemon:] Federal air marshals are supposed to keep passengers safe from terrorists or criminals, but the number who are on the job, well, it might just shock you. CNN has discovered air marshals are on less than 1 percent of daily airline flights. Less than 1 percent of daily airline flights. That means fewer than 280 flights out of 28,000. CNN's special investigations unit correspondent Drew Friffin says the marshals' ranks ranks have been dwindling since hitting a peak in 2003. You can catch Drew's exclusive report tonight on "AC 360." The show begins at 10 p.m. Eastern. And we'll speak with Drew right here in the NEWSROOM at the bottom of the hour, 1:30.
[Nguyen:] The Pentagon has launched an investigation into what you might call a major mail-room mistake. Officials revealed today that four fuses for long-range ballistic missiles were sent to Taiwan in 2006 instead of the helicopter batteries Taiwan actually ordered. Those parts were recovered last week, a year and a half later. Now China, which opposes U.S. military aid to the island, has been notified. And so far there is no reaction from Beijing. Of course, we'll get more from Pentagon correspondent Barbara Starr when she joins us live next hour.
[Lemon:] We've been telling you about that speech that John McCain is going to make on the economy. And there he is, stepping in front of the mikes. And we will listen in.
[Sen. John Mccain , Presidential Candidate:] ... state of affair of affairs in Iraq, the Middle East and Europe. And I'll have more to say on those important issues in the days and weeks to come. While I was traveling overseas, our financial markets experienced another unfortunately, another round of upheaval. This market turmoil leaves many Americans feeling both concerned and angry. People see the values of their homes fall at the same time that the price of gasoline and food is rising. Already tight household budgets are getting tighter. A lot of Americans read the headlines about credit crunches and liquidity crises and ask, "How did we get here?" In the end, the motivation and behaviors that caused the current crisis are not terribly complicated, even though the alphabet soup of financial instruments is complex. The past decade witnessed the largest increase in homeownership in the past 50 years. Homeownership is part of the American dream, as we all know. And we want as many Americans as possible to be able to afford their own home. But in the process of a huge and largely positive upturn in home construction and ownership, a housing bubble was created. A bubble occurs when prices are driven up too quickly, speculators move into markets, and these players begin to suspend the normal rules of risk and assume that prices can only move up but never down. We've seen this kind of bubble before. In the late 1990s we had the technology bubble, when money poured into technology stocks, and people assumed that those stock values would rise indefinitely. Between 2001 and 2006, housing prices rose by nearly 15 percent every single year. The normal market forces of people buying and selling their homes were overwhelmed by rampant speculation. Our system of market checks and balances didn't correct this until the bubble burst. A sustained period of rising home prices made many home lenders complacent, giving them a false sense of security, and causing them to lower their lending standards. They stopped asking basic questions of their borrowers, like "Can you afford this home?"; "Can you put a reasonable amount of money down?" Lenders ended up violating the basic fundamental rule of banking: don't lend money to people who can't pay it back. Some Americans bought homes they couldn't afford, betting that rising prices would make it easier to refinance later at more affordable rates. There are 80 million family homes in America, and those homeowners are now facing the reality that the bubble has burst, and prices go down as well as up. Of those 80 million homeowners, only 55 million have a mortgage at all. And 51 million homeowners are doing what's necessary: working at second jobs, skipping a vacation, and managing their budgets to make their payments on time. That leaves us with a puzzling situation: how could four million mortgages cause this much trouble for us all? The other part of what happened was an explosion of complex financial instruments that weren't understood by even the most sophisticated banks, leaders and hedge funds. To make matters worse, these instruments, which basically bundled together mortgages and sold them to others to spread risk throughout our markets, were mostly off balance sheets and hidden from scrutiny. In other words, the housing bubble was made worse by a series of complex, interconnected financial bets that were not transparent or fully understood. That means they weren't always managed wisely, because people couldn't properly quantify the risk or the value of these bets. And because these instruments were bundled and sold and resold, it became harder and harder to find and connect up a real leader with a real borrower. Capital markets work best when there's both accountability and transparency. In the case of our current crisis, both were lacking. Because managers did not fully understand the complex financial instruments, and because there was insufficient transparency when they did try to learn, the initial loss spawned a crisis of confidence in the markets. Market players are increasingly unnerved by the uncertainty surrounding the level of risk, liability and loss currently in the financial system. Banks no longer trust each other and are increasingly unwilling to put their money to work. Credit is drying up, and liquidity is now severely limited. And small business small business and hard working families find themselves unable to get their usual loans, as we will hear from our panel today. The net result is the crisis we face. What started as a problem in subprime loans has now convulsed the entire financial system. My friends, let's start with some straight talk. I will not play election year politics with the housing crisis. I will evaluate everything in terms of whether it might be harmful or helpful to our effort to deal with the crisis we face now. I've always been committed to the principle that it's not the duty of government to bail out and reward those who act irresponsibly, whether they're big banks or small borrowers. Government assistance to the banking system should be based on solely preventing systemic risk that would endanger the entire financial system and the economy. In our effort to help deserving homeowners, no assistance should be given to speculators. Any assistance for borrowers should be focused solely on homeowners, not people who bought houses for speculative purposes, to rent or as second homes. Any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren't. I will consider any and all proposals based on their cost and benefits. In this crisis, as in all I may face in the future, I will not allow dogma to override common sense. My fellow Americans, when we commit taxpayer dollars as assistance, it should be accompanied by reforms that ensure that we never face this problem again. Central to those reforms should be transparency and accountability. Homeowners should be able to understand easily the terms and obligations of a mortgage. That's pretty simple. In return, they have an obligation to provide truthful financial information, and should be subject to penalty if they do not. Leaders lenders, lenders who initiate loans should be held accountable for the quality and performance of those loans, and strict standards should be required in the lending process. We must have greater transparency in the lending process so that every borrower knows exactly what he is agreeing to and where every lender is required to meet the highest standards of ethical behavior. Policy should move towards ensuring that homeowners provide a responsible down payment of equity at the initial purpose of a home. I therefore oppose reducing the down-payment requirement for FHA mortgages and believe that, as conditions allow, down-payment requirements should be raised. So many homeowners have found themselves owing more than their home is worth, because many never had much equity in the house to begin with. When conditions return to normal, government-sponsored enterprises, or GSEs, should never insure loans when the homeowner clearly does not have enough equity in that loan. In financial institutions, there is no substitute for adequate capital to serve as a buffer against losses. Our financial market approach should include encouraging increased capital and financial institutions by removing regulatory, accounting and tax impediments to raising capital. I'm prepared to examine any new proposals and evaluate them based on these principles. But I think we need to do two things right away. First, it's time to convene meeting of the nation's accounting professionals to discuss the current mark to market accounting systems. We're witnessing an unprecedented situation as banks and investors try to determine the appropriate value of the assets they're holding. And there's widespread concern that this approach is exacerbating the credit crunch. We should also convene a meeting of the nation's top mortgage lenders, top mortgage lenders in this country working together. They should pledge to provide maximum support and help to their cash- strapped, but credit-worthy customers. They should pledge to do everything possible to keep families in their homes and businesses growing. You may recall that immediately after September 11, 2001, General Motors stepped in to provide zero-percent financing as part of keeping the economy growing. We need a similar response by the mortgage lenders. They've been asking the government to help them out. I'm now calling upon them to help their customers and their nation. It's time to help American families. More important than the events of the past is the promise of the future. The American economy is resilient and diverse. Even as financial troubles weigh upon it, other parts of the economy hold up, or even continue to grow. I've spoken at length in other settings about the need to keep taxes low on our families, entrepreneurs and small businesses; to make the tax code simpler and fairer by eliminating the alternate minimum tax that the middle class was never intended to pay; to improve the ability to our companies to compete by reducing our corporate tax rate, which today are the second highest rates in the world; to provide investment incentives; to control rising health care costs that threaten the budgets of our businesses and families; to improve education and training programs; and to ensure our ability to sell to the 95 percent of the world's customers that lie outside the United States borders. These are important steps to strengthen the foundations of the millions of businesses, small and large, that provide jobs for American workers. There is no government program or policy that is a substitute for a good job. These steps would also strengthen the U.S. dollar and help to control the rising cost of living that hurts our families. These are important issues in this campaign, and the debate with my Democrat rivals, but I will get my chance to talk further another day. Now I look forward to hearing from our small business owners, the very lifeblood of our economy. Thank you very much.
[Lemon:] John McCain in Santa Ana, California. You see the time there, 10:23 a.m.; 1:23 here in the East. You're listening to his speech. Certainly, talking about altering the faltering economy. Just moments ago in California, the presumptive Republican presidential nominee spoke about the mortgage mess. And our senior business correspondent, Mr. Ali Velshi, joins us now from New York to break down that speech. Ali, I guess you're doing some some fact-checking for us...
[Velshi:] Yes.
[Lemon:] ... so to speak. Very interesting stuff that he had to say. Is it all can he do it all, though? Is it all correct?
[Velshi:] It's a bit nonspecific, Don. It was an interesting speech in that he said earlier, "I'm not going to allow dogma to override common sense." Now, part of the issue, of course, here is that John McCain has been very clear in saying that he doesn't believe in rescuing people who got themselves into this problem in the first place. He also said a couple of specific things. He said, "I oppose reducing the down-payment requirement for FHA that's Federal Housing Authority mortgages." In fact he thinks the down-payment requirement should actually be raised. He also said that he wants to convene a meeting of the nation's top accountants and the nation's top mortgage lenders, which is, again, an interesting, nonspecific discussion, especially on the heels of Hillary Clinton's speech yesterday, in which she gave four specific things that she'd like President Bush to do right now. Now John McCain may have gotten himself into a bit of a corner because he has spoken so often about how the economy is not his strong suit. Now, of course, as we know, it's issue No. 1. He did mention something at the end of his speech which caught my attention. I want to do a little thinking about this. But he says, "I recall that immediately after September 11, General Motors stepped in to provide zero-percent financing as part of keeping the economy growing. We need a similar response by the mortgage lenders." I think it's an entirely different situation. The car industry was collapsing back in 2001, very specifically from sort of the entire economy.
[Lemon:] Yes.
[Velshi:] But you can tell, Don, that it's an effort to have a broad appeal in terms of getting people to say, "Hey, that's a great idea. John McCain is saying that the mortgage industry should do something." Again, Don, we're seven months from the election. He's going to need to get a little bit more specific as he goes in. This is not what we were expecting on the heels of such a detailed speech yesterday by Hillary Clinton. It seems almost designed so that John McCain can express to the audience that he's following the economic situation. But not too many specifics.
[Lemon:] Yes. And anything that anything that September 11th, right, that catches our attention. So when he said that...
[Velshi:] Yes.
[Lemon:] ... I kind of looked at it and said, "Yes, I remember General Motors doing that after. But that's is it kind of apples and oranges?" Here's what...
[Velshi:] That's right. It's apples and oranges.
[Lemon:] Here's what I sort of got from this. He said, No. 1, consumers stopped asking questions, he said, in the beginning, when it was all so good and rosy in the '90s, Ali.
[Velshi:] Yes.
[Lemon:] And he said 15 to 16 percent of homes started improving every year, at least the what your home was worth. Mortgages, et cetera, No. 2, he said were not managed wisely. That's when he talked about the bundling. And then he talked about the ripple effect. He says banks don't trust each other anymore, and now they aren't trusting the borrowers. And those were the three big things that I sort of got out.
[Velshi:] Yes.
[Lemon:] He talked about how we got into this but not necessarily how we're going to get out, at least specifics on that.
[Velshi:] Yes. You're right. And that's exactly what he said. This has been a big theme of John McCain's, that people are responsible for what they got themselves into.
[Lemon:] Right.
[Velshi:] And he does not want he keeps on talking about not wanting to reward anybody, whether it's lenders or borrowers...
[Lemon:] Right.
[Velshi:] ... for getting themselves into that. It's been a bit of a Republican refrain. And there are many people who support that. They say, "Why are you bailing somebody else out when I made the right decisions? I booked into my mortgage at the right rate. I did all of those things." The problem, of course, is that this problem has overtaken policymakers. It's overtaken the Fed. It's overtaken the administration, and now it's overtaken the candidates.
[Lemon:] Right.
[Velshi:] So he needs to sort of edge his position over to say, "I'm not going to allow those kind of philosophies to dictate what I'm doing."
[Lemon:] OK.
[Velshi:] "But I don't want to bail out people who were overly speculative."
[Lemon:] All right, Ali. We've got to run, because we have other breaking news.
[Velshi:] Sure.
[Lemon:] Hey, thank you for analyzing that speech for us, sir.
[Velshi:] Sure.
[Nguyen:] And speaking of the economy, take a look. Hillary Clinton is speaking right now live in Greensburg, Pennsylvania. And she obviously is going to be talking about the economy, as well. We got some details from her yesterday. And we will be hearing more a little bit later in the NEWSROOM today. But we are also waiting for this. Detroit Mayor Kwame Kilpatrick and his former chief of staff face arraignment on multiple felony charges. We're following this story very closely today, and we'll bring you the latest live when it happens. You are in the CNN NEWSROOM.