Return to Transcripts main page

CNN Newsnight Aaron Brown

Gov. Schwarzenegger Proposes Radical Budget For 2005; President Calls On Congress To Fix Social Security

Aired February 03, 2005 - 22:00   ET

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

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


SOLEDAD O'BRIEN, CNN ANCHOR: Good evening, everybody. It would not be unusual the day after the State of the Union address to begin right where the president left off. After all, it isn't every night that a president not only touches the third rail of American politics, Social Security, but embraces it.
This is a president, after all, who likes calling the bet and raising the stakes. But he is not the only gambler at the table. And Washington isn't the only high-stakes game in town.

(BEGIN VIDEOTAPE)

O'BRIEN: It's just one state in the union, the biggest state, and often a bell-weather.

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: Last year, we stopped the bleeding. This year, we must heal the patient.

O'BRIEN: Arnold Schwarzenegger talks about the enormous changes he sees in California's future, a CNN exclusive.

A Social Security fact check: Is the system really headed for bankruptcy? How the rhetoric stacks up to reality.

JAMES SUROWIECKI, "THE NEW YORKER": It's clear that things are not perfect with Social Security. I think it's a long way from crisis.

O'BRIEN: What we didn't know at the height of the Abu Ghraib prison scandal.

DONALD RUMSFELD, U.S. SECRETARY OF DEFENSE: I submitted my resignation to President Bush twice during that period. And I told him that I felt that he ought to make the decision as to whether or not I stayed on.

BROWN: What the defense secretary told Larry King tonight.

The United Nations in the hot seat again. How well are millions of dollars in tsunami donations being managed?

UNIDENTIFIED MALE: We will, in the United Nations, account for every penny, every cent, every euro.

(END VIDEOTAPE)

O'BRIEN: And welcome.

We begin tonight with the leading character on the largest stage in the land outside Washington. California is a place where everything seems to happen first. And unlike that famous city in the state next door, what happens in California rarely stays in California.

Whether it's immigration, taxation, deficits or celebrity politicians, California sets the pattern, even for Washington, which makes it a good place to start, and not just because CNN's Jeff Greenfield happened to sit down with one of those celebrity politicians.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Mr. Speaker, the president of the United States.

JEFF GREENFIELD, CNN CORRESPONDENT: Can anything top this piece of political pageantry? The best-known public figure in America setting out his agenda? Well...

UNIDENTIFIED MALE: Ladies and gentlemen, Governor Arnold Schwarzenegger.

GREENFIELD: What about this piece of political pageantry where an equally recognizable public figure singled the start of a far- reaching battle over policy and politics?

SCHWARZENEGGER: Last year, we stopped the bleeding. This year, we must heal the patient.

GREENFIELD: Washington may be the center of political gravity, but the most intriguing, and perhaps the most consequential, political struggle is happening right here in Sacramento. The nation's most populous state, with a budget bigger than that of most countries, is being told by its larger than life governor that it's time for a fundamental change in how California taxes, spends and even governs itself.

Just how big a change is he seeking?

SCHWARZENEGGER: Really big. I'm undoing things that have been there for years, undoing things that people know are wrong, but they're not there to touch it, because it maybe will rattle the cage too much with the unions or with other special interests and so on. So I say to myself, hey, I'm looking at this. This is the kind of things that need to be fixed. Let's go for it.

GREENFIELD: What is "it?" A state that has piled up so much spending, much of it enacted into law by the voters themselves through years of ballot initiatives, that California is now locked into a system where it spends billions more than it takes in, $8 billion-plus this fiscal year, even after borrowing some $15 billion just a year ago. SCHWARZENEGGER: What happens in California is we have formulas that kick in automatically, even if you don't have the money. They just kick in, and you have to pay.

GREENFIELD: On this matter, Senate Democratic Leader Don Perata agrees with the governor.

STATE SENATOR DON PERATA (D), CALIFORNIA: They're automatic triggers. And for the one in education pretty soon will gobble up 65 percent of the general fund budget. And as worthy as that might be, you end up pitting K-12 education against health care for children.

GREENFIELD: The governor wants the legislature or the voters to adopt a new rule that says, in effect, if spending goes up faster than revenues, cuts must be made across the board. Then there are those state pensions for clerical workers, corrections guards, police and fire fighters. Schwarzenegger wants them changed to 401(k) investment accounts, meaning workers would gain the rewards and the risk of the marketplace.

He's proposed merit pay for teachers with language that angered many of them.

SCHWARZENEGGER: I propose that the teachers' employment be tied to performance, not just showing up.

GREENFIELD: And he's ruffled feathers on both sides of the aisle with a proposal to remove the redrawing of legislative and congressional districts out of the political process.

You've stirred up a hornet's nest, I think, in both parties on this one.

SCHWARZENEGGER: Right. Right now, there's no choice. Right now, 153 districts, congressional and legislative districts in California, were up for reelection this last November. None of them changed parties. What kind of a democracy is that? I can see very clearly that we can fix the problems.

GREENFIELD: With legislature firmly in Democratic hands, the governor says he may take his case directly to the voters through the ballot initiative process later this year. And in our conversation, he returned again and again to the idea that he has a special bond with the people.

SCHWARZENEGGER: The people and I, this is the partnership. The people and I together can overcome all of those obstacles, the special interests, the legislators that want to represent the special interests rather than the people. All of those things we can overcome and be victorious. And this is why it's so important for the people to listen to me. I will guide them in the right direction, and I will turn the state around.

We have here Hiram Johnson.

GREENFIELD: The governor links himself to a California political hero, Hiram Johnson, a governor almost a century ago who railed against special interests and who helped create the initiative and the recall. But his rivals, like state treasurer Phil Angelides, an all but certain candidate for governor next year, say that Schwarzenegger never takes on Republican special interests.

PHILIP ANGELIDES (D), CALIFORNIA STATE TREASURER: The fact is, we need to balance our budget, but it needs to be done fairly. But this governor only asks for sacrifice from those who have the least. If you're going to ask for sacrifice, you need to ask for sacrifice of everyone, not just fire fighters, police officers, teachers, students in the classroom.

GREENFIELD: It promises to be a lengthy, bruising political fight. And as far as his enthusiasm for the job...

Are you enjoying this?

SCHWARZENEGGER: I'm having the greatest time. This has been so much fun. And I love the work. I love getting up every morning, and reading my briefing papers, and going to have the meetings.

GREENFIELD: The one thing I want to see before I let you go is, if you can, I want to see that tent.

Some of which, at least, take place in this tent outside the governor's office.

SCHWARZENEGGER: It then became the smoking tent.

GREENFIELD: Hamstrung by a state law banning smoking, the governor set up this alfresco office so he could chat up politicians while smoking a legal cigar. It was a creative solution to a bind.

But finding a way out of an $8 billion bind may be a lot harder. More on the politics of California and Arnold in our next report.

Jeff Greenfield, CNN, Sacramento.

(END VIDEOTAPE)

O'BRIEN: And Jeff's next report airs tomorrow right here on NEWSNIGHT.

We're going to have more on the governor later in the program. CNN's Matthew Chance on a change in how Governor Schwarzenegger is being seen back in his home town in Austria. That's coming up next in our second half hour.

The day after President Bush's State of the Union address, and Social Security was the talk of Washington. Democrats vow to fight the president's plan to allow American workers to divert a portion of their payroll taxes to create private accounts. And a lot of Republicans say they're uneasy with it, too.

But the president heard none of that. He is out on the road, talking directly to the American public about his ideas of personal ownership. First, in Fargo, North Dakota, and then tonight in Great Falls, Montana.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I like the idea of you owning something. I love an ownership society. We want more people owning their own home. We want people owning their own business. We want people owning their own farm. We want people owning and managing their own health care accounts. And I think it makes sense to have people owning and managing their own retirement account.

(END VIDEO CLIP)

O'BRIEN: The president spends the night in Omaha, Nebraska, and heads off tomorrow to Arkansas and Florida. He's going to sell his plan to overhaul Social Security.

Mr. Bush says the plan begins taking in less money than it pays out in 2018, ultimately going bankrupt, he says, in 2042. But just what will happen and when is really open to interpretation.

Earlier today, I spoke with James Surowiecki. He's a financial columnist at the "New Yorker" magazine.

(BEGIN VIDEOTAPE)

O'BRIEN: The first question I have is whether or not the system is bankrupt. Let's listen to a little bit of what President Bush had to say at the State of the Union address last night.

JAMES SUROWIECKI, "NEW YORKER" MAGAZINE: OK.

(BEGIN VIDEO CLIP)

BUSH: One of America's most important institutions, a symbol of the trust between generations, is also in need of wise and effective reform. Social Security was a great moral success of the 20th century. And we must honor its great purposes in this new century.

The system, however, on its current path, is headed towards bankruptcy. And so we must join together to strengthen and save Social Security.

(END VIDEO CLIP)

O'BRIEN: Is the system, on its current path, headed toward bankruptcy?

SUROWIECKI: The right answer is, we don't know, because it entirely depends on how well the United States' economy does over the next 75 years. According to the estimates that President Bush is citing, have the economy doing very poorly, much worse than it did in the previous 75 years. If the economy does that bad, then, in fact, by 2042 or 2050, the system will no longer have enough money to pay the full range of benefits. But there are a lot of assumptions built into that. And it is far from clear that we're on track for bankruptcy or crisis in the way that the president has suggested.

O'BRIEN: Let's talk a little bit more about that date, 2042, because a lot of people are hanging on to that date as sort of a big looming end of where the system implodes. Let's listen to a little bit more of what the president had to say.

SUROWIECKI: Sure.

(BEGIN VIDEO CLIP)

BUSH: By the year 2042, the entire system would be exhausted and bankrupt.

(GROANING)

If steps are not taken to overt that outcome, the only solutions would be dramatically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs.

(END VIDEO CLIP)

O'BRIEN: It was interesting to hear the groaning, kind of unusual at the State of the Union address to hear the people who didn't quite agree with some of the president's math and some of the president's dates, as well.

SUROWIECKI: Right.

O'BRIEN: So tackle the date. Is it 2042, is it 2052, as we have heard?

SUROWIECKI: Again, we don't know. 2042 comes from the Social Security's Trustee's report. They did a report, and they had very pessimistic estimates as to how the U.S. economy was going to be done. The Congressional Budget Office did a different series of assumptions. They came up with 2050.

So, you know, we really are not sure what's going to happen. Right now, the system is fine. We know the system is fine for at least 30 or 40 years. And, in fact, the system is healthier today than it was, say, 15 years ago, when it looked like the system was going to go bankrupt by 2018. So, you know, it's clear that things are not perfect with Social Security. I think it's a long way from "crisis."

O'BRIEN: Another big issue is the age of Americans.

SUROWIECKI: Right.

O'BRIEN: Fifty-five and older don't have to worry, says the president. Younger, they will see changes under his plan. Let's listen to what he had to say about that last night. SUROWIECKI: Sure.

(BEGIN VIDEO CLIP)

BUSH: Today, more than 45 million Americans receive Social Security benefits and millions more are nearing retirement. And for them, the system is sound and fiscally strong.

I have a message for every American who is 55 or older. Do not let anyone mislead you. For you, the Social Security system will not change in any way.

(END VIDEO CLIP)

O'BRIEN: OK we get it, 55 and older, not going to change. But what if you're 54 or 53 or 52, what you would consider to be right on the cusp there?

SUROWIECKI: Right. Well, I mean, he has basically set an arbitrary cut-off point. And I actually think, if you're going to institute reform, at some point he wants to set a line. And he is just drawing the line at ten years before retirement. That's purely the president's political plan. There's no real mathematical reason for it.

I mean, even if you buy the 2042 argument, that's, what, 30 -- no, it's almost 40 years away. So you can say people up to the age of 30 would be fine. But he has basically set it at 55. And he has said there and older, you will get your full range of benefits. If you're younger than that, you might have to go through these, you know, reforms that he is talking about.

O'BRIEN: I can imagine there's going to be lots of debate over this...

SUROWIECKI: Yes.

O'BRIEN: ... as we get a little bit closer. As the president, who's trying to pitch his plan right now, continues to traipse across the country trying to sell it.

SUROWIECKI: Right.

O'BRIEN: James Surowiecki from the "New Yorker." Nice to see you. Thank you very much for your insight.

SUROWIECKI: Thanks for having me on. I appreciate it. Thanks.

O'BRIEN: My pleasure.

(END VIDEOTAPE)

O'BRIEN: Well, during his State of the Union address, the president said federal employees should be familiar with personal retirement accounts. That's because they can join the thrift savings plan, which is the government version of the 401(k). These plans allow workers to contribute a percentage of their paychecks, not divert part of their payroll taxes, which is at the heart of the president's plan to overhaul Social Security.

But there is a county in Texas where employees have just such a choice. And Ed Lavandera has the story.

(BEGIN VIDEOTAPE)

ED LAVANDERA, CNN CORRESPONDENT: Ray Holbrook is enjoying retirement chopping wood, but he wonders how long he would have had to work if he had not been a county judge in Galveston, Texas.

RAY HOLBROOK, FMR. GALVESTON COUNTY JUDGE: At my age, 77, I would probably still be working. I hope I wouldn't be splitting wood, but I might be working at something else.

LAVANDERA: Holbrook gets about $1,300 a month from Social Security. For ten years, he also was getting an extra $3,000 monthly check from the county.

HOLBROOK: People ought to save for their own retirement and not count on the next generation paying for it.

LAVANDERA: Galveston County was one of three Texas counties that bailed out of the federal Social Security plan 23 years ago and created what's known as the alternate plan for county employees. The program creates individual retirement accounts that workers and the county pay in just like Social Security, but the money is invested in secure bonds or annuities, guaranteeing at least a 4-percent return.

HOLBROOK: It's like taking my money to the local bank down here. I know I have that account in that bank. And I can draw on it each month as I need it. And I know where it is. I know how much is there.

LAVANDERA: Rick Gornto runs the retirement program for Galveston County. He says the investment plan has averaged a return of more than 6 percent since it was started in 1981, far better, he says, than the 1 to 2 percent return from Social Security. He says the country should take notice.

RICK GORNTO, FIRST FINANCIAL BENEFITS: We didn't know how it would work. I mean, we knew in our heads, but we've never lived it. And now we have lived it, and we've seen it work. We have seen real people receive real money and real returns.

LAVANDERA: The county plan also pays four times a worker's salary as a death benefit. Social Security pays $225. The county's private retirement accounts can also be passed on to your children. Social Security payments cannot.

The U.S. General Accounting Office analyzed Galveston's retirement plan 6 years ago. That report says that the alternate plan worked well in just a few cases, but that generally, workers would receive more money if they were in the federal Social Security program. ROBERT HUTCHINS, GALVESTON COUNTY RESIDENT: I think it's terrible.

LAVANDERA: Retirement planner Robert Hutchins is one of the few voices of dissent to the alternate plan in Galveston. He says the program isn't as profitable for low income workers, as it is for judges like Holbrook, and hurts employees who leave the county before reaching retirement age.

HUTCHINS: If the national plan were similar, if they used the Galveston alternate plan as their model, it's going to be a tragedy.

LAVANDERA: Galveston officials question the numbers used in the government's report, but they acknowledge the alternate plan needs some tweaking. Workers can take money out of their personal accounts at any time, which they see as a dangerous option, if it leaves people with less money to retire with.

Ray Holbrook doesn't question the plan's success. He just looks at the checks he has received since retiring to remind himself why private investments have paid off.

Ed Lavandera, CNN, Dallas.

(END VIDEOTAPE)

O'BRIEN: And much more to come tonight, including the one thing you would never imagine Defense Secretary Rumsfeld ever saying. In fact, he said it twice. He will explain in his own words.

And later, why Arnold Schwarzenegger's hometown begs to differ with their hometown hero. A break first from New York. This is NEWSNIGHT.

(COMMERCIAL BREAK)

O'BRIEN: Today, we learned that Secretary of Defense Donald Rumsfeld offered to resign twice during the height of the Abu Ghraib prison scandal last year. He said so in an exclusive interview on "LARRY KING LIVE" earlier tonight. More on that story from CNN's Jamie McIntyre.

(BEGIN VIDEOTAPE)

JAMIE MCINTYRE, CNN CORRESPONDENT: It was in May of last year at the height of the Abu Ghraib prisoner abuse scandal when the halls of Congress were ringing with calls for Donald Rumsfeld's head.

U.S. SENATOR LINDSAY GRAHAM (R), SOUTH CAROLINA: And what do you say to those people who are calling for your resignation?

RUMSFELD: Needless to say, if I felt I could not be effective, I would resign in a minute.

MCINTYRE: But what Rumsfeld didn't say then, and reveals now for the first time in an interview with CNN's Larry King, is that he did offer to resign, not just once, but twice.

RUMSFELD: I submitted my resignation to President Bush twice during that period. And I told him that I felt that he ought to make the decision as to whether or not I stayed on. And he made that decision and said he did want me to stay on.

BUSH: Mr. Secretary, thank you for your hospitality.

MCINTYRE: After a few days of speculation about Rumsfeld's fate, President Bush gave him a public vote of confidence after a Pentagon meeting.

BUSH: You're doing a superb job. You are a strong secretary of defense, and our nation owes you a debt of gratitude.

MCINTYRE: Rumsfeld's critics accused him of setting a tone that allowed the abuse to take place and of authorizing interrogation techniques that are tantamount to torture, a charge he flatly rejects.

Rumsfeld told Larry King that, while he was started by the abuse that took place at Abu Ghraib, he had no regrets, arguing that what happened on what he called the midnight shift at the prison could not have been, in his words, managed by someone in Washington.

Jamie McIntyre, CNN, the Pentagon.

(END VIDEOTAPE)

O'BRIEN: Public comments by a top Marine general also made news today. Lieutenant General James Mattis said he should have chosen his words more carefully when he said earlier this week it was, quote, "fun to shoot some people." He made the statements during a panel discussion in San Diego. A local television station caught them on tape, and today they were broadcast around the world.

(BEGIN VIDEO CLIP)

LT. GEN. JAMES MATTIS, U.S. MARINES: It's a hell of a hoot. It's fun to shoot some people. I'll be right up front. Yes, I like brawling.

(END VIDEO CLIP)

O'BRIEN: General Mattis runs a Marine Corps combat development unit at Quantico, Virginia, and is the commander of Camp Pendleton's first Marine division.

A new weapon in the military's arsenal is raising some eyebrows, as well. They look like ordinary Web sites full of news from foreign places, but they are not what they seem. And therein lies the rub. Here is CNN's Barbara Starr.

(BEGIN VIDEOTAPE)

BARBARA STARR, CNN CORRESPONDENT: Interested in finding out the latest political developments in North Africa? Log on to this Web site. Looking for the latest on the Balkans? Log on to "Southeast Times." But who owns and runs these, news organizations? The disclaimer, when you find it, "Sponsored by the U.S. Department of Defense."

The Web is now the Pentagon's latest weapon. News sites run by U.S. military troops trained in information warfare, a specialty that can include deception. The Pentagon says the sites only carry truthful news from organizations, including the "Associated Press" and CNN.

LARRY DI RITA, PENTAGON SPOKESMAN: Our principles are truth and transparency.

STARR: Journalism experts see it another way.

TOM ROSENSTIEL, DIRECTOR, PROJECT FOR EXCELLENCE IN JOURNALISM: The government is deceiving people. They may technically suggest that they are not, because that disclaimer is there. But you need to be looking for that disclaimer.

STARR: A military official tells CNN these sites target only specific foreign audiences with objectives, including countering disinformation. Several military officers told CNN that using the media to build influence shouldn't be their job. It's better left to the State Department. Military personnel also are worried they may be violating President Bush's directive.

BUSH: We will not be paying, you know, commentators to advance our agenda.

STARR: Deputy Defense Secretary Paul Wolfowitz had ordered hiring only journalists and contributors who will not reflect discredit on the U.S. More than 50 writers have been hired to produce articles matching the military agenda.

Initially, the Pentagon told CNN there was no problem. Now, spokesman Di Rita has asked the inspector general for an audit of all Pentagon hiring of reporters to make sure.

DI RITA: I have asked that in the department that we review with that specific issue in mind to make sure that we're staying well within the lines.

STARR: Still, the question of using the military.

ROSENSTIEL: Any time that the government has to assure you, "Believe me, take my word for it, I'm telling you nothing but the truth," you know, you should be worried.

STARR: These sites can be viewed not just abroad, but here in the U.S. And the U.S. military is prohibited from conducting influence operations inside the country, raising the concern amongst some here that the Web sites could be inappropriate.

Barbara Starr, CNN, the Pentagon.

(END VIDEOTAPE)

O'BRIEN: Ahead on our program tonight, it is the $64 billion question. Did something go wrong with the U.N. oil-for-food program in Iraq? And if so, where did the money go? A crude assessment when we come back.

And later, is there room for God on the podium? We'll meet the man who writes with passion for the president. Around the world, this is NEWSNIGHT.

(COMMERCIAL BREAK)

O'BRIEN: A long-awaited report released today begins to outline corruption within the United Nation's Iraqi oil-for-food program. It is the first time detailed allegations have been linked by name to a senior U.N. official and the allegations are severe.

Here is CNN's Richard Roth.

(BEGIN VIDEOTAPE)

RICHARD ROTH, CNN CORRESPONDENT: Paul Volcker is a towering presence. The former Federal Reserve Board chairman's findings may now bring down United Nation's officials and severely damage the U.N. itself. Volcker's report focused on the director of the U.N.'s $64 bilion oil-for-food program in Iraq. It accused Benon Sevan, a 40- year U.N. employee, of soliciting oil deals for himself from the same Iraqi government he was negotiating with to feed millions of people living under U.N. sanctions.

PAUL VOLCKER, CHAIRMAN, IRAQ OIL FOR FOOD INQUIRY: The Iraqi government, in providing such allocations, certainly thought they were buying influence.

ROTH: The deals were worth $1.5 million for his friend's company, African Middle East Petroleum, and possibly something to Saddam.

The report also found Saddam received $160,000 in cash, which he claimed was from his elderly aunt in his Cyprus, a woman not known for any wealth. Sevan issued a statement, strategy Volcker succumbed to massive political pressure and used him as a scapegoat. Sevan says he never took a penny and had no interest in that company or any other film associated with oil-for-food.

It fair to say, then, that the man who was running the oil-for- food program for the U.N. was corrupt?

VOLCKER: Well, corrupt is a strong word. We don't know why he did it or we don't whether he got any money out of it. The investigation is continuing.

ROTH: The U.N. says Sevan's boss, Secretary-General Kofi Annan, was shocked at the disclosures and promised to wave diplomatic immunity if Sevan, now retired, is criminally charged.

(END VIDEOTAPE)

ROTH: The investigation must still determine whether Sevan's boss, Kofi Annan, the secretary-general, was guilty of any wrongdoing, or his son Kojo, who was working for a Swiss-based company hired by the U.N. in connection with oil for food -- Soledad.

O'BRIEN: So, then, in a nutshell, what happens next?

ROTH: What happens next? Major report by Volcker in mid summertime. He is looking at Annan, his son, companies, businesses. It's not over yet. But he does say the U.N. didn't really abuse oil- for-food. It wasn't a slush fund. But critics are going to say bad day for the U.N.

O'BRIEN: No question.

All right, Richard Roth, thanks as lot.

This week, U.N. chief Kofi Annan named former President Bill Clinton as a special envoy for tsunami relief in Asia. With aid donations now in the billions and with the U.N.'s oil-for-food program now under fire, there is an understandable concern about how well the U.N. will manage the huge amounts of money and relief supplies that are meant for the tsunami victims.

More on that now from CNN's Chris Huntington.

(BEGIN VIDEOTAPE)

CHRIS HUNTINGTON, CNN CORRESPONDENT (voice-over): Not long after U.N. Secretary-General Kofi Annan surveyed the tsunami's horrifying devastation of Indonesia's Banda Aceh Province, emergency supplies and maybe began pouring into the region.

But for Annan, who had been steadily under fire for the U.N.'s mishandling of the Iraqi oil-for-food program, the unprecedented financial aid also renewed criticism of the U.N.'s ability to manage money. Last month, Annan tried to put donors at ease.

KOFI ANNAN, U.N. SECRETARY-GENERAL: It is important that we reassure the donors that the money that has been given is being used properly and effectively.

HUNTINGTON: While Annan may be in the line of fire, it's Undersecretary Jan Egeland who is in the hot seat for managing the nearly $1 billion the U.N. has so far collected for tsunami relief.

JAN EGELAND, U.N. EMERGENCY RELIEF COORDINATOR: We will in the United Nations account for every penny, every cent, every euro. This unprecedented generosity that we have seen to the United Nations in the wake of the terrible tsunami should be followed by unprecedented transparency.

HUNTINGTON: Egeland dismiss any comparison to the U.N.'s role in the oil-for-food program. EGELAND: The humanitarian system of ours well proven since the 1940s. It's totally different. We have internal, external auditors, monitors, evaluations reporting all the time. The system works.

HUNTINGTON: The U.N. has signed up PricewaterhouseCoopers, which offered for free to oversee the U.N.'s accounting of tsunami aid. And Egeland promises that the U.N. Web site will eventually track every donation to its end use.

But one critic of the U.N.'s oil-for-food program says, while there's unlikely to be mismanagement in handling tsunami aid, there is likely to be waste.

NILE GARDINER, HERITAGE FOUNDATION: The United Nations is a huge, gigantic, overbearing bureaucracy, extremely inefficient in terms of its overall operations.

HUNTINGTON: There are more than a dozen distinct U.N. agencies from UNICEF to the World Food Program to the U.N. Development Program, all with different accounting rules and donor reporting procedures. While Egeland coordinates their efforts, he does not have oversight on how each agency collects and spends money. And that may come back to haunt him and his boss.

Chris Huntington, CNN, New York.

(END VIDEOTAPE)

O'BRIEN: Still to come tonight, a family like so many others, except home is in Gaza and home may not be home much longer.

And later, why Arnold Schwarzenegger can't go home again, at least not without settling a life-and-death argument.

From Austria to Atlanta to New York City, this is NEWSNIGHT on CNN.

(COMMERCIAL BREAK)

O'BRIEN: Two Marines died today on patrol in Al Anbar Province. They were members of the 1st Marine Expeditionary Force. And they were killed in the bloodiest single day since this weekend's elections.

Insurgents took more than two dozen lives in bombings and shootings in a number of places, including in the town of Baquba, where gunmen ambushed a van full of recruits for the Iraqi army.

Meantime today, the first batch of election returns came trickling in. They show the slate of Shiite candidates endorsed by Grand Ayatollah Sistani holding a commanding lead. The coalition founded by Iyad Allawi is running a distant second. But it important to mention that these are very early returns, covering only about one in 10 precincts.

Several developments today in the Israeli/Palestinian saga or perhaps three steps forward and one step back. Ariel Sharon, Israel's prime minister, accepted an invitation to sit down with Palestinian leader Mahmoud Abbas next week in Egypt. Both sides say they hope to use the summit to declare a cease-fire.

In addition, Israel agreed to release about 900 Palestinian prisoners and begin gradually loosening its military grip around key cities in the West Bank. However, obstacles remain over who gets released, whether the amnesty includes prisoners jailed for killing Israelis.

And late in the day, the calm was broken as Palestinian gunmen shot and wounded killed six Israeli soldiers in a number of attacks. Setbacks or not, the day on the whole would appear to ease the way for Prime Minister's Sharon broader plans to withdraw from much of Gaza and a few select parts of the West Bank.

The geography is simple enough, but, like most things in the Middle East, virtually nothing else is.

Reporting from Gaza tonight, here is CNN's Guy Raz.

(BEGIN VIDEOTAPE)

GUY RAZ, CNN CORRESPONDENT (voice-over): At first glance, there is nothing unusual about the life led by the Tvige (ph) family. The morning routine is harried. School lunches are packed, breakfast prepared. Their children are showered with love and attention. The neighborhood is filled with youngsters.

UNIDENTIFIED FEMALE: For kids, it's paradise. They feel very free here. They can move by themselves. They can go by themselves. I don't have to worry.

HUNTINGTON: What Sarah Tvige (ph) describe as paradise is the fortress settlement of Gush Katif. Sarah works as a secretary. Her husband, Amitai (ph), is in charge of security. He often diffuses unexploded mortars that regularly fall on the village.

(on camera): Just beyond Gush Katif is the Palestinian city of Han Unis. Now, over the past four years, militants of Han Unis have launched thousands of rockets and mortar attacks on settlements like Gush Katif. Now, the residents here say they're undeterred, but Israel's government believes protecting these settlements is untenable.

(voice-over): Untenable because Israel's government is under intense international pressure to dismantle these settlements. Israel has occupied the Gaza Strip since the 1967 war. But the Geneva Conventions prohibit occupying countries from settling occupied land with their own citizens, something the Tviges say they were never told by a succession of Israeli governments.

UNIDENTIFIED MALE (through translator): I have lived here for 28 years. My family came here to make the desert bloom. When we arrived here, it was sand. Nobody lived here. We never forced anyone off their land. HUNTINGTON: But the mortar attacks on Gush Katif, which started some four years ago, have now made it a dangerous place. In 2001, Sarah's sister, Ouva (ph), was shot dead by a Palestinian militant.

(on camera): Does it make you think maybe it's not the best place to raise children?

UNIDENTIFIED FEMALE: No. I still think it's the best place to raise children.

HUNTINGTON (voice-over): They Tviges determined to stay. They say they won't pack up their belongings when Israel's army comes to evacuate them in July.

UNIDENTIFIED FEMALE: I think that we won't leave, but we will stay until then.

HUNTINGTON: You are going to have to be forced to go?

UNIDENTIFIED FEMALE: Yes.

HUNTINGTON (voice-over): So the Tviges go about their lives as if nothing will change, hoping that talk of disengagement is just talk and nothing more.

Guy Raz, CNN, in Gush Katif settlement, southern Gaza.

(END VIDEOTAPE)

O'BRIEN: Late word tonight that an Afghan passenger jet with more than 100 people on board is missing. Here is what the AP and Reuters are reporting.

Kam Air Boeing 737 took off this afternoon from Herat in western Afghanistan, bound for Kabul. It was turned away from the city's airport because a snowstorm and diverted to an airport in Pakistan. The plane is said to have contacted that airport and was given clearance to land. It has not been heard from since. Kam Air opened up as Afghanistan's only private airline in November of 2003.

And one other note before we go to break. The Vatican says the pope is doing better. He is said to be recovering from the respiratory problems that sent him to the hospital on Tuesday. As for how just long he will remain there, a spokesman said, well, that's up to his doctors.

Still ahead tonight, we'll meet the man's behind the president's often very religious way with words.

And later, why Austria isn't entirely Schwarzenegger country anymore.

This is NEWSNIGHT.

(COMMERCIAL BREAK) O'BRIEN: You mother probably told you and, if not, Miss Manners certainly did, never discuss politics or religion in mixed company. Sorry, mom.

Here's CNN's Dana Bash.

(BEGIN VIDEOTAPE)

DANA BASH, CNN WHITE HOUSE CORRESPONDENT (voice-over): Too much religion, too much talk of God, it's a recurrent criticism of this president. And at the National Prayer Breakfast, he took it on.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We will never be too proud to commend our cares to providence and trust in the goodness of his plans. God bless.

BASH: Mr. Bush's speechwriter is Michael Gerson, an evangelical Christian and theological scholar.

MICHAEL GERSON, SPEECHWRITER FOR PRESIDENT BUSH: What the president has done in talking about the role of providence and the role of faith is perfectly consistent with the history of American political rhetoric. It's perfectly consistent with John Kennedy's inaugural address.

JOHN F. KENNEDY, PRESIDENT OF THE UNITED STATES: Knowing that, here on Earth, God's work must truly be our own.

BUSH: Every man and woman on this Earth has rights and dignity and matchless value, because they bear the image of the maker of heaven and Earth.

BASH: Religious illusions, Gerson argues, are so ingrained in American culture, communicating without them would be foolish.

GERSON: None of these things should be surprising or offensive. They're part of American political discourse. And I also think that, if American political discourse were stripped of religious references, I think rhetoric would be flatter and less interesting.

BASH: But some fear the president is on a messianic mission of sorts and religious references are signals to his Christian base.

GERSON: Well, when the president makes references to a hymn or to Bible verses, other presidents have.

BUSH: Yet there's power, wonder-working power in the goodness and idealism and faith of the American people.

GERSON: The president is not talking in code. He is talking -- he is using cultural references that are known by millions and millions of Americans. And so, my view on that is, it's not a code. It's our culture.

BASH: That's a tough sell to strict interpreters of separation of church and state. But back at the prayer breakfast, Mr. Bush evokes a well-regarded predecessor.

BUSH: Lincoln declared he would be the most shallow and self- conceded blockhead on Earth if he ever thought he could do his job without the wisdom which comes from God and not from men.

BASH: And, the president said, as Lincoln led the country through war, he repeatedly asked Americans to pray.

Dana Bash, CNN.

(END VIDEOTAPE)

O'BRIEN: Still ahead tonight, in Austria, Arnold Schwarzenegger is a hometown hero, but now there are fears he has become too American, at least in their eyes.

Back in a moment. This is NEWSNIGHT.

(COMMERCIAL BREAK)

O'BRIEN: More now on Governor Schwarzenegger, who has come so far, in so many ways, from his childhood in southern Austria. In one way, however, the journey differs from most. Politics are involved and the distance between then and now and there and here is growing because of it.

Reporting for us tonight is CNN's Matthew Chance.

(BEGIN VIDEOTAPE)

MATTHEW CHANCE, CNN CORRESPONDENT (voice-over): An Austrian town famous for one huge man. This is where the impressive bulk of Arnold Schwarzenegger was built. All over the town of the Terminator, there are tributes.

(on camera): This is the...

UNIDENTIFIED MALE: (SPEAKING AUSTRIAN) Arnold Schwarzenegger.

CHANCE: I see. I see. So this whole map is in the shape of Arnold Schwarzenegger?

UNIDENTIFIED MALE: Yes.

CHANCE: In the village of Thal, where Arnold was born, the Schwarzenegger Walk is a major draw. The local mayor is an old classmate of Arnie's. And these days, they're both in politics, but at opposite ends of the argument about capital punishment.

PETER URDL, MAYOR OF THAL (through translator): From the bottom of his heart, he's a good man. He helps the poor and the handicapped. And he has always been there for them. I think the decision to sign a death warrant must have been very hard for him.

CHANCE: And hard to understand for many Austrians who oppose the death penalty so strongly. (on camera): Usually, Austrians are incredibly supportive of their own local superhero. These are the actual weights that a teenage Schwarzenegger used when he began bodybuilding decades ago. They're now on public display.

But while there's still wide admiration for the man as an athlete and as a movie star, it's his performance as a politician in the United States with which many Austrians are now struggling.

(voice-over): Even in the local gymnasiums, shrines to a bodybuilding legend, there's disappointment Schwarzenegger didn't resist the death penalty. Natives like Nils Ehrke, a martial arts instructor, say Arnold's image for many in Graz is now diminished.

NILS EHRKE, MARTIAL ARTS INSTRUCTOR (through translator): All my friends, my family and the people I know talk about Arnold the politician and what he has become. And we're all disappointed. I think the hero we knew is getting smaller day by day.

CHANCE: Perhaps the governor has surrendered to his Terminator alias. At least, that's the idea of a local arts group that produced this computer animation, the Terminator running riot through the Austrian streets. And proposals to build a giant Terminator statue, originally meant as a compliment to his acting achievements, now carry new resonance.

HERWIG HOELLER, FORUM STADTPARK: You could have been against his movies from certain kinds of points of view, but you have to be against countries, OK, against politicians who kind of allow executions in their own kind of states.

CHANCE: But many in this cafe society want to go much further. Peter Pilz leads a campaign to have Governor Schwarzenegger stripped of his Austrian citizenship. His values, he told me, are just too American.

PETER PILZ, AUSTRIAN GREEN PARTY: The American point of view is, we have the right to set standards of international right. We define what's human rights. If we want to kill somebody, it's our right to kill. If we want to arrest somebody without legal procedures, we have the right to do that. That's not the European point of view. We are defending legal systems. We are defending principles of law, of human rights at the moment against the American government. And that's a major conflict.

CHANCE: A conflict in which the controversy over the death penalty and this town's favorite son is one small, if impassioned battle.

Matthew Chance, CNN, Graz in southern Austria.

(END VIDEOTAPE)

O'BRIEN: We'll be back to wrap up the evening in just a moment.

(COMMERCIAL BREAK) O'BRIEN: Before we go tonight, a quick preview of my day job.

Tomorrow on "AMERICAN MORNING," the Super Bowl, it is huge on Madison Avenue, but will this year's advertisers be more cautious after last year's wardrobe malfunction? We're going to find out which way Sunday's TV commercials are leaning. Join me tomorrow morning on "AMERICAN MORNING." We start at 7:00 a.m. Eastern time.

And that's it for tonight. We're going to be back here tomorrow evening at 10:00 p.m. Eastern time. And we'll see you then.

Have a great night.

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


Aired February 3, 2005 - 22:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
SOLEDAD O'BRIEN, CNN ANCHOR: Good evening, everybody. It would not be unusual the day after the State of the Union address to begin right where the president left off. After all, it isn't every night that a president not only touches the third rail of American politics, Social Security, but embraces it.
This is a president, after all, who likes calling the bet and raising the stakes. But he is not the only gambler at the table. And Washington isn't the only high-stakes game in town.

(BEGIN VIDEOTAPE)

O'BRIEN: It's just one state in the union, the biggest state, and often a bell-weather.

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: Last year, we stopped the bleeding. This year, we must heal the patient.

O'BRIEN: Arnold Schwarzenegger talks about the enormous changes he sees in California's future, a CNN exclusive.

A Social Security fact check: Is the system really headed for bankruptcy? How the rhetoric stacks up to reality.

JAMES SUROWIECKI, "THE NEW YORKER": It's clear that things are not perfect with Social Security. I think it's a long way from crisis.

O'BRIEN: What we didn't know at the height of the Abu Ghraib prison scandal.

DONALD RUMSFELD, U.S. SECRETARY OF DEFENSE: I submitted my resignation to President Bush twice during that period. And I told him that I felt that he ought to make the decision as to whether or not I stayed on.

BROWN: What the defense secretary told Larry King tonight.

The United Nations in the hot seat again. How well are millions of dollars in tsunami donations being managed?

UNIDENTIFIED MALE: We will, in the United Nations, account for every penny, every cent, every euro.

(END VIDEOTAPE)

O'BRIEN: And welcome.

We begin tonight with the leading character on the largest stage in the land outside Washington. California is a place where everything seems to happen first. And unlike that famous city in the state next door, what happens in California rarely stays in California.

Whether it's immigration, taxation, deficits or celebrity politicians, California sets the pattern, even for Washington, which makes it a good place to start, and not just because CNN's Jeff Greenfield happened to sit down with one of those celebrity politicians.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Mr. Speaker, the president of the United States.

JEFF GREENFIELD, CNN CORRESPONDENT: Can anything top this piece of political pageantry? The best-known public figure in America setting out his agenda? Well...

UNIDENTIFIED MALE: Ladies and gentlemen, Governor Arnold Schwarzenegger.

GREENFIELD: What about this piece of political pageantry where an equally recognizable public figure singled the start of a far- reaching battle over policy and politics?

SCHWARZENEGGER: Last year, we stopped the bleeding. This year, we must heal the patient.

GREENFIELD: Washington may be the center of political gravity, but the most intriguing, and perhaps the most consequential, political struggle is happening right here in Sacramento. The nation's most populous state, with a budget bigger than that of most countries, is being told by its larger than life governor that it's time for a fundamental change in how California taxes, spends and even governs itself.

Just how big a change is he seeking?

SCHWARZENEGGER: Really big. I'm undoing things that have been there for years, undoing things that people know are wrong, but they're not there to touch it, because it maybe will rattle the cage too much with the unions or with other special interests and so on. So I say to myself, hey, I'm looking at this. This is the kind of things that need to be fixed. Let's go for it.

GREENFIELD: What is "it?" A state that has piled up so much spending, much of it enacted into law by the voters themselves through years of ballot initiatives, that California is now locked into a system where it spends billions more than it takes in, $8 billion-plus this fiscal year, even after borrowing some $15 billion just a year ago. SCHWARZENEGGER: What happens in California is we have formulas that kick in automatically, even if you don't have the money. They just kick in, and you have to pay.

GREENFIELD: On this matter, Senate Democratic Leader Don Perata agrees with the governor.

STATE SENATOR DON PERATA (D), CALIFORNIA: They're automatic triggers. And for the one in education pretty soon will gobble up 65 percent of the general fund budget. And as worthy as that might be, you end up pitting K-12 education against health care for children.

GREENFIELD: The governor wants the legislature or the voters to adopt a new rule that says, in effect, if spending goes up faster than revenues, cuts must be made across the board. Then there are those state pensions for clerical workers, corrections guards, police and fire fighters. Schwarzenegger wants them changed to 401(k) investment accounts, meaning workers would gain the rewards and the risk of the marketplace.

He's proposed merit pay for teachers with language that angered many of them.

SCHWARZENEGGER: I propose that the teachers' employment be tied to performance, not just showing up.

GREENFIELD: And he's ruffled feathers on both sides of the aisle with a proposal to remove the redrawing of legislative and congressional districts out of the political process.

You've stirred up a hornet's nest, I think, in both parties on this one.

SCHWARZENEGGER: Right. Right now, there's no choice. Right now, 153 districts, congressional and legislative districts in California, were up for reelection this last November. None of them changed parties. What kind of a democracy is that? I can see very clearly that we can fix the problems.

GREENFIELD: With legislature firmly in Democratic hands, the governor says he may take his case directly to the voters through the ballot initiative process later this year. And in our conversation, he returned again and again to the idea that he has a special bond with the people.

SCHWARZENEGGER: The people and I, this is the partnership. The people and I together can overcome all of those obstacles, the special interests, the legislators that want to represent the special interests rather than the people. All of those things we can overcome and be victorious. And this is why it's so important for the people to listen to me. I will guide them in the right direction, and I will turn the state around.

We have here Hiram Johnson.

GREENFIELD: The governor links himself to a California political hero, Hiram Johnson, a governor almost a century ago who railed against special interests and who helped create the initiative and the recall. But his rivals, like state treasurer Phil Angelides, an all but certain candidate for governor next year, say that Schwarzenegger never takes on Republican special interests.

PHILIP ANGELIDES (D), CALIFORNIA STATE TREASURER: The fact is, we need to balance our budget, but it needs to be done fairly. But this governor only asks for sacrifice from those who have the least. If you're going to ask for sacrifice, you need to ask for sacrifice of everyone, not just fire fighters, police officers, teachers, students in the classroom.

GREENFIELD: It promises to be a lengthy, bruising political fight. And as far as his enthusiasm for the job...

Are you enjoying this?

SCHWARZENEGGER: I'm having the greatest time. This has been so much fun. And I love the work. I love getting up every morning, and reading my briefing papers, and going to have the meetings.

GREENFIELD: The one thing I want to see before I let you go is, if you can, I want to see that tent.

Some of which, at least, take place in this tent outside the governor's office.

SCHWARZENEGGER: It then became the smoking tent.

GREENFIELD: Hamstrung by a state law banning smoking, the governor set up this alfresco office so he could chat up politicians while smoking a legal cigar. It was a creative solution to a bind.

But finding a way out of an $8 billion bind may be a lot harder. More on the politics of California and Arnold in our next report.

Jeff Greenfield, CNN, Sacramento.

(END VIDEOTAPE)

O'BRIEN: And Jeff's next report airs tomorrow right here on NEWSNIGHT.

We're going to have more on the governor later in the program. CNN's Matthew Chance on a change in how Governor Schwarzenegger is being seen back in his home town in Austria. That's coming up next in our second half hour.

The day after President Bush's State of the Union address, and Social Security was the talk of Washington. Democrats vow to fight the president's plan to allow American workers to divert a portion of their payroll taxes to create private accounts. And a lot of Republicans say they're uneasy with it, too.

But the president heard none of that. He is out on the road, talking directly to the American public about his ideas of personal ownership. First, in Fargo, North Dakota, and then tonight in Great Falls, Montana.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I like the idea of you owning something. I love an ownership society. We want more people owning their own home. We want people owning their own business. We want people owning their own farm. We want people owning and managing their own health care accounts. And I think it makes sense to have people owning and managing their own retirement account.

(END VIDEO CLIP)

O'BRIEN: The president spends the night in Omaha, Nebraska, and heads off tomorrow to Arkansas and Florida. He's going to sell his plan to overhaul Social Security.

Mr. Bush says the plan begins taking in less money than it pays out in 2018, ultimately going bankrupt, he says, in 2042. But just what will happen and when is really open to interpretation.

Earlier today, I spoke with James Surowiecki. He's a financial columnist at the "New Yorker" magazine.

(BEGIN VIDEOTAPE)

O'BRIEN: The first question I have is whether or not the system is bankrupt. Let's listen to a little bit of what President Bush had to say at the State of the Union address last night.

JAMES SUROWIECKI, "NEW YORKER" MAGAZINE: OK.

(BEGIN VIDEO CLIP)

BUSH: One of America's most important institutions, a symbol of the trust between generations, is also in need of wise and effective reform. Social Security was a great moral success of the 20th century. And we must honor its great purposes in this new century.

The system, however, on its current path, is headed towards bankruptcy. And so we must join together to strengthen and save Social Security.

(END VIDEO CLIP)

O'BRIEN: Is the system, on its current path, headed toward bankruptcy?

SUROWIECKI: The right answer is, we don't know, because it entirely depends on how well the United States' economy does over the next 75 years. According to the estimates that President Bush is citing, have the economy doing very poorly, much worse than it did in the previous 75 years. If the economy does that bad, then, in fact, by 2042 or 2050, the system will no longer have enough money to pay the full range of benefits. But there are a lot of assumptions built into that. And it is far from clear that we're on track for bankruptcy or crisis in the way that the president has suggested.

O'BRIEN: Let's talk a little bit more about that date, 2042, because a lot of people are hanging on to that date as sort of a big looming end of where the system implodes. Let's listen to a little bit more of what the president had to say.

SUROWIECKI: Sure.

(BEGIN VIDEO CLIP)

BUSH: By the year 2042, the entire system would be exhausted and bankrupt.

(GROANING)

If steps are not taken to overt that outcome, the only solutions would be dramatically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs.

(END VIDEO CLIP)

O'BRIEN: It was interesting to hear the groaning, kind of unusual at the State of the Union address to hear the people who didn't quite agree with some of the president's math and some of the president's dates, as well.

SUROWIECKI: Right.

O'BRIEN: So tackle the date. Is it 2042, is it 2052, as we have heard?

SUROWIECKI: Again, we don't know. 2042 comes from the Social Security's Trustee's report. They did a report, and they had very pessimistic estimates as to how the U.S. economy was going to be done. The Congressional Budget Office did a different series of assumptions. They came up with 2050.

So, you know, we really are not sure what's going to happen. Right now, the system is fine. We know the system is fine for at least 30 or 40 years. And, in fact, the system is healthier today than it was, say, 15 years ago, when it looked like the system was going to go bankrupt by 2018. So, you know, it's clear that things are not perfect with Social Security. I think it's a long way from "crisis."

O'BRIEN: Another big issue is the age of Americans.

SUROWIECKI: Right.

O'BRIEN: Fifty-five and older don't have to worry, says the president. Younger, they will see changes under his plan. Let's listen to what he had to say about that last night. SUROWIECKI: Sure.

(BEGIN VIDEO CLIP)

BUSH: Today, more than 45 million Americans receive Social Security benefits and millions more are nearing retirement. And for them, the system is sound and fiscally strong.

I have a message for every American who is 55 or older. Do not let anyone mislead you. For you, the Social Security system will not change in any way.

(END VIDEO CLIP)

O'BRIEN: OK we get it, 55 and older, not going to change. But what if you're 54 or 53 or 52, what you would consider to be right on the cusp there?

SUROWIECKI: Right. Well, I mean, he has basically set an arbitrary cut-off point. And I actually think, if you're going to institute reform, at some point he wants to set a line. And he is just drawing the line at ten years before retirement. That's purely the president's political plan. There's no real mathematical reason for it.

I mean, even if you buy the 2042 argument, that's, what, 30 -- no, it's almost 40 years away. So you can say people up to the age of 30 would be fine. But he has basically set it at 55. And he has said there and older, you will get your full range of benefits. If you're younger than that, you might have to go through these, you know, reforms that he is talking about.

O'BRIEN: I can imagine there's going to be lots of debate over this...

SUROWIECKI: Yes.

O'BRIEN: ... as we get a little bit closer. As the president, who's trying to pitch his plan right now, continues to traipse across the country trying to sell it.

SUROWIECKI: Right.

O'BRIEN: James Surowiecki from the "New Yorker." Nice to see you. Thank you very much for your insight.

SUROWIECKI: Thanks for having me on. I appreciate it. Thanks.

O'BRIEN: My pleasure.

(END VIDEOTAPE)

O'BRIEN: Well, during his State of the Union address, the president said federal employees should be familiar with personal retirement accounts. That's because they can join the thrift savings plan, which is the government version of the 401(k). These plans allow workers to contribute a percentage of their paychecks, not divert part of their payroll taxes, which is at the heart of the president's plan to overhaul Social Security.

But there is a county in Texas where employees have just such a choice. And Ed Lavandera has the story.

(BEGIN VIDEOTAPE)

ED LAVANDERA, CNN CORRESPONDENT: Ray Holbrook is enjoying retirement chopping wood, but he wonders how long he would have had to work if he had not been a county judge in Galveston, Texas.

RAY HOLBROOK, FMR. GALVESTON COUNTY JUDGE: At my age, 77, I would probably still be working. I hope I wouldn't be splitting wood, but I might be working at something else.

LAVANDERA: Holbrook gets about $1,300 a month from Social Security. For ten years, he also was getting an extra $3,000 monthly check from the county.

HOLBROOK: People ought to save for their own retirement and not count on the next generation paying for it.

LAVANDERA: Galveston County was one of three Texas counties that bailed out of the federal Social Security plan 23 years ago and created what's known as the alternate plan for county employees. The program creates individual retirement accounts that workers and the county pay in just like Social Security, but the money is invested in secure bonds or annuities, guaranteeing at least a 4-percent return.

HOLBROOK: It's like taking my money to the local bank down here. I know I have that account in that bank. And I can draw on it each month as I need it. And I know where it is. I know how much is there.

LAVANDERA: Rick Gornto runs the retirement program for Galveston County. He says the investment plan has averaged a return of more than 6 percent since it was started in 1981, far better, he says, than the 1 to 2 percent return from Social Security. He says the country should take notice.

RICK GORNTO, FIRST FINANCIAL BENEFITS: We didn't know how it would work. I mean, we knew in our heads, but we've never lived it. And now we have lived it, and we've seen it work. We have seen real people receive real money and real returns.

LAVANDERA: The county plan also pays four times a worker's salary as a death benefit. Social Security pays $225. The county's private retirement accounts can also be passed on to your children. Social Security payments cannot.

The U.S. General Accounting Office analyzed Galveston's retirement plan 6 years ago. That report says that the alternate plan worked well in just a few cases, but that generally, workers would receive more money if they were in the federal Social Security program. ROBERT HUTCHINS, GALVESTON COUNTY RESIDENT: I think it's terrible.

LAVANDERA: Retirement planner Robert Hutchins is one of the few voices of dissent to the alternate plan in Galveston. He says the program isn't as profitable for low income workers, as it is for judges like Holbrook, and hurts employees who leave the county before reaching retirement age.

HUTCHINS: If the national plan were similar, if they used the Galveston alternate plan as their model, it's going to be a tragedy.

LAVANDERA: Galveston officials question the numbers used in the government's report, but they acknowledge the alternate plan needs some tweaking. Workers can take money out of their personal accounts at any time, which they see as a dangerous option, if it leaves people with less money to retire with.

Ray Holbrook doesn't question the plan's success. He just looks at the checks he has received since retiring to remind himself why private investments have paid off.

Ed Lavandera, CNN, Dallas.

(END VIDEOTAPE)

O'BRIEN: And much more to come tonight, including the one thing you would never imagine Defense Secretary Rumsfeld ever saying. In fact, he said it twice. He will explain in his own words.

And later, why Arnold Schwarzenegger's hometown begs to differ with their hometown hero. A break first from New York. This is NEWSNIGHT.

(COMMERCIAL BREAK)

O'BRIEN: Today, we learned that Secretary of Defense Donald Rumsfeld offered to resign twice during the height of the Abu Ghraib prison scandal last year. He said so in an exclusive interview on "LARRY KING LIVE" earlier tonight. More on that story from CNN's Jamie McIntyre.

(BEGIN VIDEOTAPE)

JAMIE MCINTYRE, CNN CORRESPONDENT: It was in May of last year at the height of the Abu Ghraib prisoner abuse scandal when the halls of Congress were ringing with calls for Donald Rumsfeld's head.

U.S. SENATOR LINDSAY GRAHAM (R), SOUTH CAROLINA: And what do you say to those people who are calling for your resignation?

RUMSFELD: Needless to say, if I felt I could not be effective, I would resign in a minute.

MCINTYRE: But what Rumsfeld didn't say then, and reveals now for the first time in an interview with CNN's Larry King, is that he did offer to resign, not just once, but twice.

RUMSFELD: I submitted my resignation to President Bush twice during that period. And I told him that I felt that he ought to make the decision as to whether or not I stayed on. And he made that decision and said he did want me to stay on.

BUSH: Mr. Secretary, thank you for your hospitality.

MCINTYRE: After a few days of speculation about Rumsfeld's fate, President Bush gave him a public vote of confidence after a Pentagon meeting.

BUSH: You're doing a superb job. You are a strong secretary of defense, and our nation owes you a debt of gratitude.

MCINTYRE: Rumsfeld's critics accused him of setting a tone that allowed the abuse to take place and of authorizing interrogation techniques that are tantamount to torture, a charge he flatly rejects.

Rumsfeld told Larry King that, while he was started by the abuse that took place at Abu Ghraib, he had no regrets, arguing that what happened on what he called the midnight shift at the prison could not have been, in his words, managed by someone in Washington.

Jamie McIntyre, CNN, the Pentagon.

(END VIDEOTAPE)

O'BRIEN: Public comments by a top Marine general also made news today. Lieutenant General James Mattis said he should have chosen his words more carefully when he said earlier this week it was, quote, "fun to shoot some people." He made the statements during a panel discussion in San Diego. A local television station caught them on tape, and today they were broadcast around the world.

(BEGIN VIDEO CLIP)

LT. GEN. JAMES MATTIS, U.S. MARINES: It's a hell of a hoot. It's fun to shoot some people. I'll be right up front. Yes, I like brawling.

(END VIDEO CLIP)

O'BRIEN: General Mattis runs a Marine Corps combat development unit at Quantico, Virginia, and is the commander of Camp Pendleton's first Marine division.

A new weapon in the military's arsenal is raising some eyebrows, as well. They look like ordinary Web sites full of news from foreign places, but they are not what they seem. And therein lies the rub. Here is CNN's Barbara Starr.

(BEGIN VIDEOTAPE)

BARBARA STARR, CNN CORRESPONDENT: Interested in finding out the latest political developments in North Africa? Log on to this Web site. Looking for the latest on the Balkans? Log on to "Southeast Times." But who owns and runs these, news organizations? The disclaimer, when you find it, "Sponsored by the U.S. Department of Defense."

The Web is now the Pentagon's latest weapon. News sites run by U.S. military troops trained in information warfare, a specialty that can include deception. The Pentagon says the sites only carry truthful news from organizations, including the "Associated Press" and CNN.

LARRY DI RITA, PENTAGON SPOKESMAN: Our principles are truth and transparency.

STARR: Journalism experts see it another way.

TOM ROSENSTIEL, DIRECTOR, PROJECT FOR EXCELLENCE IN JOURNALISM: The government is deceiving people. They may technically suggest that they are not, because that disclaimer is there. But you need to be looking for that disclaimer.

STARR: A military official tells CNN these sites target only specific foreign audiences with objectives, including countering disinformation. Several military officers told CNN that using the media to build influence shouldn't be their job. It's better left to the State Department. Military personnel also are worried they may be violating President Bush's directive.

BUSH: We will not be paying, you know, commentators to advance our agenda.

STARR: Deputy Defense Secretary Paul Wolfowitz had ordered hiring only journalists and contributors who will not reflect discredit on the U.S. More than 50 writers have been hired to produce articles matching the military agenda.

Initially, the Pentagon told CNN there was no problem. Now, spokesman Di Rita has asked the inspector general for an audit of all Pentagon hiring of reporters to make sure.

DI RITA: I have asked that in the department that we review with that specific issue in mind to make sure that we're staying well within the lines.

STARR: Still, the question of using the military.

ROSENSTIEL: Any time that the government has to assure you, "Believe me, take my word for it, I'm telling you nothing but the truth," you know, you should be worried.

STARR: These sites can be viewed not just abroad, but here in the U.S. And the U.S. military is prohibited from conducting influence operations inside the country, raising the concern amongst some here that the Web sites could be inappropriate.

Barbara Starr, CNN, the Pentagon.

(END VIDEOTAPE)

O'BRIEN: Ahead on our program tonight, it is the $64 billion question. Did something go wrong with the U.N. oil-for-food program in Iraq? And if so, where did the money go? A crude assessment when we come back.

And later, is there room for God on the podium? We'll meet the man who writes with passion for the president. Around the world, this is NEWSNIGHT.

(COMMERCIAL BREAK)

O'BRIEN: A long-awaited report released today begins to outline corruption within the United Nation's Iraqi oil-for-food program. It is the first time detailed allegations have been linked by name to a senior U.N. official and the allegations are severe.

Here is CNN's Richard Roth.

(BEGIN VIDEOTAPE)

RICHARD ROTH, CNN CORRESPONDENT: Paul Volcker is a towering presence. The former Federal Reserve Board chairman's findings may now bring down United Nation's officials and severely damage the U.N. itself. Volcker's report focused on the director of the U.N.'s $64 bilion oil-for-food program in Iraq. It accused Benon Sevan, a 40- year U.N. employee, of soliciting oil deals for himself from the same Iraqi government he was negotiating with to feed millions of people living under U.N. sanctions.

PAUL VOLCKER, CHAIRMAN, IRAQ OIL FOR FOOD INQUIRY: The Iraqi government, in providing such allocations, certainly thought they were buying influence.

ROTH: The deals were worth $1.5 million for his friend's company, African Middle East Petroleum, and possibly something to Saddam.

The report also found Saddam received $160,000 in cash, which he claimed was from his elderly aunt in his Cyprus, a woman not known for any wealth. Sevan issued a statement, strategy Volcker succumbed to massive political pressure and used him as a scapegoat. Sevan says he never took a penny and had no interest in that company or any other film associated with oil-for-food.

It fair to say, then, that the man who was running the oil-for- food program for the U.N. was corrupt?

VOLCKER: Well, corrupt is a strong word. We don't know why he did it or we don't whether he got any money out of it. The investigation is continuing.

ROTH: The U.N. says Sevan's boss, Secretary-General Kofi Annan, was shocked at the disclosures and promised to wave diplomatic immunity if Sevan, now retired, is criminally charged.

(END VIDEOTAPE)

ROTH: The investigation must still determine whether Sevan's boss, Kofi Annan, the secretary-general, was guilty of any wrongdoing, or his son Kojo, who was working for a Swiss-based company hired by the U.N. in connection with oil for food -- Soledad.

O'BRIEN: So, then, in a nutshell, what happens next?

ROTH: What happens next? Major report by Volcker in mid summertime. He is looking at Annan, his son, companies, businesses. It's not over yet. But he does say the U.N. didn't really abuse oil- for-food. It wasn't a slush fund. But critics are going to say bad day for the U.N.

O'BRIEN: No question.

All right, Richard Roth, thanks as lot.

This week, U.N. chief Kofi Annan named former President Bill Clinton as a special envoy for tsunami relief in Asia. With aid donations now in the billions and with the U.N.'s oil-for-food program now under fire, there is an understandable concern about how well the U.N. will manage the huge amounts of money and relief supplies that are meant for the tsunami victims.

More on that now from CNN's Chris Huntington.

(BEGIN VIDEOTAPE)

CHRIS HUNTINGTON, CNN CORRESPONDENT (voice-over): Not long after U.N. Secretary-General Kofi Annan surveyed the tsunami's horrifying devastation of Indonesia's Banda Aceh Province, emergency supplies and maybe began pouring into the region.

But for Annan, who had been steadily under fire for the U.N.'s mishandling of the Iraqi oil-for-food program, the unprecedented financial aid also renewed criticism of the U.N.'s ability to manage money. Last month, Annan tried to put donors at ease.

KOFI ANNAN, U.N. SECRETARY-GENERAL: It is important that we reassure the donors that the money that has been given is being used properly and effectively.

HUNTINGTON: While Annan may be in the line of fire, it's Undersecretary Jan Egeland who is in the hot seat for managing the nearly $1 billion the U.N. has so far collected for tsunami relief.

JAN EGELAND, U.N. EMERGENCY RELIEF COORDINATOR: We will in the United Nations account for every penny, every cent, every euro. This unprecedented generosity that we have seen to the United Nations in the wake of the terrible tsunami should be followed by unprecedented transparency.

HUNTINGTON: Egeland dismiss any comparison to the U.N.'s role in the oil-for-food program. EGELAND: The humanitarian system of ours well proven since the 1940s. It's totally different. We have internal, external auditors, monitors, evaluations reporting all the time. The system works.

HUNTINGTON: The U.N. has signed up PricewaterhouseCoopers, which offered for free to oversee the U.N.'s accounting of tsunami aid. And Egeland promises that the U.N. Web site will eventually track every donation to its end use.

But one critic of the U.N.'s oil-for-food program says, while there's unlikely to be mismanagement in handling tsunami aid, there is likely to be waste.

NILE GARDINER, HERITAGE FOUNDATION: The United Nations is a huge, gigantic, overbearing bureaucracy, extremely inefficient in terms of its overall operations.

HUNTINGTON: There are more than a dozen distinct U.N. agencies from UNICEF to the World Food Program to the U.N. Development Program, all with different accounting rules and donor reporting procedures. While Egeland coordinates their efforts, he does not have oversight on how each agency collects and spends money. And that may come back to haunt him and his boss.

Chris Huntington, CNN, New York.

(END VIDEOTAPE)

O'BRIEN: Still to come tonight, a family like so many others, except home is in Gaza and home may not be home much longer.

And later, why Arnold Schwarzenegger can't go home again, at least not without settling a life-and-death argument.

From Austria to Atlanta to New York City, this is NEWSNIGHT on CNN.

(COMMERCIAL BREAK)

O'BRIEN: Two Marines died today on patrol in Al Anbar Province. They were members of the 1st Marine Expeditionary Force. And they were killed in the bloodiest single day since this weekend's elections.

Insurgents took more than two dozen lives in bombings and shootings in a number of places, including in the town of Baquba, where gunmen ambushed a van full of recruits for the Iraqi army.

Meantime today, the first batch of election returns came trickling in. They show the slate of Shiite candidates endorsed by Grand Ayatollah Sistani holding a commanding lead. The coalition founded by Iyad Allawi is running a distant second. But it important to mention that these are very early returns, covering only about one in 10 precincts.

Several developments today in the Israeli/Palestinian saga or perhaps three steps forward and one step back. Ariel Sharon, Israel's prime minister, accepted an invitation to sit down with Palestinian leader Mahmoud Abbas next week in Egypt. Both sides say they hope to use the summit to declare a cease-fire.

In addition, Israel agreed to release about 900 Palestinian prisoners and begin gradually loosening its military grip around key cities in the West Bank. However, obstacles remain over who gets released, whether the amnesty includes prisoners jailed for killing Israelis.

And late in the day, the calm was broken as Palestinian gunmen shot and wounded killed six Israeli soldiers in a number of attacks. Setbacks or not, the day on the whole would appear to ease the way for Prime Minister's Sharon broader plans to withdraw from much of Gaza and a few select parts of the West Bank.

The geography is simple enough, but, like most things in the Middle East, virtually nothing else is.

Reporting from Gaza tonight, here is CNN's Guy Raz.

(BEGIN VIDEOTAPE)

GUY RAZ, CNN CORRESPONDENT (voice-over): At first glance, there is nothing unusual about the life led by the Tvige (ph) family. The morning routine is harried. School lunches are packed, breakfast prepared. Their children are showered with love and attention. The neighborhood is filled with youngsters.

UNIDENTIFIED FEMALE: For kids, it's paradise. They feel very free here. They can move by themselves. They can go by themselves. I don't have to worry.

HUNTINGTON: What Sarah Tvige (ph) describe as paradise is the fortress settlement of Gush Katif. Sarah works as a secretary. Her husband, Amitai (ph), is in charge of security. He often diffuses unexploded mortars that regularly fall on the village.

(on camera): Just beyond Gush Katif is the Palestinian city of Han Unis. Now, over the past four years, militants of Han Unis have launched thousands of rockets and mortar attacks on settlements like Gush Katif. Now, the residents here say they're undeterred, but Israel's government believes protecting these settlements is untenable.

(voice-over): Untenable because Israel's government is under intense international pressure to dismantle these settlements. Israel has occupied the Gaza Strip since the 1967 war. But the Geneva Conventions prohibit occupying countries from settling occupied land with their own citizens, something the Tviges say they were never told by a succession of Israeli governments.

UNIDENTIFIED MALE (through translator): I have lived here for 28 years. My family came here to make the desert bloom. When we arrived here, it was sand. Nobody lived here. We never forced anyone off their land. HUNTINGTON: But the mortar attacks on Gush Katif, which started some four years ago, have now made it a dangerous place. In 2001, Sarah's sister, Ouva (ph), was shot dead by a Palestinian militant.

(on camera): Does it make you think maybe it's not the best place to raise children?

UNIDENTIFIED FEMALE: No. I still think it's the best place to raise children.

HUNTINGTON (voice-over): They Tviges determined to stay. They say they won't pack up their belongings when Israel's army comes to evacuate them in July.

UNIDENTIFIED FEMALE: I think that we won't leave, but we will stay until then.

HUNTINGTON: You are going to have to be forced to go?

UNIDENTIFIED FEMALE: Yes.

HUNTINGTON (voice-over): So the Tviges go about their lives as if nothing will change, hoping that talk of disengagement is just talk and nothing more.

Guy Raz, CNN, in Gush Katif settlement, southern Gaza.

(END VIDEOTAPE)

O'BRIEN: Late word tonight that an Afghan passenger jet with more than 100 people on board is missing. Here is what the AP and Reuters are reporting.

Kam Air Boeing 737 took off this afternoon from Herat in western Afghanistan, bound for Kabul. It was turned away from the city's airport because a snowstorm and diverted to an airport in Pakistan. The plane is said to have contacted that airport and was given clearance to land. It has not been heard from since. Kam Air opened up as Afghanistan's only private airline in November of 2003.

And one other note before we go to break. The Vatican says the pope is doing better. He is said to be recovering from the respiratory problems that sent him to the hospital on Tuesday. As for how just long he will remain there, a spokesman said, well, that's up to his doctors.

Still ahead tonight, we'll meet the man's behind the president's often very religious way with words.

And later, why Austria isn't entirely Schwarzenegger country anymore.

This is NEWSNIGHT.

(COMMERCIAL BREAK) O'BRIEN: You mother probably told you and, if not, Miss Manners certainly did, never discuss politics or religion in mixed company. Sorry, mom.

Here's CNN's Dana Bash.

(BEGIN VIDEOTAPE)

DANA BASH, CNN WHITE HOUSE CORRESPONDENT (voice-over): Too much religion, too much talk of God, it's a recurrent criticism of this president. And at the National Prayer Breakfast, he took it on.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We will never be too proud to commend our cares to providence and trust in the goodness of his plans. God bless.

BASH: Mr. Bush's speechwriter is Michael Gerson, an evangelical Christian and theological scholar.

MICHAEL GERSON, SPEECHWRITER FOR PRESIDENT BUSH: What the president has done in talking about the role of providence and the role of faith is perfectly consistent with the history of American political rhetoric. It's perfectly consistent with John Kennedy's inaugural address.

JOHN F. KENNEDY, PRESIDENT OF THE UNITED STATES: Knowing that, here on Earth, God's work must truly be our own.

BUSH: Every man and woman on this Earth has rights and dignity and matchless value, because they bear the image of the maker of heaven and Earth.

BASH: Religious illusions, Gerson argues, are so ingrained in American culture, communicating without them would be foolish.

GERSON: None of these things should be surprising or offensive. They're part of American political discourse. And I also think that, if American political discourse were stripped of religious references, I think rhetoric would be flatter and less interesting.

BASH: But some fear the president is on a messianic mission of sorts and religious references are signals to his Christian base.

GERSON: Well, when the president makes references to a hymn or to Bible verses, other presidents have.

BUSH: Yet there's power, wonder-working power in the goodness and idealism and faith of the American people.

GERSON: The president is not talking in code. He is talking -- he is using cultural references that are known by millions and millions of Americans. And so, my view on that is, it's not a code. It's our culture.

BASH: That's a tough sell to strict interpreters of separation of church and state. But back at the prayer breakfast, Mr. Bush evokes a well-regarded predecessor.

BUSH: Lincoln declared he would be the most shallow and self- conceded blockhead on Earth if he ever thought he could do his job without the wisdom which comes from God and not from men.

BASH: And, the president said, as Lincoln led the country through war, he repeatedly asked Americans to pray.

Dana Bash, CNN.

(END VIDEOTAPE)

O'BRIEN: Still ahead tonight, in Austria, Arnold Schwarzenegger is a hometown hero, but now there are fears he has become too American, at least in their eyes.

Back in a moment. This is NEWSNIGHT.

(COMMERCIAL BREAK)

O'BRIEN: More now on Governor Schwarzenegger, who has come so far, in so many ways, from his childhood in southern Austria. In one way, however, the journey differs from most. Politics are involved and the distance between then and now and there and here is growing because of it.

Reporting for us tonight is CNN's Matthew Chance.

(BEGIN VIDEOTAPE)

MATTHEW CHANCE, CNN CORRESPONDENT (voice-over): An Austrian town famous for one huge man. This is where the impressive bulk of Arnold Schwarzenegger was built. All over the town of the Terminator, there are tributes.

(on camera): This is the...

UNIDENTIFIED MALE: (SPEAKING AUSTRIAN) Arnold Schwarzenegger.

CHANCE: I see. I see. So this whole map is in the shape of Arnold Schwarzenegger?

UNIDENTIFIED MALE: Yes.

CHANCE: In the village of Thal, where Arnold was born, the Schwarzenegger Walk is a major draw. The local mayor is an old classmate of Arnie's. And these days, they're both in politics, but at opposite ends of the argument about capital punishment.

PETER URDL, MAYOR OF THAL (through translator): From the bottom of his heart, he's a good man. He helps the poor and the handicapped. And he has always been there for them. I think the decision to sign a death warrant must have been very hard for him.

CHANCE: And hard to understand for many Austrians who oppose the death penalty so strongly. (on camera): Usually, Austrians are incredibly supportive of their own local superhero. These are the actual weights that a teenage Schwarzenegger used when he began bodybuilding decades ago. They're now on public display.

But while there's still wide admiration for the man as an athlete and as a movie star, it's his performance as a politician in the United States with which many Austrians are now struggling.

(voice-over): Even in the local gymnasiums, shrines to a bodybuilding legend, there's disappointment Schwarzenegger didn't resist the death penalty. Natives like Nils Ehrke, a martial arts instructor, say Arnold's image for many in Graz is now diminished.

NILS EHRKE, MARTIAL ARTS INSTRUCTOR (through translator): All my friends, my family and the people I know talk about Arnold the politician and what he has become. And we're all disappointed. I think the hero we knew is getting smaller day by day.

CHANCE: Perhaps the governor has surrendered to his Terminator alias. At least, that's the idea of a local arts group that produced this computer animation, the Terminator running riot through the Austrian streets. And proposals to build a giant Terminator statue, originally meant as a compliment to his acting achievements, now carry new resonance.

HERWIG HOELLER, FORUM STADTPARK: You could have been against his movies from certain kinds of points of view, but you have to be against countries, OK, against politicians who kind of allow executions in their own kind of states.

CHANCE: But many in this cafe society want to go much further. Peter Pilz leads a campaign to have Governor Schwarzenegger stripped of his Austrian citizenship. His values, he told me, are just too American.

PETER PILZ, AUSTRIAN GREEN PARTY: The American point of view is, we have the right to set standards of international right. We define what's human rights. If we want to kill somebody, it's our right to kill. If we want to arrest somebody without legal procedures, we have the right to do that. That's not the European point of view. We are defending legal systems. We are defending principles of law, of human rights at the moment against the American government. And that's a major conflict.

CHANCE: A conflict in which the controversy over the death penalty and this town's favorite son is one small, if impassioned battle.

Matthew Chance, CNN, Graz in southern Austria.

(END VIDEOTAPE)

O'BRIEN: We'll be back to wrap up the evening in just a moment.

(COMMERCIAL BREAK) O'BRIEN: Before we go tonight, a quick preview of my day job.

Tomorrow on "AMERICAN MORNING," the Super Bowl, it is huge on Madison Avenue, but will this year's advertisers be more cautious after last year's wardrobe malfunction? We're going to find out which way Sunday's TV commercials are leaning. Join me tomorrow morning on "AMERICAN MORNING." We start at 7:00 a.m. Eastern time.

And that's it for tonight. We're going to be back here tomorrow evening at 10:00 p.m. Eastern time. And we'll see you then.

Have a great night.

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