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LOU DOBBS TONIGHT

Chinese Espionage; Democrats Deadlocked; Small Businesses hit Hard by Gas Prices; High Food Prices; Mexican Drug Cartel Violence

Aired May 29, 2008 - 19:00   ET

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


KITTY PILGRIM, CNN CORRESPONDENT: Thanks, Wolf.
Tonight, House Speaker Nancy Pelosi declared she will step into the fight over Florida and Michigan primaries if necessary. We'll have complete coverage of that.

Also tonight governors in U.S. border states hold talks in Mexico City about the out of control drug war along our southern border. We'll have a special report.

And tonight, outsourcing defense, a critical decision on a vital tanker aircraft contract due very soon, tens of thousands of U.S. jobs are at stake.

We'll have all that, all the day's news, much more straight ahead tonight.

ANNOUNCER: This is LOU DOBBS TONIGHT: news, debate, and opinion for Thursday, May 29. Live from New York, sitting in for Lou Dobbs, Kitty Pilgrim.

PILGRIM: Good evening, everybody.

We begin tonight with breaking news about what could be a stunning example of communist China's efforts to steal U.S. secrets. Now there are reports Chinese spies may have copied the contents of a U.S. government laptop computer during a visit to China by a top level U.S. delegation.

Lisa Sylvester has the very latest from Washington -- Lisa.

LISA SYLVESTER, CNN CORRESPONDENT: Kitty, two media outlets, The Associated Press and "The National Journal" are reporting that a laptop computer taken on a trip to China by a U.S. trade delegation led by Commerce Secretary Carlos Gutierrez last December may have been compromised. Specifically they are reporting there's an investigation into whether Chinese officials secretly copied information from the computer possibly when it was left unattended and looking whether they were able to do this using spyware programs.

Now these are programs that allow someone from the outside to tap in and download the computer's contents multiple times without the computer's owner being aware of this. Now Secretary Gutierrez was in China last year. This was just one of many trips that he has made to the country, to China to talk about trade disputes and opening up the Chinese markets, U.S. businesses. None of the government agencies though that might be investigating this are acknowledging that there's an ongoing investigation. The Commerce Department is neither confirming nor denying the story. The Department of Homeland Security is saying quote, "The DHS at this time is not undertaking an investigation. There is nothing to substantiate an actual compromise at this time."

But when the "Associated Press" asked Gutierrez about this alleged breach, he said, "Because there is an investigation going on I would rather not comment on that to the extent that there is an investigation going on. Those are the things being looked at. Those are the questions being asked. I don't think I should provide any speculative answers."

Now the Commerce Department tells CNN though that this comment was taken out of context, but would not elaborate any more than that. Now we just mention also that we tried to reach the Chinese Embassy and the Consulate General of the People's Republic of China. We left messages, but they were not returned -- Kitty.

PILGRIM: Lisa, perhaps we should explain why DHS is particularly would be involved in something like this.

SYLVESTER: The Department of Homeland Security has these computer forensic experts. It's called the U.S. Computer Emergency Readiness Teams. Whenever you have a breach of this sort they are the folks who would immediately go to the agency to essentially try to see if there was some kind of compromise in this case with these computers.

Now DHS has acknowledged that it has been to the Commerce Department eight times in recent weeks. However it has made a point of saying that this was not related to a laptop computer and was not related to any of these allegations or this claims that there was some kind of laptop computer breach dating back to that trip from December.

PILGRIM: All right.

Thank you very much -- Lisa Sylvester.

In the past, communist China is believed to have made repeated efforts to hack into the Pentagon's computers. It is not clear whether those efforts have been successful or not.

Jamie McIntyre has more from the Pentagon -- Jamie.

JAMIE MCINTYRE, CNN SR. PENTAGON CORRESPONDENT: Kitty, it was just about a year ago in June of 2007 that the Pentagon did acknowledge although not all the time publicly that its unclassified system had been penetrated by what was believed to be Chinese hackers. I can tell you, without knowing the specifics of this case, that the question of computer security and laptop security in particular is one that the Pentagon is quite aware of.

U.S. official delegations traveling to countries that are not necessarily friendly to the United States have a standard procedure where they do not take laptop computers into the country. Not just China, but other countries as well.

They also take any of those wireless devices, like Blackberries, personal devices or even cell phones because those kinds of wireless devices can be cloned even if they're under the possession of security people the entire time they're in the country. And that's one of the ways that countries like China and other countries can get the kind of information they need to break into the computer system.

Everything from passwords to encryption codes that are in those devices, so they have a standard procedure where they either use local phones or they bring special computers that have been wiped clean of any information and then they clean them again on the way out precisely because the Pentagon is probably the most attacked target in this cyber warfare that's been going on around the world -- Kitty.

PILGRIM: Jamie the specifics of this case aside, this is an active worry at the highest level of our government, isn't it?

MCINTYRE: Well it's -- there's a recognition that this is where a lot of warfare is going on. This term cyber warfare sounds kind of, you know amorphous, kind of hard to get your hands around it, but the U.S. Air Force has a whole center now that's set up around the clock just trying to tackle this problem of how to protect America's vital computer systems. Not just for defense but also all the things that you know run electrical grids and communications, all the things that could be crippling and disabling in time of a national emergency.

PILGRIM: Thanks very much. Jamie McIntyre.

Thanks, Jamie.

We will have much more on this breaking story later in the broadcast and one of this country's leading authorities on communist China's rising threat is Gordon Chang and he will join me here.

Now our other top story, House Speaker Nancy Pelosi tonight threatening to step into the bitter fight over the Democratic nomination. Pelosi telling "The San Francisco Chronicle" that she does not want the fight to reach the Democratic Convention in August.

Kate Bolduan in Washington reports -- Kate.

KATE BOLDUAN, CNN CORRESPONDENT: Hi there, Kitty.

Well we've learned that the two top Democrats in Washington, House Speaker Nancy Pelosi, as you mentioned, and Senate Majority Leader Harry Reid, they are now pushing to end the prolonged nomination battle. A senior Democratic aide says Pelosi is calling uncommitted superdelegates, urging them to pick a candidate between now and next week.

(BEGIN VIDEOTAPE)

BOLDUAN (voice-over): A blunt warning from Speaker of the House Nancy Pelosi telling "The San Francisco Chronicle" that the Democratic nomination fight must be resolved soon or else. REP. NANCY PELOSI (D-CA), HOUSE SPEAKER: I will step in because we cannot take this fight to the convention. It must be over before then. I believe it will be over in two weeks.

BOLDUAN: A senior Democratic aide tells CNN Pelosi has already begun pressuring undeclared superdelegates to publicly endorse either Hillary Clinton or Barack Obama. Senate Democratic Leader Harry Reid is also getting involved. He told KGO Radio he has spoken to both Pelosi and Democratic Party Chairman Howard Dean.

SEN. HARRY REID (D-NV), MAJORITY LEADER: We all are going to urge our folks next week to make a decision very quickly.

BOLDUAN: Decisions by superdelegates are key because it's unlikely either candidate will clinch the nomination after next week's final primaries. Right now, excluding Florida and Michigan, whose delegations are being contested, there 271 superdelegates in Congress; 92 of them support Clinton; 115 support Obama. That leaves 64 lawmakers still undeclared. One of those is Congressman Jason Altmire of Pennsylvania.

REP. JASON ALTMIRE (D), PENNSYLVANIA: We allow this to fester, to drag out over the next three months into the National Convention, which is at the end of August, then we may not have time to put the pieces back.

BOLDUAN: While Speaker Pelosi is pushing superdelegates to declare their picks, she insists she'll remain neutral because of her role chairing the Democratic Convention in August. In the past, Pelosi said superdelegates should follow one guiding principle.

PELOSI: It will do great harm to the Democratic Party if it is perceived that the superdelegates overturn the will of the people.

(END VIDEOTAPE)

BOLDUAN: Democratic leadership aides do say that they expect the remaining congressional superdelegates to announce their endorsements soon after these last primaries on June 3 -- Kitty.

PILGRIM: Thanks very much -- Kate Bolduan.

Nearly two million people voted in the Democratic primary in Florida. And Senator Clinton who won the most support in Florida wants all of those votes counted.

Now, Governor Charlie Crist of Florida, a Republican, shares that point of view as he told CNN.

(BEGIN VIDEO CLIP)

GOV. CHARLIE CRIST (R), FLORIDA: My preference clearly is that every vote counts, you know both Republicans and Democrats. I mean I wish that both of those national committees would count all the votes. I mean the Florida voters took the time and the trouble to get out and vote, they were well informed. They turned out in record numbers, both parties did on our primary election day January 29 and it seems to me in a democracy the right thing to do is to count every vote.

(END VIDEO CLIP)

PILGRIM: We should point out that Governor Crist is a strong supporter of John McCain and he has been mentioned as a possible pick for vice president.

Well a new poll shows Senator Clinton is ahead in Puerto Rico, which holds its primary on Sunday. Now that poll gives Clinton a lead of 13 percentage points over Obama. And this poll was conducted by a group that includes Bill Clinton's first pollster. Now there is no suggestion that pollster influenced the results.

Meanwhile, Senator Obama is already looking past the primary to the general election. Obama says the general election will begin after the last primaries Tuesday in South Dakota and Montana.

Still to come, gasoline prices hit another record high for the twenty-second straight day, 12 business owners are reeling about that. We'll have a special report.

Also a major setback for the state of Texas and the controversy over children seized from a polygamist sect. We'll have a live report. Stay with us.

(COMMERCIAL BREAK)

PILGRIM: Federal regulators today said they have been investigating soaring oil prices for the past six months. Now the probe into the crude oil market began in December, according to the U.S. Commodity Futures Trading Commission. Possible price manipulation is a focus of the investigation. No other details have been released. Crude oil prices were trading under $90 a barrel when the investigation began and prices have jumped more than 40 percent since then. Oil closed today at $126 a barrel.

Gas prices hit another new record high today at $3.95 a gallon. This is the twenty-second straight day of new record highs and those rising prices are putting a tremendous strain on schools and small businesses in this country. Those small businesses employ 80 percent of the country's work force.

Carrie Lee reports.

(BEGIN VIDEOTAPE)

CARRIE LEE, CNN CORRESPONDENT (voice-over): Small businesses and schools are the backbone of middle class America, but with skyrocketing gas prices they're being forced to find new ways to keep their doors open. Many small businesses, like this Houston delivery company, are taking a hit on profits.

ERIC DONALDSON, HOT SHOT DELIVERY: Fuel prices are drastically affecting us. They are affecting our business as a margin as well because the more and more that we have to raise prices or surcharges is more money that we have to pass on to our independent owner operators, so our margins are being squeezed.

LEE: But raising prices is not an option for this medical equipment distributor in Baltimore.

GARY GILBERTI, CHESAPEAKE REHAB EQUIPMENT: High energy costs are our third largest operating cost below rent and payroll while other companies are able to increase their prices in reaction to fuel and energy costs we're unable to do so because our prices are regulated by Medicare and Medicaid and other federal agencies.

LEE: Executives like Gilberti made their case for federal help at a House hearing in early April. Since then, gas prices have risen another 20 percent. It's not just businesses, schools are also feeling the squeeze. In January, Rose State College, a commuter school in Oklahoma, switched to a four-day week to keep student gas bills low and enrollments up.

DR. TERRY BRITTON, PRES., ROSE STATE COLLEGE: I was just coming to work one day and filled up with gas and realized that was the first time I had to put in $50 to fill the tank. The students at Rose State College are now always able to afford $50 a tank.

LEE: One day less commuting could save some students as much as $700 a semester. The school hasn't seen a drop in enrollment, but if gas prices keep climbing, it very well could.

(END VIDEOTAPE)

LEE: There's also a great deal of concern among educators from the elementary to the college level when it comes to high fuel prices and there own budgets. Kitty, the National School Board Association is starting to look at the impact, but we might not know the whole repercussion or the repercussions until students are actually in the classroom this fall.

PILGRIM: And it's such a tough situation and as you point out, congressional hearings, but no real policy remedy, no legislative remedy, and businesses and schools have to function. They have to continue to function.

LEE: Right. A lot of people in Congress are sympathetic. They listen to small business owners testify in early April, but nothing specific has come out of that hearing. There have been small business tax breaks for over the past year, but nothing specific from April.

PILGRIM: Thanks very much -- Carrie Lee.

U.S. Airways announced a drastic plan to cut costs because of rising fuel prices. If you are planning to fly on this airline in the next couple of days, be prepared to pack your own snack because as of Sunday there will be no more nuts on U.S. Airway flights in the United States. Now a spokesman for the airline said they are eliminating free snacks on domestic flights as a way to save money because of rising fuel costs.

It is not just energy costs that are rising. Food prices are skyrocketing also and the dramatic increase are raising new questions about the possibility of a global food shortage.

Bill Tucker reports.

(BEGIN VIDEOTAPE)

BILL TUCKER, CNN CORRESPONDENT (voice-over): Our food is caught in a brutal vice of flooded farm lands in areas of extended drought. The demand for energy for our cars competes with the basic need of food on the table. Demand for many reasons is outstripping supply around the world.

In the past seven years, prices for wheat rose 362 percent, rice 318 percent, and corn 250 percent according to the United Nations and the World Bank. Agricultural economist Darryl Ray, with the University of Tennessee says the price increases are part of a natural cycle. His own research shows a series of price spikes over the past 30 years, the most dramatic being in 1974 when corn prices rose more than 300 percent in a 24-month period.

DARYLL RAY, UNIVERSITY OF TENNESSEE: We need to look ahead and understand that we will have times like this in the future just like we're having now and when we do have the opportunity to increase stocks and put them away, we should do that. And then when it's -- when we need it well then we'll have it.

TUCKER: It's not a new idea. It once was a part of our AG policy. To stock pile grain stocks creating a supply that was available during times of high prices and help keep prices from spiking. As for the future, he sees a slightly brighter one than projected in a new report from the organization of Economic Cooperation and Development and the United Nations, which sees prices continuing to rise until 2017.

UNIDENTIFIED MALE: I do believe that in you know four or five years, we'll see prices again come back down some, if not a lot, as all these other countries and farmers in these countries and the U.S. increase their production.

TUCKER: Because he says history shows price spikes are always followed by price falls.

(END VIDEOTAPE)

TUCKER: Now U.S. farmers are the most productive and efficient producers of food and their techniques are being exported, helping raise global food production by improving farm meals and bringing more land into foreign production. And just today, the World Bank announced that it will be making $1.2 billion in grants and loans available to the world's poorest countries for improving food production and improving and helping with their feeding programs.

That money is important, Kitty, because the thing that often separates the poor countries from the developed countries is their access to farming techniques and fertilizers and the like.

PILGRIM: Fertilizer a big one, but as you point out, Bill, that they do expect price hikes to continue for a decade.

TUCKER: Well that -- no, OEC does. If you talk to Daryll Ray at the University of Tennessee, he says no. In about five or six years you're going to see these prices come down because farmers naturally respond to these kinds of prices and these kinds of shortages and it comes onto the market and prices will come back down again. He's saying it's a cycle. And we can manage the cycle. It's not a secret. It's something we can do here.

PILGRIM: All right.

Thank you very much -- Bill Tucker.

Coming up, shocking revelations about communist China's apparent cyber espionage attempts, one of the nation's leading authorities on China will join me here.

And governors from U.S. border states are in Mexico tonight, we'll tell you what they want from the Mexican government. Stay with us.

(COMMERCIAL BREAK)

PILGRIM: Governors of New Mexico, California and Texas are in Mexico tonight. The governors want assurances that Mexico will do all that it can to fight raging drug cartel violence. (INAUDIBLE) it's already spreading across to the U.S. side of the border.

Casey Wian reports.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN CORRESPONDENT (voice-over): Governors of U.S. and Mexican border states met in Mexico City with President Felipe Calderon Thursday. At the top of their agenda, the ramp in drug cartel violence that has killed more than 4,000 Mexicans and threatens border communities in the United States.

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: We want to congratulate him for the courage that he has to stand up against the drug lords and to fight them. We appreciate that and we think very highly of your great effort.

WIAN: Mexican troops marched into the city of Kui Kahn (ph), the site of a shootout Tuesday that left seven federal police officers and one suspected drug cartel member dead.

GENERAL RODOLFO CRUZ, CHIEF OF MEX. FEDERAL POLICE OPS. (through translator): No they weren't assassinated; it was a confrontation, they weren't executed. It was a shootout. They were just simply more guys on the other side.

WIAN: Bullet holes too numerous to count. A painting of Jesus Malverde, the Mexican cult hero considered the patrons saint of drug traffickers. And random police searches of drivers on the street. All signs of a city under siege from a drug war. ROBERTO BURGOS, RESIDENT (through translator): There is so much crime, so many assaults. You can't walk around in the street any more. That makes you afraid to go out even to buy a soda.

WIAN: Calderon says the United States shares responsibility for Mexico's drug wars because it is the largest illegal drug market in the world.

PRES. FELIPE CALDERON, MEXICO (through translator): These criminal organizations that are illegally trafficking in arms, people and drugs that have harmed our communities so much. The only way we can combat them is through coordinated efforts.

WIAN: But a $1.4 billion military aid package from the United States for helicopters, intelligence equipment and training now appears in danger. Congress has threatened to reduce the first year's payment for the Merida Initiative by $150 million. Some Mexicans leaders now want to refuse the aid because some U.S. lawmakers want to link it to a crackdown on government corruption and human rights reforms.

(END VIDEOTAPE)

WIAN: Mexican lawmakers are concerned about the U.S. meddling in Mexico's internal affairs. U.S. lawmakers are worried taxpayer money will go to waste. Meanwhile, Mexican drug cartels seem to grow more violent each day, Kitty.

PILGRIM: Casey, I understand there are new developments on the Ramos and Compean case today. What is going on there?

WIAN: Absolutely. There is a significant setback in the effort to free former border patrol agent Ignacio Ramos. His attorneys as we reported last week filed a motion seeking bail for him to be released on bail, because he's already served more than a year in prison.

His attorneys believe that the gun charge that he was facing, he and his fellow border patrol agent Jose Compean were convicted of a crime involving using a firearm during the commission of a violent crime. It was a charge that was intended to be used against drug smugglers like the person they were pursuing down on the Texas border.

But U.S. attorneys charged these two border patrol agents with those crimes. And their -- the attorneys for the agents thought that they have a very good chance of getting that overturned on appeal. Because they think that that's going to be overturned, they thought since Ignacio Ramos has served more time than he was sentenced for all the other charges that they had a good chance of having him released on bail.

But late word today from the Fifth Circuit Court of Appeals in New Orleans, that appeal was rejected. No comment at this point from the attorneys. I did speak to the wife of Ignacio Ramos, Monica Ramos, this afternoon and she was very distraught. Very concerned about the implications this may have on the appeal for the agents -- Kitty. PILGRIM: As well she may be.

Thanks very much -- Casey Wian.

Well time now for tonight's poll: Should the United States send troops to the border to guard against violence from Mexican drug cartels?

Yes or no? Cast your vote at loudobbs.com. We'll bring you the results a little bit later in the broadcast.

We do have time now for some of your thoughts.

And Nick in California wrote: "Mr. Dobbs, I appreciate your reporting on the problems of border security, the war on middle class, and the failure of the administration, the House and Senate to really try to do anything at all. Don't give up, Lou."

And Jimmy in California wrote to us: " 'The Lou Dobbs Show' should be required daily viewing for the Senate and the House. Then, they could find out what's going on in America."

We had Del and Marilyn in Oregon: "Today is the first day of the rest of our lives. Now we are Independents. After being Republicans all of our lives we got tired of voting for the lesser of two evils. Thanks for the good that you are doing for America, the land that we love."

We will have more of your e-mails a little bit later in the broadcast.

Please join Lou on the radio Monday through Friday for "The Lou Dobbs Show". His guests include tomorrow former West Virginia Governor Bob Wise, talking about education, Steven Coll, author of "The Bin Ladens" and Professor Peter Morici from the University of Maryland discussing the war on the middle class. Go to loudobbs.com and loudobbsradio.com to find the local listings for "The Lou Dobbs Show" on the radio.

NASA today loaded a critical piece of equipment from Russia on the space shuttle "Discovery." Now the shuttle is scheduled for a Saturday launch, the equipment, a special pump, the mission, fix a broken toilet on the international space station. The space station's Russian made toilet has been malfunctioning for about a week.

And clearly having a working toilet is a priority for us, said a NASA official. There is only one toilet on the space station and NASA has agreed to pay Russia $19 million to install a second toilet later this year. I'm sure the astronauts believe that that is money well spent.

Coming up, a very important ruling by the Texas Supreme Court in the controversy over the seizure of children from a polygamist sect.

Also much more on reports that communist Chinese spies may have copied the contents of a U.S. government laptop computer. A leading authority on communist China will join me. Stay with us.

(COMMERCIAL BREAK)

PILGRIM: Another major ruling tonight in that polygamy case in Texas. The Texas Supreme Court tonight upheld a lower-court ruling that the state had no right to remove children of 38 women from their ranch last month.

David Mattingly joins us live from San Angelo, Texas -- David.

DAVID MATTINGLY, CNN CORRESPONDENT: Kitty, this court ruling really slams the door on state investigators, who thought that they had the right to go into that ranch and take all of these children out when they found what they thought was a pervasive pattern of sexual abuse of putting all these children at risks.

What this ruling does is essentially say that these children cannot be kept anymore, they have to go home now. And the state, if they want to take any of these children back into custody, they have to find specific evidence and investigate allegations for individual children; they cannot make blanket decisions for all of the children at that ranch.

Now what happens next, the lower court still has some discretion. They can put some sort of caveats on how these children are returned. They can put restrictions on where they're able to live geographically. If they find some specific allegations of abuse, they can ask that the abuser be removed from the home, not the child. They have some leeway here, and able the put some conditions.

And as far as when the children go home, that's not exactly clear right now. Even Child Protective Services say they will work to return these children as soon as possible.

Remember, earlier, they had complained that at this point they still had not matched some of these children to their biological parents. So, there's still some processing to be done, some identification to be done, before some of these children can go home.

But again, the big ruling here from the highest court in the land in the state of Texas, that these children should not have been taken in bulk the way the state went in and took all of them into custody. They'll have to build specific cases if they want to take these individual children into custody.

PILGRIM: That bodes for a very long investigation, doesn't it, David? David, that suggests a very long investigation, doesn't it?

He clearly does not hear us. We will continue.

We've been reporting this evening on stunning revelations of communist China's apparent cyber-espionage efforts against the United States. Now there are reports tonight Chinese officials allegedly stole the contents of a U.S. government laptop computer during a visit to China, and those reports say they may have used that information try to hack into the Commerce Department computers. Well, joining me now with his perspective is China expert Gordon Chang. And, Gordon, always a pleasure to talk to you on this broadcast.

And I may add, we've been talking about cyber attacks from China. We've been talking about corporate espionage from China. So this story, the specifics of which are very unclear at this point, but still it is not a surprise that this story would turn up, is it?

GORDON CHANG, AUTHOR, "COMING COLLAPSE OF CHINA": Since the middle of 2003, China has been systematically hacking both the civilian and the defense computer networks of not only the United States, but also our allies, Britain, France, Germany, Japan and some other countries as well. We know these attacks originate in China. They are of such a scale that only the Chinese government would know about them -- they've have to know about the, because they control their Internet so closely.

PILGRIM: Let's talk about Americans how travel to China. Now many private businesses suggest to their employees not to bring personal information devices, not to bring laptops, because they can be hacked, and they can be hacked in a wireless way, and they when those devices are brought back that hack can compromise the data on computers in the United States. The different departments in the government have different policies on this. What do you think should be the U.S. government policy on this sort of...

CHANG: Well, you know, they can't take wireless devices, they can't take laptops into China. When I went back the last time, I carried my laptop with me every single second I was in the country. But you know, I found out that basically, that doesn't do it, because they can always access that computer wirelessly. So you know, there has to be much more on the way of looking at this.

PILGRIM: There were two press reports that talk about the Commerce Department incident, or alleged incident. That was AP and "National Journal." In the "National Journal" press report, it also talked about the possibility that a cyber attack could have occurred against power grids in the United States, and potentially some of the big blackouts that have occurred in recent years. How likely is that? How possible is that? And much should we worry about something like that?

CHANG: Well, they say that two of those were really the Chinese caused blackouts in the United States, one in 2003 and the other...

PILGRIM: This is the press reports? Yes.

CHANG: One of the press reports. We've always knows that our civilian networks, which are not protected as well as the defense ones, can be taken down, but we never really had a demonstration that it could, indeed, actually happen until a couple of years ago. So clearly what's going on now is that there's got to be an upgrading of all of these networks, the civilian ones as well, because there's a lot of information that China wants on those civilian networks. PILGRIM: We've seen many cases of Chinese espionage in this country and we've talked to you about this. How should we better protect our country from this sort of stuff?

CHANG: Well, you know, the first thing we have to do is talk to the Chinese. I mean, Angela Merkel, the German chancellor, went to Beijing and publicly told off Chinese premier Wen Jiabo last year about this hacking. Robert Gates, our defense secretary, goes to Beijing all the time and says nothing about it. And you know, how do they reward his silence? Well, you know, last year, last June, they hacked into his personal e-mail. You know, we need to have a much better policy. We need to start talking to the Chinese.

PILGRIM: There's a great worry about our relationship with the Chinese, and yet this instance of this sort of undercuts any kind of relationship of trust, does it not?

CHANG: Oh, it certainly does. We're so afraid of the Chinese, of what they're going to say if we criticize them. But clearly, you know, they take our reticence as being a green light to do whatever they want, and that's why, you know, this Commerce Department laptop was certainly taken down by the Chinese, because they wanted that information.

PILGRIM: Thank you very much, Gordon Chang. Thanks, Gordon.

Coming up, House speaker Nancy Pelosi threatens to step into the fight between Senators Clinton and Obama. Three of the nation's top radio talk show hosts join me to discuss that and some more. And also the progress in Iraq this month -- General David Grange joins us with an update. Stay with us.

(COMMERCIAL BREAK)

PILGRIM: Joining me now are three of the best radio talk show hosts in the country. In our Washington bureau, we're joined by Joe Madison of XM Radio, in Raleigh, North Carolina, Warren Ballentine of Syndication One. Hi. And in New York, Mark Simone of WABC Radio. Gentlemen, thanks for being with us.

You know, I think the sort of big event today was Nancy Pelosi wading into this whole discussion about the seating of delegates.

Mark, let's start with you. What do you make of that?

MARK SIMONE, WABC RADIO: Well, somebody's got to put a stop to this. This is like one of those tenants you can't evict, no matter what you try. And the idea of counting Florida, well, maybe, but you can't count Michigan. He wasn't even on the ballot. Are we supposed to believe that a single person in Michigan, not one citizen of Detroit, voted for Barack Obama? It's ridiculous to think of counting that state.

PILGRIM: Yes. You know, the Michigan Democrats sent a letter to the DNC members, encouraging that the entire 157-member delegation be seated. Let's ask Warren. What do you think of all this?

WARREN BALLENTINE, SYNDICATION ONE: Well, Kitty, I think they broke the rules; they shouldn't be seated. I mean, when you look at the DNC's bylaws and rules, I think Saturday, what's going to happen with this big meeting taking place is that they're basically going to say that we can only seat 50 percent of all of the delegates, Michigan and Florida. And quite honestly, the Florida vote, I don't even think they should be counted, because they turned out in mass numbers not because of Hillary Clinton, not because of Barack Obama, but because of something else that was on the ballot down there dealing with taxes.

So, to me, they broke the rules, they shouldn't count, but however, I know after Saturday, what they're going to do is come back and say, we're seating half of the delegates in each one of the states.

PILGRIM: Well, you know, a memo from DNC lawyers is instructing the Rules and Bylaws Committee meeting not to seat more than half of the delegates from Michigan and Florida. Of course Senator Clinton wants them all seated. Joe, weigh in here on this.

JOE MADISON, XM RADIO: Well, I'll go back to the Nancy Pelosi part. I thing the question is preparation. And it's not just preparation for the presidential election, which will be extremely important, because Republicans are preparing, and they're in a position to. Poor preparation will equate to poor performance.

But let's keep in mind one of the things Nancy Pelosi is very concerned about, and that's the congressional races. And the same thing with Senator Reid. And most people have lost sight of the fact that those races are going to be just as important, and Congress and the candidates have to prepare for that. And late August to November is not enough time to really put the kind of preparation you need into those kinds of races.

I do disagree with Warren, very seldom do I, but I do in this one, about Florida. I think they should be seated. Yes, there was a tax issue on the ballot that got people out. But you just simply can't disenfranchise the people of Florida, and I would say, to some degree, the people of Michigan. Being a former Detroiter, let me tell you, It would really upset the folks in Detroit and Michigan.

BALLENTINE: Kitty, my problem with all of this, and seldom do I disagree with Joe, but I disagree with him here, because my problem with all of this is that they knew they were going to be disenfranchised from the beginning. The DNC knew it. Hillary Clinton knew it. Barack Obama knew it. Everybody knew it from the beginning. But they didn't think it was going to go this far. And now that they're caught with their pants down and now they're going to try to come and fix this. They knew from the jump that they were disenfranchised when they first said that they were going to break the rules.

MADISON: But, Warren, the one thing you have to keep in mind, it wasn't the Democrats that set the election in Florida; the Republican legislature did that. And so you can't blame the Democrats for what the Republicans actually did to them.

PILGRIM: Mark, go ahead.

(CROSSTALK)

PILGRIM: Let Mark get on this, Warren. Hang on a second.

SIMONE: Not only did Florida choose that, but the decision to not count Florida was made a committee. Hillary Clinton was represented on the committee, and she signed a letter authorizing this.

BALLENTINE: Exactly.

SIMONE: It was with her involvement and decision that it happened.

PILGRIM: All right. It will be a very eventful weekend. I'm sure everyone will be glued to the decision. You know, Hillary Clinton today in South Dakota, continuing to make her case for staying in the race. Let's listen to what she had to say.

(BEGIN VIDEO CLIP)

SEN. HILLARY CLINTON (D), PRESIDENTIAL CANDIDATE: It's going down to the wire, because where we stand right now, I lead in the popular vote. My opponent has a slight lead in delegates. So this is by no means over.

(END VIDEO CLIP)

PILGRIM: All right. Does she have a valid case, Mark?

SIMONE: Well, you know, she's now like a Dennis Kucinich, where they know they're not going to win, but they want to be in the debates, they want to get coverage. Of course she's not going to win. She's mathematically eliminated. You know, bigger problem for Democrats, she can say things sometimes like that assassination comment, and Bill Clinton sometimes making a comment about how Obama can't win. They're like two land mines out there for the Democrats, and the quicker they get this over with the better.

PILGRIM: Let's take a look at the numbers. I just really -- her argument is she makes a stronger candidate for the party. That's her chief argument. And let's take a look at this. In a general election polls of polls, this was taken May 15th through the 27th, voters choice for president, Obama, 46 percent, McCain, 44 percent, and then you also have Clinton, 46 percent, McCain, 44 percent, 10 percent unsure in both of those polls. They're basically...

SIMONE: You can't make the case of I'm the better candidate than the guy I can't beat.

BALLENTINE: Exactly. MADISON: The other thing is that polls now don't mean anything three, four months from now. Once the debate starts -- you know, I agree that she can't win. But this is one thing I think I might separate myself from the group. You know what, let her go ahead. If she wants to continue, let this thing go ahead, and then there's no excuse when it's all over, said and done. Then I don't want the hear her crying uncle. I don't want to hear anything about she didn't stand a chance or we didn't give her a chance. That's my position. Let it just go ahead, and then that way, Obama can say, I won it fair and square, call it a day.

PILGRIM: I'd like to just bring up the June 1st primary in Puerto Rico. Take a look at these polls, being looked at anyway, Joe, I'm sorry to say. So let's take a look -- Clinton 55 percent, Obama 42 percent. And that's the poll by Univision and Puerto Rican newspaper "El Vocero." And Clinton has a very strong -- now, we know that Puerto Ricans cannot vote in the general election, but it still makes the case that Clinton is a strong candidate. Yes, go ahead.

BALLENTINE: Kitty, Kitty, this is all a red herring here. This is all it is. Let's be realistic here. Now they're trying to change it from 2,026, to 2,209. The numbers just don't match up for Hillary Clinton here.

And what needs to happen is this, what I'm most upset about, what I talk to my listeners about everyday, is how the DNC, how Nancy Pelosi -- Nancy Pelosi talking about she's going step in and stop this from happening is a joke to me. Because she said the same thing about the war when she first became the speaker of the House.

We need to have the superdelegates, DNC, step in -- look, he's forty-something delegates away from claiming the nomination now. If they really wanted to end this, this could be over with. And the American people should stop falling for the okey-doke, and call it what it is, and hold them responsible and accountable for what they're doing out here by voting them out of office.

PILGRIM: OK. Joe, last word on that.

MADISON: Well, what upsets me is that if it were reversed, I guarantee you, the world would be telling Obama, get out of the race.

BALLENTINE: Exactly.

MADISON: I mean, if this was reversed, this -- I'm certain that's what would be happening. So the reality, I agree with Warren on this, you know, it's all over, and let's start preparing for the fall, presidential and congressional.

PILGRIM: Mark, last...

SIMONE: You could also say that if it were reversed and it were Obama, he might have the sense and the class to get out of the race.

BALLENTINE: Mark, I knew I liked you for a reason.

PILGRIM: We'll leave it there, gentlemen. Joe Madison, Warren Ballentine and Mark Simone, thank you very much.

BALLENTINE: Thank you, Kitty.

PILGRIM: A reminder now, vote in tonight's poll. Now, the question is, should the United States send troops to the border to guard against violence from Mexican drug cartels? Yes or no, cast your vote at loudobbs.com. We'll bring you the results in just a few minutes.

Also coming up, the Air Force is blasted again for giving its new tanker contract to a European company. We'll have that story. And another of our 4,000 about to return form Iraq. We'll discuss that and more with General David Grange, so stay with us.

(COMMERCIAL BREAK)

PILGRIM: A suicide bomber today killed at least 16 people outside a police recruiting station in northern Iraq. But overall violence in Iraq has fallen sharply this month. U.S. casualty rates have declined to the lowest levels of the year.

Joining me now, LOU DOBBS TONIGHT military analyst David Grange. He is president and CEO of the McCormick Foundation, one of the country's largest public charities. Thanks for being with us, General Grange.

You know, another Army brigade is deploying out of Iraq. It's the fourth of five surge brigades about to leave. The fifth and last surge brigade will leave in July. Do you believe that -- when will we be able to withdraw more after this?

BRIG. GEN. DAVID GRANGE (RET.), CNN MILITARY ANALYST: Well, right now, you know, the conditions are favorable with the surge that already happened. I think it must be realized that the commanders want to withdraw troops more than anybody else. But as this early group redeploys, I think you're looking at the fall until you start seeing maybe some other large brigades moving out. I think you have a little bit of a pause over the summer, like General Petraeus said. Conditions have to be right, then they'll start withdrawing.

PILGRIM: You know, General Petraeus, you bring it up, told Congress earlier this month it won't be the possible to hand over security to the country's -- in all the provinces all this year, maybe 2009. That keeps getting pushing back and back. What's your assessment of when it will happen?

GRANGE: This is just a perfect example of how war is carried out. I mean, you can not go by your plan when conditions on the ground change. You have to go with what they call go with the terrain. That's not just, OK, we have in this month, this year, we're going just check off an accomplishment, whether we're ready or not. And so The assessment is done continuously, if conditions aren't right, then the time is slipped. Otherwise you would have a disaster. I mean, it's a prudent thing to do.

PILGRIM: You know, the Iraqi military forces, in their recent operations in Sadr City and Basra have demonstrated a capability to take over some additional operations. That's -- do you think that the Iraqi units are improving? They've had very poor performance, some, in the past. Do you think that there's an improvement here?

GRANGE: I do. I mean, you're probably referring to Basra, and I think there was -- there were some units that had some problems, but overall, they did pretty well. And I think it was impressive that they actually had the gumption to go down and take that on as they did. You know, just like any military, the Iraqi military will have good units, average units and some poor units. And I think that's what you're seeing now, but overall, they are improving. And it takes awhile. I remember from Vietnam, it took a long time for the South Vietnamese Army to come up to standards, to take on responsibilities. And even when we left that country, there were some that had not made that mark yet. So it does take time.

PILGRIM: You know, the military officials have said that the violence in Iraqi has declined to its lowest levels since March, I believe, 2004, and the monthly U.S. casualties have dropped, but we seem to be getting a mixed picture. What's your general assessment of the level and violence and the sort of security in Iraq?

GRANGE: You really can't take a few incidents -- a car bombing or a suicide bomber as an example. You're going to have these small spikes of violence. But overall, really the focus on the human dimension of the neighborhoods, the increased boots on the ground from the surge, the improvement in cooperation of the Iraqi units, security units, the alliances that have been made, like with Anbar province, the people cooperating, providing information to coalition forces to take down adversary groups. All that has produced success.

And as those conditions change a little bit, you know, it'll vary. But overall, I think that this is a positive indication that, I mean, there's light that end of the tunnel if we maintain the will.

PILGRIM: Thank you very much, General David Grange. Thank you.

GRANGE: My pleasure.

Still ahead, outsourcing our defense at the expense of thousands of American jobs. We'll have the very latest. Stay with us.

(COMMERCIAL BREAK)

PILGRIM: A new report is blasting the Pentagon's decision to award a multibillion-dollar tanker contract to a European consortium. Now this report says the Pentagon is sacrificing more than 40,000 American jobs for a less capably and more expensive tanker.

Lisa Sylvester has our report.

(BEGIN VIDEOTAPE)

LISA SYLVESTER, CNN CORRESPONDENT (voice-over): The fight is not over for Boeing and its supporters who last a $35 billion Air Force contract to build the next generation of air-refueling tankers. At stake, they say, are thousands of U.S. jobs.

PAUL SHEARON, INTL. FED. OF TECH. & PROF. ENGINEERS: Right now, you're seeing good, working American jobs, good middle-class jobs here in the United States, that are going to be sent over to Europe. And we're talking about 44,000, potential for 44,000, American jobs leaving this country and going to Europe.

SYLVESTER: A U.S. labor union, the International Federation of Technical and Professional Engineers, has released a new report called "Flying Blind: Outsourcing America's New Tanker." It says the Airbus tanker that was selected, made by a European consortium partnered with Northrop-Grumman, would use more fuel, and it require taxpayers to shell out billions to construct new tanker hangers and other facilities in the United States.

Boeing and its supporters are holding out hope for a new Government Accountability Office report that's reviewing the award process. That study is due next month. If the report is critical, it will give Boeing new ammunition for a congressional fight.

LOREN THOMPSON, LEXINGTON INSTITUTE: Congress has the power of the purse. That means after they look at GAO's the findings, if they decide it wasn't done right, they can simply refuse to fund the winner.

SYLVESTER: Northrop Grumman responded to the criticism saying the tanker was, " ... selected because it provides the Air Force with more capabilities. It's able to carry more fuel and is more efficient in offloading the fuel."

The company disputes that its sending jobs overseas, pointing to a new facility that it will build in Alabama, creating 1,300 jobs.

(END VIDEOTAPE)

SYLVESTER: Boeing, several unions and Senator Patty Murray, who represents Washington State, say most of the air bus planes will still be built overseas. Senator Murray's office says long term this will not only impact jobs, but also the United States' defense industrial base, and the country's superpower capability -- Kitty.

PILGRIM: Thanks very much -- Lisa Sylvester. We will continue to follow this.

Now the results of tonight's poll -- 96 percent of you believe the United States should send troops to the border to guard against violence from Mexican drug cartels.

We do have time for some of your thoughts.

We heard from Gail in Georgia: "Lou, keep standing up to the pro- amnesty groups. Those of us who really care about the American people are behind you 100 percent. Thanks for providing the truth on all issues. You are abut the only one does!"

And Todd in North Carolina: "Thanks Lou, for talking about the issues of illegal immigration and open borders and for not being afraid to stand up to the ethnocentric special interest groups. Keep it up!"

We love hearing from you. Send us your thoughts at loudobbs.com.

Thanks for being with us. Please join us tomorrow.

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

The "ELECTION CENTER" with Campbell Brown starts right now -- Campbell.

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