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(BEGIN VIDEO CLIP)

Update [2008-1-25 16:30:1 by susanhu]: [Susan's Note: THIS FOLLOWING STATEMENT about what Obama claims that he said about Reagan is a complete fabrication -- a rewriting of history -- which I pointed out in "Barack, You’re Lying, and I’m Calling You On It."]

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: What I said was is that Ronald Reagan was a transformative political figure because he was able to get Democrats to vote against their economic interests to form a majority to push through their agenda, an agenda that I objected to, because while I was working on those streets watching those folks see their jobs shift overseas, you were a corporate lawyer sitting on the board of Wal-Mart.

I was fighting these fights. I was fighting these fights.

(CHEERING AND APPLAUSE)

(END VIDEO CLIP)

COOPER: That was one of the more heated moments in Monday's Democratic debate on CNN, Barack Obama criticizing Hillary Clinton, saying he was working for his community, while she was on a corporate payroll.

Now, if you were watching that night, then you know that Hillary Clinton returned Obama's shot, bringing up an alleged association with a controversial figure in Chicago politics.

So, we asked CNN's Drew Griffin to separate the facts from the fiction. And, tonight, he is "Keeping Them Honest." (BEGIN VIDEOTAPE)

GRIFFIN (voice-over): She could have held back, but instead Hillary Clinton hit back.

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: and I was fighting against those ideas when you were practicing law and representing your contributor, Rezko, in his slum landlord business in inner city Chicago.

(APPLAUSE)

OBAMA: Oh, no, no, no.

I'm happy to respond.

GRIFFIN: Senator Obama explained it was just legal work on a low-income housing project and Tony Rezko, just another client.

OBAMA: I did about five hours' worth of work on this joint project. That's what she's referring to.

GRIFFIN: But "Keeping Them Honest," there is a lot more to it than that. Tony Rezko has pleaded not guilty to federal charges of conspiracy, influence peddling and demanding kickbacks from companies seeking Illinois state business. He's given hundreds of thousands of dollars to Illinois political power brokers. He's done multiple real estate deals with politicians, even their wives.

And his indictment has Illinois politicians nervous, including officials in the administration of Illinois' Governor Rod Blagojevich.

Think of Tony Rezko as the Jack Abramoff of Chicago politics.

JAY STEWART, BETTER GOVERNMENT ASSOCIATION: That's a pretty close analog, yes. He wasn't a registered lobbyist, as Jack Abramoff was, but in terms of a wheeler and dealer who had influence over the Blagojevich administration.

GRIFFIN: The investigation has reached closer and closer to Illinois' governor, who has not been charged with a crime. There has been nothing linking Illinois' senator to anything illegal.

So, what's this all about? Money, of course. Rezko has been a major money raiser in Chicago Palestinians, and he saw a star before the nation took notice.

STEWART: Tony Rezko was his first significant campaign contributor. So, you know, that certainly helped start Senator Obama's career.

GRIFFIN: But the federal indictment alleges Rezko was given tainted cash, some illegal, some just unsavory.

(on camera): So, you guys made the decision that he was a slumlord. (CROSSTALK)

TIM NOVAK, "CHICAGO SUN-TIMES": Right.

GRIFFIN (voice-over): "Chicago Sun-Times" investigation reporter Tim Novak helped label Tony Rezko a slumlord. One of Rezko's businesses got government loans to develop low-income housing. Barack Obama worked on some deals as a lawyer and wrote letters supporting some deals as a state senator. "The Sun-Times" found two-thirds of the buildings were foreclosed upon, boarded up, or both.

NOVAK: The city and the state had told us they never had any other low-income developer go that bad that quick that much.

GRIFFIN (on camera): This is one of those buildings. And it does seem to fit the description. At the same time tenants in this building were complaining about the heat being turned off, the building's owner, Rezko, was actually giving money to the Obama campaign.

NOVAK: Now, the senator says he doesn't not know, he didn't know any of this stuff.

GRIFFIN (voice-over): Now that he does know, the senator is donating Rezko's donations to charity, $86,000 so far.

But the bigger embarrassment for Obama was his own land deal with Rezko. Shortly after his election to the U.S. Senate, Obama bought this house at $300,000 below the asking price. Perhaps not coincidentally, the very same day, Rezko's wife bought the lot next door for full price. Months later, Barack Obama would buy a sliver of the Rezko land to expand his own yard.

(on camera): There was nothing illegal about the deal and nobody is alleging that there was anything illegal. But the deal happened at the same time that Rezko was knowingly under investigation. And, for that, the senator says, whatever the deal was, was boneheaded.

(voice-over): His campaign declined to talk about this story. Senator Obama may regret ever getting involved with Tony Rezko.

STEWART: The problem with Chicago politics is it's hard to stay 110 percent perfectly clean.

(END VIDEOTAPE)

COOPER: Well, Drew is in a very cold Chicago tonight. We're glad he joins us.

Senator Obama is not obviously the only one who's been criticized for having relations with people in trouble with the law. It happens to a lot of politicians. Senator Clinton has also come under fire for I guess what some see as improper ties.

GRIFFIN: Yes. Anderson, this is the kind of tit for tat that, quite frankly, a lot of people are scratching their head why Senator Clinton brought this up. She of course has her own fuzzy land deal from the past in Whitewater.

She has also got an indicted fund-raiser, Norman Hsu, who just went to prison for fraud. In fact, the Clinton campaign has had to return or divest $850,000 in Hsu-related funds from her political campaign. So, you really have to scratch your head on, what is the strategy here? And I think we leave that best to people like Carl Bernstein and some of your other guests, who have been telling you the strategy.

COOPER: Drew Griffin, "Keeping Them Honest" -- thanks, Drew.

Full transcript.