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Inside Politics

Alan Greenspan Gives Bush Tax Cut a Boost; Firestorm Over John Ashcroft Rages On

Aired January 25, 2001 - 5:00 p.m. ET

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

(BEGIN VIDEO CLIP)

ALAN GREENSPAN, CHAIRMAN, FEDERAL RESERVE: Having the tax cut in place may, in fact, do noticeable good.

(END VIDEO CLIP)

JUDY WOODRUFF, CNN ANCHOR: The Fed chairman seems to sign on to the Bush school of thought that tax cuts are a good idea.

(BEGIN VIDEO CLIP)

JAMES HORMEL, FMR. AMB. TO LUXEMBOURG: I can only conclude that Mr. Ashcroft chose to vote against me solely because I am a gay man.

(END VIDEO CLIP)

WOODRUFF: John Ashcroft's view of homosexuals takes center stage in the debate over his Cabinet nomination. And, just when you may have thought that the book was closed on Clinton controversies, a House panel launches a new investigation.

ANNOUNCER: From Washington, this is INSIDE POLITICS with Judy Woodruff and Bernard Shaw.

WOODRUFF: Thank you for joining us. Bernie is off today. As the Bush administration tells it, you might think the president and the Federal Reserve chairman had become political partners today. After Alan Greenspan's testimony on Capitol Hill, White House Press Secretary Ari Fleischer urged Congress to, "join President Bush and Chairman Greenspan in cutting taxes."

Greenspan probably would phrase it differently. But, as CNN's Kate Snow explains, the Fed chairman did help boost the centerpiece of Mr. Bush's economic plan.

(BEGIN VIDEOTAPE)

GREENSPAN: Lately, there has been much discussion of cutting taxes.

KATE SNOW, CNN CORRESPONDENT (voice-over): Federal Reserve Chairman Alan Greenspan waded into a hot political debate, throwing his considerable clout behind President Bush's proposed tax cuts.

GREENSPAN: Should current economic weakness spread beyond what now appears likely, having a tax cut in place may, in fact, do noticeable good.

SNOW: In fact, Greenspan said, the economy was getting worse.

GREENSPAN: We have had a very dramatic slowing down, and indeed, we are probably very close to zero at this particular moment.

SNOW: But Greenspan refused to explicitly endorse the president's $1.6 trillion tax cut.

SEN. PETE DOMENICI (R), BUDGET CHAIRMAN: Would it be reasonable for us to seriously consider the president's proposals, in terms of tax reduction, here in the United States Congress?

GREENSPAN: Mr. Chairman, I haven't actually done the calculations. Actually, if I did, I don't think it would be appropriate for me to comment because these are fundamentally political decisions.

SNOW: It won't be a magic bullet, Greenspan said. Tax cuts take too long to head off a recession, but if Congress goes ahead, he has some advice. Do it sooner, rather than later; reduce tax rates across the board, rather than targeting benefits; and phase in and limit tax cuts, in case the surplus is less than projected.

After years of telling Congress to pay down the debt before cutting taxes, Greenspan now says there's enough money to do both. Some Democrats were incredulous, implying Greenspan was siding with Republicans.

SEN. ERNEST HOLLINGS (D-SC), BUDGET COMMITTEE: You are going to start a stampede here this morning, I can tell you right now. We all are going to get with the marriage penalty, and we all are going to get with the estate tax cut, but now you have gotten into marginal and everything else.

SEN. PAUL SARBANES (D-MD), BUDGET COMMITTEE: It is clear that what has happened here today is that you've put us on the glide path to dissipate this hard-earned fiscal restraint to which you made reference.

(END VIDEOTAPE)

SNOW: After Greenspan's comments today, it's now likely that the Congress won't talk much about whether or not to pass a tax cut -- they probably will consider a tax cut. The question now is more likely to be, how big will that tax cut plan be. Of course, Judy, Chairman Greenspan today not indicating how big he thought the tax cut should be, not endorsing, explicitly, President Bush's plan, $1.6 trillion.

WOODRUFF: And Kate, I know the chairman never signals what the Fed is going to do. But, did the senators try to get that information out of him, in terms of what the Fed itself will do?

SNOW: They did. In fact, one senator asked him today, could you comment on the upcoming Fed meeting and whether interest rates will go down again. He said, as you mentioned, I never comment on things like that, so I'm not going to answer, but, it's interesting, economists take what he did said today about inflation, about growth, to indicate that there will be another cut coming.

WOODRUFF: All right, Kate Snow, thanks very much, appreciate it.

Now, a closer look at tax cut politics, and the Bush-Greenspan connection. Here is CNN's Major Garrett.

(BEGIN VIDEOTAPE)

MAJOR GARRETT, CNN CORRESPONDENT (voice-over): It was the biggest applause line of the inaugural.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We will reduce taxes to recover the momentum of our economy and reward the effort and enterprise of working Americans.

GARRETT: And now, the qualified applause of the nation's most influential economist.

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: We're very heartened to see that Chairman Greenspan has weighed in on the importance of cutting taxes to protect the economy.

GARRETT: There was some support for big tax cuts even before Greenspan spoke. Now the momentum appears unstoppable.

SCOTT REED, GOP CONSULTANT: The entire political environment around tax cut has shifted in the last 90 days, from the economic slowdown to the leaders of the Democratic Party recognizing there needs to be some stimulus, to the very careful cultivation of Greenspan during this transition period of the government.

GREENSPAN: Cultivation: it's not a subject the Fed chairman likes to discuss. But observers say it's one explanation for the Greenspan shift. From Bush's one-on-one in Washington, to his selection of Greenspan protege Paul O'Neill as treasury secretary, all part of the seduction of Greenspan.

REED: It's the culmination of the Bush-Cheney strategy of putting together a government, reaching out to Greenspan at the right time.

GARRETT: But Bush also wants to spend more on education, defense and prescription drugs. Congress does, too.

MARSHALL WHITMAN, HUDSON INSTITUTE: Perhaps the president's biggest challenge is not to get a tax cut through, but to restrain Congress's appetite for spending. The difficulty for President Bush is that having all this surplus money in Washington is like having mounds of cheesecake at a weight-watchers meeting. (END VIDEOTAPE)

GARRETT: The Bush team is looking for even more cheesecake next week when the Congressional Budget Office is expected to release 10- year surplus projections, nearly $1 trillion larger than it projected in July. These are the numbers Congress will use to fashion a tax cut. And the Bush team believes, they will provide even more ammunition to cut taxes and to cut them quickly -- Judy.

WOODRUFF: Major, does this mean a tax cut is a done deal, given what the Fed chairman had to say today?

GARRETT: It certainly appears that way, Judy. The key question, as Kate outlined, is how large? People here at the White House know that the original plan that the president put forward in the campaign, $1.3 trillion -- they revised that upward to $1.6 trillion.

Even Senate Minority Leader Tom Daschle has said he's open to $150 billion over ten years. Most people looking at those two numbers say probably something around $1 trillion, maybe $1.1 trillion over 10 years may exactly be where Congress and the president agree some months ahead -- Judy.

WOODRUFF: All right, Major Garrett at the White House, thanks very much.

Let's talk more about tax cuts now, with Alice Rivlin, a former vice chair of the Federal Reserve Board and a former Clinton White House budget director; Chuck Gabriel, he is vice president of Prudential Securities; and Stephen Roach, a managing director of Morgan Stanley Dean Witter.

Stephen Roach, let me begin with you; were you as surprised as evidently the Democrats were, that the Fed chairman weighed in as he did today?

STEPHEN ROACH, MORGAN STANLEY DEAN WITTER: No, I was not, Judy. The chairman was asked to testify in front of the Senate Budget Committee on the issue of long-term fiscal policy, and he laid out a, I think -- a very artful strategic framework to shape the budget over the next decade, and the markets and the politicians were interpreting it as a tactical endorsement of the Bush plan, and I think that was really a real stretch.

WOODRUFF: So you think this is an over-interpretation, a overreaction?

ROACH: Chairman Greenspan is not endorsing the administration's plan, He is simply saying that the U.S. is on a glide path, as he put it, for zero debt, and it is appropriate, under those circumstances, to rethink a fiscal policy that is locked right now on a path of restraint, and I think the point's well taken.

WOODRUFF: Chuck Gabriel, do you see it the same way -- this is not so much an endorsement, as it is laying out a thoughtful plan for the next 10 years? CHUCK GABRIEL, PRUDENTIAL SECURITIES: I absolutely agree. I think he just basically has added a second additional driver for tax cuts on top of the weak economy, and the word of Jack Welch and CEO's that were standing behind Mr. Bush, back in early January when the Fed cut and they were down in Austin. Now Fed Chairman Greenspan is essentially added some balance sheet concerns as an additional pretense to move forward. But, he certainly hasn't weighed in on the size of a tax cut or the makeup of a tax cut.

WOODRUFF: Alice Rivlin, were you surprised?

ALICE RIVLIN, BROOKINGS INSTITUTION: I was surprised by one thing, and that was that the chairman put so much emphasis on a problem which may develop down the line, but isn't very immediate; namely, that if we should pay back the entire debt, then we would have a problem of, what does the federal government invest its surplus in? Should it buy non-federal securities? The chairman doesn't think that is a very good idea, there are different views on that.

But, in any case, it seems to me that's a weak argument for cutting taxes now. Those surpluses may or may not be there 10 years from now when that problem arises and there are other ways to handle the problem.

WOODRUFF: Stephen Roach, would you accept that, that listening to it as Alice Rivlin just laid it out, that that is a weak argument for cutting taxes?

ROACH: I don't know if it's weak. And, again, I don't think that Alan Greenspan was urging that Congress immediately go to the tax-cutting altar. I think he was just opening up the debate for how to manage our fiscal finances if, in fact, we do pay the debt down.

And he was the first to concede here that these long-range estimates, of which Alice Rivlin is very familiar with, can be wildly inaccurate. So to lock yourself into a multiyear plan of tax reduction is a very risky path to follow as well.

WOODRUFF: Chuck Gabriel, given the political -- the very testy, very delicate political ballet, if you will that goes on about something like this -- was it smart for the chairman to do what he did?

GABRIEL: Yes, I suppose so. Alan Greenspan -- people forget that Alan Greenspan did preside over a recession early in his tenure: '90, '91. And the economy is fairly weak now. So I think this isn't so much a caving to a new political order with Republicans controlling, as in essentially recognizing that the budget situation has changed.

You know, he's saying that the -- with productivity being what it is, these surpluses are real, and if you carry these things out for a decade, we really will have almost too much of a surplus of debt. So, you know, it's a new day. Greenspan is acknowledging that. But at the end of the day, you are still going to either see continued signs of weakness and actually, for the first time, some signs of Republican restraint and ability to manage a bill, a tax bill with bipartisan sense on the Hill.

WOODRUFF: Alice Rivlin, we just heard Major Garrett, reporting from the White House, talking about Republicans describing this as the seduction of Alan Greenspan, his meetings he had with President Bush. You know Alan Greenspan very well. Is that what's gone on here?

RIVLIN: No, I think that's pretty silly, actually. Nobody seduces Alan Greenspan by patting him on the back. I think the chairman was voicing some philosophical views that he's had for a long time. He's in favor of smaller government. And he would prefer a tax cut to spending increases.

He worries that spending would take off. He got all of those points in. They aren't new points. On the other hand, they don't -- they aren't economic analyses either. They are philosophical points about what one should do with a surplus if one materializes. I -- I take issue with him most on tying the immediacy of a tax cut to the long-run problem of a surplus that might reduce the entire debt by 2010.

WOODRUFF: Let me ask all three of you about -- assuming Congress goes ahead and enacts some form of tax cut, where should they end up on the scale? I mean, should it be something along the lines of what the Democrats are talking about: targeted tax cuts, the marriage penalty and so forth? Or should it be something of the magnitude that the new president is suggesting?

Stephen Roach.

ROACH: I think it should be targeted more towards spenders rather than savers, given the likelihood, in my view, that the economy is already in a recession. I think Washington should be reluctant to embrace a massive multiyear plan that locks it into a path that could be equally dangerous from the one that Greenspan laid out this morning.

WOODRUFF: Chuck Gabriel.

GABRIEL: Well, I think Mr. Greenspan suggest that he prefers something that is more broad-based and that would have increased economic efficiency rather than go for the targeted tax cuts that, frankly, Republicans and Democrats have proposed. So, you know, I think that would be the best approach. But I think that's going to be the most difficult approach politically.

WOODRUFF: Alice Rivlin.

RIVLIN: I would prefer a smaller tax cut just for caution reasons, because I'm not sure we'll have all those surpluses in 10 years. And the on-budget, the surplus outside Social Security, is not likely to be very big for at least five years. And I would prefer one that was more targeted toward the people who I think need it most: low-income, working people who need tax relief.

WOODRUFF: Let me just quickly end by asking all three of you: Based on your knowledge and understanding of the Fed chairman, how do you think he's reacting to this interpretation of what he said?

Stephen Roach.

ROACH: Well, I don't think he's all that surprised. He's been around for a long time. I think he'll reemphasize the fact that he's talking strategy and not near-term tactics.

WOODRUFF: Chuck Gabriel.

GABRIEL: Well, see how he reacts when the FOMC meeting starts next week. That's the most important thing.

WOODRUFF: And Alice Rivlin.

RIVLIN: Oh, I don't think the chairman worries too much about how he's interpreted. He will focus on the FOMC meeting, which is, after all, next Tuesday.

WOODRUFF: Open Market Committee -- all right -- for those of us who are not market experts.

Alice Rivlin, thank you very much. Stephen Roach, Chuck Gabriel, thank you, all three of you. We appreciate it.

And still ahead on INSIDE POLITICS: new questions about John Ashcroft's nomination to be attorney general -- Jonathan Karl on how the issue of homosexuality is factoring into opposition to Ashcroft's confirmation.

(COMMERCIAL BREAK)

WOODRUFF: President Bush traveled to a Washington elementary school today to talk about his education proposals. The president touted the school as a prime example of the kind of testing and accountability included in his education proposal.

The battle over attorney general nominee John Ashcroft may be diverting some attention from the president's legislative agenda. Today there is renewed attention to Ashcroft's views on homosexuality and his role in scuttling the confirmation of an openly gay ambassador.

Jonathan Karl has the latest.

(BEGIN VIDEOTAPE)

JONATHAN KARL, CNN CORRESPONDENT (voice-over): Waging an uphill battle to derail the John Ashcroft nomination, opposition groups presented a new star witness: James Hormel, the openly gay man Ashcroft opposed to be ambassador to Luxembourg.

HORMEL: I can only conclude that Mr. Ashcroft chose to vote against me solely because I am a gay man.

KARL: Ashcroft was one of a handful of Republicans who blocked a Senate vote on Hormel's nomination in 1997. President Clinton bypassed the Senate by appointing Hormel temporarily while Congress was in recess.

SEN. PATRICK LEAHY (D), VERMONT: Did you block his nomination from coming to a vote because he is gay?

JOHN ASHCROFT, ATTORNEY GENERAL NOMINEE: You know, I did not. And I will enforce the law equally without regard to sexual orientation.

KARL: Ashcroft said he opposed Hormel because of the totality of his record.

ASHCROFT: Well, frankly, I had known Mr. Hormel for a long time. He had recruited me when I was a student in college to go to the University of Chicago Law School.

KARL: Hormel was a dean at the University of Chicago Law School while Ashcroft was a student there. But:

HORMEL: I cannot recall ever in my life having a conversation with Mr. Ashcroft. There is simply no truth in Mr. Ashcroft's statement.

KARL: Senator Joe Lieberman was among those the opposition groups brought Hormel to meet with. He was also expected to call Democratic Senator Russ Feingold, who says he is inclined to vote for Ashcroft, but has expressed concern about his views on homosexuality.

SEN. RUSS FEINGOLD (D), WISCONSIN: If confirmed as attorney general, would you continue and enforce this policy of nondiscrimination based on sexual orientation?

ASHCROFT: As attorney general, I will not make sexual orientation a matter to be considered in hiring or firing.

KARL: Ashcroft also said he never in his career used sexual orientation in making hiring decisions. Paul Offner, a Democrat, came forward Thursday to accuse Ashcroft of inquiring into his sexual orientation back in 1985 when he interviewed with then Governor Ashcroft for a job.

PAUL OFFNER, DEMOCRAT: He clearly brought up the issue of sexual preference in my interview. And that's my only reason for contacting the committee.

KARL: Offner did not get the job. And Ashcroft, through a spokesperson, says he does not recall the conversation. In this case of "he said, he said," Republicans are inclined to believe Ashcroft.

SEN. PHIL GRAMM (R), TEXAS: The John Ashcroft that I have known and worked with every day is a person that understands people's privacy and that I don't believe would violate it.

(END VIDEOTAPE)

KARL: Republicans have been quick to point out that Offner is somebody who has frequently given money to Democratic candidates, clearly saying this is part of a partisan agenda. Meanwhile, Ashcroft has sought some support from an unusual here. He has talked to the Log Cabin Republicans -- the Log Cabin Republicans a group of gay Republicans.

Ashcroft has given them a statement about this matter, denying that he ever brought up the issue of sexual orientation in his interview with Offner, and going on to say -- and I quote -- "I have hired gay people to work for me throughout my career. And I welcome qualified individuals to work at the Justice Department regardless of their sexual orientation" -- the Log Cabin Republicans coming to Ashcroft's defense on this, saying they appreciate his statement and going on to say -- and I quote -- "We will be meeting with Senator Ashcroft at the Department of Justice to discuss working together on a range of issues, including the concerns of gay Americans."

So Ashcroft getting support here from a group that he may have clashed with in the past, from the Log Cabin Republicans -- Judy.

WOODRUFF: Now, Jon, bring us up to date on where Ashcroft stands with Democratic support. Of course, half the senators are Democrats.

KARL: Yes, absolutely, Judy.

We know that three Democratic senators have come out and said that they will, in fact, vote for Ashcroft. A number of others have said they are leaning that way. But Patty Murray, a Democrat from Washington state, has come out to say that she will be one of those voting against the Ashcroft nomination -- but none of this changing his status here in the Senate: these allegations, Patty Murray's statement. Still, it looks like -- Democrats saying -- that Ashcroft will be confirmed when the Senate does get around to voting on this.

And we expect the Judiciary Committee at least to vote next week.

WOODRUFF: All right, Jonathan Karl at the Capitol, thanks very much.

There is much more ahead on this edition of INSIDE POLITICS. Still to come: He may have left office, but Bill Clinton is still the subject of investigation. We will ask Congressman Dan Burton why he is opening a new inquiry into the actions of the former president.

Plus:

(BEGIN VIDEO CLIP)

ANDREA KOPPEL, CNN CORRESPONDENT: Prime ministers and presidents may have come and gone. But behind the scenes, some familiar faces remained.

(END VIDEO CLIP)

WOODRUFF: Andrea Koppel on three men and their roles in nine years of peace negotiations. And later: Linda Tripp doles out new accusations and legal actions.

(COMMERCIAL BREAK)

WOODRUFF: We will have more of the day's political news coming up, but now a look at some other top stories.

A Florida jury has convicted a 13-year-old boy of first degree murder in the beating death of a playmate. Lawyers for Lionel Tate argue that the boy was pretending to be a professional wrestler when he killed the 6-year-old girl in 1999. Tate was tried as an adult. He could get life in prison without parole. Sentencing is set for March 2.

Authorities are showing off a massive stockpile of weapons seized during the capture of Texas prison escapees. The last two of the seven convicts were captured yesterday at a Colorado Springs hotel. One gang member committed suicide. The six, now back in custody, are accused of the murder of a Texas police officer. And they could face the death penalty.

Two people are dead and two others are missing following a spectacular early-morning fire at an apartment building in suburban Pittsburgh. Ten other people were injured trying to escape the flames, some leaping from the building's top floor. Three firefighters were injured after the ladder they were using collapsed.

The captain of the oil tanker that ran aground off the Galapagos Islands last week admitted today that he is to blame for the accident. The ship has spilled 185,000 gallons of oil since Friday. Environmentalists say there has been minimal damage to wildlife in that pristine ecosystem. Most of the fuel has floated out to sea.

Relief agencies are appealing for help, as China's Inner Mongolia region deals with its harshest winter in a half-decade. Chinese news media report blizzards, sandstorms and bitter cold have claimed 29 lives. Livestock have been decimated. People in hard-hit areas only have enough food and feed to last another two months.

Coming up next on INSIDE POLITICS: Controversy finds Bill Clinton again.

(COMMERCIAL BREAK)

WOODRUFF: A former lawyer in the Clinton White House is defending President Clinton's last-minute pardon of the fugitive financier Mark Rich. Rich's former wife is a Democratic Party contributor. And his lawyer is the former White House counsel, Jack Quinn. Beyond Rich's connections, there are questions about a meeting between Mr. Quinn and Mr. Clinton the night the pardon was granted.

But former White House lawyer Jeffrey Connaughton -- who is also a partner of Jack Quinn -- says Mr. Clinton made Quinn accept a crucial demand.

(BEGIN VIDEO CLIP)

JEFFREY CONNAUGHTON, FMR. CLINTON WHITE HOUSE LAWYER: I think, you know, the important thing to understand here is that the president did insist that as a condition of granting this pardon, that Mr. Rich's lawyers agreed that he would drop all of his procedural defenses to any civil actions that may very well pertain against him. This is not a pardon that will shield him from all responsibility for these allegations of wrongdoing against him.

(END VIDEO CLIP)

WOODRUFF: Well, among the many people who have questioned that pardon is Senate Democratic leader Tom Daschle, who is now suggesting that Congress may review the presidential power of clemency.

And joining us now from Indianapolis is Congressman Dan Burton. He is chairman of the House Government Reform Committee. That committee is launching an investigation of the pardon.

Have you definitely decided to go ahead with that, Congressman Burton?

REP. DAN BURTON (R), INDIANA: Yes, Judy. We're going to be asking for documents from the Justice Department, from Mr. Quinn, from a host of different groups that may have had some kind of a part in this pardon.

WOODRUFF: Isn't a presidential pardon irreversible? What can you do about this?

BURTON: Well, there's nothing we can do about this, that's the problem. And when you talk about the man is still subject to civil penalties, the fact of the matter is, this man is a billionaire many times over. And for criminal penalties to be dropped when a man was dealing with Iran, Iraq and other countries when we had hostages over there during the Carter administration and their lives were in danger is just unforgivable.

There were 300 counts against this -- or 51 counts against this man and 300 years facing him as far as a jail sentence was concerned. And I think everybody was caught flat-footed when the president pardoned him.

WOODRUFF: Well, let me quote to you something -- we just heard from Jack Quinn's law partner, Jeffrey Connaughton. And among other things he said that, he said, "There were other U.S. oil companies who were parties to the same transactions." And he went on to say that, "in those other cases, there were only criminal" -- I'm sorry -- "there were only civil penalties sought, whereas the prosecutors were seeking criminal retribution here."

BURTON: Well, I don't think Mr. Rich was singled out. I think it was pretty clear he broke many, many laws. And I think he felt like he was in real jeopardy. Otherwise, he wouldn't have fled to Switzerland and give up his United States citizenship.

The fact of the matter is, this man was dealing with an enemy of the United States where there was an embargo at a time when American lives were at risk in Iran. And he was making a lot of money and helping Iran make money that they were using to further their interests.

So I think this man should not have been let off like this and we need to find out why. The Department of Justice was not even aware that this pardon was going to take place and that's really unbelievable.

WOODRUFF: Is that typically -- or is that always the case that the president, before granting pardons, will work through the Justice Department?

BURTON: I can't say categorically that's 100 percent accurate. But I think it's probably 99.9 percent accurate that they go through the Department of Justice to make sure that there isn't something they're missing when the president decides to pardon somebody.

WOODRUFF: Are you suggesting in any way, Congressman Burton, that a president shouldn't have this kind of pardon power?

BURTON: No, I'm not saying that. I think it's a constitutionally approved power that he has. But the problem is, we want to find out that there wasn't anything unjust done, that there wasn't any undue influence used. This man's wife gave well over $1 million to the Democrat National Committee, the Democrat Party. She gave money to Al Gore's campaign, substantial amounts. She gave money to Hillary Rodham Clinton's campaign, substantial amounts.

The president of the United States said they would not forget her contributions. And then she writes the president making a plea for her husband, who probably would have been a convicted felon had he stayed here. And he was pardoned.

So, all of this needs to be looked into. And if any wrongdoing was done, it needs to be brought to light. The American people need to know the facts about this.

WOODRUFF: And just to get back to that earlier point, it was the criminal charges for which he was pardoned. He is still subject -- Marc Rich is still subject to civil penalties. But you're saying that's not enough?

BURTON: Judy, the man is worth billions of dollars. Let's say they imposed $100 million fine, civil penalty on the fellow. Let's say he plea-bargained on that and the civil penalties were $200 million. He could take that out of petty cash and go right on his way.

The problem is it appears as though there's one standard for every American and another standard for the rich and famous and it shouldn't be that way.

WOODRUFF: Do you expect to get full cooperation from the people? Do you have an indication yet whether people like Mr. Quinn, the president -- former president himself, are going to cooperate with what you're doing?

BURTON: Well, they may or may not cooperate. But we will have subpoena authority when our committee is finally put together, which will be in about a week or so. And if we don't get cooperation, I will have -- I will not hesitate in the least to send subpoenas to get this information.

Not because we want to prosecute anybody, but we want to find out the truth for the American people. And if somebody sold influence or peddled influence, then they should be held accountable.

WOODRUFF: And you don't think the American people are sick of investigations of Bill Clinton?

BURTON: You know, Judy, I've heard that comment many, many times by you and others. And here's the problem. We're a nation of laws, and if laws are broken, people need to be held accountable. The fellow who sells newspapers or the president of the United States, the law should apply equally. And that's the problem. We shouldn't excuse it just because it's somebody in high office.

WOODRUFF: All right. Congressman Dan Burton, chairman of the House Government Reform Committee, we thank you very much for joining us.

BURTON: Thank you, Judy.

WOODRUFF: Thank you.

The former head of the Teamsters Union now faces perjury charges. Ron Carey is charged with making false statements about fund-raising in his 1996 reelection bid. Carey came under suspicion of using legal -- union funds illegally for his anti-corruption campaign. His attorney says his client is not guilty.

And next on INSIDE POLITICS: looking back at the search for peace. With Washington now on the sidelines, we will hear from the U.S. diplomats who tried and tried again but came up short in the Middle East.

(COMMERCIAL BREAK)

WOODRUFF: With time running out before the Israeli election, Israeli and Palestinian peace negotiators reported progress in talks in Egypt today. They say they are nearing agreement on the shape of a possible Palestinian state and are making advances in other areas. But again, they say that time is running out. The current talks do not include U.S. negotiators, who have spent almost a decade trying to author a permanent peace agreement.

CNN's Andrea Koppel spoke with some of the U.S. diplomats who gave it their best shot.

(BEGIN VIDEOTAPE)

ANDREA KOPPEL, CNN CORRESPONDENT (voice-over): It's been almost nine years since Israelis and Palestinians first broke the ice and began the arduous process of negotiating a permanent peace. Since then, prime ministers and presidents may have come and gone, but behind the scenes some familiar faces remained.

No one more so than the man who has spent the last 12 years working for peace: lead U.S. mediator Dennis Ross. His mantra for peace: "It can be done," placed on the edge of his desk.

(on camera): Do you usually face it out towards people who are sitting in your office?

DENNIS ROSS, CHIEF U.S. MIDEAST ENVOY: Yes; yes.

KOPPEL: You use it as inspiration?

ROSS: No, no. I already believe it, so the question is, when they come in, they have to believe it, too.

KOPPEL (voice-over): Another true believer: Ross' deputy, Aaron Miller.

AARON MILLER, U.S. MIDEAST NEGOTIATOR: I think that notion that you don't have to accept the world the way it is -- it can't always be the way you want it to be -- but, again, finding the balance between the way the world is on one hand and the way we want it to be on the other -- that's something that actually my mother and my father both instilled in me.

KOPPEL: An historian by training, Miller's unfailing optimism has sustained him through ups and countless downs. That, as well as a personal commitment to do whatever he can to bring about a permanent peace.

MILLER: As long as you never forget that the Arab-Israeli conflict is not a conflict between right and wrong, between black and white -- that it is a complex historical conflict in which both sides have competing needs and requirements; and in a way it's a competing search for justice, for security by both. As long as you never forget that, then the personal relationships really help sensitize you, in my judgment, and allow you to do a much more effective and a much more productive job. It's not just paper we're talking about; it's people's lives.

YASSER ARAFAT, PLO PRESIDENT (through translator): And within two weeks we will receive the 6 percent.

KOPPEL: Egyptian-born Gamal Helal's many insights into the lives and mindset of Arabs in the Middle East have, over the years, made him an invaluable member of the U.S. peace team, serving as translator and special adviser.

GAMAL HELAL, U.S. MIDEAST ADVISER: I sort of like have this special feel of what they're trying to tell us. And that's what I try to do by working with my team or this side, is trying to add an additional meaning to the words that we hear from both sides.

KOPPEL: Most recently, Helal was seen with Yasser Arafat in photographs taken at last summer's Camp David summit. HELAL: You deal with the very complicated issues; you deal with very emotional issues. When you look at the hard-core substance, that's one thing; but if you really ignore the emotional attachment that -- it is so heavy on the minds and hearts of not only the negotiators, but also the people that these negotiators represent.

ROSS: Camp David had moments of great significance that will be very memorable to me because I sat there and, in conversations with the negotiators and with the leaders, I saw people wearing the weight of history on their shoulders much more clearly than at any other time. They knew they were contemplating historic decisions.

KOPPEL: Decisions which have yet to be made. And now, after months of violent clashes during the latest Palestinian uprising, many in the region believe Camp David was a huge mistake. Ross defends the decision, calling it necessary to head off a September deadline, then only two months away, for a unilateral declaration of a Palestinian state.

ROSS: If we had not gone to Camp David, given the September 13 date that was looming, you would have had the explosion much earlier and the explosion might have been much worse. And you would not have been in the position where you had advanced the process in any way, shape or form.

Now, at least, there is much more of a sense of what each side can live with and can't live with. Now, at least, instead of looking at issues like Jerusalem only from the standpoint of generalities, there's a much greater appreciation of what might be possible. The same applies to refugees, the same applies to borders, the same applies to settlement blocks.

You know, all of these issues have been dealt with in a way that they were never dealt with prior to that time.

KOPPEL (on camera): What does the historian in you tell you about this period and how this moment in the Arab-Israeli conflict will be remembered?

MILLER: There's a great sense of loss because, if you look at the last several months, I mean, how many Israelis and Palestinians have been killed and wounded? How much of the partnership had been shattered and undermined? And for what? For what?

KOPPEL (voice-over): In Israel, voters are disillusioned by the peace process and appear set to elect hard-line Opposition Party leader Ariel Sharon in elections next month. While, in the Palestinian territories, the uprising goes on.

And in an unusual move this week, Palestinian negotiators took off the gloves, releasing a written critique of the U.S. mediating role during the Clinton administration. In particular, they said, under U.S. supervision, the peace process had become more important than achieving peace itself. Perhaps underscoring this point, Israeli and Palestinian negotiators held high-level peace talks this week in Egypt without inviting U.S. mediators to join them. But Ross had already made the decision to leave government; his last day coinciding with the inauguration of George W. Bush.

(on camera): Did you think it's going to be hard to let go?

ROSS: Well, you never know until you're on the outside. I will not walk away from this issue; I'm not going to be the negotiator any longer. I will care about this issue, I will write about this issue, I will speak about this issue, I will still try to effect it in terms of the public climate.

But it's time for me, at least, to move on. This is the kind of job that takes a real toll. Not only personally and not only on a family, but it's also the kind of job that just is with you all the time. There's no relief from it; and even when I'm not getting called, I'm thinking about it, I'm preoccupied with it. And I'm at a point where, you know, I feel I have also done what I can do, at least as a negotiator.

KOPPEL (voice-over): There's no word yet as to who will be on the Bush administration's peace team. Regardless, Aaron Miller, the eternal optimist, is wistful about what the future holds.

MILLER: They will come back at some point to the place where they were because the history and geography will drive them there. And then they'll have to go through this again. And that, I think, in one sense, is optimistic, but it also underscores the loss -- sense of loss about what was possible.

KOPPEL: What most frustrates this Middle East peace team is that they believe the Israelis and Palestinians were closer than they'd ever been to finally closing a deal; but eventually time under Bill Clinton's watch ran out.

Andrea Koppel, CNN, the State Department.

(END VIDEOTAPE)

WOODRUFF: And a final Mideast note at the Israeli embassy here in Washington, Israeli citizens voted absentee today in the upcoming election. The election is set for February the sixth in Israel between the incumbent Prime Minister Ehud Barak and the front-runner in the polls Ariel Sharon. He is, of course, a long-time opponent of making concessions to the Arabs.

Maybe their election won't be as close as ours was; we'll see.

Up next, the woman who taped private conversations now says her privacy was violated by the Pentagon. The latest on Linda Tripp when we return.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

STEPHEN KOHN, LINDA TRIPP ATTORNEY: This is her short statement, quote: "I am devastated that the price of coming forward as a whistle- blower has cost me not only my reputation, but my career. I feel helpless."

(END VIDEO CLIP)

WOODRUFF: Attorneys for Linda Tripp today explaining why the former Pentagon employee filed suit today against the Defense Department. Tripp claims that Pentagon officials leaked confidential information about her search for a new job, thereby violating the Privacy Act and hindering her chances of employment.

Well, joining us now to talk more about Linda Tripp's lawsuit and other matters: Tucker Carlson of the "Weekly Standard," and Margaret Carlson of "TIME" magazine.

Margaret, does it appear that Linda Tripp has a good case here?

MARGARET CARLSON, "TIME" MAGAZINE: It's so hard to take seriously or generate sympathy for somebody who is filing suit about leaking information about her to the biggest, most famous, notorious leaker on the planet.

As I understand it, your job -- if you're a Schedule C employee, your job ends at the end of an administration and you get renewed or you get told to stay by the next administration. So everyone goes; I don't know why she would be an exception, especially given who she is. I mean, the Clinton administration, I don't think, can do anything about that. It's up to the Bush administration, I would think, whether they want to keep a Schedule C.

WOODRUFF: Tucker, does she have a case?

TUCKER CARLSON, CNN POLITICAL ANALYST: Well, I mean, if she's upset about her career being ruined, obviously she ought to sue Jay Leno because he's the one who wrecks her more than anybody.

But it is true that the Pentagon did give out confidential information about her some years ago to "The New Yorker" about this arrest -- she was arrested as a teenager and it went into a...

WOODRUFF: And there's a pending suit about that, is there not?

T. CARLSON: Right; and there's just no question that Pentagon spokesmen did give that information to a reporter and they shouldn't have. Whether or not she can prove this one, who knows.

But she probably -- this will keep her from getting a job in the Bush administration.

WOODRUFF: All right; all sorts of lingering matters from the Clinton administration: the pardons. Many, many -- dozens and dozens of pardons, the most notorious of which for Marc Rich, the fugitive financier.

Margaret, we're now hearing that there are arguments on both sides of this. Where do you come in? M. CARLSON: Well, for the first time we're hearing what the argument was, which is that he was foregoing objections to civil prosecution in exchange for not being prosecuted criminally.

Nonetheless, when you look at what happened, the Justice Department was against rewarding a fugitive; you know, somebody who absconded with all the money and left the country rather than face the laws of this country. That seems to give, you know, potential fugitives hope that, you know, this is allowable behavior. Pardons, I think, belong back in England. I don't think royal...

WOODRUFF: You mean any presidential pardons?

M. CARLSON: Yes; royal behavior is a good thing; being close to the court is how you get them.

But this one is just particularly egregious because it rewards behavior that shouldn't be rewarded.

T. CARLSON: That's right, they are buoyed in the fugitive community over this news.

And I don't think it's true that you're hearing both sides; you're hearing that you're hearing both sides. But if you actually ask the people representing the side that sprung Marc Rich, they don't have much of an explanation. I got a call last night from a friend of mine who's making this case and he said well, you know, there are complex legal issues here. "Such as?" I said. Well, they're very complex -- not sure of all the details exactly.

In other words, I have not heard or read anybody explain precisely -- apart from the one sort of clause that Margaret mentioned -- what the rationale was for letting Marc Rich out.

WOODRUFF: Just to be very brief about it, as you pointed out, the argument made by the Jack Quinn law partner that it was criminal penalties that he was subjected to that other people involved in the same whole serious of transactions were not subject to.

M. CARLSON: You know, and this is further clouded by a sofa and, I think a coffee table; and the sofa may have had a million dollars in an envelope under a cushion that also went to the Clinton -- you know, Clinton got a donation to his campaign and then it turns out that on the list of gifts, Denise Rich gave a sofa and a coffee table. So...

WOODRUFF: You're not serious about the envelope with the money?

M. CARLSON: No, I'm not, but the million dollars...

WOODRUFF: But the furniture...

M. CARLSON: .. the cash -- I mean the contribution somehow got there and then, on top of it, the sofa and the coffee table.

T. CARLSON: And the DVD player and the flatware. M. CARLSON: Yes; which all -- but just from Denise Rich, I think, was the sofa and the coffee table. But it all makes it look like it was an exchange.

WOODRUFF: And we're still talking about the Clintons.

T. CARLSON: It is the story that keeps on giving, isn't it? It's unbelievable.

M. CARLSON: Well, you think you've scraped bottom...

WOODRUFF: All right, there is a new president, George W. Bush.

How is he doing, Tucker, in his first weeks in office?

T. CARLSON: Well, he's doing -- I mean, he hasn't, you know, appointed, inadvertently, anybody with a Klan background. I mean, despite all the -- and you'd think that, I mean, there's such a short time for transition and there are so many thousands of jobs that are going to be filled; you'd think at some point they would make an egregious mistake, and perhaps that will happen.

But for all the talk about how Ashcroft -- and the head of handgun control compared him to Timothy McVeigh; someone else accused him of, you know, committing hate crimes. It's turned out to be not that explosive a deal. I mean, he's going to be confirmed, so that tells you it all right there.

M. CARLSON: Well, senators from Bush country feel they can't vote against him. But I don't think he was a good appointment for reasons that we don't have to go over here.

But what's been good is that -- this education bill. He -- Bush wants to be an education president, not a tax cut for the rich president. And the education bill already looks like he's trying to work with Democrats on the Hill who he knows are opposed to vouchers. That was a really wise thing to do.

He should cut a deal now with McCain on campaign finance reform because every day he doesn't McCain is in the headlines; and so the way to get that out of the headlines is to come to some agreement.

WOODRUFF: And then he'd have education, tax cut and campaign finance reform.

T. CARLSON: It'll be over, basically.

WOODRUFF: And he could just...

M. CARLSON: We could go home.

WOODRUFF: But Tucker, so far -- smart to focus on education first? Helpful today getting those comments from Alan Greenspan?

T. CARLSON: Yes, and it's interesting that he's not just going after -- and by going after I mean trying to make allies of moderate Democrats like Cal Dooley, but also liberals -- serious liberals like Miller from California. And, I don't know; I mean, at a certain point you have to say if the guy appears to be reaching out and he makes all the reaching out noises, maybe he is.

WOODRUFF: Margaret, is he really reaching out?

M. CARLSON: Oh, he's reaching out so much that the Democrats are trying to pull Zell Miller right back in because they expected maybe, you know, he'd become pals with John Breaux and others; but Zell Miller, who aggressively came out for tax cuts, that was...

WOODRUFF: This latest -- just one little thing, this latest controversy about Ashcroft: whether or not he asked someone about whether their -- what their sexual orientation was. Is this in any way going to derail what's going on there, Margaret?

M. CARLSON: It looks like it's unlikely to derail it. It's one of those things where we already knew about the ambassador -- Ambassador Hormel, who Ashcroft objected to simply on the basis that he was gay -- his gay lifestyle. And -- so you wouldn't think that you would need this other thing to raise that to the level of something under consideration. But this has given it slight new life.

T. CARLSON: Well, A, Ashcroft says he opposed would-be Ambassador Hormel because he attacked Catholics; and, B, he denies remembering this conversation.

And I'm just struck by the fact that nobody is alleging that Ashcroft said, look, if you're gay I won't hire you. I mean, I don't know -- on its face, is it offensive to ask somebody, hey are you gay? I mean, it wasn't explicitly...

M. CARLSON: Tucker, the answer to that question is yes.

T. CARLSON: Yes, I guess it probably -- and it's not a question I ask at dinner; but I have to say nobody is alleging that he said, you know, I don't hire gay people. And I think there's a difference.

WOODRUFF: All right, we'll leave it there. Tucker Carlson, Margaret Carlson, thank you, appreciate it.

Still ahead: power politics in California.

Also: generating support for a Bush tax cut.

(COMMERCIAL BREAK)

WOODRUFF: When it comes to President Bush's call for tax cuts, why does Alan Greenspan suddenly seem bullish?

In the California power crisis, we revisit Governor Gray Davis' political message.

And after the presidential election, the one who got the boot finds a new way to survive. Welcome back to INSIDE POLITICS. Federal Reserve Chairman Alan Greenspan is known for his ability to influence the economy, but today, he probably swayed the political debate, as well. In testimony on Capitol Hill, Greenspan seemed to agree with President Bush that tax cuts should be a priority.

(BEGIN VIDEO CLIP)

GREENSPAN: In today's context where tax reduction appears required in any event over the next several years to assist in forestalling the accumulation of private assets, starting that process sooner rather than later, likely would help smooth the transition to longer-term fiscal balance. And should current economic weakness spread beyond what now appears likely, having a tax cut in place may in fact do noticeable good.

(END VIDEO CLIP)

WOODRUFF: Greenspan shied away from saying how large a tax cut should be, and he declined to explicitly endorse President Bush's $1.6 trillion proposal over 10 years.

CNN's Major Garrett is covering tax cut politics for us today. Major, I understand the president talked about all this a little while, about the chairman's remarks?

MAJOR GARRETT, CNN CORRESPONDENT: Yes, he did, Judy. Not only did he talk about it, but he talked about in the Oval Office -- rather, not the Oval Office, but the Cabinet room and he brought television cameras in there, which was a bit of change.

Originally, the president, who was meeting with education leaders on the House side, was only going to have still photographers to take some pictures that would appear in tomorrow's newspapers. But the White House wanted to jump on Mr. Greenspan's comments, give the president a chance to jump on him as well. The president said he was happy with Mr. Greenspan's qualified endorsement of his tax cut proposals.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I was pleased to hear Mr. Greenspan's words. I felt they were measured and just right. He recognizes that we need the monetary policy and sound fiscal policy to make sure that the economy grows, and so I was pleased.

QUESTION: He also seemed to indicate that having a tax cut in place is one of the issues -- one of the main criteria in having a tax cut that would benefit the economy. Do you read that as support for a retroactive tax cut or an accelerated tax cut?

BUSH: I don't think Alan Greenspan was supporting any particular plan. I know he wasn't going to the Hill to say, well, President Bush has got the right plan. I felt like he was speaking about policy in general. His job is to report to the Congress in an objective way, and that's exactly how I read it. And I've got my view of how to enact tax relief. I suspect others in the Congress will have their view. But what Alan Greenspan was saying to the nation is that in order to make sure our economy grows, we've got to have good monetary policy and sound fiscal policy, a component of which is wise spending as well as tax relief.

(END VIDEO CLIP)

GARRETT: So, Judy, the Bush White House now believes they have at least a qualified endorsement from Mr. Greenspan, and they like having him on their team as they approach Capitol Hill with their large tax cut.

WOODRUFF: And Major, we know that the president and some of the people around him have given some thought to establishing a relationship, if you will, with the chairman. Tell us a little bit about that?

GARRETT: Well, many on the Bush team remember what happened in 1993, back when they were in different positions, not at working at the White House; many of them working on Capitol Hill. And they remember expecting the Fed chairman would be critical of then- President Clinton's plan to balance the budget with large tax increases and, to their way of thinking, far too much in increases in federal spending.

Well, Mr. Greenspan did exactly the opposite, and there are bitter memories of that. They learned later that Mr. Greenspan and the Clinton White House has developed sort of a relationship and that Mr. Greenspan had made it clear to the president that if he was going to increase taxes and make deficit reduction a top priority, he wouldn't say anything negative about his attempts to increase federal spending.

Well, the Bush team has learned a lot from that experience. Many of the people who now work in the congressional relations office here at the White House for the Bush team worked up on Capitol Hill then. They understand the importance of creating a relationship with Mr. Greenspan.

But there's also a very fine line to walk here. Nobody here wants anyone to think that the Bush White House has in any way an open line to Alan Greenspan or any way control over him. And as you noted from the president's comments, he was very general, saying, you know, I don't think the Fed chairman was endorsing my plan. He was just saying some general things, only reporting to Congress, not speaking on my behalf.

But nevertheless, they do believe here at the White House it's changed the political dynamic on Capitol Hill, and very much in the Bush White House's favor -- Judy.

WOODRUFF: All right, Major Garrett reporting from the White House. Thanks. And let's bring in our senior political analyst Bill Schneider. Bill, what do you think are the political effects of the chairman's remarks likely to be?

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: Well, my guess is in the White House their reaction was probably something like this: Whoopee. I mean, look, we can have it all; debt reduction and a tax cut which is exactly what Bush said during the campaign.

Bush says we need a tax cut because it's the people's money. Democrats were coming around to a tax cut because of the threat of a recession. Greenspan said a tax cut won't do much about a recession, but he wanted it because the surplus is going to be a lot bigger than anyone expected. We're rolling in money, whoopee.

WOODRUFF: All right, outside of what Chairman Greenspan had to say today, Bill, what are the political forces out there both for and against a tax cut?

SCHNEIDER: Well, for the tax cut, Bush claims the mandate. There's the threat of a recession. Greenspan said it would do some good. We just heard him say that. Even if it won't avert a recession, he said having a tax cut in place would help. And then there's the surplus.

Against the tax cut, we have a national debt, and that's $3 trillion or a little over that. The surplus is now estimated to be almost $6 trillion. And then finally the public. They were never enthusiastic. Even though a lot of people voted for Bush, a tax cut was never a high priority. A lot of people in the electorate would rather see the money spent on important national priorities like Social Security, prescription drug coverage, education and national defense.

WOODRUFF: Well, on the president's part, Bill, is there overall some other political agenda here?

SCHNEIDER: Well, I think there's an agenda certainly on Greenspan's part. He is worried about what would happen if the surplus is so big after we retire the national debt, that we don't know what to do with the money? I mean, talk about rosy scenarios. He said specifically quote, "it's far better that the surpluses be lowered by tax reductions than by spending increases."

I think he found last year's budget orgy somewhat distressing. He's also worried that if the federal government has so much surplus money after the debt, it will start to buy private securities. He wants to keep the government out of the stock market. And to a lot of people, like Alice Rivlin, whom we heard from in the last hour, that sounds like solution for which there is no known problem.

WOODRUFF: And forget paying down the debt?

SCHNEIDER: Well, no, the debt. He says after the debt, the money will be there and he doesn't want the federal government to go into the stock market. Talk about a rosy scenario. WOODRUFF: OK, rosy Bill Schneider.

SCHNEIDER: OK.

WOODRUFF: Thanks very much. We'll see you later.

And now we turn to another issue that may influence the nation's economy and politics: The California power crisis.

CNN's Charles Feldman spoke today to the official at the center of the storm, California Governor Gray Davis. Charles asked the governor about some of the proposals on the table to solve the crisis and the governor's political future.

(BEGIN VIDEOTAPE)

CHARLES FELDMAN, CNN CORRESPONDENT: There was an Internet auction that took place yesterday in California, the Internet auction to see how much money power generators wanted for their electricity. How did it go?

GOV. GRAY DAVIS (D), CALIFORNIA: It went very well. I'm very encouraged. The price averaged 6.9 cents. Some of the generators were saying the bids would be in the 8 1/2 to 10 cent range. So, I believe we're off to a very good start.

FELDMAN: Right, but how good is it? I mean, I know that it's within apparently the range that you feel would not mandate any rate increases, but I would presume you would like it even lower, yes?

DAVIS: And I believe as a result of discussions which will commence as early as today, those prices will be improved upon. Obviously, the approach you take is you take the very lowest bids, and then you see if you can structure them in an even better fashion for the rate-payers of California. So, we're off to a good start.

FELDMAN: As you're well aware, there's a sort of two-week deadline. That's the amount of time that the feds say they are willing to extend what they say is the final emergency decree. Is it reasonable, is it realistic, is it possible to have this energy mess settled in two weeks?

DAVIS: That's our intention. I asked Secretary Abraham -- I'm grateful to him and to President Bush for giving us the extension and I believe we will move Heaven and Earth to get everything we have to get done in the next two weeks.

FELDMAN: Now, as you are well aware, there are reports circulating around that the legislature is considering here in California the issuance of state-backed bonds as an effort to help the two major utilities, now something $12 billion in debt, and there are consumer advocates who are now crying very quickly bail-out. Tell us about the plans for the bonds and do you think it is a bail-out?

DAVIS: We'll take a balanced approach. We'll get something of value for the consumers, a -- some sort of financial instrument that allows them to participate in the upside if the stock recovers and the company is back on its feet in two or three years. So, it's not a bail-out. it accomplishes two purposes. It provides the funding to revitalize the utilities but it lets the rate-payers know that they will gain as the utilities gain.

FELDMAN: Now, it's no great secret that being governor of the country's largest state, you are automatically on the short list as a potential Democratic presidential contender in 2004. How does this crisis and the way you are handling it, do you think, affect that?

DAVIS: Well, I just don't pay attention to that, Charles. Other people can keep score. I just keep my head down and solve problem. In this state, we are -- like one out of eight people in America lives in this state, and we're about 13 percent of the stations -- the country's economic growth. I have my hands full keeping -- solving the problems that come before me here in California and, I'm obviously very much engaged with this electricity challenge.

FELDMAN: Well, I'm sure you are, but you are also very much a politician or you wouldn't be a governor. And so it must occur from you, surely, from time to time that if there are segments of the state that think that maybe you were too slow to act or there are people in the end who are not pleased with the plan and they think that maybe consumers are getting the shaft, that you're going to feel political heat. It has to have crossed your mind.

DAVIS: Well, obviously I'm not unaware of that. But if I spent all my time worrying what people are saying about me, I couldn't get my job done. And I think we've made real progress in working together with our neighbors, finding the power we need, responding to some of our neighbor's legitimate concerns.

Just recently, the governors of Nevada and Arizona asked us for aviation fuel. We made that possible. And we're grateful to our neighbors to the north, Oregon and Washington to help us in our time of need. So, they hired me to solve problems, to keep the lights on, to keep the rates affordable, and in the end they will judge whether or not I did a good job.

(END VIDEOTAPE)

WOODRUFF: Governor Gray Davis was in Sacramento when he spoke with our Charles Feldman less than an hour ago.

And next on INSIDE POLITICS, who will control the Senate after the 2002 elections? Some thoughts on that from Stu Rothenberg and Charlie Cook.

(COMMERCIAL BREAK)

WOODRUFF: Looking ahead to the off-year elections in 2002, the Republican position in the Senate looks potentially tenuous. With the Senate now evenly split, 20 Republicans will face reelection, compared to 14 Democrats.

This afternoon, I spoke with Stu Rothenberg of "The Rothenberg Political Report" and Charlie Cook of "The National Journal" and I started by asking whether the Senate Republicans may be in trouble.

(BEGIN VIDEOTAPE)

CHARLES COOK, "THE NATIONAL JOURNAL": Well, you look at that and you look at history and you say Republicans have a lot to be worried about. When you look at the specific races that are out there, though, there are roughly an equal number of vulnerable seats on each side.

So, while history tells you that Republicans should lose seats because it's a mid-term election, it's not a done deal. I think it's going to be very, very, very competitive cycle. I don't think we know which way it's going to work.

STU ROTHENBERG, "THE ROTHENBERG POLITICAL REPORT": I'd agree. The raw numbers obviously give the Democrats more opportunities. On the other hand, it's all going to depend on candidate recruitment. If the Democrats get a good candidate in a particular state, it can change the overall math. We just have to wait and see.

WOODRUFF: All right, let's talk about some Republican seats. First of all, Jesse Helms. What do we think is going to happen there? Is he going to stay? Run again?

COOK: He hasn't said what he's going to do. There's a strong suspicion that he's going to retire because he isn't been in particularly great health. There's a strong suspicion he's going to retire, but Republicans are sort of loathe to say or do anything until he indicates. We've already seen one Democratic potential candidate, Elaine Marshall, the secretary of state, come through town and there'll be a ton of others out there. I think you can expect a very, very competitive race down in North Carolina.

ROTHENBERG: I'd agree. I certainly expect that he'll retire. Now that I said that, of course, his office will get letters and phone calls.

(LAUGHTER)

ROTHENBERG: Elaine Marshall is an attractive candidate, secretary of state, experienced politician. She defeated Richard Petty for secretary of state, the race car driver, a number of years ago. Dan Blue, a state legislator, is mentioned on the Republican side. An open seat would almost certainly bring in Richard Burr, a very attractive, articulate Republican. It's going to be a good race, a competitive race, a competitive state.

WOODRUFF: Who are some vulnerable Republican, Charlie?

COOK: Oh, gosh. You start off with -- I mean, the most -- first of all, we're going to be watching North Carolina. We're going to be watching South Carolina. I think we're going to be...

ROTHENBERG: New Hampshire.

COOK: Yes, yes. Bob Smith. Bob Smith, I think, is the one. Probably, if you're going to say what is the most vulnerable Republican seat out there, it's Bob Smith. But that's both in a primary where Steve Merrill, the former governor, as well as Jeanne Shaheen, the Democratic governor, could run against him.

WOODRUFF: Why is he vulnerable, Stu?

ROTHENBERG: Well, he is a quirky kind of politician who left the Republican party, joined it again. He had a narrow win last time, that would be four years ago. He's never demonstrated a real strangle hold on the seat. Jeanne Shaheen...

WOODRUFF: Tried to run for president.

ROTHENBERG: Right.

WOODRUFF: Different party?

ROTHENBERG: A brief run. Jeanne Shaheen is a rather popular politician, governor, Democrat, position is the centrist. She didn't have a overwhelming reelection victory in November. She beat Gordon Humphrey, a former U.S. senator and then state legislator. But early polls suggest she is very formidable. Republicans are concerned about the seat.

COOK: And Hew Hampshire has become more of a swing state. I mean, it's not the rock-rib conservative Republican state that it used to be, and Bob Smith is on the more conservative end of it. Like a Steve Merrill, I think, would be a much more formidable general election candidate for Republicans.

WOODRUFF: All right, let's look at the Democrats. Who more vulnerable on the Democratic side, Stu?

ROTHENBERG: Well, there's certainly a lot of attention, early attention, at least, in Montana and in Iowa. In Iowa, it's Tom Harkin, who is one of those bare-knuckled brawlers when it comes to elections. But it looks like Congressman Greg Ganske is getting set to run, a Republican Congressman, a surgeon, a moderate Republican, who is -- I think has the potential to raise money and be a very formidable candidate.

COOK: That will be one of the toughest races in the country. That's going to be a real barn...

WOODRUFF: In Iowa. What about Montana, you mentioned Max Baucus?

COOK: I don't think -- well, Max Baucus. there's a poll out that shows that former Governor Mark Racicot would beat Democratic Senator Max Baucus by 20-something percentage points. Well and good, I don't think Racicot is going to run. I don't think he's going to run for the Senate.

ROTHENBERG: And I think this is an interesting contest to Iowa for that reason, for just what Charlie said. In Iowa, it looks like the Republicans are getting a top-tier candidate in Ganske. In Montana, it's unclear. Once you go past Racicot, even though he would be way ahead in the polls, even though Republicans did very well, Judy, in November, it's unclear whether they can find anybody else to beat Max Baucus.

WOODRUFF: Real quickly, Jean Carnahan, Missouri. Vulnerable?

COOK: I think very vulnerable. If I were her, I would want John Ashcroft to be gainfully employed.

WOODRUFF: She will be up after two years?

ROTHENBERG: Right.

COOK: Right. I think she had a enormous reservoir of good will after her husband's death, but frankly, I think she'll have a tough time if Republicans get a good candidate, and I think John Ashcroft is the most formidable one out there who's likely to go.

ROTHENBERG: Well, she's unproven, but it all depends on who the opponent is. We've heard former Congressman Jim Talent. We've heard Congressman Jo Ann Emerson, Congressman Kenny Hulshof. I really think it depends. If she gets somebody who's a proven vote-getter or not.

WOODRUFF: Governor's races up this year, 2001. Two states, New Jersey, Virginia. What about Virginia? We know Gilmore, Jim Gilmore cannot run again -- Stu.

ROTHENBERG: Well, actually, I think Republicans are in trouble in governors races in general, both in 2001 and 2002, and particularly these two races later this year. The Democrats have a nominee, it's Mark Warner. He ran against John Warner for the Senate last time. Did very well. Lost, but did well. He's very wealthy, a state party chairman, and has basically running for the last three or four years after Gilmore beat Don Beyer.

The Republicans have a primary between the attorney general and the lieutenant governor, both pretty conservative. But you know, the Republicans have held this seat now for two elections in a row, two governors in a row. And the Democrats have an argument about time for a change.

COOK: I agree. I think it's going to be -- you know, Republicans have a risk of cutting themselves up. So, I think it's going to be a very competitive state. It's a Republican-tilting state, but it's going to be -- I think it will be a very close race.

WOODRUFF: New Jersey, Christie Whitman has come to Washington. There is an acting Republican governor. Where are we there?

COOK: Well, first of all, New Jersey is the only state in the union that doesn't have a lieutenant governor. And so the state senate president, Don DiFrancesco, moved up to become acting governor. But he's going to have a primary with, from Jersey City, Mayor Bret Shundler and on then on the Democratic side, Jim McGreevy, who almost beat Christie Whitman last time, is going to be the Democratic candidate. You know, I think one question is is McGreevy -- was it lucky or was he good? And you know, a lot of people think he was just lucky. I mean, he came out with a proposal to require all new businesses in his town to put up a flagpole and fly the American flag if they were going to get a zoning variance. He backed off, but kind of some goofy thing like that. I -- you know, it's going to be -- it's going to be a good race.

ROTHENBERG: I think he starts out with name recognition, statewide ID, having run. The Republicans are hoping that there is going to be some way they can coax Shundler out of the governor's race. They hope that George Bush is going to dangle a job in front of him to let DiFrancesco run a claim. Donnie D, as he is known, will be able to get statewide name ID. The establishment is behind him. It's a good race.

WOODRUFF: All right, we're going to have to leave it there. Stu Rothenberg, Charlie Cook, thank you both.

ROTHENBERG: Thanks.

WOODRUFF: Appreciate it.

(END VIDEOTAPE)

WOODRUFF: Nothing like those two.

And coming up next on INSIDE POLITICS, a career move for Al Gore. He's going back to school.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MARK BURNETT, CREATOR, "SURVIVOR": Leopards don't change their spot. The pre-strategies really didn't play out, and it was pretty much the same politics and conniving as year one.

(END VIDEO CLIP)

WOODRUFF: Those were some thoughts on politics from the creator of "Survivor 2," which debuts this weekend.

After an election in which the presidential candidates' survival skills were tested in dramatic fashion. Al Gore came up short in that contest. But, as Rudy, Susan and others from the first "Survivor" found, one can find a place in the public eye, even after defeat. The former vice president has disclosed that he will lecture at the Columbia School of Journalism in New York and at two other universities.

We at INSIDE POLITICS have been reviewing Al Gore's credentials for the job. He certainly got to practice his classroom banter during the presidential campaign.

(BEGIN VIDEO CLIP) AL GORE, FMR. VICE PRESIDENT OF THE UNITED STATES: Oh, my goodness. Everybody looks so nice.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

GORE: This is the kind of book that's fun to read over and over again.

(END VIDEO CLIP)

GORE: Who can tell me why it's important to have good, fun, interesting things to do that are good for you, after school is out.

(END VIDEO CLIP)

WOODRUFF: We'll see whether he talks to the journalism students that way. But as a former newspaper reporter in Nashville, Gore is no stranger to journalism. And he no doubt has some definite opinions about the subject that he plans to teach: Covering national affairs in the information age. There's no word yet if any of his lectures will offer tips on covering presidential election disputes. We'll find out.

And that's all for this edition of INSIDE POLITICS. But, of course, you can go online all the time at CNN's allpolitics.com. The AOL keyword, CNN.

This programming note: Republican Congressman Bob Barr and Democratic Strategist Vic Kamber will be discussing the Clinton pardons tonight on "CROSSFIRE." That's at 7:30 p.m. Eastern.

I'm Judy Woodruff. The "MONEYLINE NEWS HOUR" is next.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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