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In the Arena

Bin Laden's Diaries of Planned Attacks; Senator Views Pictures of bin Laden's Body; China Interested in Stealth Technology

Aired May 11, 2011 - 20:00   ET

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

ELIOT SPITZER, CNN ANCHOR: Good evening, I'm Eliot Spitzer. Welcome to the program.

Tonight, breaking news. The bin Laden diaries. It turns out that when Osama bin Laden wasn't watching himself on TV, he was keeping a journal, writing all of his terror plans out in longhand. Among the notes he wrote to himself, important dates coming up in the United States, just so he wouldn't forget when to attack.

One of those dates was the Fourth of July. Another, the tenth anniversary of September 11th. And, oh, yes, he mused in his writings about all the best ways to attack and kill large numbers of Americans.

We'll have more detail on Osama's terror diaries in just a moment. But first, a quick look at the other stories we're drilling down on tonight.

(BEGIN VIDEOTAPE)

SPITZER (voice-over): Most Americans are happy that bin Laden is dead. Guess who else is celebrating? The Taliban.

Then, Goldman Sachs. Want a job there? You'll need education, language skills, experience, motivation. And one more thing, says Matt Taibbi, the ability to lie with a straight face.

And epic floods. The Mississippi is rising. And so is the cost. E.D. Hill takes a closer look at a disaster in the making.

(END VIDEOTAPE)

SPITZER: But first, that handwritten diary wasn't the only terror blueprint Osama bin Laden left behind. He also kept his records on thumb drives that his helpful courier reportedly ferried out to his followers.

What we're hearing from officials about what was found at the bin Laden compound is an indication that bin Laden had some serious terror plans. No dates or specific times have been indicated, but overall, this appears more serious than previously known.

Joining me now, the Associated Press reporter Kimberly Dozier who first reported many of these details.

Kimberly, thank you for joining us.

KIMBERLY DOZIER, INTELLIGENCE AND COUNTER-TERRORISM CORRESPONDENT, ASSOCIATED PRESS: Great to be here tonight.

SPITZER: Am I correct that reading these documents, the thumb drives, the handwritten diary, gives us a completely different sense of the role that Osama bin Laden was playing day to day in running al Qaeda?

DOZIER: Absolutely. It shows a man who was in touch with his operatives. Now it took them a long time to get his messages back and forth through that courier and these thumb drives. But he was actually directing them which target to hit, helping them think through how to hit those targets.

He was really part of the overall strategy for AQAP, Al Qaeda of the Arabian Peninsula, in Yemen and other al Qaeda offshoots around the group. This has been disturbing for our U.S. counter-terror officials because they thought he was an aspirational figure. They thought that he was someone that kept the faith alive for his followers around the globe, but wasn't involved in actual terror plots.

SPITZER: You know, Kimberly, as you say, the image had been that he was a distant chairman of the board. In fact, he was a hands-on CEO, COO, CFO, calculating how many deaths he thought were necessary to impose upon the United States to get us our -- to change our policies in Afghanistan.

Kind of an eerie, sick mentality. Describe for us the sorts of writings and calculations that you see in these documents.

DOZIER: Well, some of them were really philosophical. He was trying to calculate what is going to make the American government pull U.S. troops, pull its presence out of the entire Arab world. He concluded that the small-scale attacks that al Qaeda had been doing around the globe weren't producing those results.

And he was calculating, does it need to be 1,000 Americans dead, 2,000 Americans dead or did he have to get his followers to do another 9/11 to change U.S. policy. He concluded that the U.S. public was the center of gravity for the U.S. government.

He also was directing them on specific targets like he was balling them out, saying, stop with New York, think about L.A., think about smaller American cities that don't have great security.

He was really helping them think through that process. And even helping them decide overall terror plots like -- remember last December there was a terror alert across European cities of -- some sort of diffuse plot by al Qaeda. He wrote about that. It turns out he was part of planning it.

SPITZER: You know, two things that strike me off the top. One, is that we -- our intel was then fundamentally wrong about his role. How do you make sense out of that? And how does our intel establishment right now kind of look at its own conclusions and re- evaluate its own capacity to figure this out?

DOZIER: Well, it's been very disturbing for intelligence officials. It's put a lot of their conclusions on their head. But they say one reassuring thing is now they know how involved he was. How he was a sort of -- one described it to me as a shepherd to his flock and the flock really heeded his words.

They don't see anybody else in al Qaeda with that kind of influence. Al Qaeda number two, Ayman al-Zawahiri, is not well respected. He's known as a bit arrogant. As one analyst described it to me. He manages to alienate a lot of the people he works with by not being inclusive about their points of view.

That could spell good news for the counterterrorism community. At this point, what they're trying to do, is get through all this material, though, and find out, is there another plot they were unaware of that is mentioned somewhere in Obama's -- in Osama's diary or in these flash drives that they need to be on the look for.

SPITZER: You know, I've got to tell you, Kimberly, somehow a shepherd to his flock is much too pastoral a metaphor for somebody like bin Laden.

DOZIER: Yes.

SPITZER: That's not the one I would use.

DOZIER: I'm quoting. I'm quoting.

SPITZER: All right, we'll push that back to them.

The other thing that strikes me, though, is that he has failed. In other words, if he was basically proselytizing about the virtues of big-scale events, they haven't been able to execute. And so therefore, it makes you wonder, yes, he's writing these things, almost like the mad scientist stuck in his compound, maybe nobody is listening to him.

DOZIER: Well, they're listening. But what they found -- what U.S. counterterrorism officials say is it shows that what they put in place is blocking these attacks. It's -- that they're -- the fact that they were aware of every single terror plot that bin Laden had mentioned in his writings they're taking as a positive sign that they have learned how to catch these guys in the act.

But they're going to search through those files, those documents, the five computers, for the next weeks, months, until they are sure there's nothing else out there that was under way.

SPITZER: All right, Kimberly, thank you for your reporting. No question about it, those thumb drives are going to be taken apart every last data point. It's going to be read and analyzed.

Thank you so much for that great report.

Now to the controversial photo of dead Osama bin Laden. Very few people have actually seen it. Yesterday, the CIA offered to show it to members of the Armed Service and Intelligence Committees in Congress. Today, they had their first taker.

Senator Jim Inhofe of Oklahoma has just seen the pictures. He joins me now.

Senator, thanks for joining us.

SEN. JIM INHOFE (R), OKLAHOMA: Nice being with you.

SPITZER: Well, I've got to say, you had been a proponent of releasing the pictures. Now that you've seen it, first describe it to us or describe the pictures -- plural -- to us, and has that changed your view?

INHOFE: No, it really hasn't, Eliot. But I will describe it to you. There are 15 pictures. The first 12 were taken in the compound -- it's obvious it's right after the incident took place. So they're pretty grueling. The other three were taken on the ship. And they included the burial at sea.

So I would say this. Three of the first 12 pictures were of Obama when he was alive. And they did this for the purpose of being able to look at those and seeing the nose, the eyes and his relationship for positive identification purposes. And that was good.

One of the things that was -- you know I had to make my own conclusion on this because they're not really sure. One of the shots went through an ear and out through the eye socket, or it went in through the eye socket and out -- and then exploded. It was that kind of ordinance that it was.

Now that caused the brains to be hanging out of the eye socket, so that was pretty gruesome.

But the revealing shots really, I thought, the pictures, were the three that were taken on the USS Vinson in the Northern Arabian Sea, and they were the ones that showed him during the cleanup period. In the cleanup period, he had some kind of undergarment, very, very pale.

But they had taken enough blood and material off his face so it was easier to identify who it was. Now those are the ones -- and then of course the burial at sea, had the transition -- first of all, identifying who it was. Then of course the fact that they buried him at sea.

SPITZER: Look, Senator, but there's absolutely no question in your mind -- to come back to the very first basic question people have been asking -- it was Osama bin Laden. There's no ambiguity in your mind based on your capacity to do a visual I.D. from the pictures?

INHOFE: Eliot, I have to say that I believe that beforehand because of conversations I had with the military, but absolutely, no question about it. A lot of people out there saying I want to see the pictures. I've already seen them. That was him. He's gone. He's history. Now I still believe they should release these pictures -- some of the pictures, to the public. At least the ones during the cleanup period on the USS Vinson. That's just a personal opinion.

SPITZER: Again, not to litigate the issue that was debated perhaps ad nauseam over the past couple of days, but the notion that these pictures, now that you've seen them, would somehow become iconic images that would turn him into more of a martyr and therefore incite more violence, you just don't find that persuasive. Either you didn't think that beforehand, but seeing pictures does not change your mind?

INHOFE: No, I think just the opposite. It's true. If they'd done anything except do it the way that they did and then have a quick burial, I think then he would become martyred.

And I don't buy this whole concept that's coming out of the White House that, you know, you don't want to do this, you might make the terrorists mad. Well, you know, those people want to kill all of us anyway. They've tried 32 times, maybe more than that, during the -- since 9/11 on very sophisticated plans to do some -- inflict a lot of harm to America.

We've stopped each one of them. So if they have a way of doing it, they're going to do it anyway. It's not going to be because they have seen some gruesome picture --

(CROSSTALK)

SPITZER: Right, look, certainly not to quibble, I think the argument isn't so much that people who are already members of al Qaeda would be incited to violence, you're absolutely right. They already want to perpetrate heinous crimes. Question is, is there a larger audience out there that may not yet be prone to violence.

One last question if I could. The documents that are coming out, the thumb drives, the handwritten documents that bin Laden himself kept, seem to be changing fundamentally our sense of his role day to day in running al Qaeda.

As a member of the Intelligence Committee, you've been privy to all this. Does it make you wonder whether some of our presumptions about him and the organization have been equally off base now that we have to rethink all this?

INHOFE: Well, no. I think that we have new equipment. Now my perspective is from the Senate Armed Services Committee, not the Intelligence Committee. And so I've just heard about the new evidence that's coming out. It's going to be -- I'll be anxious to look at it.

I think you get back to the basics, though. We've got a lot of people out there that want to keep this thing going. I think this is the first major step and I'm glad it happened.

SPITZER: All right, Senator, thank you so much for joining us tonight.

INHOFE: Thank you, Eliot.

SPITZER: Angry accusations against the United States today by none other than Omar bin Laden, the fourth son of Osama bin Laden. In a statement published by "The New York Times," bin Laden and his brothers called the killing of their father a violation of international law.

While Omar bin Laden has condemned his father's violent tactics, today he said, and I quote, "We now condemn the president of the United States for ordering the execution of unarmed men and women."

Reza Sayah is in Islamabad.

Reza, you'd think bin Laden's family would want to keep their heads down at this moment in time. Do the sons, in your opinion, have any leg to stand on with this complaint?

REZA SAYAH, CNN INTERNATIONAL CORRESPONDENT: Well, this is a son that's had a strained relationship with Osama bin Laden. They lived together in the 1990s -- late 1990s in Afghanistan, but Omar bin Laden left Osama bin Laden after he denounced his violence.

So this is a pretty scathing statement by Omar bin Laden. He's clearly outraged over the U.S. raid on his father's compound here in Pakistan last week. He starts off by saying he doesn't believe his father is dead. And he needs to see some solid evidence to be convinced. Maybe his body.

He goes on to say that if he is dead, he has the right to question why U.S. forces executed an unarmed man, instead of arresting him and giving him his day in court. He called such an execution a violation of both international law and U.S. law as well.

He condemned the burying of Osama bin Laden at sea and also condemned U.S. forces for shooting an unarmed woman. You'll recall U.S. officials said during the raid Navy SEALs shot one of bin Laden's wives in the leg when he rushed one of the SEALs.

So based on what we know of Omar bin Laden, he's not making the scathing statements against the U.S. because he was a big support of his father. As we mentioned before, these are two men who were estranged a long time ago.

SPITZER: Let me ask you this, because in my judgment, I'm a lawyer but this is not my area of expertise. Having said that, he has -- it's a ridiculous legal claim. It should be thrown into the trash heap of so much else that comes out of the bin Laden family.

Having said that, the question I've got is whether or not Omar bin Laden stepping out this way is evoking any public support within Pakistan, in Islamabad, in Abbottabad? Are you seeing people respond to the bin Laden family with shows of public support?

SAYAH: Not at all. In fact, any kind of public support for Osama bin Laden has been muted here in Pakistan, in Islamabad. There really hasn't been any significant backlash in response to the death of bin Laden and the U.S. raid on the compound.

We've seen pockets of protests from hard-line religious groups here. Certainly nothing widespread. We haven't seen any large-scale attacks either. We've had some threats by al Qaeda linked groups, the Pakistani Taliban, the Afghan Taliban have come out and vowed revenge for bin Laden's death but, again, no big attacks here against civilian targets, against military targets or U.S. targets, ever since this raid took place.

SPITZER: You know one other question, can you sense day to day, is the relationship between the United States and Pakistan -- is it beginning to improve after a lot of heated rhetoric over the past day or two? Are things beginning to -- is the level of rhetoric getting lower?

SAYAH: It is getting lower. But I think people have to see substantial moves by Pakistan. That's an indication of them trying to restore confidence. I think even though the temperature is lower a little bit we've never seen this relationship so strained, so uncertain.

And I think in the coming weeks, in the coming months, it will be very interesting to see what Pakistan will do under this type of pressure from Washington to restore confidence in this critical partnership.

SPITZER: That is true. It's going to be fascinating to watch.

Reza Sayah, thank you for that report.

Coming up in a moment, Pakistan may be about to do something that will permanently destroy its relationship with the United States. Stay tuned for more.

(COMMERCIAL BREAK)

SPITZER: It was the one hitch in an otherwise brilliantly executed operation. The tail of a high-tech helicopter left behind on site. Now our top secret equipment is in Pakistan's hands. And what the Pakistanis may do with it is really scaring some people in the U.S. government.

Now to Brian Todd in Washington for more on the possibility that our supposed ally Pakistan is going to share our secret technology from that chopper with China.

What's going on here, Brian?

BRIAN TODD, CNN CORRESPONDENT: Eliot, we are learning incredible new details on the classified stealth helicopters used in that bin Laden raid. And there are new concerns tonight that some of that technology may soon fall into the hands of the Chinese if it hasn't already.

(BEGIN VIDEOTAPE) TODD (voice-over): In their haste to get out with the body of Osama bin Laden, Navy SEALs detonate their disabled helicopter, but one crucial part of the chopper is left behind, largely intact. The tail rotor assembly left outside the compound's wall where it crashed.

Pakistani troops were seen hauling it away. Now serious concerns that America's chief technological rival will learn some key secrets from the wreckage.

PETER HOEKSTRA (R), FORMER HOUSE INTELLIGENCE COMMITTEE MEMBER: We ought to just assume that the Chinese are going to get this technology. They're going to get it all.

TODD: Former Congressman Pete Hoekstra who was the ranking Republican on the House Intelligence Committee is certain the Pakistanis will share the technology from that tail section with their close allies, the Chinese.

HOEKSTRA: They'll reverse engineer it. They'll have the latest technology at minimal cost.

TODD: Contacted by CNN, a senior Pakistani intelligence official denied a report that China approached Pakistan for access to the wreckage and said Pakistan would not make it available to the Chinese.

Aviation experts say they've never seen this kind of stealth helicopter in operation before. They believe it's a modified Blackhawk with a key component covering the rotor blades.

(On camera): This disc is key to making this such a unique stealth aircraft, right?

DAN GOURE, LEXINGTON INSTITUTE: This disc is unique to this helicopter. What you see here is a device that has two purposes. One, to reduce the noise from the rotor blades. But secondly also, to reduce the possibility of it reflecting radar waves back to a missile attack that might be able to go after the helicopter.

TODD (on camera): Experts say the sound suppression technology makes some distinguishable differences. We'll show you examples. First, what a standard Blackhawk helicopter sounds like. This has a rhythmic kind of woosh-woosh sound.

Now we'll show you what a stealth helicopter sounds like from an earlier test program. Experts say this sounds a lot more vague.

You may not be able to tell whether this is another vehicle entirely or helicopter. You may not be able to tell whether the helicopter is moving towards you or moving away.

(Voice-over): Experts say the small wings called stabilizers are also unique to this chopper. They're usually at a hard right angle but these are angled off, analysts say, to avoid radar detention.

The Chinese have a huge interest in this technology. They're developing a stealth fighter jet called the J-20 which they've already test flown.

(END VIDEOTAPE)

TODD: Contacted by CNN, a Chinese official in Washington said he had no information on whether his government has tried to get access to the tail section of that helicopter. U.S. officials are not commenting on reports that they have asked the Pakistanis to give the wreckage back -- Eliot.

SPITZER: You know, Brian, I hear there are also more details coming out about how that chopper crashed in the middle of this raid. What did we learn?

TODD: That's right. A senior Pakistani intelligence official has told CNN that when the U.S. helicopter crash landed, the local Pakistani military units initially thought that it was one of their own assets that crashed. They called all their regional military bases to see if any Pakistani craft were airborne at the time.

It wasn't until sometime later that they were able to confirm the presence of foreign aircraft inside Pakistan. By that time, we're not sure, but the SEALs could have been long gone.

SPITZER: All right, Brian, fascinating tale, no doubt. This will continue. We'll be talking to you more in the days ahead. Thanks so much for that report.

TODD: Thanks, Eliot.

SPITZER: Now for more on the bin Laden terror diary. We've learned a lot today about Osama bin Laden. But the most important thing we've discovered is that he still had big plans, plans that involved 9/11-scale attacks in other U.S. cities.

Chad Sweet, a former CIA homeland security officer, he joins me now.

Chad, I know you have a whole lot to tell us about the stealth chopper but first it seems we totally misunderstood the role that Osama bin Laden was playing within al Qaeda over the past couple of years. What do you make of this?

CHAD SWEET, FORMER CIA OFFICER: I think the diaries definitely indicate a much more active operational law than clearly the intelligence community originally assessed. But I would note that it's much more of a strategic level than a tactical level. I think the issue around him berating or pressing his own troops to get out and try to replicate an attack on the scale and scope that he was successful in perpetrating on 9/11 is evidence that he is still frustrated that he's not been able to succeed in carrying off another 9/11.

I think the other thing that's very telling is when you actually look at it, this sort of schism between the -- called the old school and the new school. The old school is the bin Laden and Zawahiri which is kind of the older generation that believe in these extremely, you know, sophisticated, long-term plots that are high impact, so they're kind of lower volume, higher impact, versus the Anwar al- Awlaki school, the younger generation, that believe in the higher volume, maybe lower impact.

So as we saw in the writings, he is berating his troops to kind of get out and follow his example. It reminds me a little bit of -- you know, the grandfather who says I want you young whippersnappers to do it the way I used to do it.

And what we're going to see now on the negative side of the ledger is these younger guys that were somewhat restrained in trying to respect bin Laden's stature will now be unleashed. And so I think some of the things that we're seeing in the way of the intelligence community talking about this information is actually a conscientious reaction to that original miscalculation.

SPITZER: You know, but Chad, it's kind of intriguing, this -- it doesn't seem as though he was able to persuade them that he was right. Because if in fact what we at least know of the plots that they were hashing were the smaller scale, not the high impact. And he was in essence arguing to them, the only way to get the United States out of Afghanistan, out of the Middle East, is with what he called the high impact, high volume.

And he calculated the number of deaths he wanted. But he didn't seem to be persuading them or at least capable of ordering them to follow his agenda.

SWEET: Right, you're exactly right. And I think there's what's called AQHQ, the Al Qaeda headquarters, and then there are other branches, AQAP, Al Qaeda in the Arabian Peninsula, is an example where you're exactly right, Eliot, that they basically disagreed with headquarters, and were out there openly, conducting operations that in fact were not aligned with the leader and headquarters.

And so if you kind of go down the list, though, what I will say is you kind of look at metrics the terrorists consider for success. One is fundraising, operations. Two and three is propaganda.

On all three of these metrics, AQAP actually was far exceeding AQHQ, meaning headquarters is being outstripped by Anwar al-Awlaki on the fundraising side. He was raising all the money, too. If you think about operations, let's just go back and look at the last several high-profile opportunities. One was the Christmas Day bomber. There again he was behind that.

Look at Ft. Hood. He was behind that. Look at what we saw in Times Square, he was behind that. Operationally, this is all being driven from Anwar al-Awlaki. And -- last thing on the issue of propaganda, he's an American, and the most dangerous propaganda right now is "Inspire" magazine, which he is the author of.

So this is a guy that we have to be very worried about. I think he's frankly outstripping bin Laden in results.

SPITZER: You know, Chad, it's fascinating. It's almost as though you're describing bin Laden back in his compound not literally a cave but almost emotionally in a cave, frustrated but he hasn't been able to get the rest of his organization to follow what he thought is the wisdom of his prior path.

But before time runs out, I want to give you a chance to talk about the stealth helicopter that we left behind in the attack on his compound. How much harm does that do to us and what do you think the likelihood is Pakistan actually would turn that over to the Chinese?

SWEET: I think it could -- it could be very devastating in terms of revealing technology, stealth technology. But I actually think this is a cry for help. This is evidence of a struggle within the Pakistani establishment. There are clearly factions that are pouting, that are expressing their -- how upset they are.

We saw that with the disclosure and leak of who the CIA station chief was. We're seeing that now. This is sort of a reminder to say to the United States, look, we have other potential sponsors like China to offset you if you disagree with us too much.

But on the positive side of the ledger, I actually worked in the CIA on the Mujahideen resupply efforts to get the Soviets out of Afghanistan and we could not have done it without the ISI and Pakistan.

And if you look at other little things, I'll just draw your attention to Associated Press story that just came out today, showing that there are three more kills in northern Pakistan today and actually this was leaked by Pakistani officials and who basically indicated that they're not authorized to speak to the media but they -- this was done through a collaboration between local informants and intercepts satellite phone conversations.

Well, guess what, the Pakistanis don't have satellites that can do this. So this was an example of local informants working from the Pakistani side with satellite intercepts from us. This is a joint operation that's going on post-bin Laden.

So there are some positive signs on the ledger here to keep in mind. And this is, again, evidence of a struggle between different factions, some being pro-U.S., some not.

SPITZER: You know, I think, Chad, it just points out, as you just made clear, that everything in life is more subtle than the simple black and white articulation that you hear in the screaming that comes out right afterwards. And also, so much of life is a negotiation.

The ISI, the Pakistani government basically saying we got something of value to you, now you've got to begin to come back and help us, whether it's money, whether it's intelligence, whether it's greater respect for their sovereignty, whatever it may be. This is a very subtle, careful negotiation going on right now.

SWEET: That's exactly right. And in closing, Eliot, you know this from your prosecutorial days, one great act of confidence building that they could do on the pro-U.S. faction within the Pakistani government is covertly, quietly, discreetly, give us access to that compound.

Because you know from your background, a second treasure trove sits at that compound. It's like a CSI on steroids opportunity. If we could get in there and get the forensics from latent fingerprints, DNA from fallen hair, that would be incredibly valuable, as you know.

SPITZER: Absolutely. All right. Chad, we thank you for your expertise on this fascinating conversation.

SWEET: Thank you.

SPITZER: Americans were cheering bin Laden's death but we weren't the only ones. So was the Taliban cheering also? That story when we return.

(COMMERCIAL BREAK)

SPITZER: Michael Semple has worked in Afghanistan since 1989 and is one of the leading experts in the thorny field of Afghan politics. Michael says that despite what you may think, there was no love lost between Osama bin Laden and the Taliban, and that now is the perfect time to try to negotiate a peaceful settlement to the conflict there.

He joins us from Boston. Michael, welcome.

MICHAEL SEMPLE, HARVARD KENNEDY SCHOOL: Good evening.

SPITZER: So explain this completely counterintuitive notion to me. You're saying the Taliban is almost cheering at the death of Osama bin Laden.

SEMPLE: They have to be very careful not to do this out publicly but certainly many in the Taliban movement, including people in the leadership, privately say good riddance. As far as they're concerned, bin Laden is the one who led to the toppling of their government. They gambled and lost their government because of this man.

SPITZER: Explain that to those of us who have not been as steeped in Afghan politics. Take us back through the history of what the relationship was between the Taliban and Al Qaeda and what led to the toppling of the Taliban government.

SEMPLE: The Taliban movement took over the government in Afghanistan by capturing the capital in Kabul in 1996. When they got there, they inherited bin Laden. He'd already arrived. The Taliban had their -- they've got their own business, which was to try and capture Afghanistan and try and put an end to the civil war there. Osama managed to weave his way into the confidence of the leadership there. And in 1998, while in Afghanistan, he, of course, declared war on the crusaders, meaning the United States.

After he launched the attacks on the east African embassies, of course, you know, he goes to the top of the U.S. wanted list and the sole demand that the U.S. had of the Taliban movement was to hand him other. It was the refusal of the Taliban leader, Mullah Omar, to hand over bin Laden, meant that bin Laden was able to carry on with the plotting of the 9/11 attacks. And then, of course, led to the U.S. intervention in Afghanistan to topple the Taliban government, precisely because they'd failed to hand over the culprit behind both the east African embassy attacks and 9/11.

SPITZER: So what I hear you saying then, just to kind of reduce this to the cliff notes version of your history there, which is fascinating, if the Taliban had basically said to Osama bin Laden, take your fight somewhere else, either had not let him in, in the mid- '90s, not embraced him in '98, or simply had turned him over in 2001, then we would not have gone into Afghanistan, the Taliban would have stayed there, and there fight with us is something that was ancillary to their overarching objectives?

SEMPLE: That's a conclusion which I have heard many senior Taliban reach. And even now, as they sort of, you know, sit more or less in hiding and discuss, you know, what happened, how did we get ourselves into this predicament, many of them have concluded that their own leadership called it wrong back in 2001 by, you know, trying to protect bin Laden. Also guessing that the U.S. wasn't serious, failing to hand him over. The Taliban themselves have concluded, we got it wrong. You know, we gambled, we lost, and we gave up our government for the sake of this man.

SPITZER: So what does that mean prospectively? What does that mean either from their perspective what do you think you know? Some of them certainly what you think they might want to do now? And I know you have to parse it more fondly. There is no singular "they." There are different factions there. And what do you think that suggest for what we, the United States, should do in terms of reaching out to them?

SEMPLE: Well, a lot of the Taliban think that now with bin Laden off the scene, this removes one obstacle to the possibility of some kind of agreement between them and the U.S. who'd been intervening in their country. It's one difficult point off the agenda. However, it's going to have to be -- the U.S. and the international community that takes the lead and actually proves it.

As far as the -- as far as the U.S. is concerned, the U.S. has been caught up in two struggles here. There's one which is the fight against terrorism going after bin Laden, Al Qaeda international terrorist networks, and there's also been another struggle which, of course, that to try and stabilize Afghanistan. The fight against Al Qaeda, no doubt, it will carry on for some years. But it's a different effort trying to stabilize Afghanistan. And as the U.S. tries to find a way responsibly to draw down its troops in the country, to be able -- basically, you know, to get the army home or as much of it as possible, they have to find some way of stabilizing it. And the most obvious way, if it works, is to get the Taliban on board. Basically to get the Taliban leadership to call off, to call an end to their operations.

SPITZER: Basically, to get the Taliban to say, look, we got it wrong in 2001, now that's issue is moot. Bin Laden is dead. Anyway, let's go back to what the game plan should have been, make some sort of peace, and you think that's a possibility?

SEMPLE: Yes, I think that publicly nobody's ever going to say we're wrong in public, but basically I think -- if it works -- the Taliban will turn around and say, now that we've heard from the United States that it intends, you know, along with NATO to withdraw its troops over a period of time, we see no point in getting ourselves killed fighting for them to go.

SPITZER: All right. Michael Semple, thanks so much for being here.

SEMPLE: Most welcome.

SPITZER: Up ahead, who is gross, bloated and chronically dishonest?

If you said Goldman Sachs, you've read Matt Taibbi's latest scathing expose who'll join us when we come back.

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SPITZER: Tonight, they got away with it. Our recurring series. It's our old friends at Goldman Sachs. You'll remember we spoke with Senator Carl Levin after he released a damning report about Goldman last month. But in the latest issue of "Rolling Stone," Matt Taibbi sounds the alarm. Nothing but nothing is being done about it. Not only has Goldman gotten away with it, they have, in Matt's words, achieved a kind of corrupt enterprise nirvana, caught but still free above the law. Matt, who is famous for his metaphor, joins us tonight.

Look, it seems to me one that of the great crises here is that for a decade Wall Street said trust us. If something's about to go amiss, we will stop it ourselves. We will relegate ourselves. Isn't the lie finally being put to that outrageous claim on their part?

MATT TAIBBI, CONTRIBUTING EDITOR, "ROLLING STONE": Yes, absolutely. I mean, there was a process. Obviously you were there during this whole time period. Wall Street continually argued that they can self-regulate. There were a series of sort of key moments during this whole process including in 2004 when they had the consolidated supervised entity program, when all the banks were supposedly going to self-regulate. Goldman very passionately argued that they would be able to step in if anything untoward happened in the market. And this Levin report pretty much turns that on its head and proves that when they discovered something critically wrong with the market, they not only did nothing, but they stepped in and fervently traded against the entire market.

SPITZER: Frankly, didn't that work perfectly from their perspective?

TAIBBI: Sure.

SPITZER: When there was a crisis, they figured out how to make money on it. We bailed them out and there was no regulation. Isn't this exactly what they wanted?

TAIBBI: Yes, I know. They got everything and more. I mean, they got their cake and they ate it too. They had no regulation and they -- they actually, they were right about the fact that they caught the crisis ahead of time. They just didn't do anything about it.

SPITZER: They didn't do the one thing they promised us they would do, which was to ring the alarm bell and say we've got to stop it. And what I really love is that after all this Alan Greenspan has gone, whoops, I guess maybe a little mistake.

TAIBBI: Right. Little mistake in there somewhere.

SPITZER: You, as always, come up with this beautiful metaphor. You have in this article a way to describe the CDO2 (ph).

TAIBBI: Right.

SPITZER: Tell us what it really stands for and then give us this metaphor. I think it's just so classic in terms of explaining to people what it was.

TAIBBI: Well, CDO2 (ph) was basically a way to sort of recycle mortgage assets so that you could take the leftover bits and turn them into AAA-rated securities.

SPITZER: One second, AAA-rated securities being supposedly the most secure securities that banks could hold, pension funds could hold.

TAIBBI: Right.

SPITZER: You get a AAA rating, it becomes that much more valuable. So they wanted to turn junk into AAA, sort of modern day alchemy. Explain how they did it.

TAIBBI: Well, the metaphor I came up with was high school volleyball gym class basically. You know, you have a gym class, you're choosing up sides for a volleyball team. Five kids are left over. Now imagine every gym class in the entire state repeats the same process. You take all those leftover kids from all those gym classes --

SPITZER: We all sympathize with those kids, by the way.

TAIBBI: Right. Yes, I mean, I was actually one of those kids once upon a time. You throw them in a gym. You choose up sides again. You take the leftover kids from that exercise. Then you repeat the entire exercise across the country. You throw those kids in the gym and you choose up sides again. And then you call those first teams the all Americans. And that's basically what they did.

SPITZER: They took the dreck (ph) -- I hate to be -- I'm not kind of these kids.

TAIBBI: Right. SPITZER: They put a trip (ph), splashed a AAA rating on it and said buy this stuff?

TAIBBI: Right, right. Basically, it took all the leftover, bottom of the barrel stuff, and recycled it and turned it into AAA ratings.

SPITZER: And what point is that? You said they did see the cataclysm coming and what did they do? They wanted to clean up their books.

TAIBBI: Right. They actually used this term clean. They have these memos that they discovered in the Levin report where high ranking Goldman officials are saying we need to distribute as many assets as possible and clean previous positions. Which basically means, we have to get rid of the crap on our books and dump it.

SPITZER: I want to play a sound bite here from Lloyd Blankfein, his testimony before Senator Levin's hearing. Let's roll the sound bite and then see what he actually said.

(BEGIN VIDEO CLIP)

LLOYD BLANKFEIN, CEO GOLDMAN SACHS: We didn't have a massive short against the housing market and we certainly did not bet against our clients. Rather, we believed that we managed our risk as our shareholders and our regulators would expect.

(END VIDEO CLIP)

SPITZER: All right. Now what I want to show you on the screen there and what we put up there briefly, and I'll read it to you, is what he said in an internal memo. I don't know if it was an e-mail or memo. He said, "Could/should we have cleaned up these books before and are we doing enough right now to sell off cats and dogs in other books throughout the division?"

TAIBBI: Right.

SPITZER: He wanted to get rid of -- what does he mean by cats and dogs?

TAIBBI: Cats and dogs, they had mortgage assets that they were terrified were going to blow up in their faces and they wanted to get rid of them as quickly as possible by dumping them on their clients. That's what they meant by cats and dogs.

SPITZER: How big a short position do they end up having at one point?

TAIBBI: $16 billion.

SPITZER: $16 billion with a "b"?

TAIBBI: Right. And this was at some point, above 50 percent of their VAR, their value at risk. SPITZER: Value at risk which is the sort of a geeky way of saying their entire firm was at risk because they wanted to get rid of the stuff and they were willing to sell it off and dump it?

TAIBBI: Right. And it's important to remember, Goldman in its own internal memorandum was describing this position as a big short. So when Lloyd Blankfein says we did not have a massive short bet, I just don't know how that could possibly be true.

SPITZER: OK. Now, what did they tell the people who were buying the stuff?

TAIBBI: Oh, they said that they implicitly endorsed it. They said, in fact, one of the clients they told him we expect that you're going to earn 60 percent on these assets.

SPITZER: And meanwhile, this is the stuff they called cats and dogs and junk?

TAIBBI: Right. At the same time they were telling one client that they expected a 60 percent return, you had guys who were selling this particular deal saying, this has major meltdown potential. You know, this is going to blow up. We expect these to underperform. And at the same time, they were pumping this up to clients.

SPITZER: And they were speaking derisively of the people who bought it?

TAIBBI: Right. Yes, they said -- when they found one client to buy $100 million worth of the stuff, they said -- one guy said, we found a unicorn of flying pig and a pink elephant all at once.

SPITZER: That's not the way you describe somebody you speaking highly of.

TAIBBI: Right. Exactly. In other words, they found the ultimate sucker.

SPITZER: The ultimate sucker. I feel compelled. You know, we've asked Goldman Sachs to have somebody come on the show day after day after day after day. They will not do it, of course. But let me read to you their statement here. "While we disagree with many of the conclusions of the report, we take seriously the issues explored by the subcommittee. We recently issued the results of a comprehensive examination of our business standards and practices and committed to making significant changes that will strengthen relationships with clients, improve transparency and disclosure and enhance standards for the review, approval and suitability of complex instruments."

There you have it. That was Goldman's response to the scathing report from Senator Levin. Does that persuade you?

TAIBBI: Not terribly. And I'm not even sure what that statement actually means. They said that they made changes. Is that implicitly accepting that they made mistakes before? I mean, they never actually said that. SPITZER: You end the article with a very powerful observation, which is that there have been people indicted for making false statements, perjury before Congress -- Roger Clemens.

TAIBBI: Right, Roger Clemens.

SPITZER: And Barry Bonds was indicted, not for statements before Congress but for lying in the course of an investigation about steroids.

TAIBBI: Right.

SPITZER: And yet, nobody yet indicted for the testimony from Goldman.

TAIBBI: Right. Yes, I know, and again, we went through -- we did in this article, we went through the statements that they made in testimony before Congress and we found, you know, virtually exactly contradictory statements in their internal e-mail. And our question is, what is the Justice Department waiting for? I mean, if they're going to pursue a case against Roger Clemens for lying about getting a shot of steroid, why not these guys?

SPITZER: Must have been a lot of Texas Ranger fans in the Justice Department.

All right. Matt Taibbi, as always, great stuff.

Coming up, the Democrats say Congress has to raise the debt ceiling or else. I'll talk with a Republican who's calling their bluff.

Stay tuned. We'll be right back.

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SPITZER: In just five days, we hit the federal debt ceiling. What does that mean? If you think of the debt ceiling as our nation's credit card, that credit card will max out on Monday. Moving some money around will supposedly hold us until August, but it's a tug-of- war between Democrats and Republicans. Utah Republican Jason Chaffetz is holding out for a deal ahead of a deadline.

Congressman Chaffetz sits on the House Budget Committee. He joins me tonight from Capitol Hill.

Welcome back to the show.

REP. JASON CHAFFETZ (R), UTAH: Thanks, Eliot. Glad to be here.

SPITZER: So, look, here's the thing I've just got to challenge you on right out of the box here. I know -- I listen to Speaker Boehner's speech the other night. And he is saying we need to cut trillions of dollars, no revenue. Driving a hard bargain, as are you. But I looked at your own budget bill, the budget that the House passed sanctioned by Speaker Boehner and Paul Ryan. You require a trillion dollars of borrowing for your own budget over the next year. So why can't you just say to the American public we all know we need to borrow, let's get it done so we don't sacrifice our credit rating, and then figure out the large tough issues starting next week?

CHAFFETZ: Well, look, the Paul -- so-called Paul Ryan budget actually puts us on a trajectory not only to balance the budget but to actually pay off the debt. And it takes a long time to get from here to there. But if we're moving on that kind of trajectory, yes, then I think you would see people vote to increase the debt ceiling. But to just unilaterally increase the debt ceiling without those kind of cuts over the long term, no, we're not going to do that.

SPITZER: Here's the thing. First of all, I got to challenge you, Paul Ryan's budget proposal. And as you know, I'm not a fan of it. It doesn't balance the budget and go 20/40. It adds $6 trillion of debt to the budget, to our federal (ph) nation over the next decade. I mean, those are facts I think we can agree on those. And so even if we were going to do that, we'd have to increase the federal debt ceiling by $6 trillion. We're not going to agree on the parameters of the budget between now and next Monday. Nor is this the moment to really have that debate. So why don't we get this out of the way to calm the credit markets and the securities markets and then next week begin what will be a very healthy and hopefully intellectually driven debate about what the budget should look like?

CHAFFETZ: Well, I think it's fundamental wrong to continue to kick this thing down the road, to just punt on this and say, oh, well, we'll deal with that after a presidential election. No, we have a crisis right now. And there's some of us that believe we can no longer delay on this. We have to make the cuts right now, right here today.

And, by the way, I should mention, I would be in favor -- in fact, I would encourage Speaker Boehner, let's have a straight up or down vote. Let's see how many people on the Democrat and Republican side of the aisle would actually vote to unilaterally raise the debt ceiling by say, $2 trillion with no cuts. I don't think it would pass. I think it would be very bipartisan to say no, we're not going to do that.

SPITZER: Well, look, Congressman, I'm not saying push it back until after the 2012 presidential election. I'm with you. We need to figure this out I would say starting next Monday. But we were not going to figure it out between now and Monday. And I think you and I could both accept that as a matter of just how Washington works.

Let's get the debt ceiling out of the way because everybody's plans requires significant borrowing over the next year or two years, three years, so let's get this out of the way so we don't drive interest rates up and then begin that very healthy debate. That makes sense to me.

Let me challenge you also on one or two things. And I know Speaker Boehner's speech wasn't yours. I don't want to sort of hang that around your neck.

CHAFFETZ: Yes.

SPITZER: But he did say some things in there that are problematic to me just as a matter of raw economics. He said government spending now is crowding out private sector investment. Crowding out is a theory of when the government does things and drives interest rates up, the private sector can't borrow. That's simply false right now. Interest rates are at historic low. There is no crowding out. That was the predicate of his speech.

CHAFFETZ: But I think there are some fundamentals that a lot of us would agree upon. With the massive federal spending that we have, we're about to see hyper inflation. We don't have an energy plan. That's why we're seeing rapid rises in energy prices. There are a lot of factors that are coming together. And we do see a rise in interest rates that I think will inevitably happen based on our poor performance here at the federal government.

We are borrowing, taxing and spending too much money. We're pouring too much money into the marketplace, and we've created so much uncertainty that businesses don't know how to make investments. They aren't opening up new manufacturing plants. We are crowding out the capital that needs certainty in order to make the investments that are needed to grow.

SPITZER: Look, as somebody who studied a little bit of economics, this is simply not crowding out. In terms of hyper inflation, there is no sign of it. Energy prices are not because of the federal deficit. Energy prices are driven by the aspects of that market in the Middle East and the dynamics in North Africa, completely unrelated to federal borrowing.

CHAFFETZ: Our federal government is not helping. It is not helping.

SPITZER: I agree --

CHAFFETZ: It is absolutely not helping.

SPITZER: Look, Congressman, we need an energy policy and we could have that discussion. We'll do it some other night. I look forward to it, but that's not really where we're falling down right now.

And the markets, you're a market guy. The markets are saying, interest rates, the federal government is borrowing at historic lows. This is simply not a situation where the market is saying, oh, my goodness, we are going the way of Greece. What was the trigger for Greece? The credit default swaps there showed their interest rates were skyrocketing. Point to me one sign of an increase in interest rates for the federal government.

CHAFFETZ: Well, look, we're at -- our GDP. We're -- our debt is at 95 percent of GDP. You can no longer continue on that trajectory. And I think the bond markets are quite tired of actually us putting out so much debt. I mean, in February alone, our deficit was $220 billion for the shortest month of the year. We can't continue on that trajectory. And until the markets see that we're going to actually pay off our debt and be responsible, I think you're going to see a natural rise in interest rates because they're tired of us showing so much debt. That's just the economic reality.

SPITZER: But, Congressman, I'm with you. We need to deal with this. It's a medium term, a long-term problem, but the markets are simply refuting everything you just said. They're simply not driving rates up.

I want to come back to another --

CHAFFETZ: Look, but what about the unemployment rate? I mean, you have unemployment at nine percent. All of this massive government spending, did it do anything to change the unemployment rate? No, it didn't.

SPITZER: Absolutely.

CHAFFETZ: It did not.

SPITZER: Look, Congressman --

CHAFFETZ: We have to make the climate more conducive for businesses to grow. Not for government to grow. Since Barack Obama took office until now, there are 161,000 additional federal workers. That's fundamentally wrong. We can't keep going on that trajectory. That's why we've got to make some fundamental changes like instituting the Ryan budget in order to put us back on track.

SPITZER: All right, look --

CHAFFETZ: For guys like me to raise the debt ceiling, we need to do something that dramatic.

SPITZER: Look, I've got to give you one thing. You're a first term congressman. You're learning to filibuster real well. And I have to give it to you on that one.

Look, I disagree with you, about 99 percent of what you just said as a matter of fact.

CHAFFETZ: Thank you. If you agreed with me, it would scare me to death. I'd never win re-election.

SPITZER: All right. One thing we --

CHAFFETZ: So, I'm going to use that on my campaign commercial.

SPITZER: One thing we agree on is just skiing in Utah is great stuff. We'll have to go out and do that together someday.

All right.

CHAFFETZ: Thanks, Eliot.

SPITZER: Congressman, thanks so much for joining us.

CHAFFETZ: Thank you.

SPITZER: We'll be right back.

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SPITZER: That does it for us tonight. Thank you so much for watching. Good night from New York.

"PIERS MORGAN TONIGHT" starts right now.