Return to Transcripts main page

CNN Late Edition with Wolf Blitzer

Sattar, Jaitley Discuss India/Pakistan Relations; Schiavo, Jenkins Talk About Airline Security; Forbes, Reich Discuss Economic Slowdown

Aired December 30, 2001 - 12:00   ET

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

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
WOLF BLITZER, CNN ANCHOR: It's noon in Washington; 9:00 a.m. in Los Angeles; 10:00 p.m. in Islamabad; and 10:30 p.m. in New Delhi. Wherever you're watching from around the world, thanks for joining us for this three-hour LATE EDITION. And Happy New Year to all our viewers.

We'll get to our interviews with Pakistan's foreign minister Abdul Sattar and India's law minister Arun Jaitley in just a few minutes, but first, the latest developments in the war against terrorism.

(NEWSBREAK)

BLITZER: India and Pakistan of course are both important allies in the war against terrorism. But in recent days, as John just noted, they've taken some very ominous steps toward war.

Earlier I spoke with Pakistan's foreign minister, Abdul Sattar.

(BEGIN VIDEOTAPE)

BLITZER: Mr. Foreign Minister, welcome back to Late Edition. It's good to have you on this program, although the circumstances, as you well know, are not necessarily very optimistic right now.

How close is Pakistan to war with India right now?

ABDUL SATTAR, PAKISTAN'S FOREIGN MINISTER: Mr. Blitzer, first of all, thank you very much for this opportunity of talking to you.

Unfortunately, the situation in South Asia, especially in regard to relations between Pakistan and India, is becoming more and more anxious by the day. India has massed very large forces, six to eight new divisions, and some hundreds of aircraft on our borders and along the Line of Control in Kashmir.

And we are hoping that the world community and our friends will intervene in order to induce restraint into the situation.

BLITZER: The Indian government, as you know, is blaming Pakistan for responsibility for the attack in recent days on the Indian parliament. Did the Pakistani military or intelligence services have any connection to those terrorists who committed that action?

SATTAR: Mr. Blitzer, there has been no connection whatsoever, and even the Indian accusations talk about some conversations that one of the persons under their custody is supposed to have overheard between the terrorists and allegedly their relatives in Pakistan.

The government of India has not directly blamed the Pakistan government or Pakistani agencies. They simply make accusations, themselves become the judges, and pronounce the conviction of Pakistan by implication. And this, of course, is not acceptable to us at all.

What we are prepared to accept is impartial inquiry, provision of evidence on the basis of which investigations can be conducted by the government of Pakistan.

And we have said not only that we condemn that reprehensible terrorist attack at the Indian parliament, that our president said this to the Indian prime minister, that we condole and sympathize with the government of India. And thirdly, that, if the government of India wants to provide to us evidence that can be used before a court of law, we will ensure that the accused are brought to justice.

BLITZER: As you know, in recent days the Bush administration has formally declared two organizations inside Pakistan to be terrorist organizations and has taken actions, including the freezing of assets against these organizations, the Lashkar-i-Taiba organization and the Jaish-e Mohammad organization.

What steps is Pakistan taking to crack down on both of these groups?

SATTAR: First of all, there are not only two but four or five Pakistani organizations which have been placed on the list prepared by the Sanctions Committee of the United Nations. And these are five names out of perhaps 280 names worldwide. And the government of Pakistan has, in accordance with obligations under the charter of the United Nations, taken appropriate action.

The two organizations that you have mentioned, plus three others, have been notified, their accounts have been frozen, and the other necessary action under the Security Council resolutions has been taken.

In addition, we have placed the head of one of these organizations and 50 other persons under protective custody. And we are waiting for information and evidence on the basis of which some judicial processes can be started. And I assure you once again that if there is credible, objective, usable evidence we will bring these people to trial.

BLITZER: The Indian government says the actions that Pakistan have taken so far are, in their words, a "joke," really don't amount to much -- specifically the house arrest of the leader of the Jaish-e Mohammad organization, the militant Islamic group, Mr. Maulana Masood Azhar.

Are you arresting him in a serious way and will detain in connection with these alleged terrorist activities?

SATTAR: Mr. Blitzer, all of these people are under present -- under detention. They cannot be arrested or imprisoned until the due process is carried out. For our purposes of prosecution, we need to find a case. To do so we need evidence.

Therefore, when India dismisses the action that we have taken, it betrays a desire on its part for Pakistan to take illogical and illegal actions. What we have done is to place these people under detention so that they cannot carry any further activity detrimental to peace. And we have said we will investigate. We need more evidence, and on the basis of that evidence, we will take further action under the law.

I don't think it is appropriate to expect Pakistan, that we should ignore our legal system totally and then act arbitrarily against individuals who are charged by India without providing any evidence that implicates them, that makes them culpable.

BLITZER: Does the president of Pakistan, President Musharraf, want to meet with the Indian prime minister, Atal Bihari Vajpayee, when they get together in Nepal, when they all meet for a summit of South Asian leaders in Kathmandu in the coming days?

SATTAR: Ever since last year, Pakistan has had the same refrain: We are prepared to enter into a dialogue with India at any place, at any level, anywhere, at any time.

Now, that remains our position. The president said last night once again he would be prepared to have a dialogue with the India prime minister. But of course, we cannot have a dialogue alone. The other side has to be ready. And there is no indication so far that the Indian prime minister wants to work for peace in the region.

On the contrary, over the last weeks, India has taken many unilateral actions against Pakistan. They have suspended the overflight permission for other airlines. They have cut down the size of our embassy, and they have also cut down bus and train services between India and Pakistan.

Now, of course, in many ways, India is cutting its own nose in order to spite its own face, because what they have done will be equally detrimental to the interest of poor people who use the train and bus services between the two countries to meet their families.

But we do not know what else to do except to comply at this time with the decisions that have been made. And all we say is, the right way to go about sorting differences is discussion, dialogue and peaceful means.

We are prepared to talk to India bilaterally. We are prepared also to accept the mediation or intercession of third countries of the United Nations in order that a fair and impartial solution can be found of the disputes and differences between the two countries, including the one resulting from this reprehensible attack at the Indian parliament. BLITZER: As you know, Mr. Foreign Minister, the entire world is watching the situation between India and Pakistan. There is heightened alarm because both countries are now declared nuclear powers. India has rejected -- has announced it will not be a country that will use nuclear weapons first, no-first-strike policy. Pakistan, in the past, has refused to articulate such a stance.

Is Pakistan ready to declare it will not be the first in that part of the world to use nuclear weapons?

SATTAR: Pakistan's policy is we do not want war, a war that is local or general, conventional or nuclear. The decision lies in the hands of India, and if India refrains from resorting to aggression, there should be no apprehension whatsoever of belligerency taking place.

Pakistan will refrain from any initiative that leads the tension to break out into conflict.

BLITZER: But as of right now, there's no change in your longstanding policy of refusing to accept a no-first-strike nuclear weapons use?

SATTAR: We are in favor of no first use of force, any kind of force. Now, I think this will be sort of a theological (ph) debate, if we go into the role of nuclear weapons in terms of deterrence and defense.

But the important thing, and if you study the doctrine, and the United States itself never accepted the first-use obligation in the 1960s and '70s and '80s. Nuclear weapons are weapons of defense and deterrence. They are not weapons of war. But if war is imposed, then contingencies can arise, and I would hate to think of those contingencies.

What I would like to underline is, Pakistan does not want local, general, conventional or nuclear war.

BLITZER: Is there an outside party that can ease the tensions right now between India and Pakistan? Are you looking, for example, to President Bush?

SATTAR: The answer is yes. The United States, as the leader -- leading power of the world, can exercise salutary influence.

Now, secondly, the general point I wish to make is that when there are differences between states, one a greater power and the other not so great a power, in order to prevent the use of force, the world community, the United Nations, the leaders of five permanent members of the Security Council, the Security Council itself, have an obligation to prevent one side from using arbitrarily force against the other, and instead, to prevail upon the party that is threatening the use of force, to resort to the use of peaceful means, which are spelled out in the charter -- conciliation, mediation, good offices (ph), arbitration and adjudication. Pakistan is prepared to resort to any of the peaceful means prescribed in the charter. And I come back to the thrust of your question -- we look to the United States to play a salutary role. Councils of restraint are welcome. Invitations of suggestions for dialogue are welcome.

But then it has to be seen who is refusing the dialogue, who is not exercising restraint, which side is engaged in shrill and threatening rhetoric at a particular point of time, and then to exercise restraint on that party so that that party moves from the contemplation of the use of force to peaceful settlement of differences.

BLITZER: Mr. Foreign Minister, U.S. officials are concerned that the Pakistani military may be moving troops from the border with Afghanistan toward the border with India, and that could cause some problems in the search for Al Qaeda, Taliban fighters, perhaps even Osama bin Laden. Are you moving forces from the border with Afghanistan near Tora Bora?

SATTAR: Mr. Blitzer, we have not done so up to now. Other forces are, at this time, deployed also in that area, and I can tell you these are very large forces.

Now, if the situation continues to aggravate, if there is an imminent threat of use of force, Pakistan cannot but think in terms of shifting these forces from the western part to the eastern side, that is to say, the border with India.

But we are not jumping to any conclusions. We have not taken any precipitate actions. We hope, and we hope that our friends will join in this hope, of preventing deterioration of the situation to the point where force, the use of force takes place.

So the answer is, no, we have not moved them. We don't want to move them. But then we need help, so that force is not used against Pakistan along our eastern border.

BLITZER: As you know, there are increasing reports that Osama bin Laden may have slipped into Pakistan from Afghanistan. Do you believe he's already in Pakistan?

SATTAR: I can say this, that there is no information at the disposal of the government, not an iota of information which should lead to the speculation that Osama bin Laden or any of his associates are on Pakistan territory, except those who tried to enter, were apprehended at the border on the other side of Tora Bora. And they are, at this time, under intensive interrogation and investigation.

The United States knows what Pakistan has achieved so far. I would think it very far-fetched speculation that Osama bin Laden could have escaped this dragnet, and somehow or another found a way to enter Pakistan.

There is no information whatsoever that suggests that he is in Pakistan.

BLITZER: And finally, Mr. Foreign Minister, if, though, he did manage to get into Pakistan, and you captured Osama bin Laden alive, would you hand him over to the United States?

SATTAR: Let me tell you what we have already done with regard to the Al Qaeda people who are in our custody. These people have been interrogated by our authorities, as well as by U.S. people. And jointly, we will decide what action is to be taken against which of these people. Those who should be handed over for justice will be handed over.

And, as far as Osama bin Laden is concerned, our policy is very clear: If he tries to enter Pakistan, he will be arrested. He will be put under detention, an investigation, an interrogation will begin. And then we will hand him over for being brought to justice.

BLITZER: Hand him over to the United States, is that right?

SATTAR: Yes. Well, to the coalition.

BLITZER: Mr. Foreign Minister, thank you so much for joining us today. We appreciate your taking the time to speak to our viewers in the United States, indeed around the world, on Late Edition.

SATTAR: Thank you very much, Mr. Blitzer.

(END VIDEOTAPE)

BLITZER: And just ahead, we'll get the view from India. Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GENERAL PERVEZ MUSHARRAF, PRESIDENT OF PAKISTAN: We do not want war. We want peace in the region, and we want peace on the borders. We only hope that war is not thrust on us.

(END VIDEO CLIP)

BLITZER: The Pakistani president, General Pervez Musharraf, commenting on the Pakistan-India crisis. While both countries are expressing a desire for peace, neither side is showing signs of backing down.

Welcome back to LATE EDITION. Joining us now live from New Delhi is India's senior cabinet minister of law, Arun Jaitley.

Minister Jaitley, welcome to LATE EDITION.

And let me get your reaction to what we just heard from Pakistan's foreign minister. They have arrested individuals associated with these militant Islamic groups. They have condemned the terrorist attack on the Indian parliament.

What else you would you like to see the government of Pakistan do? ARUN JAITLEY, INDIA'S SENIOR CABINET MINISTER OF LAW: Well, there is a lot that the government of Pakistan has to do. I just heard the Pakistan head of government just now saying "We do not want war" and that war has been thrust upon them, unless it has been thrust upon them.

We in India have almost been facing a warlike situation from Pakistan in the last several years. The kind of insurgency which has been encouraged by Pakistan, the cross-border terrorism which has been perpetuated by Pakistan on India. We have lost thousands and thousands of our people, our civilians, our security men. And therefore a war-like situation has already been thrusted on India.

And therefore Pakistan has to get into serious business of preventing the situation from happening. We had our parliament attacked. We had the (UNINTELLIGIBLE) assembly attacked. We had thousands of innocents -- in fact the number of people who have been killed on our side of the border, in our country, in the last 10 to 15 years is as high as 61,000 civilians. And therefore Pakistan has to do a lot.

Today it is very easy to say that we condemn the attack on Indian parliament. But the spokesman of the Pakistan president a day after the attack said that perhaps could be engineered by India itself.

I heard some words from the Pakistani foreign minister. But immediately after attack, two consecutive days, he referred to what has been going on in Kashmir as a part of a freedom struggle. But a freedom struggle doesn't get encouraged by cross-border terrorism the way Pakistan is doing.

And therefore Pakistan has to do a lot in order to establish its border (UNINTELLIGIBLE) as being a state which is really against terrorism.

BLITZER: As you probably know, the president of the United States, George W. Bush, did issue a statement the other day, praising what Pakistan has done. I want you to listen precisely to what President Bush said on this sensitive issue. Listen to this.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I'm pleased to note that President Musharraf has announced the arrest of 50 extreme terrorists, extremists, or terrorists. And I hope India takes note of that, that the president is responding forcefully and actively to bring those who would harm others to justice.

(END VIDEO CLIP)

BLITZER: He says that Pakistanis are responding forcefully and actively.

Let me try to rephrase the sentence. Specifically, what else do you want the Pakistani government to do from their perspective to ease these tensions? JAITLEY: Well, the Pakistani government has to accept that all forms of cross-border terrorism must stop. All organizations which have been functioning from Pakistani soil and creating this kind of a situation in India must stop their activities.

Action must be taken against them. Action can't be merely ornamental in terms of making a public announcement, and after a few days saying we frozen their accounts in the banks, enabling the monies to flow out. Action has be taken against the leaders of various terrorist organizations.

For instance, even today I'm given to understand that the head of one of the organizations, whose arrest was announced several days ago, has now only been preventively detained. Well, these are people who have been actively involved in criminal activity.

Maulana Masood Azhar, the Pakistani foreign minister wanted to know what crime he has committed. He heads an organization which was responsible for the attack in Indian parliament. This gentleman was in Indian custody. And by a course of process of a hijack of an Indian airlines plane, he was got released last January 2000 from the Indian custody.

Now, even after he's been released, after a course of action of a hijack of a plane, the Pakistani government still wants to know what crime this gentleman has committed.

BLITZER: Is the Indian Prime Minister Vajpayee prepared to sit down with the Pakistani president in the coming days at the summit in Nepal to try to work things out, to try to ease these tensions?

JAITLEY: Well, it does not appear to be a situation where Pakistan is creating conditions which are conducive for a kind of dialogue. Pakistan can't be encouraging this kind of cross-border insurgency. In the attack on Indian Parliament, all the gentlemen who were involved, the five people who were killed there, were Pakistani citizens. There's been a voluminous evidence of the involvement of organizations within that country into this attack. You encourage this kind a situation, and then at the same time say, well, let's have a dialogue.

And what happened when we attempted a dialogue in Agra a few months ago, you laid down conditions in the course of a dialogue where even the items on the agenda really could not be settled, and you successfully prevented a dialogue from taking place.

When a dialogue starts, you insist that Kashmir will be the core issue, Kashmir will be the primary issue, and we are not willing to discuss almost anything other than Kashmir.

BLITZER: The complaint, though, that the Pakistanis make that is that the Indian government is massing troops along the border, deploying heavy equipment, including missiles, and that's creating a potential spark that could result in an all-out war.

How close are the two countries to war right now? JAITLEY: Well, we do hope that such a situation doesn't arise where we have go to a war.

But the entire onus of that will really depend on the kind of stand Pakistan takes. If Pakistan takes substantial action against these terrorist organizations, if Pakistan goes about arresting these terrorist people -- a list of terrorists involved in Indian crimes is being given to Pakistan -- if these are handed over to the Indian authorities, then certainly, I think, a situation which is more conducive between the two countries can arise.

There can't be a stand where on the western border -- the Pakistani foreign minister just took a stand that, if Osama bin Laden is arrested, he would be probably taken to task or handed over to the international community or the United States, but that Pakistan would have a different standard as far as their eastern border is concerned.

When these people are arrested in the course of crimes that they have committed in India or in relation to India, they should be certainly handed over to India for trial.

BLITZER: In the past, India has expressed a non-first-use-of- nuclear-weapons policy, which of course is a major concern to the rest of the world since both India and Pakistan are now nuclear powers.

Will you restate that right now, that India will not be the first country, if it goes to war with Pakistan, to use nuclear weapons?

JAITLEY: Well, that has always been the considered position India has taken, and there doesn't appear to be any reason why India would deviate from that policy.

BLITZER: How concerned, though, would you be that this -- if there is a war, nuclear weapons could be used?

JAITLEY: Well, we hope and we believe such a situation would not arise.

BLITZER: Is there anything specific you want President Bush to do right now to ease the situation?

JAITLEY: I think what India expects, what the government of India expects and what the people of India expect is that the international community, in relation to the kind of cross-border terrorism which has been perpetuated in India by Pakistan, should have the same yardstick and the same standards which have been adopted vis- a-vis the Taliban and Osama bin Laden in relation to the terrorist activities which took place in the United States.

Terrorists, whichever part of the world they commit these terrorist offenses they are in, should be treated at par. And we expect the same standards to be utilized. In fact, we welcome the stand that the international community has been taking in pressuring (ph) Pakistan to abjure this particular path which that country has taken. We do believe that there's a need to apply greater pressure on that country. BLITZER: Arun Jaitley, the minister of law in the Indian government, thank you so much for joining us today from New Delhi. And Happy New Year to you, as well.

And up next, the war in Afghanistan and Osama bin Laden on the run. Is the world's most-wanted man still alive? We'll get some insight from two leading members of the U.S. Senate Intelligence Committee, Democrat Bob Graham of Florida -- he's the chairman -- and Republican Richard Lugar of Indiana.

LATE EDITION will continue right after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BUSH: Dead or alive, fine with me.

(END VIDEO CLIP)

BLITZER: President Bush making it clear he's satisfied -- he'll be satisfied with the capture of Osama bin Laden, either way.

Welcome back to LATE EDITION.

With us now are two leading members of the United States Senate. Here in -- actually, in Miami is the chairman of the Intelligence Committee, Democrat Bob Graham of Florida. Here in Washington, the Republican Senator Richard Lugar of Indiana. He's also a key member of the Senate Foreign Relations Committee.

Senators, welcome back to LATE EDITION.

Senator Graham, we just heard representatives of the Indian and Pakistani government say they are very concerned that those two countries could wind up in an all-out war.

How concerned should Americans be right now?

SEN. BOB GRAHAM (D), FLORIDA: Americans should be gravely concerned. This one of the most dangerous situations on the globe: two large countries with nuclear capability facing off against each other. They've gone to war three times since the two nations were formed. They've never gone to war with the capability that they have today.

I think there are some lessons here for the United States. One is that we have allowed the situation in Kashmir, we along with the rest of the international community, to fester for over a half a century. That has continued to be a flash point between these two countries. We should have and we need today to apply more diplomatic effort to resolving that issue.

And second, we also need to do something similar to what Senator Lugar has been leading with the Nunn-Lugar, which is try to de- escalate nuclear capabilities. It's been stated that if the United States and Russia were at a 10 in terms of their efforts to avoid accidental nuclear war during the last decade of the Cold War, that India and Pakistan are at a three today.

It's very much in our interests then to share with them some of the methods that were so effective in the Cold War to avoid the unintended use of nuclear power with these two nations that are today at sword's point.

BLITZER: You know, Senator Lugar, a lot of people just sort of assume it will never deteriorate to a point of a nuclear exchange between India and Pakistan in part because it never deteriorated between the United States and the former Soviet Union.

Are you at all concerned that there could be a nuclear exchange between India and Pakistan?

SEN. RICHARD LUGAR (R), INDIANA: Yes, I am for two reasons. First of all, the Indians are in an election period, which all the parties are contending. No party really can claim to be soft on the Pakistani terrorists.

Secondly, there are Pakistani terrorists. And we inherited a situation in our new relationship with President Musharraf in which he had terrorists who dealt with the Afghan problem, namely they supported the Taliban in their intelligence. At the same time, they supported terrorists that have had their eyes on Kashmir.

He's put sort of a firewall between the two but no longer because, in essence, the terrorists have attacked the parliament of India.

India has very legitimate grounds which our country has recognized to ask Mr. Musharraf to get after these people. Now, he's going to have to do a lot more.

But the more he does, the more unstable, at least he fears, his government may be, and that's of concern to us because he's fighting the Taliban, trying to find bin Laden and all the rest.

This is going to require hands-on diplomacy by President Bush, Secretary Powell, Secretary Rumsfeld, the whole group because these -- both these governments really need intensive support at this particular time.

BLITZER: Senator Graham, if on a scale of one to 10 -- 10 being a certainty, one being extremely remote chances of nuclear war between India and Pakistan developing any time soon -- where would you put the number right now?

GRAHAM: I would put it at a relatively low level. Neither of these states wants to go to war. They are not looking for reasons to escalate, they're looking for reasons to back off.

But in addition to their excellent analysis that Senator Lugar just gave, there's another factor. India is a country that's about five times the population of Pakistan, and they have substantially greater conventional military force. Therefore, if a conventional war breaks out, Pakistan may make an early decision that it has to use its nuclear capability or face the prospect of losing it.

So, unlike the 40 years between the United States and the Soviet Union, where there was relative parity of the ability to conduct conventional and military and nuclear activities, that's not the case between India and Pakistan, and, therefore, the danger is greater.

BLITZER: And on that point, Senator Lugar, as you know, because the Indians have overwhelming conventional military capability, the Pakistanis have refused to say what the Indian government says they will not be the first to use, nuclear weapons. They've not given that no-first-use declaration which, obviously, makes matters of utmost concern.

LUGAR: Well, it does. The foreign minister just told you in the preceding interview that they're against first attack, don't want to start the war. And, clearly, India is more mindful right now of retaliation, because of their attack on their parliament.

But at the same time, the Pakistanis reserve, as Senator Graham has said, the right to use what they have.

Now, we don't have any idea what kind of delivery of those weapons would be there. That's why, in addition to our diplomacy right now to stop the war, we need to be with both of them on securing those weapons -- knowing where they are, how many, how they can be made safe for the world, for ourselves, quite apart from those two countries.

BLITZER: All right, let's move on. And, Senator Graham, where does the search for Osama bin Laden stand right now?

GRAHAM: Well, the latest intelligence we had indicates that the high probabilities are that bin Laden is still alive. Where he is, is a question mark. The trail has gone cold as to whether he's still in the caves of Tora Bora or, in fact, has slipped out into Pakistan.

But I'm confident that wherever he is, he will eventually be found out and brought to justice.

BLITZER: On the basis of what, Senator Graham, do you conclude, does the intelligence community conclude that he is almost certainly still alive?

GRAHAM: I cannot discuss that.

BLITZER: All right. But that is the bottom line, that he's still alive.

Are you frustrated, Senator Lugar, that the U.S. government, despite the overwhelming military capability, the intelligence- gathering capability, has not yet been able to pinpoint, find Osama bin Laden? LUGAR: No, because the trade-off here has been that we have not used our forces in going into those caves. We are attempting, through money, through clothing and what have you, to get Afghans to do this work. Now, that makes sense in terms of our potential casualties, and I have no quarrel with that. But it means that if Afghans are less and less motivated to do that, the trail may get colder.

I have no doubt we will catch bin Laden. But at the same time, I understand the slowness of this because of the methods that we have adopted.

BLITZER: Are you also assuming, Senator Graham, that Osama bin Laden is still in Afghanistan?

GRAHAM: No. I don't think that assumption can be made today. He has eluded capture in Afghanistan, and, therefore, there is the possibility that he has slipped out of the country.

BLITZER: If he did slip out, Senator Lugar, where do you think he might be -- Pakistan?

LUGAR: Most likely, so we get back, once again, to an intense relationship with the Pakistani leadership and their intelligence forces that have played all sides in the course of this situation and that now are cooperating with us, but are going to have to cooperate with regard to the terrorists in Kashmir, as well as the others.

BLITZER: And it becomes very complicated.

You still have confidence, Senator Graham, that Pakistan's government, including the military and intelligence services, are going to fully cooperate with the United States in the hunt for Osama bin Laden?

GRAHAM: Everything that they have done in the last hundred days has been reassuring, as to the stability of the new partnership between the United States and our other allies and Pakistan.

And they've done it at great risk. They have large numbers of Al Qaeda supporters within their ranks. Their own intelligence service had been shot through with people who had been supporting the Taliban. And President Musharraf has been undertaking a very painful process of ridding his intelligence of those counteragents and getting an intelligence service that can be relied upon.

I think he deserves a great deal of credit for the courage that he's shown.

BLITZER: All right. Senator Graham, Senator Lugar, stand by. We have to take a quick break.

We have much more to talk about with both of the senators, including the latest videotape from Osama bin Laden. We'll also be take your phone calls. LATE EDITION will be right back.

(COMMERCIAL BREAK) BLITZER: Still ahead, your phone calls for Senators Bob Graham and Richard Lugar about the war against terrorism and much more.

And later, how safe is it to fly? We'll have the latest security measures, and we'll have a discussion on whether they've made a difference.

LATE EDITION will continue right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION.

We are continuing conversation with the Florida democratic senator and Intelligence Committee chairman, Bob Graham, and Indiana Republican Senator Richard Lugar. He's also a member of the Intelligence Committee, as well as the Foreign Relations Committee.

Senator Lugar, I want to show our viewers Osama bin Laden's latest -- the picture that we saw this past week of a videotape. We don't know precisely when that picture was made. But let's put it up on the screen of Osama bin Laden.

He clearly, if you compare what he used to look like in the '90s, more recently in August of '97, even in October, his beard was not as gray as it is right now. It looks like he is going through, I guess, you could say he's going through hell right now.

Is that your sense of it, Senator Lugar?

LUGAR: Yes, I think that clearly he's had a very bad time. At the same time, why, his condition is of less interest to us than simply finding him, having him to interrogate and to try.

BLITZER: To find him.

LUGAR: Yes.

BLITZER: Senator Graham, also, if we look carefully at that last 34-minute videotape, which I'm sure you saw, that aired on Al-Jazeera this past week, he was not moving his left side of his body at all. He was moving his right side. And if you compare earlier videotapes you see he was moving both sides of his body.

Is there any sense that he was wounded or injured and he can't move his left side anymore?

GRAHAM: Well, he has been through a terrible period. Assumingly that he has been in Tora Bora for the past several days, the interrogations that we are doing of those Al Qaeda fighters that are now in custody, indicate that they have been in living hell, faced constantly with some of the most precise and damaging aerial bombardments in the history of air warfare. And he has assumedly has been at the center of that attack.

So, the fact that he has aged, the fact that he may be infirmed is not surprising.

BLITZER: And is there any intelligence, any information to believe that he has been injured on the left part of his body?

GRAHAM: I have no intelligence on his specific physical condition.

BLITZER: All right, Senator Lugar, I want to play an excerpt from what he said in this videotape, because it seems like he is becoming very fatalistic, beginning to accept death as an almost certainty. Listen to this.

(BEGIN VIDEO CLIP)

OSAMA BIN LADEN (through translator): I'm just a poor slave of God. If I die or live, if I live or die, the war will continue. We pray for God to accept these people who committed, who carried out the attacks. They have done a great deed.

(END VIDEO CLIP)

BLITZER: Is that your sense, that he is now accepting his fate, which almost certainly will wind up, if you will, as dead?

LUGAR: Yes, I think he is accepting his fate.

I thought earlier in his interview however, it was important that he said to his followers should commit as much harm on the American economic system as possible, and thereby on the world system. That really was significant analysis, because that has occurred.

Now, the question is whether we can fight both wars -- namely one against him. Keep India and Pakistan at peace. And at the same time, turn around our economy, and thus the European economy, the Japanese economy, the rest of the world. Otherwise, bin Laden's words of prophecy or exhortation are likely to be very serious.

BLITZER: Senator Graham, as you know, it doesn't take many terrorists to commit enormous damage against the United States; witness what happened on September 11. This high state of alert that the Bush administration has announced continues at least through January 2.

How concerned should Americans be right now about more terrorism?

GRAHAM: Well, I'm afraid, Wolf, that there continues to be a possibility and, probably over an extended period of time, a probability that there will be further terrorist attacks in the United States or against U.S. interests abroad.

And so, while we applaud the tremendous progress that we are making in Afghanistan, that is not a signal that we should let down our defenses here at home.

BLITZER: Is that is your sense as well, Senator Lugar, that the American public in the United States, indeed around the world are just going to have to get used to fact there will be likely more terrorist actions against them?

LUGAR: Well, I don't think we should get used to fact. I like better the idea of the president of the United States telling the FBI and the CIA their first mission is to stop another attack on this country. And that is why the detentions, the questioning, both here and abroad, are very, very important.

BLITZER: On the so-called shoe bomber, Senator Graham, Richard Reid, who was arrested, as you know, trying to ignite, allegedly, some explosives in a shoe on that flight from Paris to Miami, it seemed to be fairly sophisticated, the explosive, the plastic explosives. He was traveling all over the world paying cash. This is a guy who was virtually homeless, didn't even have a job.

Is he part of a broader terrorist operation or acting on his own?

GRAHAM: Well, as our intelligence leadership has said, it's very unlikely that Mr. Reid could have done what he did alone, that he had some support mechanism that facilitated what he did.

I'm surprised that he was able to get on that airplane in Paris with his shoes contrived as they were.

I spent a day recently working out at the Jacksonville airport here in Florida, and one of the things that we were directed specifically to do was to check shoes, both by the metal detector and by physical examination. As I say, I'm surprised that wasn't the case in Paris.

BLITZER: As you know, Senator Graham, he prayed at the same mosque in London as Zacarias Moussaoui, who's been indicted in connection with the September 11 attack.

Is there a direct link, as far as you know, between these two individuals?

GRAHAM: I don't have any intelligence on that, but since we have Moussaoui in custody, I'm certain those are some questions that are being directed at him.

BLITZER: Senator Lugar, the U.S. is making plans, the Bush administration, to bring some detainees, suspected terrorists, to the U.S. naval base of Guantanamo Bay in Cuba, to hold them there, perhaps get involved in some trials, if you will, maybe military trials, down there.

Is this a good idea?

LUGAR: Well, as Secretary Rumsfeld said, it's the best of several bad alternatives. Guam had been suggested earlier on, to sort of ice the prisoners for a while.

We'll have to determine finally which ones are to be tried, what's to be done with any of these people.

But at least it's a good place to hold them, to get them out of harm's way, so they don't reorganize elsewhere in the Middle East, Europe or in the United States.

BLITZER: Senator Graham, I think some of your constituents in Florida probably not too happy they might be moving some of those detainees to Guantanamo Bay in Cuba.

GRAHAM: I haven't heard much objection to this idea. I have been to Guantanamo on several occasions when it was being used as a refugee camp for others. And it is a facility which can be rather rapidly brought up to the standards that could serve as a secure detention facility for these prisoners. It has a lot of support capability, and it's in a remote area.

So, as Senator Lugar and Secretary Rumsfeld said, if you look around the world, this is probably one of the better of a set of bad alternatives.

BLITZER: OK. Senator Graham and Senator Lugar, thanks to both of you have for joining us. Have a happy and a healthy New Year to both of you and your entire families.

GRAHAM: Same to you, Wolf.

BLITZER: Thank you very much.

And just ahead, the second hour of LATE EDITION. We'll check the latest developments. Then we'll explore the impact of the new homeland security measures with our aviation and terrorism experts. Plus, former Labor Secretary Robert Reich and former presidential candidate Steve Forbes weigh in on how best to revive the U.S. economy. And two veteran congressmen square off on this year in politics.

LATE EDITION will continue right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION.

We'll continue with our guests in just a few minutes, but first here's CNN's Daryn Kagan in Atlanta with a quick check of all the latest developments.

(NEWSBREAK)

BLITZER: And despite new security measures implemented in response to the September 11 attacks, there's still many questions about safety in the skies. Those concerned were heightened -- those concerns, of course, were heightened following last week's alleged shoe-bombing incident aboard an American Airlines flight from Paris to Miami.

Joining us now from Los Angeles to talk about terrorism and aviation security our two guests: Mary Schiavo is an aviation expert, a former inspector general at the U.S. Department of Transportation; and Brian Jenkins, he's a senior adviser to the Rand Corporation, one of the country's leading experts on terrorism. Welcome to both of you. Good to have you on the program.

Brian, let me begin with you where I left off with Senators Graham and Lugar, on this whole Richard Reid case, the alleged shoe bomber who managed to get aboard that American Airlines flight with plastic explosives in his shoes.

What does it say to you, this whole incident, about a potentially new threat out there?

BRIAN JENKINS, SENIOR ADVISER, RAND CORPORATION: Well, I think what -- it tells us several things. First of all, it tells us that we're dealing with intelligent adversaries. September 11 underlined the notion that we were facing suicidal attackers. Had Mr. Reid completed his mission, of course, that was a suicide mission. That obviates a number of our security measures.

Second, we're dealing with people who are obviously studying our security measures, probing it, testing it, analyzing it, looking at -- looking for the vulnerabilities.

Third, we are seeing some evidence in this case of an individual who may have been psychologically prepared to deal with the profiling, to deal with the interrogation process.

And fourth, we are seeing the introduction of sophisticated technology that again will defeat some of our security measures.

Now, those trends over the long run impose an enormous burden on our security systems.

BLITZER: Mary Schiavo, it looks like what Brian is saying is absolutely right. They seem to be almost one step ahead of all the countermeasures that are being implemented. The 19 hijackers on September 11 used plastic knives. Richard Reid allegedly got aboard with these explosives in his shoes.

Are they constantly going to be one step ahead of the technology of the security measures?

MARY SCHIAVO, AVIATION EXPERT: Well, it's not that they're one step ahead, it's that they have studied the weakness that many have reported in our government for years, and the government hasn't done anything about those weaknesses. You could read about these weaknesses on the Internet, in books and newspaper articles.

And I think the governor relied upon an assumption that people, and certainly terrorists, will believe that the holes had been filled. That something had been done.

In fact, they gave a conference in July 2000, and the FAA said, well, we have lots of problems and weaknesses, et cetera. And they realized that the threat had changed. At that point in July 2000, the FAA said, we know that they are carrying on the threat vectors. But they said they don't know how our -- weaknesses our system has, and they thought that they literally could bluff it. So they don't really fool the terrorists and they certainly don't fool the American public. By saying that, that doesn't mean it's good enough. We have systems that just simply cannot catch the kind of threats we have today.

BLITZER: Brian, is Mary right when she says nothing has really been done to improve security for the flying public?

JENKINS: Well, certainly not enough has been done. The measures that were listed in the legislation that was passed after September 11, that's on a piece of paper. The danger we confront now is that, a year from now, what we will have is a piece of paper and no concrete improvements in place.

We've seen, since September 11, egregious lapses in performance that the secretary of transportation himself has said are simply unacceptable.

There are things that we can do. These have been outlined, these have been identified in years past, but we simply haven't done them. As a consequence...

BLITZER: Why? Why? Why?

JENKINS: There are a number of reasons. Prior to September 11, an argument could always be made that the threat was not sufficient to warrant the measures that had been called for, that these would cause expense, that they would cause inconvenience.

After September 11, one expected that argument to be demolished and that we would see the airline industry embrace security. That simply hasn't happened.

And, quite frankly, it's a bit of a puzzle to me that, with a few exceptions in the industry, the airline industry itself has dragged its feet. It has argued in Congress, both in public hearings and in lobbying, about what it cannot do, as opposed to getting out ahead of this thing and dealing with government and figuring ought how we can make it better.

BLITZER: All right. Mary Schiavo, stand by. I want to pick up that thought, but we have to take a quick break.

As soon as we come back, we'll will pick up the conversation with Mary Schiavo. We'll also be taking your phone calls on aviation security and terrorism.

LATE EDITION will be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back.

Mary Schiavo, in the past you've suggested that your concerned, personally, about flying right now. Are you still concerned at this moment? SCHIAVO: Yes, because we see the same kinds of problems that we've seen over and over again happening. For example, the fellow with the 9-millimeter weapon, going through security, taking several flights. We see a Secret Service agent pulled off the plane, while Richard Reid gets through. We see the same kinds of problems over and over again, which tells me we have the same system. We know we have the same system.

And we're still relying on the 1997 profiling system, which did not work and still does not work to this day.

I would actually feel much more safe and the system would be better if we, at this point, said, look, we don't really have a reliable profiling system. We never did the psychological bases to have that profiling system anyway, and go back to low-tech -- dogs, searches, take your shoes off.

Some airlines have been doing that. Southwest Airlines -- I've had to take my shoes off for them, probably, four or five times just in the last month or so, before the December attempt.

BLITZER: Brian Jenkins, all those measures are good and useful, and especially useful in smaller countries, like Israel, for example El-Al has a really intricate, kind of detailed profiling and they go through that.

But in a country where millions of people are traveling all the time, won't that bog down delays at airports to the point that it'll force some of these companies out of business?

JENKINS: I don't think so.

First of all, I agree with Mary that the profiling system that we have is an inadequate system. And I've read reports that Mr. Reid himself managed to fly on El-Al, and that tells us that profiling is not going to be perfect. It's not an X-ray for a person's soul.

So we are, instead of relying on profile -- profiling is useful contribution, but we're going to have to rely on the basic security systems. And that means the searches and that means the applications of technology.

Now, fortunately, we have made significant strides in the past years in the area of various kinds of technologies. These technologies have not been deployed, but that is an area where we can make a considerable advance.

Is it going to make airline travel too expensive or inconvenient? I don't think so. The long lines are not indicators of good security, and good security does not require long lines. That's a logistics problem.

We can get better performance on screeners, we can deploy the technology, and we can deploy more access points than we're running now and still have people be able to fly both conveniently and safely. That's doable. BLITZER: Mary, is there better security at airports in Europe or in the United States?

SCHIAVO: Well, actually, right now, I believe the United States because -- and it has nothing to do with the airlines -- I believe right now we're better off in the United States than Europe for two reasons.

One, the FBI crackdown on the terrorist cells in the United States seems to be yielding some results. For the December attempt, they resorted to their traditional terrorist cells in the European Union.

I think the European Union in those countries which have basically given up their borders and their own security forces within their borders to the European Union are posing a terrible risk for themselves and for security.

So right now, because of the FBI efforts in our own country, I think we're better off here than abroad, and I think that was reflected in the December attempt.

BLITZER: Brian Jenkins, Paul Bremer, a former State Department ambassador-at-large for counterterrorism had one theory that he articulated this week on Richard Reid, the alleged shoe bomber, what he was doing on that flight from Paris to Miami. I want you to listen to what he had to say.

(BEGIN VIDEO CLIP)

PAUL BREMER, FORMER STATE DEPARTMENT OFFICIAL: Whether he was connected with Al Qaeda remains to be seen. It seems to me he was probably a mule, somebody who was not himself a professional terrorist but who had professional help behind him.

(END VIDEO CLIP)

BLITZER: Does that fly, as far as -- based on what you know?

JENKINS: It's not a bad theory.

I'm not quite sure what a professional terrorist is. I mean, a terrorist is someone recruited to carry out a terrorist operation. And whether that operation is to be one of a continuing series of operations or, in the case of Mr. Reid, is to be his single mission, as I say, I'm not sure how to use the word "professional" here.

But clearly, there are ample indications that he had some kind of assistance. His ability to travel, his ability to stay in hotels, some training, that device was -- appears to have been a sophisticated device. That is the part we have to go after, as well.

Whether he was connected with Al Qaeda or some other type of terrorist network, we have to destroy these networks that are capable of taking a single individual and providing that individual with the mission, the training, the resources and the intelligence to carry it out.

BLITZER: Mary Schiavo, referring to this notion of a mule, someone who carries something deadly aboard a plane, as you know, over the years, there were many incidents of young women, if you will, falling in love with a terrorist and then those women being told to get on a plane and carry some explosive device. That's why people are asked at airports, has anybody asked you to bring anything onboard?

Does that really do any good to ask that question at ticket counters?

SCHIAVO: No, it really doesn't do any good, and it's kind of the classic way that the government performs security and makes any kind of changes.

We respond to the last attack or the last disaster. And we've had those rules come into play because of previous disasters. One of them a U.S. domestic one, where a fellow put something in his mother's suitcase. That happened way back in 1955, was our first domestic attack.

And so, what we do is we develop our guidelines, based on the last terrorist attack instead of a scientific study. We probably don't even have the pool to do it to develop a good profiling system, but that's simply the way we do it. And those questions really don't do any good at all because anyone knows how to do it.

That being said, however, that they have resorted to the European cells -- and this fellow clearly did not train in the United States. It was very clear from his lighting matches on the plane to set off the fuse that he had done his training in Europe or abroad and not in the United States. That alone will put the whole plane on alert. One match in the U.S.

BLITZER: The whole notion, Brian Jenkins, of the so-called cosmetic things that are being done to try to prevent terrorism, Kelly McCann, a CNN security analyst, who studies this, he says there may be a purpose for some of these cosmetic steps that are taken. Listen to his analysis.

(BEGIN VIDEO CLIP)

KELLY MCCANN, CNN SECURITY ANALYST: Some of security is cosmetic and it's meant to put on a demonstration of perhaps, unpredictability, two bad guys, where they can't get a pattern down.

(END VIDEO CLIP)

BLITZER: What about that?

JENKINS: Well, I think there is and there should be an element of mystery and uncertainty in the security system, and certain things you want to do should inspire uncertainty on the part of the would be adversary. And that may mean certain visual things that represent nothing more than the creation of that uncertainty. But you can't substitute the cosmetic measures. You can't substitute some measure of uncertainty for real security. You have to begin with real security and then augment it with curtains of mystery.

BLITZER: Brian Jenkins, while I have you, a quick question on New Year's Eve. As you know, the federal government has continued the high terrorist alert through January 2, at least through January 2.

How concerned should people who are, for example, going to Times Square, New Year's Eve be?

JENKINS: You know, this question always comes up. And if people are nervous about going out to a New Year's celebration, then don't go. This is a personal decision.

Certainly, security will be tight with all of the celebrations, whether we are talking about Times Square, the Rose Bowl Parade or all the bowl games that are coming up.

But there is no such thing as absolute security. If somebody wants to do something malevolent at one of these events in a public place, there is not a lot we can do to prevent it.

But that doesn't automatically translate into significant danger for every individual at every public gathering. If we felt that, then we're going to shut down every sporting event, every arena, every shopping mall, every surface transportation, station, every airport. That's not possible.

BLITZER: Brian Jenkins and Mary Schiavo, thanks to both of you for joining us and thanks for your analysis. Happy New Year, as well.

JENKINS: To you too.

SCHIAVO: Happy New Year.

BLITZER: Thank you.

And when we return, America's slumping wartime economy. What's the best prescription for an economic jumpstart? The former Republican presidential candidate, Steve Forbes, and the former Clinton labor secretary, Robert Reich, will face off when LATE EDITION continues.

(COMMERCIAL BREAK)

BLITZER: Chilly, but a lovely day here in the nation's capital.

Welcome back to LATE EDITION.

President Bush this weekend criticized the Democratic-controlled Senate for not approving his economic stimulus package before the year-end recess. But Democrats say the proposal did not go far enough to help working people; went too far, indeed, they say, in cutting taxes for big corporations. Joining us now from New York, the former Republican presidential candidate, Steve Forbes, he's the editor in chief of Forbes magazine; and in Boston, the former Clinton labor secretary, Robert Reich, he's now a professor of social and economic policy at Brandeis University.

Gentlemen, welcome back to LATE EDITION.

And, Professor Reich, let me begin with you. This whole notion of recession here in the United States, some indicators the past few weeks seem to suggest maybe the recession is about to end, it could have been a very short-lived recession. Is that is your sense?

ROBERT REICH, FORMER LABOR SECRETARY: Wolf, there are indicators suggesting that the recession is bottoming out.

The big question is, when will the recovery occur? The consensus among economists is sometime toward the middle of next year.

But remember, this is an unusual recession. This recession started with businesses cutting dramatically their capital goods expenditures. That's very, very unusual. Most recessions start with consumers pulling in their belts.

And, on top of that, we have a global recession under way, and that is a second strike against us.

So anybody who thinks and counts on this recession ending any time soon, I think, is wrong. And even when it does end, we are going to still see unemployment go up, as we do at the end of most recessions. We will also see, I think, a rather feeble recovery.

BLITZER: Steve Forbes, is that your assessment as well?

STEVE FORBES, FORMER PRESIDENTIAL CANDIDATE: Well, I think we will get a statistical recovery starting in the spring.

But the speed of the recovery is going to depend on three things: One is, the Federal Reserve has got to recognize it's not enough to cut interest rates; it also has to pump in more liquidity into the banking system and avoid the mistakes of the Bank of Japan.

Congress has got to pass a Kennedyesque, Reaganesque tax cut. And we finally have to face up to the depredations, the destructive policies of the International Monetary Fund, which has just brought down Argentina and is now in the process destroying Turkey, which is a critical ally.

BLITZER: All right. Well, we might be able to speak about Argentina and Turkey a little bit later.

But, Professor Reich, it took Steve Forbes about 20 seconds or so before he uttered the words "tax cut," big tax cuts.

(LAUGHTER)

That's not your sense of what the country needs right now, is it? REICH: No. As a matter of fact, the $1.3 trillion tax cut that was enacted last year under the auspices of the Bush administration has had the perverse effect of keeping long-term interest rates up, even though the Federal Reserve Board has cut short-term interest rates 11 times this year.

It's like pushing on a wet noodle, because capital markets aren't dumb, Wolf. They know that there is a structural deficit now built into the federal budget.

That big tax cut, that $1.3 trillion tax cut, most of whose benefits go to people at the very top, after all, that will take effect, most of it, after 2004. And that is when we are going to see even bigger deficits than we have right now.

And that means that those long-term rates are going to stay very high up there and make it difficult for a recovery to occur.

BLITZER: All right. Go ahead, Steve Forbes.

FORBES: That's the kind of wet-noodle thinking that got us in the mess in the first place. The tax cut was delayed, as the professor said, out to 2004, 10 years from now, 15 years from now. It should be across-the-board. It should be made effective immediately.

Those box-car numbers are very, very small when spread out over 10 years. It's not worry about deficits in 2012 or something that's hurting the capital markets. It's a shortage of liquidity. Medium- size businesses, small businesses have a hard time getting credit today. And that's hurting the economy. Until the Fed faces up to it, this recession's going to be longer and harder than it should be.

BLITZER: But, Steve Forbes, I want you to listen to what Senator Daschle, the Senate majority leader, said earlier today, in looking at the deficits that are now developing. All those budget surpluses of only a few months ago, they've disappeared, at least for the time being.

Listen to what Senator Daschle said.

(BEGIN VIDEO CLIP)

SEN. TOM DASCHLE (D-SD), MAJORITY LEADER: I'm very concerned that the bad old days of the '80s could come back, and they could haunt us for a long time to come. The difference is, we don't have time now, between this situation and when the baby boomers retire, to recover. So this is a very, very serious situation, a fiscal time- bomb of real magnitude.

(END VIDEO CLIP)

BLITZER: What do you say about that? He's obviously blaming all the tax cuts.

FORBES: Well, I don't know what the senator was inhaling or breathing this morning, but the 1980s was an extraordinary decade of economic growth, higher growth rates than we had in the 1990s. At the same time, we funded a massive military buildup which helped us win the Cold War. And if you look at the deficits compared to the wealth creation in the nation, each dollar of deficit we had created $10 of wealth in the nation, 10-to-1 ratio.

Those tax cuts worked, the problem in the 80s was that Congress couldn't say no to spending. Tax revenues, tax revenues doubled in the 1980s.

BLITZER: All right, what about that -- what about that, Professor Reich?

REICH: If I could just respond, when you provide a huge massive tax cut to people at the very top, you are not, in the short term, stimulating...

FORBES: Bob, I'm calling for across-the-board tax cuts.

REICH: If I could just finish my sentence.

You're not stimulating very much economic activity because people at the top already are spending as much as they want.

In the short term, you're also, if you give a big tax cut to corporations, you are not stimulating them to do much because they already have over-capacity right now in the short term.

Over the long term, a big tax cut to corporations and to people at the top is going to give you a structural deficit. We have been there, we did that.

Now, Steve Forbes says that 1980s were a great success story, but look what happened at the end. We had a terrible recession. When we and the Clinton administration came back to Washington, we found ourselves with structural deficits, $300 billion a year, as far as the eye could see. We had to clean up that mess. We spent years trying to get the deficit down again. Now we don't want to go through that once again.

BLITZER: What about that, Steve Forbes?

FORBES: Well, the fact of the matter is, the 1990 recession was caused by mistakes made by the Federal Reserve in mishandling the S&L crisis and enacting a tax increase in 1990.

The tax increase that Bob Reich put in, including the gasoline tax increase which hurt lower-income people, in 1993 made the recovery much slower than it should have been. We had a good head of steam in the fourth quarter of 1992. The economic recovery petered out and really didn't gain steam again until the Republicans took control of Congress in 1994. So that's the mistake we have to avoid.

John Kennedy recognized the importance of big tax cuts across the board; so did Ronald Reagan.

And reducing the capital gains tax would not only stimulate investment but also, as this professor should know, also stimulates revenues right away.

BLITZER: All right, Robert Reich, I'll let you respond to that, but we're going to take a quick break.

We have a lot more to talk about including phone calls for Steve Forbes and Robert Reich. LATE EDITION will be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back. We're talking about the best way to jumpstart the U.S. economy with the former Republican presidential candidate, Steve Forbes, and the former Clinton labor secretary, Robert Reich.

Professor Reich, you heard Steve Forbes -- and we're not going to go through the whole history, the back and forth -- but he made one point that the tax increases the Clinton administration got through Congress that first year in office in 1993 slowed down the recovery. It would have been a much more robust recovery had you not done that.

REICH: Well, there's absolutely not a shred of evidence of that.

In fact, Wolf, we did have a recovery, if you don't recall. We had a robust recovery. And we did that only because we cleaned up the fiscal house, the mess that was our legacy from the Reagan and the first Bush administrations. As I said before, we don't want to go through that again.

Now, I believe that Democrats are going to be talking about the economy come next fall at mid-term elections. The recovery will be very feeble. There is still going to be a lot of pain out there. And Democrats, I think, are going to be telling America the truth, and that is that the $1.3 trillion dollar tax cut -- again, most of the benefits going to the top 1 to 2 percent of income earners -- has been irresponsible, it's been unwise, it's been unfair, and it is putting us in economic jeopardy.

BLITZER: Steve Forbes, go ahead.

FORBES: The worst thing you can do in a recession is to raise taxes. We have seen that with the IMF did in Argentina. We shouldn't make that mistake.

And in terms of throwing money at the economy, we did have that rebate which the Democrats put in last summer -- very nice, but didn't do a lick of good for the economy long term, nor did the rebate do any good in the 1970s.

John Kennedy and Ronald Reagan had it right: across-the-board income tax cuts. That's the way you get long-term growth and get America moving again.

REICH: But, listen, there is nothing wrong with a tax cut for average working people. What we are talking about is a tax cut that is going to into effect most it after 2004, that is mostly for people at the very top. FORBES: That is not true.

REICH: The problem there again is...

(CROSSTALK)

FORBES: ... cuts rates from top to bottom. Cuts rates from top to bottom, the bottom rate from 15 percent to 10 percent.

REICH: But, Steve, you know as well as I do, that the lion's share, most of the benefits, most of the dollar benefits are going to people at the top, the very top.

Now, look at it...

FORBES: If it's a tax cut, Bob, obviously people at the top pay more taxes, they are going to get more dollars. John Kennedy did it, though. Ronald Reagan did it and both times it worked -- across the board.

REICH: You see, I think in the short term what we ought to have -- and Democrats tried to do this, and maybe there is still time to do it -- we ought to have a short-term tax cut, limited for the next six to 12 months, for people at the middle.

FORBES: You...

REICH: Now, let me just finish the thought.

For example, eliminating what's called the FICA Social Security payroll tax on the first $10,000 of income. Now, that would help people. Do it for one year. Do it for next year. You could do it right away, withholding taxes.

And that would give the economy a stimulus because, again, average working people and unfortunate people, people who are less fortunate, they need a tax cut. They can actually use it. They will spend it. People at the top, they spend as much as they are going to spend, tax cuts or no tax cuts.

FORBES: Bob, you need investment to get the production to get people to have jobs to be able to consume. And that is why across- the-board tax cuts, everyone should get a tax cut. Kennedy did it; Reagan did it. I don't know why you guys are resisting the lesson of John F. Kennedy.

BLITZER: All right. Let's not go through the John F. Kennedy- Ronald Reagan history right now.

But I am interested in getting both of your perspectives on the whole issue of 401(k)s and all the investments that a lot of people have made, lifetime savings out there.

How does that prospect look with the markets having obviously gone south over the past year or so? First to you, Professor Reich. What should these people who have their life savings invested in their 401(k)s, what should they be doing now?

REICH: Well, I wouldn't get out of the stock market entirely if you are already in the stock market. Over the long term, history shows the stock market is a good place to be.

You want to diversify your holdings. You want both stocks and also bonds. Don't keep all of your eggs in one basket like Enron and other corporations have invited, or had invited their 401(k) employees to put most of their savings right in that one company. That was not a good idea. I think that's irresponsible, corporate activity.

But what do you want to do is, again, hold on.

You know, one thing, Wolf, let me just say this. I think that any effort to privatize Social Security, to say to people, what you ought to do is take Social Security and turn it into a kind of stock market casino, the wind is now out of the sails in that effort. Most people have seen that the stock market is in fact a casino.

BLITZER: What about that, the 401(k)s, the investment portfolios, Steve Forbes? What advice do you have for our viewers out there?

FORBES: Well, the professor was right that you should you have a diversified holdings, diversified funds.

I have to chuckle. On the one hand, he says don't get out of the stock market, long term it does very well; then he calls it a casino when it comes to Social Security.

Even if you don't like the market, the workers in Galveston, Texas, which for 20 years have been in a private system and not Social Security, have their money in interest-bearing accounts. And they're going to get significantly more in retirement with all the safety you could want than the Social Security is going to give them. But workers have a choice, instead of people at the top saying one size fits all.

REICH: Steve, if I could just respond to that. They already have a choice. What I'm saying is that Social Security is an insurance fund, it is not a casino.

Now, if you want to take your extra savings, put it in the stock market, over the long term, if you diversify, I think that is perfectly fine. But you need something to fall back on if things don't work out.

And that is why Social Security was designed. It was designed not as a gambling arena, it was designed as insurance against the possibility you will not have enough savings.

FORBES: The real casino hurts workers, where young workers today are going to get a negative return on Social Security. And they wonder whether the system is even going to be there with the kind of benefits they have been promised.

REICH: Well, the system will not be there if we have a $1.3 trillion tax cut that jeopardizes the future of Social Security. And that's exactly what we were talking about.

FORBES: The way you ensure the future of Social Security, Bob, is to have a vibrant economy, which lower taxes long term that people can plan on. That's worked in the past, it'll work in the future.

REICH: Not if we have structural deficits.

BLITZER: All right, we're going to have you both back, and we're going to debate Social Security.

But I want to -- we only have a few seconds. I want to get both of your assessments on something very, very close to home for both of you.

First of all, to you, Professor Reich, are you going to be running for governor of Massachusetts?

REICH: Well, it's very likely. I'm talking to a lot of people right now about it, Wolf. We have a kind of crisis of leadership up here in Massachusetts, and in this recession a lot of people are hurting.

So I'm giving it a lot of very serious consideration, and I'll make a decision in the next couple of weeks.

BLITZER: All right. What about, Steve Forbes, your political future?

FORBES: No plans to run for office right now. You never say never, but no plans right now. I'm going to be helping candidates on the sidelines and pushing things like John Kennedy-Ronald Reagan tax cuts.

BLITZER: OK. Steve Forbes leaving open his options, and Robert Reich leaving open his as well.

Thanks to both of you. We'll have you back. We'll talk about the future of Social Security. Thanks so much for joining us. And Happy New Year as well.

And just ahead, a controversial presidency, a shift in Senate power, one congressman's scandal, and a divided Congress united by an attack on the United States. 2001, what a remarkable year.

We'll sort out the year in politics with California Republican Congressman David Dreier and New York Democratic Congressman Charlie Rangel. LATE EDITION will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP) BUSH: I hope America is noticing the difference because we're making progress. Together we are changing the tone in the nation's capital. And this spirit of respect and cooperation is vital, because, in the end, we will be judged not only by what we say or how we say it, we'll be judged by what we're able to accomplish.

(END VIDEO CLIP)

BLITZER: President Bush giving his first address to a joint session of Congress way back in February. Welcome back to LATE EDITION.

Of course, so much has changed since then. Joining us now to talk about this remarkable year in politics are two leading members of Congress. They never hold back, especially when they're on LATE EDITION. In Los Angeles, the Republican Congressman David Dreier. He's the chairman of the powerful Rules Committee. And in New York, the Democratic Congressman Charlie Rangel. He's the ranking member on the also powerful Ways and Means Committee. He's hoping one of these days to become the chairman of that committee.

(LAUGHTER)

Congressmen, welcome back to LATE EDITION.

And let me begin...

REP. DAVID DREIER (R), CALIFORNIA: Happy New Year to you both.

And let me just say, Charlie does such a phenomenal job, again, as ranking minority member. I'm determined to do everything that I can to keep him right there.

BLITZER: All right. He's determined to move up a notch and become the chairman.

Let me begin with Charlie Rangel. And look back on this year a little bit, but focus, Charlie Rangel, on September 11. In terms of politics in America, has that had an impact? Is politics changing right now?

REP. CHARLIE RANGEL (D), NEW YORK: Yes, dramatically. There was a time that we were concerned about how Bush was able to wipe out the deficit, Social Security trust fund, the Medicare trust fund, the prescription drugs, patient bill of rights, all of these things he campaigned on.

And then we were struck by this enemy and all of America rallied behind the president. And you bet your life, it's changed politics tremendously.

But we can't afford just to allow the war to give us a chance to run away from decency and justice. We have commitments to the tens of thousands of people who are without work, and we have not done a thing to help them. The Congress should be called into session by the president to take care of the unemployed and those without health insurance.

DREIER: Wolf, I think...

BLITZER: All right, David Dreier, you heard Charlie Rangel say, you -- basically, you, David Dreier, and your fellow Republicans should be ashamed.

DREIER: Interestingly enough -- well, obviously, that's not the case. We're not only not ashamed, we're very proud of everything we've been able to do.

I think the decency and justice that Charlie just mentioned are two things that actually have emerged in a greater way than ever from what happened tragically on September 11. I thought that President Bush said it perfectly yesterday, when he said we've suffered a great loss but found a new unity.

And I was very proud. Charlie personally took me to ground zero, and we had a very moving experience, seeing the horrendous tragedy there.

And I have been privileged to work with him and with other Democrats on a wide range of other issues. And I think we can continue that spirit, that President Bush was just talking about, in dealing with issues like ensuring that we have adequate compensation from people who are suffering. We all know that, as we look at what took place September 11 and also the economy itself, that there is suffering out there.

And that's why we tried, by moving twice through the House of Representatives, to get an economic stimulus package in place. And you know, Wolf, that we were very, very diligent. The president worked so hard, all the way up until just before Christmas, to try and get this measure moved through the Senate.

So we want to provide unemployment compensation. At the same time, we want to recognize that those who are creating jobs have the opportunity to do just that. And I think we can do it in a bipartisan way, as we did in the House.

BLITZER: You think that economic stimulus package, Charlie Rangel, has got a chance of making a comeback once you reconvene?

RANGEL: If the president would get involved, because he's been really focused on the war in Afghanistan, and if he could allow some of that energy to take look at the problems of the unemployed, then yes, we could get a stimulus package.

There's no reason for the Republican leadership to have held the unemployment benefits and health benefits held hostage until they got these tremendous and obscene tax cuts. After the $1.3 trillion tax cut, they came back and they're asking for now $250 billion over five years, another tax cut. And let them fight that fight, but don't hold helpless unemployed people hostage...

DREIER: Charlie, you know... RANGEL: ... in order to get it.

DREIER: Charlie, you know, very well that our goal there was to ensure that we would accelerate the tax cuts for those at the lower end of the economic spectrum. That was the package that again enjoyed bipartisan support at the end of the day.

And I think that we can, I think we can put into place a good package here. As you know, it went through the House of Representatives, along with a number of other very important things that we've been able to do.

Trade promotion authority is something that we got through the House and...

RANGEL: You're changing the subject, David.

DREIER: I'm not. No, I'm talking about...

RANGEL: You're changing the subject...

DREIER: Charlie, I'm talking about...

RANGEL: ... and when you say that it...

DREIER: Charlie, I'm talking about economic...

RANGEL: ... got through in the House...

DREIER: ... growth.

RANGEL: ... it got through in the House by one vote. It was a very partisan stimulus package bill.

And when you talk about the lower income, that was a sliver of what you were giving in giving relief on the payroll tax.

DREIER: Charlie, the one-vote margin...

RANGEL: Ninety percent of that money went to wealthy people and to corporations, and you know it, David.

DREIER: Listen, they just went through the debate between Bob Reich and Steve Forbes on that issue.

RANGEL: It's not going...

DREIER: The fact of the matter is...

RANGEL: ... to go away.

DREIER: You know. You know, I will tell you, you said...

RANGEL: You can say, "Bombs away." You can put up the American...

DREIER: Charlie...

RANGEL: ... flag, but you're not going to get away from the facts.

DREIER: Charlie, you know very well that, as we look at where we're going right now, you have really sort of bought into the memorandum that was put out by that triumvirate of Democratic tactitions -- Greenberg and Carville and Shrum -- in which they said, praise the president on the war effort but attack him hard on the economy.

The fact is, the president, as you know very well, Charlie, worked very hard in the waning days. You met with him personally, and a wide range of other Democrats met with him personally, to try and bring about a successful economic stimulus package that would recognize both reducing taxes to stimulate economic growth and, at the same time, provide that package that was necessary for those who are suffering.

BLITZER: Let me move on to some other issues, important issues that came up in this year in politics.

And, Congressman Rangel, let me begin with you on the whole issue -- it started off with a very, very contentious election. The president narrowly defeating Al Gore for the presidency. All the recriminations, all the looking back, is that over now? Have you gotten over it?

RANGEL: No, no. But one thing that happens when you have problems in the family -- and we had very deep-seated political problems in how that election took place and the fact that United States Supreme Court actually appointed George Bush as president -- but our family got hit by terrorists, and our country came together with a sense of compassion, a sense of unity.

And I think President Bush has proven up to the job of leading and bringing our country together, albeit he has it manifested to the simplicity of evil against good.

But having said that, he can't be just the president and commander in chief for the war. He has completely walked away from the domestic responsibilities.

DREIER: Oh, my gosh.

BLITZER: All right. Go ahead, David Dreier.

DREIER: Let me just say, for starters, on the initial issue that you raised, yes, it was a year ago right now that the country was very divided. And we have come together, in part, because of what took place September 11.

But I also am very proud of the fact that from the House of Representatives we have passed the most sweeping election reform package in the wake of what happened a year ago. And that was put into place, Wolf and Charlie, in large part with the support of both Democrats and Republicans. It was a bipartisan effort to put behind us, and in fact resolve, the problems of a year ago right now.

One of the things that we learned, Wolf...

RANGEL: Yes, after the horse left the stable, then you mended the fence.

DREIER: Well, I know, but thanks for recognizing that we've mended the fence, because we knew that there was a problem.

Charlie, I think that if we learned anything in the past year, it has been, from the election that took place a year ago, from elections around the world whether in Mexico, Nicaragua or the problems Afghanistan, democracy is a work in progress.

We learned from 10 years ago in Nicaragua, the threat of Daniel Ortega coming back to power existed this year, and of course, we needed to rebuild our efforts to ensure that one election does not a democracy make.

Similarly in Afghanistan 10 years ago, we basically walked away from it. I spent a great deal of time in Pakistan dealing with mujahedeen a decade ago. And I wish that we had done more to ensure that the Taliban didn't come to power and that we saw this.

And similarly, on this issue of election reform, we've had problems in the United States with problems with our elections. And Charlie knows it, I know it, you know it, Wolf. And I think that we've now taken very positive steps toward dealing with that problem.

BLITZER: All right. Congressmen, we're going to take a quick break. We still have a lot more to talk about in this remarkable year in politics.

When we return, Congressman Dreier and Rangel will also offer their political outlook for 2002. They'll also be taking phone calls. LATE EDITION, we'll be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back. We're continuing our conversation on politics in this year 2001 with the Republican Congressman David Dreier of California and the Democratic Congressman Charlie Rangel of New York.

And let me begin this round with you, David Dreier. Jim Jeffords, the formerly Republican, now independent senator from Vermont, caused the entire balance of power in the Senate this past year to shift from the Republican majority to the Democratic majority.

He explained his decision earlier in the year. Listen to this.

(BEGIN VIDEO CLIP) SEN. JAMES JEFFORDS (I), VERMONT: Looking ahead, I can see more and more instances where I will disagree with the president on very fundamental issues. In order to best represent my state of Vermont, my own conscience, and principles I have stood for my whole life, I will leave the Republican Party and become an independent.

(END VIDEO CLIP)

BLITZER: How concerned are you, David Dreier, that the Republicans, who have a slim majority in the House of Representatives, could see that majority slip away in the elections in 2002?

DREIER: Well, actually, let me just say, Wolf, that that really was an aberration. You know, the pattern has traditionally been that Democrats have become Republicans, and you can name them in both the House and the Senate.

And we were saddened to see our friend Jim Jeffords make that decision, but he made it and I certainly respect him.

I believe that we have a very good opportunity, because of the strong leadership that the president has been providing and the leadership we've been providing in the House, to increase our numbers in the House of Representatives on the Republican side.

And similarly, while the conventional wisdom has been that, in the United States Senate, we would not have a really good chance to see Republicans once again gain control, I think, if you look at states like Montana or Georgia, Iowa, I think that there are opportunities there where the common-sense conservative governance which Republicans put forward will in fact prevail in those states.

So I think that, actually, as we head into this year -- I mean, granted, it's going against historic trends -- I think there is a chance for us to regain control of the Senate. And I think that would be a very good thing for the country.

BLITZER: I take it, Congressman Rangel, you have a different assessment.

RANGEL: Yes, history is on our side, as David knows. The president's party always costs the House of the same seat to lose seats traditionally in mid-term elections. This has been so ever since Abraham Lincoln, with the sole exception of Franklin Roosevelt. And so, we Democrats have been closing the gap.

And this year we truly believe that the economy, the obscene tax cuts, the irresponsibility in not taking care of our unemployed, and the real time-bomb that we're sitting on in using Social Security taxes to fight this war, I think, is unheard of. So I think we'll have the issues with us.

And we can all salute the flag and praise the president...

DREIER: You know, Wolf,...

RANGEL: ... but in the final analysis, the people out of work have to be heard, and they're being ignored.

DREIER: Wolf, I can't believe that Charlie uses the term "obscene," when he refers to repeal of the marriage penalty tax, extending the child tax credits and reducing the tax burden for middle- and lower-income wage-earners.

You know, this whole goal -- I mean, the two issues that President Bush talked about as a candidate were his top priorities, of course, pre-September 11, that was education reform -- and I'm happy that, in the next week or so, the president will be signing a bipartisan bill that enjoyed support in both houses of Congress from both parties -- and tax relief, which was a great accomplishment that we had earlier this year.

And again, it touches on those very important efforts to reduce the burden on middle- and lower-income wage-earners, as well -- and I will admit it -- for those who create jobs. With half the American people plus as members of the investor class, we need to do everything that we can to recognize that we're in this together. There's not one class versus another.

You know, the old class-warfare argument is one that I think really has failed. Bob Reich beats it, Charlie beats it, but it really is not one that resonates, I find, with the people with whom I speak.

RANGEL: Well, over 90 percent of these go to the so-called "investor class". And don't forget the president's campaign promises to secure Social Security, Medicare...

DREIER: Absolutely, he is...

(CROSSTALK)

RANGEL: ... the patient bill of rights.

Listen, comes the campaign, you'll find out that you Republicans in the House have run away from his commitments, and the tax cuts are still there.

DREIER: Oh, Charlie...

(CROSSTALK)

RANGEL: So we'll have our issues. We'll have our issues.

BLITZER: There will certainly be issues.

And I want to focus in on...

DREIER: And that's healthy.

BLITZER: ... one of the big stories before September 11, perhaps to the embarrassment of a lot of us in the news media, David Dreier, was the whole Gary Condit-Chandra Levy story. Your fellow Californian, Gary Condit -- he's a Democrat, you're a Republican -- but I want you to listen to what he said at one point, when he finally spoke out on the missing former Washington intern.

(BEGIN VIDEO CLIP)

REP. GARY CONDIT (D), CALIFORNIA: I have been married 34 years. I have not been a perfect man. I have made mistakes. But out of respect for my family, and out of a specific request from the Levy families, I am not going to share the details of my relationship with Chandra.

(END VIDEO CLIP)

BLITZER: He's running for re-election.

DREIER: Yes, he is.

BLITZER: Is he going to win?

DREIER: The voters in the Central Valley of California, Wolf, are going to make that determination. He's faced with a strong primary challenge, I know, from a number of Democrats, and we have some great Republican candidates who are there.

To answer very directly, I don't know. I know that it's been tough for my friends in the Democratic Party, because I don't think anyone has endorsed Gary in the wake of the -- and, by the way, I should say, we're all still very concerned about Chandra Levy, that -- and I think that this is a sad chapter.

And I will tell you that I think September 11 helped us put in perspective. As you said, some of the news media are embarrassed. I mean, the coverage of everything from Tonya Harding to O.J. Simpson to the Gary Condit scandal with the kind of depth that was there.

But I just don't know. The voters will decide that in the primary that we have coming up early this year in March, and then in the November general election.

BLITZER: What's your assessment, Charlie Rangel?

RANGEL: The only good reason I can see to bring this up -- and I agree with David -- is the fact that Chandra Levy is still missing, and there are about 40 young women in the District of Columbia that are missing, and we ought to concentrate on that. The politics will be taken care of by his constituents.

DREIER: Right. Absolutely. Absolutely.

BLITZER: Charlie Rangel, the two things -- I guess one of the big things you did this past year was, you convinced your good friend, the former president Bill Clinton, to move his office to Harlem.

What advice do you have for Al Gore right now, if he's thinking of making some sort of political comeback? RANGEL: Shave and a haircut too.

(LAUGHTER)

Actually, we don't have a candidate. We're not -- we're really focused on the 2002 election.

And I'd like to add that I was part of the encouragement for Hillary Clinton to run, and I think she's made a fantastic senator and has gained the respect of people on both sides of the Senate aisle.

BLITZER: All right. On that note, on that note, I've got to leave it. Unfortunately, we're out of time.

You know, this...

(CROSSTALK)

DREIER: I think this is about our sixth time, isn't it? Or fifth or sixth time.

(CROSSTALK)

BLITZER: You guys are always on LATE EDITION the last Sunday of the year. God willing, we'll all be healthy, you'll come back next year, probably be...

(CROSSTALK)

DREIER: Happy New Year to both of you.

Happy New Year, Charlie.

RANGEL: Happy New Year, David.

And thank you, Wolf.

BLITZER: Thank you very much. Happy New Year to you and to your families as well.

DREIER: Thank you, thank you.

BLITZER: And coming up next, the third hour of LATE EDITION. We'll check the top stories. Then, our military and national security experts will answer your questions about the week's developments in the war against terrorism. Plus, your questions, our answers in the Final Round. It's all ahead in the next hour of LATE EDITION.

But first, Bruce Morton reflects on a year marked by both tremendous loss and courage.

(BEGIN VIDEOTAPE)

BRUCE MORTON, CNN CORRESPONDENT (voice-over): At the end of other years, we've remembered people we lost that year -- a poet, a statesman, an artist. 2001 was different. The loss came all at once, September 11. It was massive, it was shocking, it still hurts.

Thousands died in New York, in Washington, in the Pennsylvania countryside. Most were innocents who were just there by chance. Others moved forward, died doing the work they had chosen to do. They worked, some of them, for hours and days on end, slept when and where they could.

They work still. The fires are out now, but wreckage still stands twisted where the towers stood.

So let us remember them, the dead, the survivors, the living who mourn. Let us remember them.

(MUSIC)

The dead, the heroes have taught us things: taught us again that the cost of war is very high because it is measured in lives, not dollars.

They have united us, reminded us that for all our differences of race and religion, we are on people united because we stand for freedom. They have united us first in grief, then in anger, then in war.

We will always remember them and the day that changed so many lives.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, SECRETARY OF DEFENSE: What a difference three months makes. On September 11, the Pentagon and the Trade Towers were burning. The Taliban were in power and Afghanistan was a reasonably safe haven for terrorists. Today the fires are finally out, the Taliban have been driven from power, their leaders are on the run.

And thanks to so many nations' efforts and the extraordinary men and women of the defense establishment and the armed forces and our coalition forces, Americans are celebrating this holiday season as they were meant to, in freedom.

(END VIDEO CLIP)

BLITZER: The U.S. Defense Secretary Donald Rumsfeld summing up what's been a remarkable past three months.

Welcome back to LATE EDITION.

Joining us now with some insight into where the war and search for Osama bin Laden stand our three guests. In Little Rock, Arkansas, the CNN military analysts: Former NATO Supreme Allied Commander General Wesley Clark; here in Washington, CNN military analyst, the retired U.S. Air Force Major General Don Shepperd; and Robin Wright of the "Los Angeles Times." She's also the author of the excellent book, "Sacred Rage: The Wrath of Militant Islam." I highly recommend it.

Good to have all of you on our program.

And, General Clark, let me begin with you on the search for Osama bin Laden. You may have heard the interview we did earlier with the Senate Intelligence Committee chairman, Senator Bob Graham of Florida, in which he said, there is reason to believe -- he wouldn't go into specifics for intelligence purposes -- reason to believe that Osama bin Laden is still alive right now, although unclear obviously where he is.

Where does the search stand, as far as you believe?

GEN. WESLEY CLARK, (RET.), CNN MILITARY ANALYST: I think we've got to finish up in Afghanistan and at the same time we've got to be looking in Pakistan and elsewhere.

Clearly, he wanted -- would have wanted to get away. I don't think he wanted to just stay in a cave forever.

It's still not certain in my view, at least on the basis of what information that we've received, that he's not dead, but the probability is he isn't.

The probability is he's in Afghanistan. It's possible he's in Pakistan. We've got to look at all the places.

BLITZER: And this past week, Robin Wright, we actually heard a videotape, saw a videotape, Osama bin Laden spoke out. Although it's unclear if he was speaking at the end of November or early December when it occurred. But let's run a little excerpt. I want to get your assessment.

(BEGIN VIDEO CLIP)

BIN LADEN (through translator): Three months after our blessed attack against the main infidel West, especially America, and after two months of the infidel's attack on Islam, we would like to talk about some of the implications of those incidents.

These events have revealed many important issues to Muslims. It's very clear that the West in general and America in particular have an unspeakable hatred for Islam.

(END VIDEO CLIP)

BLITZER: He's trying to score points in the Islamic world out there, but he seems to have a shrinking audience.

ROBIN WRIGHT, "LOS ANGELES TIMES": Oh, definitely. In fact, the thing that's so striking about this videotape is the desperation and the fact that there was a resounding silence throughout the Islamic world to his appeal. He looked desperate, he acted desperate. And his words do not -- in the early days, the early video's, he seemed messianic, he seemed authoritative. And now he seems the kind of small character he's turned out to be. BLITZER: It's taking longer than you thought it would take, isn't it, General Shepperd, to find Osama bin Laden?

MAJ. GEN. DONALD SHEPPERD (RET.), CNN MILITARY ANALYST: I think so. I kind of predicted, if you would, that he would be found by December, and the reason I said that is because I thought he was in Tora Bora from everything I was hearing and I thought we would get him in Tora Bora.

We may still have, as General Clark said, but right now it appears that he's still alive, still somewhere. And we still don't know, Wolf.

BLITZER: All right. Let's take a caller from New York.

Go ahead with your question.

CALLER: Yes, I wanted to know if -- what makes the American government think that once we're done rebuilding Afghanistan, what makes them think that Al Qaeda won't come in and have a better position in Afghanistan and just try again?

BLITZER: What about that, General Clark?

CLARK: Well, first of all, we're just going to be one of a number of countries who are participating, rebuilding the basic work that's got to be done by the people of Afghanistan.

And when they've got a chance to have a better life for themselves and their children, I think that gives them the most positive incentive to keep the Taliban out and therefore to keep Al Qaeda out.

But we will always need to maintain our intelligence connections there. We'll probably always have a beefed-up embassy there, and we may well have some troops on the ground for a long, long time.

BLITZER: Robin, you well know Americans have a short attention span. Is the United States, this Bush administration, backed by Congress, prepared for long haul in Afghanistan?

WRIGHT: I think it has to be, and I think it's said over and over it will, in part because it's been through this once before and walked away and it knew what price it paid.

As difficult as it's likely to get, as messy as it could get politically, the administration, I think, is developing not only a long-term strategy for Afghanistan, but for South Asia and even for the entire Islamic world. They understand this is a block of countries that's held out against the democratic tide and the United States is likely to be vulnerable to the anger that has emerged as result of the authoritarian rule in most of these countries.

And so it'll want to have a strategy that will keep it involved for the foreseeable future. BLITZER: General Shepperd, the defense secretary, Donald Rumsfeld, spoke out earlier in the week, and he underscored some of the problems, structural problems within the military establishment right now in the United States. Listen to what he said on Tuesday.

(BEGIN VIDEO CLIP)

RUMSFELD: While Congress has approved significant increases in defense spending, and indeed they have, a decade of underfunding and overuse of our force has taken a toll on our forces, and we have not yet gotten back to acceptable steady states.

(END VIDEO CLIP)

BLITZER: He actually said that at the Pentagon on Thursday.

But what's your assessment on that?

SHEPPERD: My assessment is that he is absolutely right. It's a wide use of the forces in ways we've not been used before -- peacekeeping, long deployments over seas spread in many, many places. At the same time modernization, which is our big problem in the military, has not gone on. We are faced with replacing our ships, with replacing our airplanes, all at the same time; our army tanks, division equipment, this type of thing. And we took a 10-year breather, if you will, from modernization.

Now, added to that, at the same time, is the problem of we're going into new types of warfare, not the traditional use of big armies that we talked about. So we have modernize. We have to change and transform the military at the same time. It's a big problem. We're going to require money and a lot of money in other places.

We've got problems on our hands, Wolf.

BLITZER: All right, let's take another caller from California.

Go ahead, please.

CALLER: Hi, my name is Tony. I want to thank you for getting my call.

Mr. General Wesley Clark, I have a question for you. When you were a commander of coalition forces in Kosovo, how much -- you had concern with the presence of al Qaeda members among the rank of KLA, the training they received by Osama's people? What did you do to contain them?

Thank you.

BLITZER: That's a good question, General Clark. Was there evidence of al Qaeda operations going on in the Balkans while were you commanding the U.S. troops there?

CLARK: Actually, we put a lot of effort into breaking up the connections with the Iranian revolutionary guards in Bosnia. And there were some members of the mujahideen there in Bosnia.

In Albania, there were also members of Islamic Jihad operating, and we did operations against them.

But as far as the Kosovo Liberation Army was concerned, despite what we were told repeatedly by our Russian colleagues, they really weren't hard-lined, Sunni, Wahhabi fundamentalists driven by al Qaeda. These were a bunch of people from all over the world, including some from the United States, who wanted to have a chance to have freedom in Kosovo away from Serb oppression.

So, it was a confused time and there's been a lot of misinformation put out. I hope some day all that can be clarified.

BLITZER: All right. Let's take another caller from Colorado.

Go ahead, please.

CALLER: Good morning, Wolf. I wanted to ask, clearly the Islamic actions over the last few months have been very, very expensive to the United States and world economy. I'm curious if your panel would have any idea of what the cost of the operations in Afghanistan to date have been to respond to the terrorist acts of September 11?

BLITZER: That's a hard question. I don't think anybody, including the director of the Office of Budget and Management in the Bush administration, as good sense.

But, Robin, maybe you want to handle that.

WRIGHT: Oh, I actually haven't the foggiest idea. I defer to the generals on that.

BLITZER: What about that, General Shepperd? Do you have any idea?

CLARK: You're talking billions and billions of dollars.

SHEPPERD: Yes, it costs billions and billions, but a lot of it's already spent. In other words, a lot of it is gas and oil and munitions that would be dropped in training exercises. So, it's not a totally dark picture.

And it's cost much less than other wars because, for the first time, we have the ability to find and attack the real targets we are after and hit them. So, it takes many fewer bombs and fewer sorties than before.

So, it's a mixed blessing, but it still cost a lot of money.

BLITZER: General Clark, I don't know if you saw the interviews I did earlier in this program with representatives of the Indian government and the Pakistani government, but it looks real, real scary right now, the military confrontation that's building along the border between India and Pakistan with enormous potential ramification for the U.S. war in Afghanistan, the U.S. war against terrorism.

How serious is this situation?

CLARK: Well, by all accounts it's very, very serious. These are two nuclear-armed powers. Pakistan has no strategic depth, but it does have nuclear weapons. India has about 10 times as much combat power. It also has nuclear weapons. It does have strategic depth, but India feels it's been attacked through terrorism.

So the forces are deployed. They are looking at each other. The buildup has continued, and any misreading of signal -- it could be a flash point that could set this thing off -- and the consequences are really, they're incalculable.

BLITZER: And no reporter, General Clark, knows more about India and Pakistan in Washington than Robin Wright, so I'm going to ask her this.

You have covered South Asia for many, many years. You hear the Indians say they are ruling out a first strike, the first use of nuclear weapons. Pakistanis, including the Pakistani Foreign Minister Abdul Sattar, who was on this program, they don't say that.

WRIGHT: Well, I think the problem here is not just the conventional forces. It's the fact that there are all these extremists who are already in Kashmir and that Pakistan can't do a whole lot about. They can clamp down on the groups inside Pakistan, but the groups that have infiltrated across the border, many having been trained in Afghanistan, many of them perhaps wanting to launch some strike in retaliation to say we are still a force.

People still have to pay attention to our agenda. That's the real danger. And that then leads to the kind of escalation across the border that is quick likely.

I don't think a nuclear confrontation is imminent or likely. But an increase in hostilities is almost unavoidable.

BLITZER: All right. Let's take another caller from Canada.

Go ahead, please.

CALLER: Yes, hi. Happy New Year to your panel, first of all.

I have a question. If the worst scenario comes true between Pakistan and the Indian nuclear war breaks out, would the United States covertly help the Indian government to defeat Pakistan, so they can get their hands on their nuclear capabilities, since the U.S. is closer to India than Pakistan?

BLITZER: Well, let's ask General Shepperd. That sounds a little far-fetched, but go ahead.

SHEPPERD: Well, it's difficult to decide what we would do in case of nuclear war, because a lot of it's going to be decided on the spot. But, very clearly, we're going to side with one side or the other. What we're going to do is take everything that we have at our disposal and try to bring a nuclear outbreak to a halt and separate the powers.

We're trying to do that diplomatically before it takes place, as Robin has said. And that's the important thing. This must be de- escalated. It's very, very dangerous.

But we're not going to take sides in this thing, I predict, now or later. We want them to control those nuclear weapons, not us.

BLITZER: OK. We're going to take another quick break.

When we come back, more of your phone calls for General Clark, for Robin Wright, for General Shepperd. LATE EDITION will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Well, about 15 minutes ago I actually got a call from the president of the United States who wanted to wish me a Merry Christmas, Happy New Year. How proud he is of everybody, actually. Let us know we're doing a good job.

(END VIDEO CLIP)

BLITZER: Just one of the many hundreds, perhaps thousands of U.S. troops fighting the war against terrorism on the ground in Afghanistan.

We're continuing our conversation with the CNN military analysts General Wesley Clark, another CNN military analyst, the retired Major General Donald Shepperd, and Robin Wright of the Los Angeles Times.

And, General Clark, let me begin with you, a question. A lot of reviewers have noticed some new technology that was successfully used -- perhaps other new technology we don't know about not so successfully used in this latest war in Afghanistan.

What's been the biggest success story as far as the new technology that you've discerned?

CLARK: Oh, I think it's the ability to use the what's called the JDAM munitions on all of the aircraft. And when you combine that with the Special Forces teams on the ground, it means that in all weather you can precisely bring air power to bear on a target. You can put as heavy a bomb as you want right in there on the enemy, rain or shine.

BLITZER: Well, tell our viewers what the JDAM precisely is.

CLARK: This is a bomb that has a tail assembly on it. It's guided by the global positioning systems, so you put the coordinates into it and it flies to the coordinates. And it does it even... (AUDIO GAP)

SHEPPERD: ... is the ability of joint forces to work together for the first time in military history.

BLITZER: When you say "joint forces," you mean Army, Navy, Air Force and Marine Corps.

SHEPPERD: Yes, exactly. We've talked about it for years; we've done it for years. Of course we've worked together with everybody. It's really paying off, the emphasis that we put on the word "joint, joint, joint" around the world. We can operate day and night all around the world, and you got a flexible force from which you can draw the right pieces.

In this case, it's air power and special forces early. Then the Marines; now the Army following on. It's very impressive what we've done weapon-wise and training- and equipment-wise.

BLITZER: General Clark, in the Balkans, didn't you have some joint operations that worked pretty well?

CLARK: Absolutely. We did a lot with the Navy and the Air Force. We had the Army on the ground on Task Force Hawk.

But what we didn't have, two things: We didn't have Special Forces on the ground inside Kosovo. It was under consideration; I'd talked about it with my British friends. But it hadn't been done as of the time we stopped the bombing.

And we had the JDAM only on the B-2 bombers, and so, for the other aircraft we could not strike in bad weather with the same accuracy.

BLITZER: Have you seen that new movie, Behind Enemy Lines, about the fighting in the Balkans, General Clark?

CLARK: Right. And there's a little bit of truth in it; a lot of fiction.

BLITZER: OK. I just saw the movie last night, and we'll talk about it another time.

We have another caller from Pennsylvania. Go ahead.

CALLER: Yes, this is a question for both of the generals. With the ongoing war on terrorism in Afghanistan and what is likely to go on throughout the rest of the world, the Congress still has not declared an actual war.

What kind of advantages, for example, with concerns over military tribunals in war time, do you think that a declared war might offer both the president and the armed services?

BLITZER: Robin Wright, there hasn't been a declared war in a long time, I think, maybe since World War II. I could be wrong on that. But there's no move afoot right now to declare -- have Congress formally declare a war.

WRIGHT: Absolutely. Neither Republicans nor Democrats very noticeably have called for it. And in fact, it's interesting, particularly as we look at the broader war and the issue of what do we do about Iraq, that may become an issue down the road.

BLITZER: General Shepperd, if were you in command of U.S. Naval base at Guantanamo Bay, and the commander-in-chief says, you know, we are sending a bunch of suspected terrorists, captured al Qaeda members, or Taliban to your base, how would you feel about that?

SHEPPERD: I would feel like I ought to follow the orders that were given to me. It's good place to do this. It's a long swim for anybody to get there to do any damage in the way of attacking, a jail break, that type of thing. If prisoners escape, they can go into Cuba, or they can swim away. And we have had a lot of practice there before with the Haitian situation. Also, the Cuban Mariel (ph) boat lift, with 14 -- even, come to think of it, up to 19,000 prisoners in there. So we know how do it, it's a good facility. I'd feel good about it.

BLITZER: How would you feel, General Clark?

CLARK: I think it's appropriate.

BLITZER: Because? Tell our viewers in the United States and around the world the difference, why the U.S. would want to keep those prisoners or detainees, as they are formally being called, on U.S. soil, at a base someplace outside of the continental United States?

CLARK: Well, by U.S. law, if these prisoners were brought into the United States, there would be a whole range of legal issues that would appear. And so, there would be defense attorneys appointed and they would be given the rights that people in the United States have. They'd have to be. I mean, that's been the practice.

And so -- it's also, as General Shepperd said, it's been our practice in the last 10 years to put people down in Guantanamo and other places, in holding areas, and go through this before we have to deal with the problem of formal assignment of rights that American citizens have, or people who live in America have. So Guantanamo's a good place to do this.

BLITZER: All right. Let's take another caller from Oklahoma. Go ahead, please. Oklahoma, go ahead.

QUESTION: Yes, my question is America safe from nuclear weapons?

BLITZER: All right. Let me ask Robin Wright?

WRIGHT: You're asking the wrong person. From terrorism, I think yes, I can't imagine that any terrorist group is going to get anywhere near any kind of nuclear bomb.

BLITZER: The crude, so-called nuclear device, a radiation device. We've heard a lot about that over these past several weeks. WRIGHT: I think that's a possibility, but I think it's a pretty remote possibility. Delivery systems, getting it in the United States and so forth. Is it a possibility for an American facility overseas? Possibly. I'm not one that worries about that, however.

BLITZER: What about you, General Shepperd?

SHEPPERD: I always worry about it, Wolf, and it is possible that actual nuclear weapons are missing from the former Soviet Union. They say no. It's also possible that you could -- that you could structure radioactive material around a crude explosive device, have a crude dirty nuclear weapon. Wouldn't do a whole lot of damage, but it would do the obvious, sow terror out there, if you will.

But most importantly, we do not have any defense in this country against a rogue nation or a launch of nuclear missiles from another country, and that's what the great debate is about whether or not we need that and how much it's going to cost and when to deploy.

WRIGHT: But there's a much graver danger from some thing simple like chemical or biological than nuclear.

SHEPPERD: Absolutely.

BLITZER: All right. General Clark, tell our viewers what's next in the U.S. war against terrorism?

CLARK: Well, I think we're going -- you're going to see our forces still in Afghanistan for a while. We're going to be looking for the intelligence to take us to other areas. Lebanon has been suggested. Yemen has been suggested, Somalia has been suggested. Now we've got a winning formula by putting Special Forces on the ground and using our aircraft overhead.

People are concerned about Iraq, but all of these cases, these four I mentioned are going to require some development. Intelligence development, diplomatic development and military development. So my guess is you're in for a pause -- a month, two months, four months, before the sort of foundation work has been done and you see overt military move in one of these areas.

BLITZER: A lot of talk, Robin, about Iraq. But is that pretty much premature?

WRIGHT: I think it's tremendously premature. Neither the deputies nor the principals in the national security structure of the United States government have really met to discuss what the possibilities are. There was a lot of talk...

BLITZER: Now, let's tell our viewers what you mean by deputies and principals because they may not know the shorthand that you and I know what you're talking about, but our viewers may not know.

WRIGHT: The deputies at the indoor agency as they call the CIA, the State Department, the Defense Department and so forth. Meet usually to discuss the various options then... BLITZER: The second tier advisers.

WRIGHT: Second tier advisers and then forward what they believe to be the consensus options to the principals who then take it to the president.

BLITZER: And the principals are the secretary of state, the secretary of defense, the national security adviser.

WRIGHT: That's right.

BLITZER: The director of the CIA.

WRIGHT: And then to the president. And their a long way from that. I think that -- that's probably not going to happen till the Spring. I think General Clark is absolutely right. First of all, you have to deal with the al Qaeda -- mop up the al Qaeda cells outside of Afghanistan and Pakistan and that's going to be very complicated, involve some sophisticated intelligence and special operations. Come -- you know, forces together and doing things. It's not going to be a highly visible war like we've seen in Afghanistan.

And only then do you begin to think about what's next and frankly, between South Asia, meaning India and Pakistan and the Arab- Israeli dispute, there is so much to keep the United States busy that it would be very hard to imagine that in the next year we'll see any kind of conventional military action against Iraq. Maybe the beginning of intelligence operations, but I think Iraq is still a way down the road.

BLITZER: And General Clark, we spoke about -- touched on it earlier. Is the U.S. military stretched too thin already right now?

SHEPPERD: No, it's -- excuse me.

BLITZER: Go ahead General Clark, I'll let you and then I'll let General Shepperd answer it.

CLARK: No, I think the military is in remarkably good position. Actually we've only used a small part of our forces, somewhat larger proportion Special Operations forces, but the bulk of the U.S. combat forces and the support forces are not committed to this operation.

BLITZER: And General Shepperd.

SHEPPERD: Yes. Again, as General Clark has said, we are well postured to do what we need to do around the world and Iraq, as Robin said, is going to be enormously complicated. We must be very careful. It will take the coalition to do that but it is in the cross hairs, you got to go there, it doesn't have to be militarily, doesn't have to be next.

BLITZER: All right. General Shepperd, Robin Wright, General Clark thanks for joining us as you do almost every week -- almost every day on CNN and have a happy and a healthy new year to you and your families as well. And this reminder: Immediately following LATE EDITION, stay tuned for "BUSINESS UNUSUAL" with Willow Bay.

That's at 3:00 p.m. Eastern, noon Pacific. But up next, LATE EDITION's "Final Round." We'll also be taking your phone calls and e- mails. Stay with us.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION's "Final Round." Joining me, Donna Brazile, the former manager of the Al Gore presidential campaign, Julian Epstein, the former Democratic counsel for the House Judiciary Committee, Rich Lowry, the editor of the "National Review," and Robert George, columnist for the "New York Post."

The war against terrorism is being complicated by heightened tensions between U.S. allies India and now Pakistan. Both sides stated their demands earlier today here on LATE EDITION.

(BEGIN VIDEO CLIP)

SATTAR: Invitation or suggestions for dialogue are welcome, but then it has to be seen who is refusing the dialogue, who is not exercising restraint.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

JAITLEY: The Pakistani government has to accept that all forms of cross-border terrorism must stop, all organizations which have been functioning from Pakistani soil and creating this kind of a situation in India must stop their activities.

(END VIDEO CLIP)

BLITZER: All right, Rich, how involved should the United States get?

RICH LOWRY, "NATIONAL REVIEW": We should be very involved. I mean, it's a grave situation. And the Indian maneuvers are partly intended to get us involved. But there is also genuine sentiment there in India for some action. And the basic problem here is Pakistan, which for about 15 years has been fostering Islamic militants in Afghanistan and in Kashmir, and earlier -- you know, three months ago, we made Pakistan choose between the militants and the civilized world in Afghanistan. Now we're going to have to make them choose again in Kashmir.

BLITZER: But Pakistan is playing a very important role right now in the U.S. war against terrorism.

JULIAN EPSTEIN, FORMER COUNSEL TO HOUSE JUDICIARY COMMITTEE: An extremely important role. And I think, again, this undermines at least the pre-9/11 neo-conservative philosophy about the need for the United States to be disengaged in world affairs. All the more reason that I think the United States needs to be engaged.

Pakistan and India have been pitted against each other like the snake and the bird now for -- at least since the last war some three decades ago. My guess is that they will defuse the situation. The important role for the United States has got to be behind the scenes, not to pick sides, and avoid what would be the worst -- the result of what could be the worst terror strike, the strike against India parliament, which could trigger a nuclear confrontation.

BLITZER: What about that, Robert?

ROBERT GEORGE, "NEW YORK POST": Well, you know, the fact is, though, India, you know, has been attacked by terrorists which obviously have sympathies with Pakistan, and they have to have -- obviously have a strong response.

And, in a sense, based in the same way that Bush has characterized the war against terrorism, it seems, in this case, that India is more or less on the good side, the good guys.

BLITZER: We got an E-mail, Donna, from Indra, in the United Kingdom -- she e-mails us this: "India has been facing cross-border terrorism instigated by Pakistan for the last 15 years in Punjab and Kashmir. Don't you think it is a duty of all western democratic countries to uphold and support the world's largest democracy?"

DONNA BRAZILE, FORMER AL GORE PRESIDENTIAL CAMPAIGN MANAGER: Absolutely, but the United States has a great deal at stake in this conflict right now, to keep both sides calm, as well as to send a strong message to Pakistan. I think the president sent that message yesterday, when he was on phone with General Musharraf and said, look, you guys have got to arrest these Islamic militants, we need to reduce the tension, and I believe, at some point, this tension will rise to the occasion where the United States may have to send a special envoy to the region.

GEORGE: It's very similar to the situation that you've got with Arafat and Israel.

BRAZILE: Absolutely.

GEORGE: Arafat wasn't arresting the suicide bombers or, you know, arresting the people planning these suicide attacks, and the United States said, you know, we're not going to -- we're supporting Israel because they're being attacked.

BLITZER: All right. Let's move on, because we've got a lot of stuff we want to cover.

Today's "New York Times" reports that the government won't impose new standards that would displace thousands of current passenger- and baggage-screeners. Republican Senator Kay Bailey Hutchison defended this decision.

(BEGIN VIDEO CLIP) SEN. KAY BAILEY HUTCHISON (R), TEXAS: We do have this to allow people who have work experience to have an opportunity to show -- even the military doesn't require a high school diploma if other things are shown to overcome that.

(END VIDEO CLIP)

BLITZER: Robert, is it a mistake to relax these standards?

GEORGE: Of course it's a mistake, with all due respect to the good senator. The military, you know, they may not require a high school diploma, but they have rigorous training. I don't believe that the department of transportation is going to have quite the rigorous set of standards, the training that you're going to need. This is an important job, and, in fact, this was the concern that those of us who dislike the idea of the government taking over airport screening had in the first place.

BLITZER: Julian, as you know, travelers are already nervous to begin with.

EPSTEIN: Absolutely.

Well, I think the big debate, of course, was the Bush administration's desire to keep these Keystone rent-a-cops in place during the airline security bill. That was, clearly, the wrong position. The Bush administration clearly lost the debate on that.

Now the question is what criteria should there be for these workers? I think a high school diploma is indicative of very, very little, unfortunately, in terms of the competency. I think there should be very tough basic educational requirements and tough vocational requirements for anyone involved in this industry. But I think using the high school diploma as some type of, you know, major indicator is off.

BRAZILE: Yes, but these guys will also, undergo a rigorous background check, a criminal background check, test in English proficiency. I do believe that the standards will be tough. These standards will not displace workers who have a great deal of experience right now in screening luggage, in screening people who come through the airport.

LOWRY: I think this is really a side show. These are inherently low-skilled jobs. Education is not that important. What's more important is the supervision. And what's more important than that is a micro issue, which is I think we need security to be more tightly focused. And the idea that a 70-year-old woman from Iowa would the get same scrutiny and have to go through the same security checks as a 25-year-old male traveling on a Middle Eastern passport makes no sense. It's just creating an inconvenience that does nothing to enhance security.

BLITZER: All right. Let's move on and ask this question: Should Osama bin Laden have been captured years ago? The Republican Senator Don Nickles says yes, and he places the blame squarely on, guess who, the Clinton administration.

(BEGIN VIDEO CLIP)

SEN. DON NICKLES (R), OKLAHOMA: I think they dropped the ball. I mean, we had the bombing of the World Trade Center in '93. You had the bombing in Saudi Arabia, the Khobar Towers. We also had other bombings that bin Laden was involved with -- USS Cole, the two embassies, and all we did was throw a couple of cruise missiles. We never really stayed after him.

(END VIDEO CLIP)

BLITZER: All right. Now, Julian, President Clinton is to blame again.

EPSTEIN: With due respect to Senator Nickles, I think it's intellectually dishonest. I happen to have had a little bit of experience with this in 1996, when President Clinton and the Clinton administration came to the Congress and asked the Congress for tough new counterterrorism laws; the Republican Congress said no. President Clinton wanted tough surveillance laws; the Republican Congress said no.

President Clinton increased funding for counterterrorism efforts by a factor of three. He attempted to increase funding for embassy security and the Republicans fought him on that. Essentially, before 9-11, President Bush adopted the exact same policy of the Clinton administration, which was not to send in ground troops and not to declare war on the Taliban. It was only after 9-11 that everybody, Democrats and Republicans, believe we should engage in this war.

BLITZER: So the Republican Congress is responsible for the fact that Osama bin Laden is still at large.

LOWRY: Well, this is -- this goes to crucial point here is that Clinton always treated terrorism as a domestic issue, as a criminal issue, instead of a foreign policy issue.

And you know, he commissioned a poll after the Khobar Tower bombings. Dick Morris went into his office and says, look, president, there'd be overwhelming support if you declare a war a terrorism. He didn't do it. And the reason why is because Clinton and liberals have a temperamental disinclination to wield American power abroad. The great thing about...

(CROSSTALK)

LOWRY: ... Bush and Rumsfeld is they have no compunction about killing our enemies.

BRAZILE: This terrorism didn't begin with just President Bush or President Clinton, for that matter. It began years ago. And even under President Reagan when the bombing in Lebanon. So we shouldn't look to blame it on one president or the other president. We should look to the future and make sure that we have the tools now to defeat terrorism and all of the other allies of these -- and sympathizers of these groups.

GEORGE: But the fact remains, even many people who served in the Clinton administration, all of them said they've never became more than, say, the third priority of Clinton.

(CROSSTALK)

EPSTEIN: With due respect. With due respect. With due respect to each of you, Clinton authorized the killing of bin Laden on four separate occasions, and neither of the two of you can distinguish the pre-9-11 Bush policy with respect to bin Laden and the Taliban from the Clinton policy. So I think it's an intellectually dishonest argument.

LOWRY: Julian, if you do a...

(CROSSTALK)

BLITZER: You got to wrap it up.

LOWRY: If you do a Nexus search of Bill Cohen and the word "kill" within 10 words, it doesn't show up. Here's a defense secretary, waged a war a Kosovo -- never used the word. And Bush and Rumsfeld like...

(CROSSTALK)

EPSTEIN: These were classified orders on the part of the President Clinton.

BLITZER: All right. Stand by. We have a lot more to talk about. We're taking a quick break. We'll be right back with phone calls for our panel. LATE EDITION's "Final Round" returns.

(COMMERCIAL BREAK)

BLITZER: Welcome back. Tomorrow, Rudy Giuliani steps down as mayor of New York City. He is getting a lot of praise, of course. The New York Times editorial declared this earlier today.

With a different mayor, the city would still have done well during the 1990s, but without Mr. Giuliani, it might not have undergone the phenomenal turn around that transformed the city that had been a byword for civic disorder and to the emblem of urban renaissance.

I guess, you work for a New York paper, what do you think?

GEORGE: Well, it's amazing that the "New York Times," it took them eight years to realize this.

BLITZER: The "New York Post" was not always complimentary to Rudy Giuliani, either.

GEORGE: Oh, I would disagree with that. But, what is interesting is we have gone really from New York as ground zero for crime and murder, and so forth in the early '90s. Giuliani coming in, cleaning it up, transforming the city to now, of course, it has become ground zero as the emblem of the attacks on America. And Giuliani showed more of his compassion, sensitive side.

BLITZER: You have to admit, a Republican mayor of a major urban, Democratic city does a pretty good job.

BRAZILE: Well, I think Rudy Giuliani in the last couple of months has done a remarkable job.

BLITZER: What about over eight years?

BRAZILE: I give him an overall a "B". I'm not a New Yorker. I do believe that he was a creature of his times. We had good economic times, crime was down across the country, but, you know, the guy deserved a vacation. He deserved a rest. And I do believe that he has future in politics.

BLITZER: You live in New York, Rich.

LOWRY: He is the most consequential public official of the '90s, no doubt about it. And his biggest accomplishment isn't his leadership post 9-11, I think, it's getting crime down in New York City. He is responsible for saving the lives of literally hundreds of poor minorities in New York City. And the thanks he got from it, from Al Sharpton and others, was to be called a racist for most of eight years.

EPSTEIN: Well, I think the fact is that in ordinary times Rudy Giuliani was largely an ordinary mayor. The indicia, the economic boom, the lower crime rate, the lower welfare rate, that was mirrored in other cities. He was, in fact, so divisive when it came to things like police brutality against minorities that he was widely regarded, even in his own party, as a bit of a pariah, such that he needed to get out of the race with Hillary Clinton in the Senatorial race.

Now, in extraordinary times, after 9-11, he became an extraordinary mayor. There's no question...

(CROSSTALK)

BLITZER: I think he got the out of that senator race because he had prostate cancer.

BRAZILE: And he had a nasty divorce on the way.

EPSTEIN: He had a nasty divorce, but also that he was an extremely divisive official in New York politics about that time.

GEORGE: The national drop in crime rate was driven by the New York City's drop in crime which Rudy Giuliani...

EPSTEIN: The national rate?

GEORGE: The national drop. The percentage.

LOWRY: New York led the way. And it's amazing Democrats still will not give him credit for that.

EPSTEIN: Well, interestingly enough, Giuliani subscribed to major Democratic tenets of crime reduction -- gun control, cops on the beat -- all programs that the Clinton administration and Clinton...

LOWRY: Right, broken window steering and taking illegal guns off the street, which is exactly the tactics Democrats criticized for being racist.

EPSTEIN: Absolutely not. Untrue.

BLITZER: We have a patient viewer with a phone call. Go ahead from Tennessee. Go ahead with your question.

CALLER: Back to the issue of Congress and the president working together and Senator Daschle. My question is this: Do you think after the 1st of year that the president will be less focused on this war and start working on some of the issues with Senator Daschle? Specifically, health care and unemployment?

BLITZER: Donna?

BRAZILE: Well, I hope that while the president is on his working vacation down at his ranch, that he puts some line in his speech that calls upon the Democrats and leadership in the Democratic party to work together with him to pass a patient bill of rights, to pass election reform, campaign finance reform. Work together on the foreign bill, the energy bill, so forth. He can do it in January when he makes his statement to the nation and I do believe that he can succeed.

GEORGE: I agree 100 percent with what Donna said, but the problem is it's been Senator Daschle and the Democrats in the Senate who haven't wanted to work with the president on the domestic agenda that you just outlined. Energy bill, for one.

BLITZER: You've heard the accusations that the Democrats want to praise the president when it comes to fighting the war, but hammer him on all the domestic economic and social issues.

EPSTEIN: I think everybody agrees with the president, and when it comes to fighting the war. I think he's done a good job, and again, I think Giuliani's done a tremendous job.

When it comes to domestic policy, however, I think what Republicans were attempting to do it to put old wine in a new bottle -- the old wine of supply side economics, the belief that the benefits will trickle down. We tried it in the '80s, it didn't work that well.

And I think that Bush's own projections that if you just got the tax bill passed we would see the immediate benefits of economic stimulus haven't really come to bear. What Democrats are saying there's a whole lot of people, health care and unemployment -- for whom health care and unemployment is very important. And that ought to be part of equation. The president hasn't been willing to come to the table on that. LOWRY: The '80s were a boom time after 1982 when the Reagan tax cuts took effect. But I do think that Bush has been too disengaged on the economic issues. He has a treasury secretary that no one takes seriously. He hasn't really had a coherent economic policy from the beginning.

I think there still needs to be a stimulus bill, because the economy seems to be recovering, but there's still a question what kind of recovery, how strong it will be. And the best medicine is still tax cuts, and particularly business tax cuts, since this has been a business, investment-led recession.

BLITZER: All right. Speaking of the Senate majority leader, he may be a political lightning rod for many Republicans, but even conservatives like the former House speaker Newt Gingrich acknowledge his skills.

(BEGIN VIDEO CLIP)

NEWT GINGRICH, FORMER HOUSE SPEAKER: Clearly Daschle and I think this has been a surprising achievement, Daschle rather than Gore is now the titular leader of the Democratic Party. Daschle now personifies the Democratic Party.

(END VIDEO CLIP)

BLITZER: All right, Donna, is that your point, too?

BRAZILE: Well, by process of elimination, Tom Daschle is the leader of Democratic Party. He's the majority leader in the Senate, and until Dick Gephardt is able to take control of the House, he is the leader of our party.

I must say this on the end of year note, that Al Gore -- we haven't seen the last of Al Gore. We haven't heard the last of Al Gore. He's a terrific leader, great on the environment, foreign policy. We need his skills. We need his voice in politics once again.

BLITZER: When are we going to hear that voice?

BRAZILE: Who knows.

LOWRY: I think Tom Daschle's clearly the best thing Democrats have going. He's a soft spoken warrior, and I think as the next year goes forward, we will increasingly see his presidential ambitions come forward. He'll have a more aggressive travel schedule, maybe form a PAC or something. But I think he's the presumptive Democratic nominee.

BLITZER: You think so?

EPSTEIN: I tend to agree with that at this point. I think Tom Daschle is about the best party leader this party has ever had. I think Frank Lundst did a memo saying "do to Tom Daschle what Democrats did to Newt Gingrich." The problem with that, of course, is Tom Daschle doesn't have ethics problems.

LOWRY: He is not as hatable as Newt, that's the problem.

EPSTEIN: Tom Daschle is a very, very likable figure. And Tom Daschle, actually and I think the polls show, certainly a pre 9-11 poll, has a very popular, domestic agenda, which was very different from Newt Gingrich.

BLITZER: Ten seconds.

GEORGE: Well, I think Daschle is going to be certainly a worthy opponent, but as the last few weeks of the Congress showed, he is not going to be force all of his way -- his stuff through, or completely just block what the president wants.

BLITZER: All right. Stand by. We have a lot more to talk about. One more quick break, then we will go around for our "Final Round" in just a moment.

(COMMERCIAL BREAK)

BLITZER: Welcome back to our "Final Round." The suspected al Qaeda member Zacarias Moussaoui will be arraigned this week on charges of conspiracy to commit acts of terrorism. Is this just the beginning of a bunch of arraignments, Rich?

LOWRY: Absolutely. But what I think's most notable about this is, is this guy didn't come here to commit a common crime, if the charges are true. He came here to commit an act of war, and he deserves to be in front of a military tribunal.

BLITZER: His mother came here to say he's a sweet little guy, and we're making a big deal about it.

BRAZILE: His mother also said that she hasn't spoken to her son in five years, and if it's up to the American people, she will never speak to him again.

BLITZER: How serious, though, is this process going to be, in terms of this just being the beginning?

GEORGE: Oh, I think it's going to be very, very serious. I mean, we've seen reports just this weekend that the United States has been investigating up to 150 individuals and organizations with possible ties to al Qaeda.

We're going to be seeing a lot of people coming either before civilian or military tribunals.

BLITZER: Military tribunals, you're not very happy about that?

EPSTEIN: Well, I've been critical, and, as Rich points out, I think, if you're going to use Moussaoui for a civilian tribunal, why not use him for a military tribunal? I think the contradiction is evident. The other thing that's noteworthy, of course, is Rumsfeld acknowledging that the critics of the tribunals, as originally drafted, have really had an impact on it, which I think is a rebuke of the almost McCarthy-like accusation by General Ashcroft, saying that those who are simply criticizing the tribunals on civil liberties grounds were aiding the enemy.

BLITZER: All right, let's move on.

President Bush may fill several administration slots over the congressional recess to avoid Senate hearings. Is this a good way to win friends and influence people on Capitol Hill? You know, the Republicans hammered Bill Clinton for doing precisely that, these recess appointments.

GEORGE: Oh, they did indeed. However, just about every president has had some kind of recess appointment along the way. And the fact is, the two main ones, Eugene Scalia and Otto Reich, it's really -- it's just petty partisanship on the part of the Democrats, not wanting to get the president's men in there.

BLITZER: If it was good enough for Bill Clinton to do it, why not good enough for George Bush to do it?

EPSTEIN: I have to say, in all honesty, I think it's important to be intellectually consistent. I think the Democrats are wrong on this. I think that there should be a recess appointment, but I think that Senator Daschle ought to give these two appointments a full Senate vote, let them go on a 50/50 vote. I think it was wrong for the Republicans to do that to Lani Guinere (ph) and Bill Lann Lee, it's wrong for the Democrats not to give the president vote on this.

BLITZER: Donna, do you agree?

BRAZILE: I agree with Julian on this. I think we should give them a full hearing and vote them down.

LOWRY: I don't like the recess appointments. I think they're a bit of a gimmick, and I think, if Bush really wants these people, he should fight for them. If Colin Powell went out before the cameras today and demanded the confirmation of Otto Reich, he'd get it.

BLITZER: All right, let's move on.

Once again, the New York City mayor, Rudy Giuliani, he leaves office tomorrow, he's announced a plan in his last days in office for two new baseball stadiums. Will the incoming mayor, Mike Bloomberg, support this 11th-hour project? A New Yorker, Rich Lowry, what will he do?

LOWRY: I hope not. These things are always taxpayer boondoggles, and I hope the New York Yankees continue to win the World Series in the house that Ruth built, where they should be.

(LAUGHTER) BLITZER: And you know, Donna, they say each of these stadiums is going to cost 800 million. That's what they say now. You know what it's going to cost.

BRAZILE: It's going to cost billions of dollars, and let me just say that we have a wonderful stadium here in Washington, D.C., and we would welcome the Mets or the Yankees here in Washington.

BLITZER: Which stadium are you talking about?

BRAZILE: RFK Stadium, just a couple of blocks away.

GEORGE: You take the Mets please.

(LAUGHTER)

GEORGE: I think the Montreal Expos are going to be moving in there pretty soon.

I think it's actually not a bad idea. Obviously, we're looking six or seven years in the future for this, but both Yankee Stadium and Shea Stadium, I mean, they've been around for a long, long time, and we do need new stadiums.

BLITZER: It wasn't that long ago, they spent hundreds of millions of dollars redoing Yankee Stadium.

EPSTEIN: That's right. And I think, as Rich says, a lot of these times, a lot of these proposals do become to be a big drag on the taxpayers. I for one am an inveterate Boston Red Sox fan, so I take no pleasure in any Yankee or...

(CROSSTALK)

BLITZER: At the end of 2001, let's have a quick prediction for 2002 from each of our panelists.

BRAZILE: Daschle is going to enlarge the Democratic majority in the Senate, pick up seats in Texas, Arkansas, South Carolina, North Carolina and New Hampshire.

BLITZER: All right, OK.

LOWRY: I think there's going to be an Enron special prosecutor. I don't think there's any evidence of Bush wrongdoing, but the political pressure will be such that Ashcroft won't be able to resist the criticism he'll get from Julian and others, I'm sure.

BLITZER: Julian, a prediction.

EPSTEIN: Bill Safire has already predicted that Democrats will overtake the House. I think the interesting prediction line is that a democratic Afghanistan will hold up in the Muslim world as a shining example that the Muslim religion and democracy can coexist peacefully.

GEORGE: The Democrats hold on to the Senate, but Gray Davis loses a governorship in California, and the Yankees win the World Series once again.

BLITZER: All right.

We'll hold you to that, we'll come back here a year from today, we'll take a look at these predictions. Thank you very much for joining us. And that's your LATE EDITION for this final Sunday of 2001.

Please join us again next Sunday and every Sunday at noon Eastern for the last word in Sunday talk. And during the week, I'll see you twice a day, 5:00 and 7:00 p.m. Eastern, two editions of "WOLF BLITZER REPORTS." Until then, thanks very much for watching. I'm Wolf Blitzer in Washington.

To all our viewers in the United States and around the world, we hope you have a happy and a healthy new year.

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