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Plot to Bomb Malls Foiled; House Ethics Committee to Report on Foley Investigation; Rumsfeld Bids Good-Bye to Pentagon Staff; Bush to Consult with Cabinet, Commanders on Iraq; Movie Draws Attention to Conflict Diamonds

Aired December 08, 2006 - 13:00   ET

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

KYRA PHILLIPS, CNN ANCHOR: Hello, everyone. I'm Kyra Phillips, live at the CNN world headquarters in Atlanta.
DON LEMON, CNN ANCHOR: And I'm Don Lemon.

An alleged grenade plot foiled. The target: shopping malls. CNN's Kelli Arena with the breaking details out of Chicago.

PHILLIPS: Gatorade is still out, but Grandma may be in. The TSA considers letting non-flyers through airport security.

LEMON: And wasted money and desperate times. Congressional investigators bust FEMA and New Orleans' mayor -- the New Orleans mayor says it's still not enough. Ray Nagin and the Department of Homeland Security Michael Chertoff live, right here in the CNN NEWSROOM.

PHILLIPS: And holiday cheer to holiday fear. Two 1/2 weeks before Christmas, an alleged plot to bomb crowded shopping malls. A 22-year-old man is now in custody. CNN justice correspondent Kelli Arena has all the developing details for us -- Kelli.

KELLI ARENA, CNN CORRESPONDENT: Kyra, 22 years old. He is a U.S. citizen. And he is in custody, arrested two days ago.

According to a federal law enforcement official, Kyra, his plan was to allegedly put grenades in garbage cans in several shopping malls in the Chicago area, right during the holiday shopping season. Lucky for law enforcement, there was a confidential informant who came forward, worked with law enforcement, so that that alleged plot was diverted.

His name is Derrick Shareef. We're told there is a criminal complaint against him. We were told earlier, Kyra, that that complaint had actually been unsealed. Turns out that that hasn't happened just yet. But we do have, obviously, all of the details of that -- of that complaint, which is what we're bringing to you now.

PHILLIPS: Do we know if he's tied to any terrorist groups or has had any terrorist training?

ARENA: According to our sources, no. He was acting purely on his own. No connection to any organized group or terrorist group overseas. And the charges that are going to be brought against him, Kyra, are the alleged -- wanting to use a weapon of mass destruction, because that is what a grenade is classified as, and planning to damage or destroy a building by fire or explosion.

So no -- you know, no link to any, you know, terrorism group. And that's a good thing. You know, good that, A, you know, this wasn't organized by, you know, any larger group, and, B, that -- that they did have somebody come forward. And that is something that law enforcement continues to emphasize, that those contacts in the community are vital, especially when it comes to individuals who want to act by themselves, because intelligence really doesn't help in that situation.

PHILLIPS: All right, Kelli Arena. We'll keep tracking it. Thanks, Kelli.

ARENA: You're welcome.

LEMON: We're tracking action at the Capitol today on a story that rocked official Washington a couple months ago. Members of the House Ethics Committee are getting ready to talk about the investigation of former Florida Congressman Mark Foley and the Republican leadership's handling of the scandal.

You'll remember Foley sent inappropriate messages to underage congressional pages. A news conference is scheduled at the top of the hour, and CNN will take it live. For a preview, let's bring in our Dana Bash at the Capitol -- Dana.

DANA BASH, CNN CORRESPONDENT: Hi, there, Don.

And the entire Capitol really is on pins and needles, waiting to find out exactly what the House Ethics Committee found after, as you just said, a long time, a couple of months of intense investigations and interviews. Talking to members of Congress at the highest level under oath about what they knew about Mark Foley's inappropriate conduct behavior and, more importantly what they did or did not do about it, whether they handled the situation in an appropriate matter.

Now just moments ago, Don, the chairman of the House Intelligence -- excuse me, House Ethics Committee, wrapped up a private briefing with the speaker of the house, Dennis Hastert.

That is something that is very important for many reasons. But first and foremost, the speaker is somebody who has been at the center of this. Because of the question, had been whether he, and more importantly, even his top staffers, may have known about it. Because there were allegations from some former aides that he actually -- that they actually did have information that they simply did not handle well.

Now, our Ted Barrett and Deidre Walsh, our congressional producers, talked exclusively to Speaker Hastert just before he got that briefing this morning. He said, quote, "I don't know whether I have to be concerned or not." He said, though, "From my heart, I don't think there's anything we need to look at."

The point he was trying to make there it seems, is that he thinks that he will be exonerated from any wrongdoing in this matter.

But in about an hour, we will get the full information from the House Ethics Committee, who worked especially for this committee, pretty -- at a rapid pace to get this done. The idea, they want to get this done before this Congress runs out and, more importantly, before the Republicans lose their grip of power here and the Democrats take over in January -- Don.

LEMON: So Dana, just to clarify. And maybe you don't know this. Is it an update, is it a conclusion? What can we expect from this?

BASH: Well, they're very secretive, in terms of what -- what they do and what their deliberations are. But we understand that this is not just an update, that this is going to be the conclusion, what exactly they found out in their two months of investigating what the House leadership, specifically the Republican leadership, did and did not know about Mark Foley's behavior.

So this is going to be certainly important. Now if you go back in time, Don, you'll remember there was a lot of pressure, that the timing of this was, of course, was -- was incredible, because it happened about a month before the election where Republicans were already under intense pressure because of the war and because of a lot of other things. And this Foley matter certainly added a big cloud over the Republicans.

And at the time, the speaker was under a lot of pressure to say that he would get rid of top staffers if they did anything wrong and so forth. Of course, now, going in where we are now, in -- on the calendar, things have changed a lot, because the speaker is leaving anyway. The Democrats took over and Pelosi will be the speaker, and some of his top staffers will not be in the jobs they're in anyway.

So I think the big question here now is going to be look back, to find out exactly what happened, and then in terms of Speaker Hastert, his legacy.

LEMON: Dana Bash with Capitol Hill, thank you very much. And again, we want to remind our viewers, a news conference scheduled at the top of the hour from the House Ethics Committee on Mark Foley. We'll bring it to you then -- Kyra.

PHILLIPS: Wrapping up second go-around as secretary of defense, Donald Rumsfeld, emotional and reflective today in his final Pentagon Q&A session.

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, SECRETARY OF DEFENSE: I left this post in 1977 believing strongly that America was a force for good in the world. The vast majority of the American people were wise and decent people. And that America would continue to be the principal leader in the free world. That has been proven right. And I can say that, as I leave at the end of my second, and the good lord willing, my last, I do leave believing, as I did 30 years ago, that America is a truly great nation, that the American people are wise and decent, and that America's leadership in the world is not just useful but that it is urgently needed.

(END VIDEO CLIP)

PHILLIPS: Let's go straight to the Pentagon now. And our man who has seen more than one defense secretary come and go, Jamie McIntyre.

Jamie, he's always got to get a little bit of his humor in there, doesn't he?

JAMIE MCINTYRE, CNN CORRESPONDENT: He -- he displayed it several times today in that going away session with Pentagon employees. And he also was very impassioned right at the end, when he said that the task in Iraq wasn't easy and by golly, he said, they'd better get it right.

We heard a little bit also today from the operational commander on the ground in Iraq, General Peter Carelli who is about to wrap up his term. He said that he leaves Iraq in a more uncertain and more tumultuous state that when he left there after his last tour of duty. He insisted that he thought the war in Iraq was still winnable and that there was an opportunity to turn things around.

But then during the course of the briefing, he was asked the same question that the incoming defense secretary, Robert Gates, was asked, is the U.S. winning in Iraq? And listen to the question and him struggling with the answer.

(BEGIN VIDEO CLIP)

GEN. PETER CARELLI, COMMANDER, MULTINATIONAL CORPS, IRAQ: You know, I thought that -- I thought I'd escaped that one. But militarily, I can say without a doubt that we are winning. We've never been defeated on any battlefield, sir, in this conflict, nor will we be.

To ask if we're winning in Iraq is to think that one can boil the situation down to a simple yes or no answer. And I don't believe there is a simple yes or no answer. I think it is wrong -- it's the wrong question. The real question that I think we should be asking ourselves is are we making the progress toward our strategic objectives? And I would have to give that answer a yes.

(END VIDEO CLIP)

MCINTYRE: The other key question he was asked was about what one of the key recommendations of the Iraq Study Group. Is it feasible to expect that the majority of U.S. combat troops could be moved out of Iraq or at least off the front lines by the beginning of 2008?

He said he thought that was possible. He could foresee a timeline of events that could possibly make that happen. But he said it all comes down to the reconciliation in Iraq, a political settlement.

General Carelli just latest in a number of people, including Rumsfeld, again, today, to say that the Iraq war cannot be won militarily. There has to be a political solution -- Kyra.

PHILLIPS: What do you think will -- Rumsfeld will do next?

MCINTYRE: Well, he said he's going to take sometime and think about it. He's considering writing a book, which is something he said he never really thought he was going to do. He said he -- he always said he was too young to write a book. Now he says he can't use that excuse anymore.

He has a house on the eastern shore of Maryland, where he'll probably spend some time relaxing, and he also has a place out in New Mexico. And it was pretty clear, though, that this war will probably not only his last remarks as defense secretary, but also in all likelihood in public life after a career of more than 50 years -- Kyra.

PHILLIPS: Jamie McIntyre, live from the Pentagon, thanks.

LEMON: Call it a listening tour of sorts. As the dust settles from this week's release of the Iraq Study Group report, President Bush is filling up next week's agenda with a wide range of meetings on Iraq.

CNN White House correspondent Suzanne Malveaux joins us with a preview of that -- Suzanne.

SUZANNE MALVEAUX, CNN CORRESPONDENT: Don, I just got out of the White House briefing with press secretary Tony Snow. He described it this way. He says there is a time, of course, for campaigning, but there's also a time for governing.

And he said that the president is really following up on this trend from the Iraq Study Group, that the American people want this government to get down to the business of governing.

And that is what the president is trying to do by reaching out today, earlier in a breakfast meeting with the incoming leadership of the Democratic Party, recognizing the outgoing chairs of the Republican Party, but emphasizing here that he wants to have regular meetings, that this is a White House that he wants to open up to both parties to try to get something done, not only on Iraq and try to find consensus but also domestic issues.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I think we ought to meet on a regular basis. Believe there's consensus toward that. The reason you meet on a regular basis is so that the American people can know we're working hard to find common ground.

(END VIDEO CLIP)

MALVEAUX: Now both sides, of course, emphasizing this need for consensus for common ground.

Don, this is really kind of a new reality for this White House. What you're seeing is a lot of pressure on this president to try to change course here when it comes to his Iraq policy, them taking it very seriously.

The president says those recommendations from the Iraq Study Group next week is going to be critical for the president. He's going to be doing a lot of outreach.

On Monday he travels to the State Department. He'll meet with Secretary Rice and other top officials to get a sense of their impressions of what is happening in Iraq, what needs to change. He's going to come back to the White House in the Oval Office, meet with outside experts on the same issue.

Tuesday is when he's holding a video teleconference with his formal commanders, top commanders on the ground in Iraq, as well as the U.S. ambassador to Iraq, Zal Khalilzad.

And then Wednesday, he heads to the Pentagon, of course, talking with Donald Rumsfeld, the secretary of defense, and others.

We are told he's going to take all of this together. That it is going to be a time for listening, not deciding. But that he will make some decisions about the Iraq policy.

It may not be splashy or bold, as the defense secretary said earlier today, but it is going to be significant. And it will be announced to the American public, a major address in the next couple of weeks. The goal is before Christmas, Don.

LEMON: South African leader, Suzanne, just arrived at the White House, just a short time ago?

MALVEAUX: Yes, Thabo Mbeki is here, meeting with the president at this hour. There are talking about a number of issues. But of course, a top priority is the Darfur crisis, as well as the AIDS crisis in that country.

Both leaders sitting down. They speak regularly, but this is obviously two very important issues to this president and the South African president, as well.

LEMON: Suzanne Malveaux, very busy time for the president there. A lot to do before Christmas. Thank you so much for your report.

MALVEAUX: Sure.

PHILLIPS: Never want to back down from a battle, former U.N. ambassador, Jeanne Kirkpatrick, has lost the fight of her life. The academic turned diplomat died last night at her home in Bethesda, Maryland. Friends say that she had been in declining health and she suffered from heart disease.

One of the first of the neoconservatives, Kirkpatrick was tapped for the U.N. post by President Ronald Reagan and relished filling the chamber with blunt renunciations of communism. She is fondly remembered today by the current U.N. ambassador, John Bolton.

(BEGIN VIDEO CLIP)

JOHN BOLTON, U.S. AMBASSADOR TO U.N.: She was a great American. She was a great ambassador of the United States here. She never forgot who she was representing.

She was a friend and colleague of many people at AEI, at Georgetown University and the diplomatic community. She was a great scholar. She was one of the most outstanding advocates of American foreign policy in our history.

When I was at AEI in the late '90s, for most of that time, our offices were right next to each other, and I benefited very greatly.

It really is very sad for America. But she will be -- she will be greatly missed.

(END VIDEO CLIP)

PHILLIPS: Jeanne Kirkpatrick, the first woman U.S. ambassador to the U.N., dead at 80.

LEMON: Seeing red over red tape in New Orleans. Mayor Ray Nagin fires a fresh salvo at FEMA. We're asking him all about it in a NEWSROOM interview you won't want to miss. Stay tuned.

PHILLIPS: Big bling, big business and bloodshed in Africa. What's the connection? A closer look at conflict diamonds, ahead in the NEWSROOM.

(COMMERCIAL BREAK)

ANNOUNCER: Live in the CNN NEWSROOM, Kyra Phillips and Don Lemon.

PHILLIPS: They're gorgeous to some, deadly to others. Conflict diamonds are back in the public eye, thanks to a movie that hits theaters today. It has some in the diamond industry worried about a consumer backlash.

But Ali Velshi is back to tell us the other side of the story that he introduced to us yesterday.

Hey, Ali.

ALI VELSHI, CNN CORRESPONDENT: Hey, Kyra. Good to see you again.

The question here, is anybody going to really care? I mean, the average person who goes to buy a diamond, do they ask where a diamond is from? Would they change their decision if they knew it was a conflict diamond?

Well, if you are one of those people, and you're interested in getting conflict-free diamonds, you might want to take another look at Harry Winston.

(BEGIN VIDEOTAPE)

VELSHI (voice-over): When someone asks you where you got your diamond, they probably want to know where you bought it.

RONNIE VANDERLINDEN, PRESIDENT, DIAMEX INC.: The country of origin when it comes to polished doesn't really make a difference. It's really not important where that diamond comes from.

VELSHI: Unless, of course, you're worried about buying what's called a conflict diamond, rough diamonds traded for arms in African civil wars.

Conflict diamonds aren't the problem they once were because of worldwide pressure on the diamond industry and the industry's own efforts. But Canada, now the world's third largest diamond producer, thinks increased attention to this issue will cause at least some customers to intentionally buy conflict free.

BOB GANNICOTT, CEO, ABER DIAMOND CORPORATION: We want to be in the forefront of that, not trailing behind it. So even though the customer may not be particularly interested yet, we are very interested and we take great care in that respect.

VELSHI: Bob Gannicott runs Aber Diamond Corporation, one of Canada's major diamond miners. His company recently moved into the retail diamond business.

GANNICOTT: We want to be the world's best, most authoritative diamond jeweler.

VELSHI: And how exactly does one make the move from diamond miner to diamond jeweler? By buying one of the most storied names in jewelry, Harry Winston, the venerable New York institution immortalized by movies like "Gentlemen Prefer Blondes".

MARILYN MONROE, ACTRESS: Talk to me, Harry Winston. Tell me all about it.

VELSHI: Harry Winston still buys quality diamond wherever it can but says conflict free is now part of its mantra.

(on camera) Does the person who comes in to drop top dollar on diamond jewelry at Harry Winston give a hoot?

GANNICOTT: Some do. And certainly we give a hoot. The point is, we -- we make it our business to protect ourselves from what will undoubtedly become a bigger issue in the future than it is today.

VELSHI (voice-over): Whether conflict diamonds become a bigger issue is yet to be seen. During the height of the diamond-fueled conflicts in Africa the last 30 years, jewelry buyers rarely asked where a diamond came from. Not that most jewelers were likely to know the answer anyway.

(END VIDEOTAPE)

VELSHI: Now, even with this free and fair market that's out there now, Kyra, the diamond business is doing very well, both Harry Winston and De Beers, the big player in the industry, both planning to expand their stores and sell more diamonds over the next few years.

PHILLIPS: Well, if you were to buy a diamond today what are the chances that it would be a blood diamond?

VELSHI: The industry says about one percent. And the big dealers, obviously Harry Winston says none of their diamonds are conflict diamonds. But even De Beers says they don't come through the system anymore. There's this new process in place to keep diamonds out. It's not fool proof, but the best numbers I can come up with, about a 1 percent chance. And from the high-end dealers, probably zero percent.

PHILLIPS: So someone that has a diamond that sees this report right now or goes to the see the movie, would I be able to take my diamond in, for example, to a shop and say, where did it come from? There's no way to trace it right?

VELSHI: No. That's the thing about -- that's why blood diamonds were so easy to use for those conflicts, because there is no way to trace where that diamond came from. So if you got it on your hand, enjoy it. Look at it. What are you going to do?

PHILLIPS: Treasure it. Ali Velshi, thanks.

LEMON: Curiouser and curiouser. Contaminated hotel workers in London and conflicting medical reports from Moscow offer new wrinkles in an already confounding case. We'll lay it out, straight ahead in the CNN NEWSROOM.

PHILLIPS: Mayor Ray Nagin fires a fresh salvo at FEMA. We're asking him all about it in the NEWSROOM interview you won't want to miss. Stay tuned.

(COMMERCIAL BREAK)

LEMON: To business news now. Some surprisingly upbeat news on the job front. Susan Lisovicz is at the New York Stock Exchange to break down the much anticipated jobs report for us.

Hey, Susan, let's hope it's good news.

SUSAN LISOVICZ, CNN CORRESPONDENT: It is good news. Because, you know, if you want to look at where the economy is one of the simplest ways is to look at who's hiring and what kind of numbers we're seeing.

Job growth last month was stronger than expected. A government report showing the nation's employers added a solid 132,000 new jobs in November, a big improvement from October's anemic number.

However, the unemployment rate, which is based on a separate survey, edged up to 4.5 percent, as people who had stopped looking for work resume their job searches ahead of the holiday season.

By the way, most of November's hiring came from service-related industries, which include retailers, while the head counts in the construction and manufacturing sectors fell. We got earlier stats on that this week, so big surprise there -- Don.

LEMON: And I think I know the answer to the next question, but I'm going to ask it anyway because it was on the front page of every paper that I read this morning. Everybody's interested in this. Wages, workers, keeping up with costs, rising costs?

LISOVICZ: Right, because they'd been stagnant for so long. But what happens if you get a tightening job market, presumably employers are going to pay more.

Wages did grow by a strong 4.1 percent year over year. Inflation, the overall inflation number, has been running at just below 1.5 percent.

If people are earning more, they may be more likely to go out and spend it, which is good for the overall economy. But strong wage growth can also pressure companies to raise prices, which heats up inflation. And that's not so good, at least as far as the Federal Reserve is concerned -- Don.

LEMON: Let's hope investors are reacting to this good news positively.

(STOCK REPORT)

(COMMERCIAL BREAK)

PHILLIPS: Hello everyone. I'm Kyra Phillips live at the CNN world headquarters in Atlanta.

LEMON: And I'm Don Lemon.

New Orleans Mayor Nagin fires a fresh salvo at FEMA. My interview in just a few minutes. You don't want to nice. You don't want to miss it.

PHILLIPS: Spy mystery is supposed to keep you guessing, right? this one would be exciting if real people weren't really getting sick. A new turn today in the deepening and widening case of the poisoned former Russian spy.

CNN's senior international correspondent Matthew Chance is in Moscow with more.

Matthew, what are you learning?

MATTHEW CHANCE, CNN SR. INTL. CORRESPONDENT: Thanks, Kyra. As you say, more developments in this increasingly tangled investigation into the murder of the former KGB spy Alexander Litvinenko in London last month. It's emerged here in the Russian capital that one of the key witnesses in this poisoning investigation has also been contaminated with what Russian authorities say are high levels of radiation and he's suffering severe radiation sickness. All this of course coming as a team of British investigators continues their work in the Russian capital, interviewing witnesses, trying to piece together evidence in a way of trying to find the closest they can get towards the truth.

(BEGIN VIDEOTAPE)

CHANCE (voice-over): Another twist in the poison plot that already defies belief. A key witness now may be facing the same agonizing fate of former KGB agent Alexander Litvinenko. Demetri Kovtun was one of the Russians who met Litvinenko in the Millennium Hotel in London on the day he was poisoned. Now the Russian news agency Interfax reports he, too, has acute radiation sickness. Investigators say he's already revealed important evidence.

There's renewed focus on London's Millennium Hotel as the possible site where Litvinenko was poisoned. Seven of its staff are now confirmed to be contaminated with radiation. Russian authorities say they've opened their own criminal investigation. It could mean Russian detectives following the trail to London.

But progress by their British counterparts in Moscow appears to be slow. British investigators say the Russians are cooperating, but they say they've still been unable to cross-examine key witnesses, including Andrei Lugovoi, a former Russian agent, also at the Millennium Hotel meeting. He told reporters it was an innocent get- together.

"I told Litvinenko I would not be alone," he said. "I knew that he was very careful with unknown people from Russia."

Back in London, two Phd students, one among the last to interview Litvinenko before he fell sick, said the former spy told them about a dossier he'd acquired. They say Litvinenko claimed it contained evidence implicating Russian officials in corruption.

JULIA SVETLICHNAYA, PHD CANDIDATE, MET LITVINENKO: he told me, I've got files, I've got very sensitive information, I've got special files, FSB files, who I have had access to do those blackmails. He indicated to me clearly that said he had access to very sensitive information of the FSB.

CHANCE: The existence of the dossier has never been confirmed, but sensitivities in this case, political and diplomatic, have very much come to the forefront.

(END VIDEOTAPE)

CHANCE: Well, Kyra, Russian officials say references to any official Kremlin involvement in this poisoning have already damaged relations between Russia and Britain. The fact that British police are now digging around in the Russian capital runs the risk of making matters even worse. Who know, after all, what they may find.

Back to you.

PHILLIPS: Well, how are Russian authorities and the British police working together, or are they?

CHANCE: Well, certainly something of a tense relationship between them. Officially, what the Russians have said and what the British have confirmed, is that they are cooperating with each other. But the Russians have been very careful to set parameters in which the British are permitted to work.

For instance, the British are not permitted to ask questions in any of the interrogations of the witnesses. That will be done by Russian detectives working with the British. Also the Russians have made clear that if anyone is suspected, if there are to be any arrests made, they've ruled out the possibility of the extraditions of Russian citizens to Britain to face trial -- Kyra.

PHILLIPS: Matthew Chance, on the case for us there in Moscow, thanks.

LEMON: Space Shuttle Discovery still on the launch pad. Low clouds forced NASA to scrub last night's launch. The space agency plans to try again tomorrow night. But the weather may not cooperate. Chance of liftoff is just 30 percent. The 12-day shuttle mission is expected to be the most difficult one yet. It includes three spacewalks and a rewiring project for the International Space Station. When the space shuttle does take off, CNN will be there live. Make sure you join us tomorrow night at 8:47 -- that's 8:47 Eastern -- for NASA's next attempt. That's tomorrow night, right here on CNN.

PHILLIPS: Not a minute later, not a minute earlier.

LEMON: That's right, 8:47.

PHILLIPS: Seeing red over red tape in New Orleans. Mayor Ray Nagin asks for speedier response from the federal government. We're going to ask him about that and more, from the NEWSROOM next.

(COMMERCIAL BREAK)

LEMON: It was September 2nd, 2005, and an angry mayor in the wake of one of America's worse natural disasters sounded off in interview with WWL radio.

(BEGIN VIDEO CLIP)

RAY NAGIN, MAYOR OF NEW ORLEANS (voice-over): This is a national disaster. Get every doggone Greyhound Bus line in the country and get (EXPLETIVE DELETED) moving to New Orleans. They're thinking small, man, and this is a major, major, major deal.

(END VIDEO CLIP) LEMON: More than a year after Hurricane Katrina, New Orleans Mayor Ray Nagin is still angry about the way the federal government is handling the aftermath. He says his city has seen only a fraction of the money that Congress has appropriated for the rebuilding effort. I spoke with him, just a few minutes ago.

(BEGIN VIDEOTAPE)

NAGIN: Everyone's been talking about the $100 billion that has been allocated from Congress and that's wonderful. But as I look at how that money is being spent to make a real difference in New Orleans, it still has not gotten to the city. The main thing that we've gotten thus far is about $240 million in a community disaster loan.

LEMON: You have -- I guess specifically you're talking about FEMA. And you have been very critical of FEMA. Do you feel since this hurricane happened in the 14, 16 months since it's happened that FEMA has its act together?

NAGIN: Well, I think FEMA's still struggling. And I think everybody acknowledges that. One of the problems FEMA has in my opinion is there's a constant rotation and turnover of personnel. So once you get to an agreement on how to interpret the Stafford Act, then the next thing you know someone has turned over and you have to start all over again.

LEMON: Well, specifically what about its leader? What about Michael Chertoff who is in charge of FEMA, in charge of the Homeland Security? What do you think of Michael Chertoff? As you know, he's going to be on CNN talking about homeland security and talking about FEMA. Your reaction to him? Your assessment of him over the past 14 to 16 months?

NAGIN: Well, I think he's got probably one of the most -- one of the toughest jobs in America. I've met with the secretary on a number of occasions. I've had some successes with the secretary. And other things seem to take a longer time to get done. I think it's part of the bureaucracy that he probably inherited.

LEMON: Why 14, 16 months, as we say, after this hurricane, why are people still living in FEMA trailers, mayor?

NAGIN: Well, it's part of the challenge that we had. We don't really have the housing -- 120,000 units were damaged. When you link that in with the slow pace of the dollars from FEMA with the Road Home program, where only 56 of our residents have gotten grants, have received grants to rebuild their homes, you have what you have today.

LEMON: All right. You talk about the housing. You've been going around the country. I interviewed you earlier in the year in Chicago. But, you've been going around the country, trying to get people to come into New Orleans. Telling people that they should come back to New Orleans, but also it's a good place to come and invest in. It's a great investment opportunity. But rents have tripled since Hurricane Katrina. Home costs are up. Housing is in short supply. Work is hard to find. Schools are not much better than they were before. How can you urge people to go to New Orleans and come back to New Orleans when in many areas, you can't supply essential services for people who live there?

NAGIN: Well all of the utilities and quality of life services that people need in the city of New Orleans have been restored. Water, sewer, those types of issues. The marketplace has changed since Katrina happened. With so many units, housing units damaged, the cost of rent has gone up.

We have about 12,000 apartment complexes that are coming online. That pressure should drive rents down. Now, you talk about the cost of construction. That's an issue that's not just for New Orleans, but for the entire Gulf Coast. Our citizens are coming back. It's not easy. It's hard work during a rebuild.

LEMON: All right, so you -- we've been talking about crime here. We know that crime is back and it's strong. And drugs, back and strong.

NAGIN: Yes.

LEMON; You have been quoted by saying that the city has become, quote, the Super Bowl for prostitutes. And your city depends on tourism. The French Quarter is a crown jewel. How can you protect that? How do you defend that? How do you tell people to come to New Orleans when the crime is so high?

NAGIN: Well, the prostitution challenge was something that escalated a while back and I was trying to make sure that the proper attention was placed on it. It has been, and we've dealt with that issue and it has subsided. The challenge we're having right now still deals with drug activity.

We're dealing with some elements that we haven't had in this city before. There are different gangs that are coming into the city as they're following these workers, these construction-related workers. And we have a special tack force and other elements working with the feds to see if we can get that back under control much better than it is today.

LEMON: OK, We talk about FEMA and we talk about the government and the delays and that. How do you respond to critics and people who live there -- business owners, because I know, I travel to New Orleans occasionally -- business owners who are saying Mayor Nagin simply is not doing enough to bring this city back fast enough and he keeps blaming the government for doing that.

NAGIN: Well, you know, mayor is somebody who's on the front line and I accept that criticism. But I challenge anyone to show me any place where we haven't stretched the dollars that are available in the city of New Orleans to get us in the position we are in today.

There is no American city that has ever been totally shut down with so little resources and has to fight through the bureaucracies to get the dollars. You give me the money and the resources and I can accelerate this rebuild.

(END VIDEOTAPE)

LEMON: And later, we'll get a response from Homeland Security Secretary Michael Chertoff. He will join us for an exclusive interview at 3:00 p.m. Eastern.

PHILLIPS: This coming to us now through the Associated Press. You know, we've been talking about the ethics committee in a closed door session all day today looking over the Mark Foley report.

You remember the former Congressman that was found making improper advances towards former male pages. Well, the AP now reporting, it's just coming across the wire, that the House Ethics Committee has concluded that Republican leaders did not break any rules in handling the ex-Rep, Mark Foley's improper advances to former male pages, but were negligent in protecting the teenagers. That's according to a congressional aide apparently talking to the Associated Press.

This is where we are expecting House Ethics Committee members to come forward, step up to the mikes. That should be happening in the 2:00 Eastern hour. When that happens, we will take it live.

Ablaze and out of control, bracing for a massive firestorm in Australia's southeast. In the NEWSROOM to the front lines just ahead.

And Reynolds Wolf has the latest on this deep freeze southern- style. all right, we're in Atlanta, to us this is cold weather. You're watching CNN NEWSROOM.

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PHILLIPS: A powerline mishap -- investigators say that's what sparked the initial wildfire right here in the Moorpark, California, area. The cause of the second fire that merged with it, though, still a mystery. Firefighters spent the past two days mopping up hot spots after corralling the fire. It was fueled by Santa Ana winds. It burned about 13,600 acres.

LEMON: And there are frightening scenarios in southeastern Australia -- dozens of brushfires racing across the state of Victoria. Farms and towns on alert as the winds pick up, fanning the flames even more.

Reporter Peter Morris with Australia's Channel 7 take us to the frontlines.

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PETER MORRIS, CHANNEL 7 REPORTER (voice-over): It's the unpredictable nature of these blazes which has firefighters worried. Last night near the township of Kevington, small wind gusts were all it took to fan smoldering undergrowth into major outbreaks. By first light, the winds had dropped and so, too, the temperature, the cooler conditions pushing smoke into the valleys as crews prepared themselves for another day of firefighting.

UNIDENTIFIED MALE: That means there's going to be a bit of mixing there and a bit of swirling.

MORRIS: It was another day of back-burning and dozer work, the tracks providing a network of fire breaks vital to the protection of homes dotted around the base of the Mount Terrible.

ALLAN BLACKLEDGE, KEVINGTON, AUSTRALIA: The day is not over yet. It's a bit difficult at the moment with all the thick smoke to see what's going on, actually.

MORRIS: Firefighters, using the last of the settled conditions, to prepare themselves.

ANDREW DWYER, FIREFIGHTER: Well, we're pretty lucky because it's been quiet for us today. There's not been too much wind. Yesterday, it was going off. There was a lot of wind around, and now we're just holding our breath and waiting to see what the weekend brings.

MORRIS: 85-year-old Sheila Lund looks after injured animals and lives in the forest right in the path of the fires. But she and her 89-year-old husband Gil won't be going anywhere.

SHEILA LUND, HOME IN PATH OF FIRE: Well, I was a little bit concerned but the other night they came and told us at 11:00, you got to get out, come on, you've got to go. And I said we're not going.

GIL LUND, HOME IN PATH OF FIRE: If we have to, we can dive down and jump in the river.

MORRIS: And for those who will stay here and protect their home, it's just a case of doing as much as they can to prepare themselves for a shocking weekend.

CAROL EISENBISE, KEVINGTON, AUSTRALIA: I think it's going to be hit and miss for everybody. I am scared.

MORRIS: Late today, locals and fire commanders gathered at Javiston (ph) Hall to hear the best and worst of what they'll face in the next 48 hours.

DWYER: We're looking at a pretty tough scenario this weekend.

MORRIS: Peter Morris, 7 News.

(END VIDEOTAPE)

PHILLIPS: Snow and ice, windchills well below freezing. Of course, that's normal this time of year in places like Portland, Maine. You just scrape off your windshield or you put on your snow boots and, hey, off you go. But the South, though, it's not used to the icy temperatures, much less icy roads and we're seeing a lot of slipping and sliding and slow going as an Arctic blast blows through.

In Illinois and Missouri, thousands of folks still in the deep freeze and in the dark. It's been a week since they were blanketed in ice and snow.

LEMON: Yes, well, it's cold enough to snow in a lot of other places, here in Atlanta, for one. Reynolds Wolf, how long are we going to be in this deep freeze? I thought it doesn't get cold down here.

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LEMON: Thanks, Reynolds.

PHILLIPS: Well, just a reminder -- we're minutes away from the Capitol Hill news conference dealing with the case of former Republican Congressman Mark Foley. It's scheduled for 2:00 Eastern. Foley, of course, has been under investigation for sending inappropriate messages to underage congressional pages.

The committee has also been looking into the way the House leadership, including Speaker Dennis Hastert, handled the allegations against the Florida congressman. CNN does plan live coverage of that news conference at the top of the hour. We'll take it as soon as it happens.

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