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Lou Dobbs Tonight

Federal Prosecutors Say Ohio Truck Driver Involved in Terror Plots in New York, Washington; Rocket-Propelled Grenade Kills U.S. Soldier

Aired June 19, 2003 - 18:00   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.


ANNOUNCER: This is LOU DOBBS TONIGHT for Thursday, June 19. Here now Lou Dobbs.
LOU DOBBS, CNN ANCHOR: Good evening, everyone.

A new victory tonight in the war against terrorism, a radical Islamist terrorist has pleaded guilty to helping al Qaeda plan new terrorist attacks in this county.

Federal prosecutors say Ohio truck driver Iyman Faris was involved in plot to cut cables on the Brooklyn Bridge and to derail a train near Washington. He agreed to plead guilty in a deal with prosecutors. Justice Correspondent Kelli Arena joins me now from Washington with the story -- Kelli.

KELLI ARENA, CNN JUSTICE CORRESPONDENT: Lou, Iyman Faris is a naturalized U.S. citizen and according to the government an al Qaeda operative.

(BEGIN VIDEO CLIP)

JOHN ASHCROFT, ATTORNEY GENERAL: From late 2000 to March of this year Faris worked in concert with al Qaeda, our enemies, to plot potential attacks against America and its citizens here in his adopted homeland.

(END VIDEO CLIP)

ARENA: The government says Faris conducted surveillance of the Brooklyn Bridge and was ordered to purchase equipment to derail trains. He provided cell phones, sleeping bags, and plane tickets to al Qaeda and he told investigators about a plot in 2002 to simultaneously attack New York and Washington.

Now, sources say that Faris was fingered as a result of the interrogation of al Qaeda leader Khalid Shaikh Mohammed. He pled guilty on May 1st to charges of providing and conspiring to provide material support to al Qaeda.

Sources say that Faris turned himself in in March so he was not formally arrested. The plea deal was kept secret until today.

(BEGIN VIDEO CLIP) ASHCROFT: This is a case which I believe would have been -- I firmly that for us to have announced this case a day sooner would have carried with it the potential of impairing very important interests.

(END VIDEO CLIP)

ARENA: The attorney general has said that there are other plea deals under seal and sources tell CNN that some of those involved individuals, like Faris, who are cooperating with agents on the hunt for other operatives here in the United States -- Lou, back to you.

DOBBS: Kelli, thank you very much, Kelli Arena reporting from Washington.

American forces in Iraq are increasingly coming under fire. A rocket-propelled grenade today struck a military ambulance and killed a U.S. soldier. Two other soldiers were injured in the explosion. This is the fourth time U.S. troops have come under fire in Iraq within the past 24 hours.

Senior Pentagon Correspondent Jamie McIntyre has the latest -- Jamie.

JAMIE MCINTYRE, CNN SR. PENTAGON CORRESPONDENT: Well, Lou, 17 U.S. troops have been killed in ambushes in Iraq since President Bush declared an end to major combat May 1 and the latest came today south of Baghdad.

Someone fired a rocket-propelled grenade at a U.S. military ambulance killing one American soldier from the 804th Medical Brigade and wounding two others. As you said, it was the fourth attack in the last 24 hours and it's believed to be the work of what Defense Secretary Donald Rumsfeld calls dead-enders, Saddam loyalists who have no future in Iraq and are hoping to drive the U.S. out. Rumsfeld downplays the military significance of the attacks, as he did yesterday at a Pentagon briefing.

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, DEFENSE SECRETARY: You got to remember that if Washington, D.C. were the size of Baghdad we would be having something like 215 murders a month and it is -- there's going to be violence in a big city.

(END VIDEO CLIP)

MCINTYRE: The problem is this isn't just street crime. It's an insurgency directed at American authority. To use Rumsfeld's analogy it would be more like a police officer being killed every day in Washington, D.C.

But despite that, U.S. commanders in Iraq insist they are not facing a well organized guerilla movement. Here's what the commander of the 4th Infantry Division said earlier this week.

(BEGIN VIDEO CLIP) MAJ. GEN. RAY ORDIERNO, CMDR., U.S. ARMY'S 4TH INFANTRY DIV.: I would not dignify it with the attack guerilla warfare. This is not guerilla warfare. It is not close to guerilla warfare because it's not coordinated. It's not organized and it's not led. The soldiers that are conducting these operations don't even have the willpower. We find the majority of the time they'll fire a shot and they'll drop the weapon and they'll give up right away.

(END VIDEO CLIP)

MCINTYRE: That said the truth is the U.S. military now faces a very difficult task cracking down hard on anti-American Iraqis but trying to do it in such a way that they don't alienate large numbers of Iraqi citizens who up to now had welcomed the U.S. as liberators -- Lou.

DOBBS: Jamie, this may be disconcerting to some to hear the defense secretary compare what's happening in Baghdad to a public safety issue in an American city and to hear a general talk about effectively what cowards the people there are who are killing American soldiers. What does this suggest?

MCINTYRE: Well, what they're trying to do is provide some perspective. The Pentagon is trying to say that overall the situation isn't that bad. It's not that dire militarily in terms of the U.S. losing control but it clearly is a serious situation, and as I said this sort of counter insurgency operation is the most difficult kind of operation to conduct especially if you're trying to keep the hearts and minds of the people.

So, I don't think Secretary Rumsfeld's analogy, as I said to street crime, is a good one but he is trying to keep it in perspective and the U.S. insists that they're making headway in these raids that they're conducting in which they're rooting out the remnants of Saddam's regime.

DOBBS: Jamie, thank you very much, Jamie McIntyre, our Senior Pentagon Correspondent.

The Bush administration is demanding that Israelis and Palestinians make peace and President Bush is sending two of his top diplomats to the Middle East. Secretary of State Colin Powell arrived in Jordan this even before meeting with Arab and Israeli leaders in the region tomorrow.

National Security Adviser Condoleezza Rice travels to the Middle East within a week of Secretary Powell's trip. She will conduct another round of talks with top Arab and Israeli leaders.

Later here tonight, former Israeli prime minister, current Israeli Foreign Minister Benjamin Netanyahu will join us to talk about this latest push for peace.

The White House says the burden is now on Iran to comply with United Nations' demands on its nuclear program. The U.N.'s International Atomic Energy Agency today called upon Tehran to allow more inspection of all of its nuclear facilities. This comes a day after President Bush warned Iran that the world will not tolerate nuclear weapons in that country.

White House Correspondent Chris Burns at the White House with the story -- Chris.

CHRIS BURNS, CNN WHITE HOUSE CORRESPONDENT: Well, hi, Lou.

This wasn't everything that the Bush administration was waiting for. They were hoping that the IAEA, the watchdog agency of the United Nations, the International Atomic Energy Agency, would declare Iran in violation of the Nuclear Nonproliferation Treaty, that treaty aimed at preventing the proliferation of nuclear weapons.

So, they didn't get that but they did get a strong warning, a strong rebuke to the Iranians to tell them to get with the program, to accept tougher inspections, to accept and become more open and transparent is the word they put it.

Here are some of the words of Mohamed ElBaradei, the head of the IAEA.

(BEGIN VIDEO CLIP)

MOHAMED ELBARADEI, DIR., IAEA: We need to go to the bottom of that program to assure ourselves that it is comprehensive, program dedicated for peaceful purpose. I think as you're all aware nonproliferation of nuclear weapons is becoming the number one national security issue and the international community has become very much sensitized to the need for full transparency and full cooperation on the part of an inspected country.

(END VIDEO CLIP)

BURNS: Now, the White House reaction Ari Fleischer the White House spokesman saying that the president welcomes this report. It's national reinforcement of the president's message yesterday that the world, broadly speaking, joins together in fighting proliferation and making certain that Iran does not develop nuclear weapons.

President Bush had said yesterday that he would not tolerate nuclear weapons in the hands of the Iranians. He's already listed Iran as a member of his axis of evil in his speech last year and he leaves open his options.

Ari Fleischer was asked today what options could be closed you leave open the option of using armed intervention. Ari Fleischer wouldn't answer that directly but, of course, it is implicit that that remains an option on the table.

This happens as there are protests in Iran by pro-democracy student protesters facing off with hard line Islamic elements inside the government, President Bush also tipping his hat and lending his hand as much as he can to those protesters -- Lou.

DOBBS: Those protests, Chris, now entering their tenth day. Chris Burns, thank you very much from the White House.

BURNS: OK.

DOBBS: While the United States confronts North Korea and Iran on nuclear weapons, the U.S. government has lost two vials of plutonium at the Los Alamos National Laboratory in New Mexico. A watchdog group says the material could be used to make weapons.

The laboratory denies that, says the material could have been disposed of but it is nonetheless missing and unaccounted for. Los Alamos has been under the management of the University of California since it was created some 60 years ago.

A show of force and heavy rains overnight prevented any further rioting in Benton Harbor, Michigan last night. The skies have cleared tonight but law enforcement remains out in force.

Denise Bohn is live in Benton Harbor and joins us now with the latest -- Denise.

DENISE BOHN, CNN CORRESPONDENT: Thanks, Lou. Yes, there are hundreds of police officers from around the state of Michigan who are preparing for another possible night of rioting here in the city of Benton Harbor.

This afternoon we watched as they picked up their riot gear. They picked up their protective shields and their gas masks and we're told that they will be using teargas if the crowds become unruly this evening.

Last night it was a fairly quiet night. We know about two o'clock in the morning there were two fires set, two arsonists set fire to two different buildings. One was an abandoned home. Another one was being remodeled. Besides that it was a very quiet night because of the heavy police presence and the rain that you had mentioned.

DOBBS: Denise, what is the attitude there now? To look at the destruction over two nights of disturbances and riots, the police chief there wants to call this a disturbance rather than a riot. What is the mood there?

BOHN: Well, there is a lot of tension around the city still and a lot of that stems from the overall environment here. This is a very unique city facing very unique challenges that has a high unemployment rate. It has a high teenage pregnancy rate. It is an area of much poverty.

Seventy-five percent of the homes in the area are rental homes. Fifty percent of those homes are substandard living areas, so it's an area facing many challenges. The school system needs a lot of assistance. They just had a school (UNINTELLIGIBLE) last week that failed by 82 votes and they need money to repair buildings.

So, it's an area that is in need of assistance and also I know a lot of the people in the area, a lot of the residents distrust police officers, so there's a lot of tension in the area.

But I just had one gentleman walk by me and he saw the long line of state police cars that are just over my shoulder and he told me that I'm glad that they're here. I'm really glad that they're here. This is a city with a population of 12,000 people and officials are telling me that it's about 100 people that are really causing the problems here.

DOBBS: And, Denise, we thank you very much. As you being your watch this evening there in Benton Harbor, we hope for all of the residents of Benton Harbor it is a quiet evening and that with reflection will come some solutions on the part of the community and the people who make up that community. Denise Bohn from Benton Harbor, Michigan, thank you.

That brings us to tonight's quote from a Benton Harbor police officer. "Why would we destroy our own city? Who is harmed by the destruction of our property? We are. Family of five is homeless now because we burned their house down. It makes no sense," that from Benton Harbor Chief Samuel Harris of Benton Harbor Police Department.

Still ahead here tonight, a federal judge and Martha Stewart have set a date for trial. Peter Viles will have the report.

And, emerging diseases...

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Diseases that we used to read about occurring on the other side of the world, you know, within a day can make it here.

(END VIDEO CLIP)

DOBBS: The spread of deadly diseases and the search for cures, Bill Tucker takes a look tonight at the resurgence of West Nile in our series "Emerging Diseases." Stay with us.

(COMMERCIAL BREAK)

DOBBS: On Wall Street today stock prices fell across the board. The S&P 500 suffering back-to-back losses for the first time in a month. The Dow tumbled more than 114 points. The Nasdaq fell 28.5. The S&P 500 down nearly 15.5 points.

Susan Lisovicz now with more on the market for us -- Susan.

SUSAN LISOVICZ, CNNfn CORRESPONDENT: Lou it was the worst overall market decline in a month and it came amid some encouraging economic news. First time claims for unemployment fell for the second week in a row but remain above 400,000, a level that is considered weak and the index of leading economic indicators rose one percent last month above forecasts.

Corporate news, however, drove much of the selling. General Electric plunged nearly three percent on word that orders for plastics in May, fell up to 20 percent from a year ago.

Twenty-seven of the 30 blue chips finished down on the day including GM on a debt downgrade over concerns about light vehicle sales and pension costs.

Brokerages got slammed for a second day, even the Lehman Brothers blue past forecasts with its second quarter profits.

Pharmaceuticals also under pressure after Forest Labs said a clinical trial of its Alzheimer's treatment did not show significant improvement in patients and investors dumped shares of Bed, Bath & Beyond after the retailing giant took a conservative approach to its forecast for the year.

Lou, the markets closed near their lows. Even so, at the big board 108 stocks hit new highs. Only one hit a new low, ended on a positive note.

DOBBS: Very positive indeed and when a stock gets hammered for being cautious, you know, I think investors are going to lose on that. Good for them being cautious in those comments.

LISOVICZ: And even they had a terrific quarter too.

DOBBS: Absolutely, Susan Lisovicz, thank you.

Coming up later in this show Pete Peterson, one of this country's most prominent financial figures, will be here to tell us why he says political parties, both political parties are mismanaging our economy.

Martha Stewart now has a trial date and it's a very late date, next January in fact. Peter Viles reports.

(BEGIN VIDEOTAPE)

PETER VILES, CNNfn CORRESPONDENT (voice-over): On her second day in court, Martha Stewart learned that trials are a little like dinner parties. It's hard to get everyone to agree on the right date.

The government said it's ready for trial but the lawyer for co- defendant Peter Bacanovic asked for a January date. "That's a very leisurely schedule" said Judge Miriam Cedarbaum.

Then she asked Stewart's lawyer Robert Morvillo what he wanted. "I feel strongly both ways" he said. Then she asked Stewart if January 12th is OK with her. "I agree" Stewart said, even though she could have demanded a speedy trial beginning in mid August.

ROBERT MINTZ, FORMER FEDERAL PROSECUTOR: I think most people would have expected the Stewart defense team to be pushing for a quick trial. I think instead what they've decided is that the tide has turned, that they've weathered the storm of adverse publicity and that really they are now winning over the public's opinion of her at this point.

VILES: Inside the courtroom, Stewart also tried to win over a courtroom sketch artist as only Martha Stewart could.

CHRISTINE CORNELL, COURTROOM ARTIST: Afterwards, when I was walking by I said to her I'm sorry for peering at you so closely. I'm just trying to do a better drawing, and she looked at me. She didn't exactly smile but she paused for a second and then she said, "no pockmarks and perfect skin" and I said got it.

VILES: Justice certainly takes its time. It was December, 2001 when Stewart sold her ImClone stock. The federal investigation began weeks later and lasted a year and a half. She was indicted in early June, scheduled to stand trial in January of next year, 25 months after she made the trades.

But if Stewart is running out of patience, she didn't show it. She left with a wave for the media.

(END VIDEOTAPE)

VILES: We did learn a little bit today about the evidence the government has in this case, anywhere from 20 to 40 boxes of papers and documents plus 15 computers.

Now, of course, the government has seen all of this. They've sifted through it. They've built their case on it but defense lawyers have not and they want some time to go through this evidence -- Lou.

DOBBS: And, defense lawyers are paid by the hour, right?

VILES: They most assuredly are. Her business interests and her legal interests have probably diverged here. Her company would love to get this over with. Her lawyers, they want to get her off. That takes a little time.

DOBBS: Did you notice that wave? That was a very Martha Stewart wave, wasn't it?

VILES: It was. It certainly was and the courthouse personnel kept the media at bay. Last time she was there it was almost a dangerous situation, people jockeying to get close with those heavy cameras. She could have been hurt. They kept her safe this time.

DOBBS: Excellent, public safety paramount in all respects, Pete, thanks, Peter Viles.

Well, Martha Stewart is already on our list of 73 executives that we've tallied on our corporate American criminal scoreboard, 16 of those from Enron. Sam Waksal remains the only executive to be sentenced to jail since the corporate corruption scandal started 563 days ago with the Enron bankruptcy.

That brings us to tonight's poll, the question: "Do our courts live up to the promise of a fair and speedy trial, yes or no?" Please cast your vote at cnn.com/lou. We'll have the results for you later in the show.

Now, the final results of last night's poll, the question: "Which institution bears the greatest responsibility for failing the community of Benton Harbor, Michigan?" Thirty-one percent of you said city government, five percent said the churches, three percent the schools, 62 percent of you said all of the above.

And many of you e-mailed us on this subject. We'll share some of your thoughts later in the show.

Still ahead here, desperate for rain, Casey Wian will report on the drought threatening western states.

Also, committed to peace despite rising violence in the Middle East, former Israeli Prime Minister Benjamin Netanyahu joins us.

And, "Grange on Point", our general works not for the Pentagon but for the men and women in uniform and veterans everywhere. Tonight, he focuses on broken promises.

(COMMERCIAL BREAK)

DOBBS: Max Factor cosmetics heir Andrew Luster is back in this country tonight. Luster arrived in Los Angeles from Mexico where he was captured by a bounty hunter yesterday. Luster will serve 124 years in prison for his conviction on rape charges.

An Arizona wildfire on Mt. Lemon is tonight about a half mile from the town of Summerhaven. Most the town's 200 residents have been evacuated. That fire has already burned almost 500 acres.

Dramatic video tonight from West Virginia where a week of rain and floods have turned roads into rivers, rivers into torrents, there is no let up in sight. Forecasters are predicting more rain tonight for West Virginia, for most states along the eastern seaboard.

While the East Coast is suffering through a wetter than normal spring western states continue to struggle through a long drought. Much of the western United States is now entering its fifth summer of dangerously dry weather.

Casey Wian tonight reports on the western drought from Payson, Arizona.

(BEGIN VIDEO CLIP)

CASEY WIAN, CNN CORRESPONDENT (voice-over): Arizona rancher Ken Evans fears this week's western wildfires are just the beginning.

KEN EVANS, ARIZONA FARM BUREAU: Memorial Day these trees were green, you know, looked normal.

WIAN: Drought is quickly killing millions of trees in Arizona's high country. Dry trees have allowed tiny bark beetles to spread like a biblical plague.

EVANS: That's where the beetle has gone in and all of these trails are where they started chewing, leaving their droppings behind. WIAN (on camera): The numbers are staggering. According to the Arizona Farm Bureau the bark beetle has infested a million acres killing 13 million trees at a rate of 9,000 dead trees per day.

(voice-over): As trees lose moisture the air becomes even drier fueling both drought and fire.

EVANS: We have just a huge source of flammable, you know, product out in the forest that we cannot under any set of circumstances deal with, so the danger is probably greater now than at any time in recorded history, maybe at any time in history of these forests.

WIAN: Much of the west is experiencing its worst drought in hundreds of years. Eleven states are suffering from either extreme or exceptional drought conditions while Arizona and Utah have declared states of emergency.

RICH TINKER, NOAA CLIMATE PREDICTION CENTER: Unfortunately, if you're looking at the areas that are in the worst shape right now, the immediate future doesn't look real promising. It's a fairly dry time of the year for them right now so even if they get above normal precipitation in the grand scheme of things it's not going to be enough to improve conditions significantly.

WIAN: The impact of the drought ranges from shrinking livestock herds to growing restrictions on water use to increasingly bitter local disputes over water rights. The federal government's drought plan urges resolving those differences and conservation through infrastructure investments.

GALE NORTON, INTERIOR SECRETARY: When you look at the potential savings in water that can come about through the lining of canals or in other ways bringing our irrigation infrastructure up to the 21st century, we can find a lot of water that is available through that.

WIAN: But for some time is running out. Ken Evans once kept 1,200 head of cattle on this property, this year none.

EVANS: That's what we're trying to do is just hang on by our fingernails until this cycle does break.

WIAN: This mountain town, normally teeming with tourists, is now surrounded by dead trees.

Casey Wian, CNN, Payson, Arizona.

(END VIDEOTAPE)

DOBBS: Tomorrow, Casey's special report continues when he focuses on the shortage of water throughout the west and what's being done to solve the problem.

Coming up next here, it has claimed hundreds of lives in this country in just a few years' time. Bill Tucker will report on the mysterious West Nile Virus, the desperate search for a vaccine. Also ahead failing grades in many of this country's classrooms; disturbing new information on the reading level of our children. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Tonight, we continue our series of special reports on "Emerging Diseases" and what is trying -- what health authorities are trying to do to fight those viruses.

Tonight we focus on West Nile. More than 4,000 Americans infected with West Nile Virus last year. Two hundred eighty-four of those people died. Health and Human Services Secretary Tommy Thompson predicts this year will be even worse, Bill Tucker reports.

(BEGIN VIDEOTAPE)

BILL TUCKER, CNNfn CORRESPONDENT (voice-over): Spring rains bring flowers. They also bring breeding grounds for mosquitoes and West Nile Virus. This is one of the faces of West Nile, the mayor of Morton Grove, Illinois, now wheelchair bound, his wife of 52 years dead all because of West Nile.

MAYOR DAN SCANLON, MORTON GROVE, ILLINOIS: I was on top of the world with running a beautiful village, had a gorgeous wife, wonderful family, everything on top of the world and the next day when I wake up I'm paralyzed, my wife is dead.

TUCKER: West Nile has now been found in 140 species of birds and 20 species of domestic animals in 44 states plus the District of Columbia. This year outbreaks have already been reported in 19 states.

West Nile was first seen in the United States in 1999 and in its first three years relatively few people were made sick or died from the disease.

Last year, the numbers exploded, bringing the total number of sick to over 4,300, over 300 of whom died. So far this near no human cases have been reported.

RICHARD FALCO, FORDHAM UNIVERSITY: What we're learning the world is a smaller place than it used to be. Diseases that we used to read about occurring on the other side of the world, you know, within a day can make it here.

TUCKER: West Nile virus was first documented in the United States four years ago at the Bronx Zoo by Dr. Tracey McNamara She and her team of pathologists noticed a lot of dead crows and dying birds in the zoo population.

TRACEY MCNAMARA, VETERINARY PATHOLOGIST: The prairie dogs, the crows, the squirrels, the sparrows, things that could fall from the sky at any time, at any place, telling us that something is going on. But until we addressed the ability to get a diagnosis of why those animals died, real time, with the best of technology, we will always really be relying on people as sentinels.

TUCKER: As a result, Dr. McNamara helped create a network among zoos to monitor animal diseases in the zoo population.

TOM GECEWICZ, BRIDGEPORT PUBLIC HEALTH DEPT.: We know the virus is here. Let's address it as the virus so we can become proactive rather than reactive.

TUCKER: Gecewicz wants public officials to attack the problem, using every tool possible to prevent infection before people start getting sick. That means killing the mosquitoes before they hatch with the use of larvacide. And it can mean spraying for them after they're hatched.

UNIDENTIFIED MALE: Don't ever say it can't happen to you. It can happen to anybody. And I know that it happened to our family and it had a devastating effect on our family.

TUCKER (on camera): Trials for the West Nile vaccine for humans get under way this summer. The vaccine so far has proven effective in mice, monkeys and horses. Now, if effective, it could be available to the public in three years.

Bill Tucker, CNN, New York.

(END VIDEOTAPE)

DOBBS: Tomorrow, we conclude our series on emerging diseases, two special reports. We look at the deadly Ebola virus and the devastating lyme disease. We will report on how both developed, the victims that they've claimed, what's being done to contain the threat.

The U.S. trade deficit is another force still not contained. Tonight it stands at more than $236 billion.

Turning back to issues of war and peace in the Middle East tonight, Israeli troops today clashed with Jewish settlers barricaded inside an illegal outpost in the West Bank. A dozen settlements have already been dismantled by the Israeli government.

Former Israeli prime minister, current Israeli finance minister, Benjamin Netanyahu joins us tonight from Washington.

Good to have you with us.

BENJAMIN NETANYAHU, ISRAELI FINANCE MINISTER: From London, but Washington's a good city, too.

DOBBS: And I want to apologize. I'm just barely catching up with you. Let me ask you, first, the resistance that is being met by the Israeli Defense Forces dismantling those settlements, do you expect it to continue?

NETANYAHU: Well, it's non-violent resistance. I think people should be aware of that. People are obviously concerned, they have strong attachment to this land. It is part of our ancestral homeland. And they also feel that we're getting shortchanged because here we are making all these gestures and the Palestinian side hasn't yet lifted a finger to fight the savagery of terror that emanates from their cities. So I think that's the way you should look at it. Everybody in Israel is united in one thing, we want to see real action on the part of the Palestinian Authority against terror. I think that's what unites us. And as I saw in Washington and now in London, that's what people expect in both capitals as well.

DOBBS: You have worked with a number of American presidents on Middle East peace, all resulting in the same futility. Do you think this time is different with President Bush appearing to exert his will on the issue unlike any president at least that I've covered?

NETANYAHU: I think the president is clearly committed to this. And he also wants to see real results. I think there's no confusion in Washington on one point: You can have peace only if you end terror. You can't have a peace process and terror simultaneously. And it is possible to stop terror in two ways. One is to take action against Hamas, not to achieve a tactical cease-fire in which they'll come back and hit us with even deadlier force, but the dismantling of this organization just as you seek to dismantle al Qaeda.

You don't do practical deals with them. So I think that's - we're waiting to see if the Palestinians do it. If they don't, then of course we'll have to act as well. But in addition there's a defensive means. You know, Lou, how many suicide bombings have come out of Gaza, Palestinian suicide bombers? Gaza has more Hamas, including the leaders of Hamas, but in fact, zero, no Palestinian suicide bombings came out of Gaza because there's a fence around Gaza. We are now building a protective fence, a wall, if you will, to prevent Palestinian suicide bombers coming from the West Bank. And I think that the combination of action by the Palestinians or action by us and a defensive wall will sharply reduce the number of suicide bombings thereby enabling peace to proceed.

DOBBS: You have to be disappointed, though, that there has been so far no indication in any way that this cycle of violence is abating even modestly, in fact, intensifying. This time don't you agree that it basically has to be different? Israel right now is confronted with an economy that is in shambles. The Palestinians have no economy. Your population growth rate is arguably negative. There is no bright light at the end of this tunnel without strong management of this process and strong commitments on the part of both the Israelis and the Palestinians to resolve this matter once and for all. Do you disagree with that?

NETANYAHU: No, I don't. I think that's very important. And I hope that we can make peace. If we have a partner that wants peace, we'll get there. And that's what you need. I think the fact that Israel is going to the utmost to try to start this process despite the fact that we're attacked, is an indication of our will. Let's see if there is equal will and resolve on the other side. But I don't agree with you that the picture is completely bleak. That's not true. Our stock market has risen by 40 percent in three months. Our long-term debt has declined. One - the rate we offer on government bonds, has declined by 35 percent in that same time period. DOBBS: What do you think that's telling - what is the reason for that rise in the stock market against the backdrop of an economy that is hardly buoyant?

NETANYAHU: Well, because what we're doing is that we are changing the Israeli economy in the last few weeks. I don't know if people are aware of it. We have brought down taxes. We cut government spending. We got the unions to take a wage cut. We solved our pension problem, took the pensions away from the union. Balanced our share of books. We sold El Al. People have been talking about it for 18 years. We just put it on the market in three months. We broke up our electricity company and introduced competition.

We're introducing free market principles across the board. Alan Greenspan, with whom I had breakfast the other day, says that he looks at two things. He was speaking generally, not just really (ph) the Israeli economy. He wants to see if the stock market is rising and if bond rates are falling. I said, Alan, we're beating your criteria. And apparently a lot of investors are coming into Israel as we speak because they know that a deregulating economy under any given risk profile is going to produce growth no matter what. But I think we can also reduce terror and then even more growth.

DOBBS: Mr. Netanyahu, it is minister of finance, not tourism, correct?

NETANYAHU: Right.

(LAUGHTER)

NETANYAHU: A lot to do on tourism, too.

DOBBS: It's good to talk with you. And we wish you all the best. Thank you very much. Benjamin Netanyahu from London.

NETANYAHU: Thank you, Lou.

DOBBS: Thanks.

That brings us to tonight's thought, on how a successful co- existence must be achieved: "There must be not a balance of power, but a community of power; not organized rivalries, but an organized peace." That from the 28th president of the United States, Woodrow Wilson.

Still ahead tonight, Grange on point. Thousands of American G.I.s, veterans from World War II and Korea left high and dry by none other than the U.S. government. General David Grange on promises broken next.

And, in the red. The mounting national debt, its crippling effect on this nation's economy. Pete Peterson of the Blackstone Group joins us.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: Well, General David Grange spent most of his life as a warrior in the service of the country. He worked briefly at the Pentagon. We don't imagine General Grange will be invited backed there very soon for a posting. Because we've asked him to work on issues featuring the men and women who proudly serve this country in the U.S. military. And to the veterans to whom we all owe so much.

These issues focus on quality of life, there well-being. At the end of the World War II, the military promised lifetime military care for service men and women if they served at least 20 years. In 1995, the federal government reneged on that promise, telling veterans they'd have to rely on Medicare.

Tonight, promises broken, General David Grange joins us now.

General, good to have you here.

BRIG. GEN. DAVID GRANGE (RET.), U.S. ARMY: Good evening, Lou.

DOBBS: Promises broken.

How can the federal government break a promise, especially to men and women in military?

GRANGE: Exactly. It's a touch situation for the veterans. They're basically 65 years and older, World War II Veterans, some Korean veterans. They made an agreement with the government that they would serve beyond their combat tour during World War II for 20 years, if they were guaranteed medical care for life. It was not in a legal contract, according to the district federal court. So it's not binding that the government honor that promise, even though it was a moral contract.

DOBBS: This came about under the Clinton administration.

GRANGE: Initially.

DOBBS: And in 1995, Veteran's Administration backing away, not -- veterans not winning the support of the federal court. But I'd like to shower you viewers something a more recent president had said. And this is a statement by President Bush in his pre-inaugural address on January 19, 2001. If we've got that we'd like to show that to you.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: In order to make sure morale is high with those who wear the uniform today, we must keep our commitment to those who wore the uniform in the past. We'll make sure promises made to the veterans will be promises kept.

(END VIDEO CLIP)

DOBBS: Promises kept. George W. Bush. Any effort to make certain that those promises are kept rather than broken? GRANGE: I hear these going to try to do that. It's actually the responsiblity of both the president, Congress and the Supreme Court in this case. Calvin Coolidge, a former president, said that a nation, that forgot its fighters and defenders will itself be forgotten. Abraham Lincoln that said we must care for those who have fought the nation's battles, in a second inaugural address. As the command-in- chief, the president has an obligation to the veterans.

DOBBS: Legislation, you mentioned the role and responsibility of Congress here. Legislation could move this -- these broken promises to promises kept.

Is there legislation that will be adequate to at least, at the minimal level, keep these promises?

GRANGE: It has to be, Lou. The courts have pushed it to Congress. They've not made the decision to support the veterans. Congress can do that, but it must be mandatory funding. Cannot be discretionary funding. It has to be mandatory funding, very similar to the 2001 Defense Authorization Act.

DOBBS: What's the likelihood we'll see action soon in your judgment?

GRANGE: I think we'll see action in the next year or two. Senator McCain is pushing it. How can you -- Over 1,000 GIs from World War II die every day. We're talking about the oldest veterans alive in the United States. They have to do it. It's a moral obligation.

DOBBS: Moral obligation. At this appointment a shame.

GRANGE: That's right.

DOBBS: General Grange, we thank you very much and Appreciate it.

My pleasure.

DOBBS: And we look forward to seeing you here regularly, every week.

Next Thursday, "Grange on Point": undermanned and over committed.

General Grange will be looking at a military force that's now spread over 120 countries and an American force that needs more help to do the duties that our men and women in uniform are being asked to perform. That's next week.

A reminder now to vote in our poll tonight. "Do our courts live up to the promise of a fair and speedy trial?" Cast your vote at cnn.com/lou. We'll bring you the results in just a few minutes.

When we continue, the cost of the tax cuts. Why Washington may be steering the economy toward trouble. Pete Peterson of the Blackstone Group joins us to tell us what the politicians of both parties are doing wrong. And then we'll have your thoughts on the riots in Benton Harbor. We'll share some of you e-mails coming up, stay with us.

(COMMERCIAL BREAK)

DOBBS: President Bush in Minnesota today. There touting the benefits of his tax cut. But Pete Peterson says cutting taxes now is fiscally irresponsible. In a recent article in "The New York Times," Pete Peterson said both political parties are driving this economy frankly, into the ground. Republicans with their incessant demand for tax cuts, Democrats with their incessant demands for more spending.

Pete Peterson is chairman of the Blackstone Group And the Federal Reserve Bank of New York. And it is good to have you here.

The idea that you would not be for tax cuts, you are, I think, fair to say, fairly well off fellow. You're going to have some nice tax cuts.

You're not pleased?

PETER PETERSON, CHMN. THE BLACKSTONE GROUP: You know, it's fairly possible I have enough. I'm not so much troubled by tax cuts in the short-term. You can make a case for a business investment, tax cut or putting money in the hands of people who would spend it. But what really worse me is the disingenuousness which is at a new standard. We tell people this is a $350 billion tax cut. We don't tell them what a sunset means. We act as though sun's never going to rise. And everybody winks at each other and it is going to rise. You know what that tax cut costs over the next 10 years, assuming it continues -- $1.1 trillion.

DOBBS: $1.1 trillion, but to be fair, Pete, that doesn't include the sunset. You're assuming continued sunrises.

PETERSON: Wait a minute. Now let's good to the next decade when the boomers' bills are going to hit. I had the Concord Coalition put together the numbers today. The rough estimate is, if you take all of our tax cuts as 201, we're going to reduce revenues by about $6 trillion at the very time that payroll taxes for our kids, yours and mine, are scheduled to go up to somewhere between 25 percent and 34 percent of pay. So all this talk about tax cuts if you don't reduce long-term spending, that isn't a tax cut. You're shifting it to your kids, that's all.

DOBBS: People listening to you talk about burden shifting from our generation to other kids, criticizing these tax cuts, and we might point out that Pete Peterson is a man who does understand a balance sheet, whether public or private in nature. They got to be shocked to hear a Republican of your stature criticizing these.

PETERSON: Well, maybe I'm not very tall.

DOBBS: Well, let me ask you, what has been the reaction from the White House, from Capitol Hill?

PETERSON: I don't get a reaction from the White House, but I've had more letters and telephone calls about that article than anything I've ever done from both Democrats and Republicans. And they're saying, we're both worried about our parties because we're -- we're putting too much emphasis on long-term tax cuts and long-term spending.

DOBBS: Well both parties are talking about something called a trust fund when they talk about Social Security, they talk about Medicare. You mention the payroll taxes to support those trust funds.

PETERSON: The trust fund is an oxymoron of great quality. You shouldn't be trusting it because there's nothing there and it is not funded. The unfunded liabilities which don't appear on our balance sheet, Lou, are $25 trillion, twice the size of our entire economy.

So we go around saying we got six, seven trillion of debt. We actually, with honest accounting, and we just passed Sarbanes-Oxley, you know...

DOBBS: Absolutely.

PETERSON: ... it's about $30 trillion.

DOBBS: The fact of the matter is no one in Washington wants to deal with the fact -- you have written on the subject of deficits, their importance to the health and economy. We're headed toward, by conservative estimates, a $400 billion deficit, perhaps $500 billion by some other estimates. What is the impact on the economy?

And the other side of it is, Pete, without these tax cuts, could we possibly be looking toward recession?

PETERSON: Well, the first place, we've got a big fiscal stimulus with $500 billion tax cuts. That's nearly 5 percent of the GDP.

Secondly, as I told you earlier, I wouldn't have objected to putting some money in the hands of people, not you and me, who would have spent it and having a real incentive for short-term business investment. It's the long-term tax cuts I'm talking about that add grievously to the debt.

DOBBS: In other words, you're basically siding with the Democrats on this. They wanted to have a short-term targeted tax cut for the specific purpose of, the same as the president, to create jobs.

PETERSON: Well, I may have been with them on that one, but I'm not with them on what they say about Social Security. Because as Bob Kerrey says, their plan is called the do nothing plan. You can't touch Social Security. And we're going to have to touch Social Security, Lou.

DOBBS: Well, indeed, we are, and those are sobering numbers, a sobering set of issues that we're all going to have to confront. We're indebted to Pete Peterson for keeping them in front of us and doing better than that, offering some solutions.

Pete, it's great to have you here and to talk with you. PETERSON: My pleasure, sir.

DOBBS: Our nightly check on the national debt now. It stands at $6 trillion 600 billion dollars, down slightly from last night.

From struggling with a huge debt load to struggling with education levels at this country. Both fights that this country simply can't afford to lose. A new study finds that reading levels have improved for school children at lower grade levels, but high schoolers are still struggling and losing. Kitty Pilgrim reports.

(BEGIN VIDEOTAPE)

(AUDIO GAP)

KITTY PILGRIM, CNNfn CORRESPONDENT (voice-over): ... look forward to it. And from the new national scores, grade school kids are improving. National tests of fourth graders show significant reading gains over the last four years. These children are participating in a summer reading program at their library in New York.

UNIDENTIFIED FEMALE: I'm not that much of a bookworm, but slightly.

UNIDENTIFIED MALE: I like adventures. And mysteries.

UNIDENTIFIED MALE: I like long book, chapter books.

UNIDENTIFIED FEMALE: Annie Oakley and Babe Ruth. I read them all the time.

PILGRIM: It's this age group where the real progress can be made. And the good news is the statistics are starting to show it.

CARRIE SILBERMAN, NEW YORK SOCIETY LIBRARY: Fourth graders have already developed their preferences. They know what they like. And it's a critical age, because pretty soon, they'll become adolescents. And it's a point where you really want to continue and encourage that reading to continue.

PILGRIM: Despite the glimmer of improvement, the numbers are still shocking. Nationally, only 41 percent of fourth graders who are white are at a proficient level, up from 36 percent. Black students improved proficiencies from 10 percent to 12 percent. And Hispanics from 13 percent to 15 percent in the latest scoring. Still, a significant gap for minority students.

And above that age level, results are even weaker. Older students are still struggling. Eighth graders showed no improvement and high schoolers scored even more poorly. Only a little more than a third demonstrated proficiency in reading and analyzing material. Educators were still uncomfortable with the results.

EUGENE HICKOK, EDUCATION UNDERSECRETARY: There is some reason for concern, ongoing reason for concern, not the least of which is the relatively dismal performance of 12th graders consistent over time.

(END VIDEOTAPE)

PILGRIM: Now, the fact that the reading turnaround is happening in the lower grades bodes well for the future. But the numbers at these levels cannot be celebrated. The report card in the end really wasn't very good -- Lou.

DOBBS: About a D-minus?

PILGRIM: I don't know if you could get that, really.

DOBBS: Let's try to give somebody benefit of the doubt here.

PILGRIM: Forty percent, not good.

DOBBS: Not good. Kitty, thank you very much. Kitty Pilgrim.

When we continue the preliminary results of tonight's poll and we'll share "Your Thoughts" about mayhem in Michigan. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Checking the results of tonight's poll. The question, do our courts live up to the promise of a fair and speedy trial? Eight percent said yes, 92 percent said no.

Looking now at some of "Your Thoughts" on the issue of riots in Benton Harbor, Michigan. One viewer wrote in to say, "How refreshing to finally hear someone ask the question, `Why is this the fault of the police?' A man on a motorcycle made his own decision to run away from the police and died in the process."

G. Eaddy of Atlanta said, "The economic conditions of a town like Benton Harbor reflect the conditions of many isolated, poor communities. If large cities like New York City are suffering now, then Benton Harbor has no chance."

Many of you wrote about yesterday's poll asking which institution bears the greatest responsibility for failing Benton Harbor. Jeff Staple said, "Parents need to be held more accountable for their children. Our country lays blame first to the schools, government and the environment. What about parents first? Then we can look at other external factors."

And M. Stastny of Charlotte, North Carolina asked to whatever happened to personal responsibility?"

And Faith Nye of Granite Falls, Washington said, "Lou Dobbs show is one of which I can actually learn something. His extended subject coverage over a week excellent."

Thank you, Faith.

And Wes Jones of San Diego said, "Thank you so very much for not mentioning the Laci Peterson case. Keep talking about the real issues."

Thanks, Wes. We guarantee we will.

We love hearing from you. Send us "Your Thoughts" at loudobbs@CNN.com.

That's our show for tonight. Thanks for being with us. Tomorrow, I'll be joined by the editors of "Forbes," "Fortune" and "BusinessWeek" magazines in our weekly "Editors' Circle". And We'll focus on Ebola and lyme disease in our series of special reports on emerging diseases.

For all of us here, good night form New York.

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





Terror Plots in New York, Washington; Rocket-Propelled Grenade Kills U.S. Soldier>


Aired June 19, 2003 - 18:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: This is LOU DOBBS TONIGHT for Thursday, June 19. Here now Lou Dobbs.
LOU DOBBS, CNN ANCHOR: Good evening, everyone.

A new victory tonight in the war against terrorism, a radical Islamist terrorist has pleaded guilty to helping al Qaeda plan new terrorist attacks in this county.

Federal prosecutors say Ohio truck driver Iyman Faris was involved in plot to cut cables on the Brooklyn Bridge and to derail a train near Washington. He agreed to plead guilty in a deal with prosecutors. Justice Correspondent Kelli Arena joins me now from Washington with the story -- Kelli.

KELLI ARENA, CNN JUSTICE CORRESPONDENT: Lou, Iyman Faris is a naturalized U.S. citizen and according to the government an al Qaeda operative.

(BEGIN VIDEO CLIP)

JOHN ASHCROFT, ATTORNEY GENERAL: From late 2000 to March of this year Faris worked in concert with al Qaeda, our enemies, to plot potential attacks against America and its citizens here in his adopted homeland.

(END VIDEO CLIP)

ARENA: The government says Faris conducted surveillance of the Brooklyn Bridge and was ordered to purchase equipment to derail trains. He provided cell phones, sleeping bags, and plane tickets to al Qaeda and he told investigators about a plot in 2002 to simultaneously attack New York and Washington.

Now, sources say that Faris was fingered as a result of the interrogation of al Qaeda leader Khalid Shaikh Mohammed. He pled guilty on May 1st to charges of providing and conspiring to provide material support to al Qaeda.

Sources say that Faris turned himself in in March so he was not formally arrested. The plea deal was kept secret until today.

(BEGIN VIDEO CLIP) ASHCROFT: This is a case which I believe would have been -- I firmly that for us to have announced this case a day sooner would have carried with it the potential of impairing very important interests.

(END VIDEO CLIP)

ARENA: The attorney general has said that there are other plea deals under seal and sources tell CNN that some of those involved individuals, like Faris, who are cooperating with agents on the hunt for other operatives here in the United States -- Lou, back to you.

DOBBS: Kelli, thank you very much, Kelli Arena reporting from Washington.

American forces in Iraq are increasingly coming under fire. A rocket-propelled grenade today struck a military ambulance and killed a U.S. soldier. Two other soldiers were injured in the explosion. This is the fourth time U.S. troops have come under fire in Iraq within the past 24 hours.

Senior Pentagon Correspondent Jamie McIntyre has the latest -- Jamie.

JAMIE MCINTYRE, CNN SR. PENTAGON CORRESPONDENT: Well, Lou, 17 U.S. troops have been killed in ambushes in Iraq since President Bush declared an end to major combat May 1 and the latest came today south of Baghdad.

Someone fired a rocket-propelled grenade at a U.S. military ambulance killing one American soldier from the 804th Medical Brigade and wounding two others. As you said, it was the fourth attack in the last 24 hours and it's believed to be the work of what Defense Secretary Donald Rumsfeld calls dead-enders, Saddam loyalists who have no future in Iraq and are hoping to drive the U.S. out. Rumsfeld downplays the military significance of the attacks, as he did yesterday at a Pentagon briefing.

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, DEFENSE SECRETARY: You got to remember that if Washington, D.C. were the size of Baghdad we would be having something like 215 murders a month and it is -- there's going to be violence in a big city.

(END VIDEO CLIP)

MCINTYRE: The problem is this isn't just street crime. It's an insurgency directed at American authority. To use Rumsfeld's analogy it would be more like a police officer being killed every day in Washington, D.C.

But despite that, U.S. commanders in Iraq insist they are not facing a well organized guerilla movement. Here's what the commander of the 4th Infantry Division said earlier this week.

(BEGIN VIDEO CLIP) MAJ. GEN. RAY ORDIERNO, CMDR., U.S. ARMY'S 4TH INFANTRY DIV.: I would not dignify it with the attack guerilla warfare. This is not guerilla warfare. It is not close to guerilla warfare because it's not coordinated. It's not organized and it's not led. The soldiers that are conducting these operations don't even have the willpower. We find the majority of the time they'll fire a shot and they'll drop the weapon and they'll give up right away.

(END VIDEO CLIP)

MCINTYRE: That said the truth is the U.S. military now faces a very difficult task cracking down hard on anti-American Iraqis but trying to do it in such a way that they don't alienate large numbers of Iraqi citizens who up to now had welcomed the U.S. as liberators -- Lou.

DOBBS: Jamie, this may be disconcerting to some to hear the defense secretary compare what's happening in Baghdad to a public safety issue in an American city and to hear a general talk about effectively what cowards the people there are who are killing American soldiers. What does this suggest?

MCINTYRE: Well, what they're trying to do is provide some perspective. The Pentagon is trying to say that overall the situation isn't that bad. It's not that dire militarily in terms of the U.S. losing control but it clearly is a serious situation, and as I said this sort of counter insurgency operation is the most difficult kind of operation to conduct especially if you're trying to keep the hearts and minds of the people.

So, I don't think Secretary Rumsfeld's analogy, as I said to street crime, is a good one but he is trying to keep it in perspective and the U.S. insists that they're making headway in these raids that they're conducting in which they're rooting out the remnants of Saddam's regime.

DOBBS: Jamie, thank you very much, Jamie McIntyre, our Senior Pentagon Correspondent.

The Bush administration is demanding that Israelis and Palestinians make peace and President Bush is sending two of his top diplomats to the Middle East. Secretary of State Colin Powell arrived in Jordan this even before meeting with Arab and Israeli leaders in the region tomorrow.

National Security Adviser Condoleezza Rice travels to the Middle East within a week of Secretary Powell's trip. She will conduct another round of talks with top Arab and Israeli leaders.

Later here tonight, former Israeli prime minister, current Israeli Foreign Minister Benjamin Netanyahu will join us to talk about this latest push for peace.

The White House says the burden is now on Iran to comply with United Nations' demands on its nuclear program. The U.N.'s International Atomic Energy Agency today called upon Tehran to allow more inspection of all of its nuclear facilities. This comes a day after President Bush warned Iran that the world will not tolerate nuclear weapons in that country.

White House Correspondent Chris Burns at the White House with the story -- Chris.

CHRIS BURNS, CNN WHITE HOUSE CORRESPONDENT: Well, hi, Lou.

This wasn't everything that the Bush administration was waiting for. They were hoping that the IAEA, the watchdog agency of the United Nations, the International Atomic Energy Agency, would declare Iran in violation of the Nuclear Nonproliferation Treaty, that treaty aimed at preventing the proliferation of nuclear weapons.

So, they didn't get that but they did get a strong warning, a strong rebuke to the Iranians to tell them to get with the program, to accept tougher inspections, to accept and become more open and transparent is the word they put it.

Here are some of the words of Mohamed ElBaradei, the head of the IAEA.

(BEGIN VIDEO CLIP)

MOHAMED ELBARADEI, DIR., IAEA: We need to go to the bottom of that program to assure ourselves that it is comprehensive, program dedicated for peaceful purpose. I think as you're all aware nonproliferation of nuclear weapons is becoming the number one national security issue and the international community has become very much sensitized to the need for full transparency and full cooperation on the part of an inspected country.

(END VIDEO CLIP)

BURNS: Now, the White House reaction Ari Fleischer the White House spokesman saying that the president welcomes this report. It's national reinforcement of the president's message yesterday that the world, broadly speaking, joins together in fighting proliferation and making certain that Iran does not develop nuclear weapons.

President Bush had said yesterday that he would not tolerate nuclear weapons in the hands of the Iranians. He's already listed Iran as a member of his axis of evil in his speech last year and he leaves open his options.

Ari Fleischer was asked today what options could be closed you leave open the option of using armed intervention. Ari Fleischer wouldn't answer that directly but, of course, it is implicit that that remains an option on the table.

This happens as there are protests in Iran by pro-democracy student protesters facing off with hard line Islamic elements inside the government, President Bush also tipping his hat and lending his hand as much as he can to those protesters -- Lou.

DOBBS: Those protests, Chris, now entering their tenth day. Chris Burns, thank you very much from the White House.

BURNS: OK.

DOBBS: While the United States confronts North Korea and Iran on nuclear weapons, the U.S. government has lost two vials of plutonium at the Los Alamos National Laboratory in New Mexico. A watchdog group says the material could be used to make weapons.

The laboratory denies that, says the material could have been disposed of but it is nonetheless missing and unaccounted for. Los Alamos has been under the management of the University of California since it was created some 60 years ago.

A show of force and heavy rains overnight prevented any further rioting in Benton Harbor, Michigan last night. The skies have cleared tonight but law enforcement remains out in force.

Denise Bohn is live in Benton Harbor and joins us now with the latest -- Denise.

DENISE BOHN, CNN CORRESPONDENT: Thanks, Lou. Yes, there are hundreds of police officers from around the state of Michigan who are preparing for another possible night of rioting here in the city of Benton Harbor.

This afternoon we watched as they picked up their riot gear. They picked up their protective shields and their gas masks and we're told that they will be using teargas if the crowds become unruly this evening.

Last night it was a fairly quiet night. We know about two o'clock in the morning there were two fires set, two arsonists set fire to two different buildings. One was an abandoned home. Another one was being remodeled. Besides that it was a very quiet night because of the heavy police presence and the rain that you had mentioned.

DOBBS: Denise, what is the attitude there now? To look at the destruction over two nights of disturbances and riots, the police chief there wants to call this a disturbance rather than a riot. What is the mood there?

BOHN: Well, there is a lot of tension around the city still and a lot of that stems from the overall environment here. This is a very unique city facing very unique challenges that has a high unemployment rate. It has a high teenage pregnancy rate. It is an area of much poverty.

Seventy-five percent of the homes in the area are rental homes. Fifty percent of those homes are substandard living areas, so it's an area facing many challenges. The school system needs a lot of assistance. They just had a school (UNINTELLIGIBLE) last week that failed by 82 votes and they need money to repair buildings.

So, it's an area that is in need of assistance and also I know a lot of the people in the area, a lot of the residents distrust police officers, so there's a lot of tension in the area.

But I just had one gentleman walk by me and he saw the long line of state police cars that are just over my shoulder and he told me that I'm glad that they're here. I'm really glad that they're here. This is a city with a population of 12,000 people and officials are telling me that it's about 100 people that are really causing the problems here.

DOBBS: And, Denise, we thank you very much. As you being your watch this evening there in Benton Harbor, we hope for all of the residents of Benton Harbor it is a quiet evening and that with reflection will come some solutions on the part of the community and the people who make up that community. Denise Bohn from Benton Harbor, Michigan, thank you.

That brings us to tonight's quote from a Benton Harbor police officer. "Why would we destroy our own city? Who is harmed by the destruction of our property? We are. Family of five is homeless now because we burned their house down. It makes no sense," that from Benton Harbor Chief Samuel Harris of Benton Harbor Police Department.

Still ahead here tonight, a federal judge and Martha Stewart have set a date for trial. Peter Viles will have the report.

And, emerging diseases...

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Diseases that we used to read about occurring on the other side of the world, you know, within a day can make it here.

(END VIDEO CLIP)

DOBBS: The spread of deadly diseases and the search for cures, Bill Tucker takes a look tonight at the resurgence of West Nile in our series "Emerging Diseases." Stay with us.

(COMMERCIAL BREAK)

DOBBS: On Wall Street today stock prices fell across the board. The S&P 500 suffering back-to-back losses for the first time in a month. The Dow tumbled more than 114 points. The Nasdaq fell 28.5. The S&P 500 down nearly 15.5 points.

Susan Lisovicz now with more on the market for us -- Susan.

SUSAN LISOVICZ, CNNfn CORRESPONDENT: Lou it was the worst overall market decline in a month and it came amid some encouraging economic news. First time claims for unemployment fell for the second week in a row but remain above 400,000, a level that is considered weak and the index of leading economic indicators rose one percent last month above forecasts.

Corporate news, however, drove much of the selling. General Electric plunged nearly three percent on word that orders for plastics in May, fell up to 20 percent from a year ago.

Twenty-seven of the 30 blue chips finished down on the day including GM on a debt downgrade over concerns about light vehicle sales and pension costs.

Brokerages got slammed for a second day, even the Lehman Brothers blue past forecasts with its second quarter profits.

Pharmaceuticals also under pressure after Forest Labs said a clinical trial of its Alzheimer's treatment did not show significant improvement in patients and investors dumped shares of Bed, Bath & Beyond after the retailing giant took a conservative approach to its forecast for the year.

Lou, the markets closed near their lows. Even so, at the big board 108 stocks hit new highs. Only one hit a new low, ended on a positive note.

DOBBS: Very positive indeed and when a stock gets hammered for being cautious, you know, I think investors are going to lose on that. Good for them being cautious in those comments.

LISOVICZ: And even they had a terrific quarter too.

DOBBS: Absolutely, Susan Lisovicz, thank you.

Coming up later in this show Pete Peterson, one of this country's most prominent financial figures, will be here to tell us why he says political parties, both political parties are mismanaging our economy.

Martha Stewart now has a trial date and it's a very late date, next January in fact. Peter Viles reports.

(BEGIN VIDEOTAPE)

PETER VILES, CNNfn CORRESPONDENT (voice-over): On her second day in court, Martha Stewart learned that trials are a little like dinner parties. It's hard to get everyone to agree on the right date.

The government said it's ready for trial but the lawyer for co- defendant Peter Bacanovic asked for a January date. "That's a very leisurely schedule" said Judge Miriam Cedarbaum.

Then she asked Stewart's lawyer Robert Morvillo what he wanted. "I feel strongly both ways" he said. Then she asked Stewart if January 12th is OK with her. "I agree" Stewart said, even though she could have demanded a speedy trial beginning in mid August.

ROBERT MINTZ, FORMER FEDERAL PROSECUTOR: I think most people would have expected the Stewart defense team to be pushing for a quick trial. I think instead what they've decided is that the tide has turned, that they've weathered the storm of adverse publicity and that really they are now winning over the public's opinion of her at this point.

VILES: Inside the courtroom, Stewart also tried to win over a courtroom sketch artist as only Martha Stewart could.

CHRISTINE CORNELL, COURTROOM ARTIST: Afterwards, when I was walking by I said to her I'm sorry for peering at you so closely. I'm just trying to do a better drawing, and she looked at me. She didn't exactly smile but she paused for a second and then she said, "no pockmarks and perfect skin" and I said got it.

VILES: Justice certainly takes its time. It was December, 2001 when Stewart sold her ImClone stock. The federal investigation began weeks later and lasted a year and a half. She was indicted in early June, scheduled to stand trial in January of next year, 25 months after she made the trades.

But if Stewart is running out of patience, she didn't show it. She left with a wave for the media.

(END VIDEOTAPE)

VILES: We did learn a little bit today about the evidence the government has in this case, anywhere from 20 to 40 boxes of papers and documents plus 15 computers.

Now, of course, the government has seen all of this. They've sifted through it. They've built their case on it but defense lawyers have not and they want some time to go through this evidence -- Lou.

DOBBS: And, defense lawyers are paid by the hour, right?

VILES: They most assuredly are. Her business interests and her legal interests have probably diverged here. Her company would love to get this over with. Her lawyers, they want to get her off. That takes a little time.

DOBBS: Did you notice that wave? That was a very Martha Stewart wave, wasn't it?

VILES: It was. It certainly was and the courthouse personnel kept the media at bay. Last time she was there it was almost a dangerous situation, people jockeying to get close with those heavy cameras. She could have been hurt. They kept her safe this time.

DOBBS: Excellent, public safety paramount in all respects, Pete, thanks, Peter Viles.

Well, Martha Stewart is already on our list of 73 executives that we've tallied on our corporate American criminal scoreboard, 16 of those from Enron. Sam Waksal remains the only executive to be sentenced to jail since the corporate corruption scandal started 563 days ago with the Enron bankruptcy.

That brings us to tonight's poll, the question: "Do our courts live up to the promise of a fair and speedy trial, yes or no?" Please cast your vote at cnn.com/lou. We'll have the results for you later in the show.

Now, the final results of last night's poll, the question: "Which institution bears the greatest responsibility for failing the community of Benton Harbor, Michigan?" Thirty-one percent of you said city government, five percent said the churches, three percent the schools, 62 percent of you said all of the above.

And many of you e-mailed us on this subject. We'll share some of your thoughts later in the show.

Still ahead here, desperate for rain, Casey Wian will report on the drought threatening western states.

Also, committed to peace despite rising violence in the Middle East, former Israeli Prime Minister Benjamin Netanyahu joins us.

And, "Grange on Point", our general works not for the Pentagon but for the men and women in uniform and veterans everywhere. Tonight, he focuses on broken promises.

(COMMERCIAL BREAK)

DOBBS: Max Factor cosmetics heir Andrew Luster is back in this country tonight. Luster arrived in Los Angeles from Mexico where he was captured by a bounty hunter yesterday. Luster will serve 124 years in prison for his conviction on rape charges.

An Arizona wildfire on Mt. Lemon is tonight about a half mile from the town of Summerhaven. Most the town's 200 residents have been evacuated. That fire has already burned almost 500 acres.

Dramatic video tonight from West Virginia where a week of rain and floods have turned roads into rivers, rivers into torrents, there is no let up in sight. Forecasters are predicting more rain tonight for West Virginia, for most states along the eastern seaboard.

While the East Coast is suffering through a wetter than normal spring western states continue to struggle through a long drought. Much of the western United States is now entering its fifth summer of dangerously dry weather.

Casey Wian tonight reports on the western drought from Payson, Arizona.

(BEGIN VIDEO CLIP)

CASEY WIAN, CNN CORRESPONDENT (voice-over): Arizona rancher Ken Evans fears this week's western wildfires are just the beginning.

KEN EVANS, ARIZONA FARM BUREAU: Memorial Day these trees were green, you know, looked normal.

WIAN: Drought is quickly killing millions of trees in Arizona's high country. Dry trees have allowed tiny bark beetles to spread like a biblical plague.

EVANS: That's where the beetle has gone in and all of these trails are where they started chewing, leaving their droppings behind. WIAN (on camera): The numbers are staggering. According to the Arizona Farm Bureau the bark beetle has infested a million acres killing 13 million trees at a rate of 9,000 dead trees per day.

(voice-over): As trees lose moisture the air becomes even drier fueling both drought and fire.

EVANS: We have just a huge source of flammable, you know, product out in the forest that we cannot under any set of circumstances deal with, so the danger is probably greater now than at any time in recorded history, maybe at any time in history of these forests.

WIAN: Much of the west is experiencing its worst drought in hundreds of years. Eleven states are suffering from either extreme or exceptional drought conditions while Arizona and Utah have declared states of emergency.

RICH TINKER, NOAA CLIMATE PREDICTION CENTER: Unfortunately, if you're looking at the areas that are in the worst shape right now, the immediate future doesn't look real promising. It's a fairly dry time of the year for them right now so even if they get above normal precipitation in the grand scheme of things it's not going to be enough to improve conditions significantly.

WIAN: The impact of the drought ranges from shrinking livestock herds to growing restrictions on water use to increasingly bitter local disputes over water rights. The federal government's drought plan urges resolving those differences and conservation through infrastructure investments.

GALE NORTON, INTERIOR SECRETARY: When you look at the potential savings in water that can come about through the lining of canals or in other ways bringing our irrigation infrastructure up to the 21st century, we can find a lot of water that is available through that.

WIAN: But for some time is running out. Ken Evans once kept 1,200 head of cattle on this property, this year none.

EVANS: That's what we're trying to do is just hang on by our fingernails until this cycle does break.

WIAN: This mountain town, normally teeming with tourists, is now surrounded by dead trees.

Casey Wian, CNN, Payson, Arizona.

(END VIDEOTAPE)

DOBBS: Tomorrow, Casey's special report continues when he focuses on the shortage of water throughout the west and what's being done to solve the problem.

Coming up next here, it has claimed hundreds of lives in this country in just a few years' time. Bill Tucker will report on the mysterious West Nile Virus, the desperate search for a vaccine. Also ahead failing grades in many of this country's classrooms; disturbing new information on the reading level of our children. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Tonight, we continue our series of special reports on "Emerging Diseases" and what is trying -- what health authorities are trying to do to fight those viruses.

Tonight we focus on West Nile. More than 4,000 Americans infected with West Nile Virus last year. Two hundred eighty-four of those people died. Health and Human Services Secretary Tommy Thompson predicts this year will be even worse, Bill Tucker reports.

(BEGIN VIDEOTAPE)

BILL TUCKER, CNNfn CORRESPONDENT (voice-over): Spring rains bring flowers. They also bring breeding grounds for mosquitoes and West Nile Virus. This is one of the faces of West Nile, the mayor of Morton Grove, Illinois, now wheelchair bound, his wife of 52 years dead all because of West Nile.

MAYOR DAN SCANLON, MORTON GROVE, ILLINOIS: I was on top of the world with running a beautiful village, had a gorgeous wife, wonderful family, everything on top of the world and the next day when I wake up I'm paralyzed, my wife is dead.

TUCKER: West Nile has now been found in 140 species of birds and 20 species of domestic animals in 44 states plus the District of Columbia. This year outbreaks have already been reported in 19 states.

West Nile was first seen in the United States in 1999 and in its first three years relatively few people were made sick or died from the disease.

Last year, the numbers exploded, bringing the total number of sick to over 4,300, over 300 of whom died. So far this near no human cases have been reported.

RICHARD FALCO, FORDHAM UNIVERSITY: What we're learning the world is a smaller place than it used to be. Diseases that we used to read about occurring on the other side of the world, you know, within a day can make it here.

TUCKER: West Nile virus was first documented in the United States four years ago at the Bronx Zoo by Dr. Tracey McNamara She and her team of pathologists noticed a lot of dead crows and dying birds in the zoo population.

TRACEY MCNAMARA, VETERINARY PATHOLOGIST: The prairie dogs, the crows, the squirrels, the sparrows, things that could fall from the sky at any time, at any place, telling us that something is going on. But until we addressed the ability to get a diagnosis of why those animals died, real time, with the best of technology, we will always really be relying on people as sentinels.

TUCKER: As a result, Dr. McNamara helped create a network among zoos to monitor animal diseases in the zoo population.

TOM GECEWICZ, BRIDGEPORT PUBLIC HEALTH DEPT.: We know the virus is here. Let's address it as the virus so we can become proactive rather than reactive.

TUCKER: Gecewicz wants public officials to attack the problem, using every tool possible to prevent infection before people start getting sick. That means killing the mosquitoes before they hatch with the use of larvacide. And it can mean spraying for them after they're hatched.

UNIDENTIFIED MALE: Don't ever say it can't happen to you. It can happen to anybody. And I know that it happened to our family and it had a devastating effect on our family.

TUCKER (on camera): Trials for the West Nile vaccine for humans get under way this summer. The vaccine so far has proven effective in mice, monkeys and horses. Now, if effective, it could be available to the public in three years.

Bill Tucker, CNN, New York.

(END VIDEOTAPE)

DOBBS: Tomorrow, we conclude our series on emerging diseases, two special reports. We look at the deadly Ebola virus and the devastating lyme disease. We will report on how both developed, the victims that they've claimed, what's being done to contain the threat.

The U.S. trade deficit is another force still not contained. Tonight it stands at more than $236 billion.

Turning back to issues of war and peace in the Middle East tonight, Israeli troops today clashed with Jewish settlers barricaded inside an illegal outpost in the West Bank. A dozen settlements have already been dismantled by the Israeli government.

Former Israeli prime minister, current Israeli finance minister, Benjamin Netanyahu joins us tonight from Washington.

Good to have you with us.

BENJAMIN NETANYAHU, ISRAELI FINANCE MINISTER: From London, but Washington's a good city, too.

DOBBS: And I want to apologize. I'm just barely catching up with you. Let me ask you, first, the resistance that is being met by the Israeli Defense Forces dismantling those settlements, do you expect it to continue?

NETANYAHU: Well, it's non-violent resistance. I think people should be aware of that. People are obviously concerned, they have strong attachment to this land. It is part of our ancestral homeland. And they also feel that we're getting shortchanged because here we are making all these gestures and the Palestinian side hasn't yet lifted a finger to fight the savagery of terror that emanates from their cities. So I think that's the way you should look at it. Everybody in Israel is united in one thing, we want to see real action on the part of the Palestinian Authority against terror. I think that's what unites us. And as I saw in Washington and now in London, that's what people expect in both capitals as well.

DOBBS: You have worked with a number of American presidents on Middle East peace, all resulting in the same futility. Do you think this time is different with President Bush appearing to exert his will on the issue unlike any president at least that I've covered?

NETANYAHU: I think the president is clearly committed to this. And he also wants to see real results. I think there's no confusion in Washington on one point: You can have peace only if you end terror. You can't have a peace process and terror simultaneously. And it is possible to stop terror in two ways. One is to take action against Hamas, not to achieve a tactical cease-fire in which they'll come back and hit us with even deadlier force, but the dismantling of this organization just as you seek to dismantle al Qaeda.

You don't do practical deals with them. So I think that's - we're waiting to see if the Palestinians do it. If they don't, then of course we'll have to act as well. But in addition there's a defensive means. You know, Lou, how many suicide bombings have come out of Gaza, Palestinian suicide bombers? Gaza has more Hamas, including the leaders of Hamas, but in fact, zero, no Palestinian suicide bombings came out of Gaza because there's a fence around Gaza. We are now building a protective fence, a wall, if you will, to prevent Palestinian suicide bombers coming from the West Bank. And I think that the combination of action by the Palestinians or action by us and a defensive wall will sharply reduce the number of suicide bombings thereby enabling peace to proceed.

DOBBS: You have to be disappointed, though, that there has been so far no indication in any way that this cycle of violence is abating even modestly, in fact, intensifying. This time don't you agree that it basically has to be different? Israel right now is confronted with an economy that is in shambles. The Palestinians have no economy. Your population growth rate is arguably negative. There is no bright light at the end of this tunnel without strong management of this process and strong commitments on the part of both the Israelis and the Palestinians to resolve this matter once and for all. Do you disagree with that?

NETANYAHU: No, I don't. I think that's very important. And I hope that we can make peace. If we have a partner that wants peace, we'll get there. And that's what you need. I think the fact that Israel is going to the utmost to try to start this process despite the fact that we're attacked, is an indication of our will. Let's see if there is equal will and resolve on the other side. But I don't agree with you that the picture is completely bleak. That's not true. Our stock market has risen by 40 percent in three months. Our long-term debt has declined. One - the rate we offer on government bonds, has declined by 35 percent in that same time period. DOBBS: What do you think that's telling - what is the reason for that rise in the stock market against the backdrop of an economy that is hardly buoyant?

NETANYAHU: Well, because what we're doing is that we are changing the Israeli economy in the last few weeks. I don't know if people are aware of it. We have brought down taxes. We cut government spending. We got the unions to take a wage cut. We solved our pension problem, took the pensions away from the union. Balanced our share of books. We sold El Al. People have been talking about it for 18 years. We just put it on the market in three months. We broke up our electricity company and introduced competition.

We're introducing free market principles across the board. Alan Greenspan, with whom I had breakfast the other day, says that he looks at two things. He was speaking generally, not just really (ph) the Israeli economy. He wants to see if the stock market is rising and if bond rates are falling. I said, Alan, we're beating your criteria. And apparently a lot of investors are coming into Israel as we speak because they know that a deregulating economy under any given risk profile is going to produce growth no matter what. But I think we can also reduce terror and then even more growth.

DOBBS: Mr. Netanyahu, it is minister of finance, not tourism, correct?

NETANYAHU: Right.

(LAUGHTER)

NETANYAHU: A lot to do on tourism, too.

DOBBS: It's good to talk with you. And we wish you all the best. Thank you very much. Benjamin Netanyahu from London.

NETANYAHU: Thank you, Lou.

DOBBS: Thanks.

That brings us to tonight's thought, on how a successful co- existence must be achieved: "There must be not a balance of power, but a community of power; not organized rivalries, but an organized peace." That from the 28th president of the United States, Woodrow Wilson.

Still ahead tonight, Grange on point. Thousands of American G.I.s, veterans from World War II and Korea left high and dry by none other than the U.S. government. General David Grange on promises broken next.

And, in the red. The mounting national debt, its crippling effect on this nation's economy. Pete Peterson of the Blackstone Group joins us.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: Well, General David Grange spent most of his life as a warrior in the service of the country. He worked briefly at the Pentagon. We don't imagine General Grange will be invited backed there very soon for a posting. Because we've asked him to work on issues featuring the men and women who proudly serve this country in the U.S. military. And to the veterans to whom we all owe so much.

These issues focus on quality of life, there well-being. At the end of the World War II, the military promised lifetime military care for service men and women if they served at least 20 years. In 1995, the federal government reneged on that promise, telling veterans they'd have to rely on Medicare.

Tonight, promises broken, General David Grange joins us now.

General, good to have you here.

BRIG. GEN. DAVID GRANGE (RET.), U.S. ARMY: Good evening, Lou.

DOBBS: Promises broken.

How can the federal government break a promise, especially to men and women in military?

GRANGE: Exactly. It's a touch situation for the veterans. They're basically 65 years and older, World War II Veterans, some Korean veterans. They made an agreement with the government that they would serve beyond their combat tour during World War II for 20 years, if they were guaranteed medical care for life. It was not in a legal contract, according to the district federal court. So it's not binding that the government honor that promise, even though it was a moral contract.

DOBBS: This came about under the Clinton administration.

GRANGE: Initially.

DOBBS: And in 1995, Veteran's Administration backing away, not -- veterans not winning the support of the federal court. But I'd like to shower you viewers something a more recent president had said. And this is a statement by President Bush in his pre-inaugural address on January 19, 2001. If we've got that we'd like to show that to you.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: In order to make sure morale is high with those who wear the uniform today, we must keep our commitment to those who wore the uniform in the past. We'll make sure promises made to the veterans will be promises kept.

(END VIDEO CLIP)

DOBBS: Promises kept. George W. Bush. Any effort to make certain that those promises are kept rather than broken? GRANGE: I hear these going to try to do that. It's actually the responsiblity of both the president, Congress and the Supreme Court in this case. Calvin Coolidge, a former president, said that a nation, that forgot its fighters and defenders will itself be forgotten. Abraham Lincoln that said we must care for those who have fought the nation's battles, in a second inaugural address. As the command-in- chief, the president has an obligation to the veterans.

DOBBS: Legislation, you mentioned the role and responsibility of Congress here. Legislation could move this -- these broken promises to promises kept.

Is there legislation that will be adequate to at least, at the minimal level, keep these promises?

GRANGE: It has to be, Lou. The courts have pushed it to Congress. They've not made the decision to support the veterans. Congress can do that, but it must be mandatory funding. Cannot be discretionary funding. It has to be mandatory funding, very similar to the 2001 Defense Authorization Act.

DOBBS: What's the likelihood we'll see action soon in your judgment?

GRANGE: I think we'll see action in the next year or two. Senator McCain is pushing it. How can you -- Over 1,000 GIs from World War II die every day. We're talking about the oldest veterans alive in the United States. They have to do it. It's a moral obligation.

DOBBS: Moral obligation. At this appointment a shame.

GRANGE: That's right.

DOBBS: General Grange, we thank you very much and Appreciate it.

My pleasure.

DOBBS: And we look forward to seeing you here regularly, every week.

Next Thursday, "Grange on Point": undermanned and over committed.

General Grange will be looking at a military force that's now spread over 120 countries and an American force that needs more help to do the duties that our men and women in uniform are being asked to perform. That's next week.

A reminder now to vote in our poll tonight. "Do our courts live up to the promise of a fair and speedy trial?" Cast your vote at cnn.com/lou. We'll bring you the results in just a few minutes.

When we continue, the cost of the tax cuts. Why Washington may be steering the economy toward trouble. Pete Peterson of the Blackstone Group joins us to tell us what the politicians of both parties are doing wrong. And then we'll have your thoughts on the riots in Benton Harbor. We'll share some of you e-mails coming up, stay with us.

(COMMERCIAL BREAK)

DOBBS: President Bush in Minnesota today. There touting the benefits of his tax cut. But Pete Peterson says cutting taxes now is fiscally irresponsible. In a recent article in "The New York Times," Pete Peterson said both political parties are driving this economy frankly, into the ground. Republicans with their incessant demand for tax cuts, Democrats with their incessant demands for more spending.

Pete Peterson is chairman of the Blackstone Group And the Federal Reserve Bank of New York. And it is good to have you here.

The idea that you would not be for tax cuts, you are, I think, fair to say, fairly well off fellow. You're going to have some nice tax cuts.

You're not pleased?

PETER PETERSON, CHMN. THE BLACKSTONE GROUP: You know, it's fairly possible I have enough. I'm not so much troubled by tax cuts in the short-term. You can make a case for a business investment, tax cut or putting money in the hands of people who would spend it. But what really worse me is the disingenuousness which is at a new standard. We tell people this is a $350 billion tax cut. We don't tell them what a sunset means. We act as though sun's never going to rise. And everybody winks at each other and it is going to rise. You know what that tax cut costs over the next 10 years, assuming it continues -- $1.1 trillion.

DOBBS: $1.1 trillion, but to be fair, Pete, that doesn't include the sunset. You're assuming continued sunrises.

PETERSON: Wait a minute. Now let's good to the next decade when the boomers' bills are going to hit. I had the Concord Coalition put together the numbers today. The rough estimate is, if you take all of our tax cuts as 201, we're going to reduce revenues by about $6 trillion at the very time that payroll taxes for our kids, yours and mine, are scheduled to go up to somewhere between 25 percent and 34 percent of pay. So all this talk about tax cuts if you don't reduce long-term spending, that isn't a tax cut. You're shifting it to your kids, that's all.

DOBBS: People listening to you talk about burden shifting from our generation to other kids, criticizing these tax cuts, and we might point out that Pete Peterson is a man who does understand a balance sheet, whether public or private in nature. They got to be shocked to hear a Republican of your stature criticizing these.

PETERSON: Well, maybe I'm not very tall.

DOBBS: Well, let me ask you, what has been the reaction from the White House, from Capitol Hill?

PETERSON: I don't get a reaction from the White House, but I've had more letters and telephone calls about that article than anything I've ever done from both Democrats and Republicans. And they're saying, we're both worried about our parties because we're -- we're putting too much emphasis on long-term tax cuts and long-term spending.

DOBBS: Well both parties are talking about something called a trust fund when they talk about Social Security, they talk about Medicare. You mention the payroll taxes to support those trust funds.

PETERSON: The trust fund is an oxymoron of great quality. You shouldn't be trusting it because there's nothing there and it is not funded. The unfunded liabilities which don't appear on our balance sheet, Lou, are $25 trillion, twice the size of our entire economy.

So we go around saying we got six, seven trillion of debt. We actually, with honest accounting, and we just passed Sarbanes-Oxley, you know...

DOBBS: Absolutely.

PETERSON: ... it's about $30 trillion.

DOBBS: The fact of the matter is no one in Washington wants to deal with the fact -- you have written on the subject of deficits, their importance to the health and economy. We're headed toward, by conservative estimates, a $400 billion deficit, perhaps $500 billion by some other estimates. What is the impact on the economy?

And the other side of it is, Pete, without these tax cuts, could we possibly be looking toward recession?

PETERSON: Well, the first place, we've got a big fiscal stimulus with $500 billion tax cuts. That's nearly 5 percent of the GDP.

Secondly, as I told you earlier, I wouldn't have objected to putting some money in the hands of people, not you and me, who would have spent it and having a real incentive for short-term business investment. It's the long-term tax cuts I'm talking about that add grievously to the debt.

DOBBS: In other words, you're basically siding with the Democrats on this. They wanted to have a short-term targeted tax cut for the specific purpose of, the same as the president, to create jobs.

PETERSON: Well, I may have been with them on that one, but I'm not with them on what they say about Social Security. Because as Bob Kerrey says, their plan is called the do nothing plan. You can't touch Social Security. And we're going to have to touch Social Security, Lou.

DOBBS: Well, indeed, we are, and those are sobering numbers, a sobering set of issues that we're all going to have to confront. We're indebted to Pete Peterson for keeping them in front of us and doing better than that, offering some solutions.

Pete, it's great to have you here and to talk with you. PETERSON: My pleasure, sir.

DOBBS: Our nightly check on the national debt now. It stands at $6 trillion 600 billion dollars, down slightly from last night.

From struggling with a huge debt load to struggling with education levels at this country. Both fights that this country simply can't afford to lose. A new study finds that reading levels have improved for school children at lower grade levels, but high schoolers are still struggling and losing. Kitty Pilgrim reports.

(BEGIN VIDEOTAPE)

(AUDIO GAP)

KITTY PILGRIM, CNNfn CORRESPONDENT (voice-over): ... look forward to it. And from the new national scores, grade school kids are improving. National tests of fourth graders show significant reading gains over the last four years. These children are participating in a summer reading program at their library in New York.

UNIDENTIFIED FEMALE: I'm not that much of a bookworm, but slightly.

UNIDENTIFIED MALE: I like adventures. And mysteries.

UNIDENTIFIED MALE: I like long book, chapter books.

UNIDENTIFIED FEMALE: Annie Oakley and Babe Ruth. I read them all the time.

PILGRIM: It's this age group where the real progress can be made. And the good news is the statistics are starting to show it.

CARRIE SILBERMAN, NEW YORK SOCIETY LIBRARY: Fourth graders have already developed their preferences. They know what they like. And it's a critical age, because pretty soon, they'll become adolescents. And it's a point where you really want to continue and encourage that reading to continue.

PILGRIM: Despite the glimmer of improvement, the numbers are still shocking. Nationally, only 41 percent of fourth graders who are white are at a proficient level, up from 36 percent. Black students improved proficiencies from 10 percent to 12 percent. And Hispanics from 13 percent to 15 percent in the latest scoring. Still, a significant gap for minority students.

And above that age level, results are even weaker. Older students are still struggling. Eighth graders showed no improvement and high schoolers scored even more poorly. Only a little more than a third demonstrated proficiency in reading and analyzing material. Educators were still uncomfortable with the results.

EUGENE HICKOK, EDUCATION UNDERSECRETARY: There is some reason for concern, ongoing reason for concern, not the least of which is the relatively dismal performance of 12th graders consistent over time.

(END VIDEOTAPE)

PILGRIM: Now, the fact that the reading turnaround is happening in the lower grades bodes well for the future. But the numbers at these levels cannot be celebrated. The report card in the end really wasn't very good -- Lou.

DOBBS: About a D-minus?

PILGRIM: I don't know if you could get that, really.

DOBBS: Let's try to give somebody benefit of the doubt here.

PILGRIM: Forty percent, not good.

DOBBS: Not good. Kitty, thank you very much. Kitty Pilgrim.

When we continue the preliminary results of tonight's poll and we'll share "Your Thoughts" about mayhem in Michigan. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Checking the results of tonight's poll. The question, do our courts live up to the promise of a fair and speedy trial? Eight percent said yes, 92 percent said no.

Looking now at some of "Your Thoughts" on the issue of riots in Benton Harbor, Michigan. One viewer wrote in to say, "How refreshing to finally hear someone ask the question, `Why is this the fault of the police?' A man on a motorcycle made his own decision to run away from the police and died in the process."

G. Eaddy of Atlanta said, "The economic conditions of a town like Benton Harbor reflect the conditions of many isolated, poor communities. If large cities like New York City are suffering now, then Benton Harbor has no chance."

Many of you wrote about yesterday's poll asking which institution bears the greatest responsibility for failing Benton Harbor. Jeff Staple said, "Parents need to be held more accountable for their children. Our country lays blame first to the schools, government and the environment. What about parents first? Then we can look at other external factors."

And M. Stastny of Charlotte, North Carolina asked to whatever happened to personal responsibility?"

And Faith Nye of Granite Falls, Washington said, "Lou Dobbs show is one of which I can actually learn something. His extended subject coverage over a week excellent."

Thank you, Faith.

And Wes Jones of San Diego said, "Thank you so very much for not mentioning the Laci Peterson case. Keep talking about the real issues."

Thanks, Wes. We guarantee we will.

We love hearing from you. Send us "Your Thoughts" at loudobbs@CNN.com.

That's our show for tonight. Thanks for being with us. Tomorrow, I'll be joined by the editors of "Forbes," "Fortune" and "BusinessWeek" magazines in our weekly "Editors' Circle". And We'll focus on Ebola and lyme disease in our series of special reports on emerging diseases.

For all of us here, good night form New York.

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Terror Plots in New York, Washington; Rocket-Propelled Grenade Kills U.S. Soldier>