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Parliament Grills Murdoch Empire; Murdoch Empire's Falling Value; Cut, Cap and Balance Act; New Poll on Debt Ceiling; Thousands Flee East Africa Drought

Aired July 19, 2011 - 09:00   ET

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

KYRA PHILLIPS, CNN ANCHOR: This hour in the room you're about to see, one of the world's most powerful media moguls faces an extraordinary public grilling. Rupert Murdoch will come face-to-face with outraged members of the British parliament. They're expected to hammer Murdoch and his closest allies on a scandal that has engulfed a media empire destroying jobs, careers and now raising new questions about his company's conduct right here in the United States -- bribery, hacking, corruption of power.

Lawmakers say the allegations are not just about sleazy journalism. They're about the power of an empire that has gone largely unchallenged before now.

It's 9:00 a.m. on the East Coast, 6:00 a.m. out West. Thanks for joining us, everyone.

Here are some other stories that we're going to take a look this hour as well.

Another step in the nation's debt crisis but it won't put us any closer to a final deal. The House on a Republican measure but the president says he won't even consider it. The government deadline remains August 2nd before it runs out of money.

And the space shuttle Atlantis on its way home. This morning, it did undock from the International Space Station and began the final voyage in the program's 30-year-old history.

Now back to the Murdoch media scandal and the players who will appear before members of the British parliament morning. Rupert Murdoch, he's the 80-year-old billionaire who sits atop the News Corporation empire. He has ruled with an iron fist but this deepening embarrassment reportedly has some board members questioning whether he should be replaced.

Then we have James Murdoch, his son, long considered to be his heir apparent. He was once considered the family's black sheep but has steadily climbed to the number three spot in the company.

And then there is Rebekah Brooks, a Rupert Murdoch protege. She was a top executive before she resigned on Friday. She was arrested just a couple of days later.

All right, let's get straight to London now. CNN's Atika Shubert outside parliament to set the stage for us.

And, you know, Atika, unlike Congress here in the United States, these witnesses are not under subpoena or under oath. They don't have to say a word, do they?

ATIKA SHUBERT, CNN INTERNATIONAL CORRESPONDENT: No. They don't, theoretically. But it is still a court and they can be technically held in contempt of court for example.

So even though there is no particular oath here, there is an incredible amount of pressure on them to answer these questions. Remember, particularly in the cases of James Murdoch and Rebekah Brooks, they have already told lawmakers in previous hearings that this was the end of it.

There was just a limited case of phone mails that were hacked and it was just a rogue reporter and a private investigator and that was the end of it. And clearly, it was not, because it turns out that there are, in fact, thousands of phone mail messages that may have been hacked and now they are back in front of lawmakers again trying to explain why they didn't tell the full story the first time around.

PHILLIPS: And Atika, you know, we've been paying close attention to this since early this morning because as you know, you know, parliament is very well known for its political theater.

How many times have we taken sound bites from within parliament of the yelling and the hackling -- the heckling, rather, the angry outbursts? But what's interesting about this is we are probably not likely to see that type of behavior today, correct?

SHUBERT: Well, that's right. It's a bit of a balance here, because there -- there are two ongoing police investigations into the phone hackings and into police payments. Both connected.

Now because of those two investigations, they may -- both the Murdochs and Rebekah Brooks may be very limited in what they can say, especially Rebekah Brooks. Remember she was arrested on Sunday so she doesn't want to say anything that might prejudice that ongoing investigation.

PHILLIPS: All right. Atika Shubert for us there live out of London. We will be talking a lot more the next couple of hours.

You know since the scandal first exploded two weeks ago Murdoch's company has lost public faith, political goodwill, and of course, a staggering amount of value. $8 billion by many estimates.

Jeffrey McCracken is a senior business writer with Bloomberg News and "Businessweek" He joined us yesterday out of New York, he joins us once again.

Jeffrey, I appreciate it.

JEFFREY MCCRACKEN, SENIOR BUSINESS WRITER, BLOOMBERG NEWS AND BUSINESS WEEK: No problem. PHILLIPS: You know, when we talk about Rupert Murdoch, you know, he didn't amass his fortune without being very shrewd, very cunning. You know, has he grown to the point that he is virtually untouchable like many people have said?

MCCRACKEN: I would say it's very difficult, if you will, for him to be touched, for him to be dislodged from his own company. He and his family have roughly a 38 percent voting stake so they can obviously block a lot of -- a lot of efforts or moves that can happen from the outside that agitated shareholders could try to force on him.

But I would say that one problem he's having now is this has moved beyond the realm of political and a media issue into a serious financial issue. As you pointed out, roughly $8 billion in market cap has now been washed away from News Corp in just two weeks.

So shareholders that were already a little concerned about the company and already felt like Murdoch sometimes put his own interests ahead of those as shareholders, those individuals are starting to pressure the board and I think the board itself is starting to question Murdoch's leadership and the leadership team around him.

PHILLIPS: So it's possible that he could be replaced?

MCCRACKEN: I think p-- I think it's quite possible. You know, our reporting yesterday indicated that the board, especially independent members of the board, are considering whether it's getting to the point where they may need to replace Rupert perhaps with someone like Chase Carey as an interim CEO.

This is -- this has a bit of a King Lear element to it, if you will. Kind of -- there's such a family issue because he's got sons on this and his daughter could be elevated to the board. And I think you could get to a point where Rupert feels like it may be best that he step aside perhaps to a chairman role or an executive chairman role and allow someone else to step in for CEO, and then he would take the hit, if you will, so that his son James could down the road take over the company.

PHILLIPS: OK, so what are you going to be paying attention to? What are you wanting to hear? What are you thinking Murdoch will do here? Because as I pointed out at the beginning of the hour, it's possible that he could just say nothing.

MCCRACKEN: Right. You know, he could. Now I'm not sure that would be the best move. In the story we put out yesterday, we indicated two kind of key things. One is the board is considering whether they need a new chairman -- the chief executive.

But the other issue was there was a lot of concern inside News Corporation and among its advisers about how Rupert handled the prep yesterday, if you will, the prep for today's event. They felt like he was either evasive or defensive.

And if you go back to last week's interview he did with the "Wall Street Journal" which they owned, it didn't come across very well. It came across again as defensive and making a lot of excuses for the actions that had gone on at News Corp instead of taking full responsibility.

So I think what people are going to want to see today is that he understands the depths of the problem that he's giving a sense of accountability. He's acknowledging the mistakes, and he's also kind of projecting where they're going to go from here, how they're going to actually fix this.

I think one problem for Mr. Murdoch and for News Corp is in the past, for example, when they acquired the "Wall Street Journal" they said we'll set up an independent board -- an independent commission to oversee the journalistic standards and ethics there. And that didn't really turn out very well.

So if he floats that notion yet again of an independent board or independent investigation, people are going to say, well, is this going to be the same somewhat superficial effort that went down when you acquired Dow Jones and the "Wall Street Journal"?

PHILLIPS: Interesting. And you know, Jeffrey, we were talking about the fact or talking about the possibility that Murdoch could be replaced on the board. Apparently, a senior News Corp official is coming forward and saying now -- and I don't know if you've seen this statement or not -- quote, "As you would expect, the board has had a plan in place for some time and it regularly reevaluates those plans, suggestions that a plan is currently being accelerated or implemented are inaccurate."

Interesting. They're not coming forward and giving really a direct answer to what we were just discussing. They are just saying this plan, whatever this plan is they're talking about, is not going to be accelerated or implemented at the moment.

MCCRACKEN: Right. We stand by our reporting. We continue to believe what we said and what we reported as accurate. I do think what you've got going on is a private element and then a public theater.

I think privately the board, as we've indicated and as others have indicated, the board is nervous especially the independent board members. This has really blown up in a matter of couple of weeks in a way that they didn't anticipate and more importantly in a way that management didn't let the board know could occur.

So I think privately they are wondering what's the -- what's the next step and whether Rupert is, you know, the person to put their chips behind. And I think publicly they've got to say what they've got to say, which is we stand behind Rupert.

And let be honest, they can stand behind Rupert and say he's only a chairman now so they can make comments like that but still be anticipating or considering a change.

PHILLIPS: Got it. Jeffrey McCracken, I know you're going to be sticking with us for about the next 45 minutes or so, is that correct? I have you for almost an hour? MCCRACKEN: I'll stay around as long as I can, Kyra. Thanks.

PHILLIPS: Fantastic. I appreciate you weighing in and being with us. Jeffrey, thank you so much. And great job by covering the story and adding to our coverage.

MCCRACKEN: My pleasure.

PHILLIPS: And of course stay with CNN for continuing coverage of the Murdoch media scandal. We are going to go live to the hearing at the bottom of the hour. Rupert Murdoch and his son James are scheduled to begin their testimony. That's 9:30 Eastern right here live on CNN.

Now the deadline for a deal on raising the debt ceiling is now just two weeks away. No official talks even scheduled at this point but there could be a vote in the House today on the cut, cap, and balance act.

On paper, it looks like it could be a pretty appealing piece of legislation promising to cut government spending and keeping it in check. So why did the president threaten to break out the veto pen even before it made it to the House?

Well, White House correspondent Brianna Keilar is joining me now.

So, Brianna, what is this and why does it have the president so riled up at this point?

BRIANNA KEILAR, CNN CONGRESSIONAL CORRESPONDENT: Kyra, this is something that a lot of conservative Republicans are rallying behind. You would -- this would include major spending cuts. It would also cap spending -- cap federal spending at a certain amount, tying it to the GDP, saying it could only be 18 percent of the GDP. Right now spending is about 24 percent.

And then also there would be a balanced budget amendment. A constitutional amendment, a change to the Constitution that would include more spending cuts and make it difficult to raise federal taxes.

President Obama issued a veto threat on this yesterday saying that it would damage the economic recovery that there would be major cuts to the education system across the nation. And that it would be very hurtful to entitlement programs that the elderly and the poor rely on.

Here is what Jay Carney said -- Kyra.

(BEGIN VIDEO CLIP)

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: What we are witnessing here with this measure is classic Washington posturing kabuki theater. You know, this is a measure that is designed to duck, dodge and dismantle. Duck responsibility, dodge obligations and dismantle eventually if enshrined into law, which it will not be, but it would essentially require the dismantlement of our social safety net, Social Security, Medicare and Medicaid. (END OF VIDEO CLIP)

KEILAR: White House Press Secretary Jay Carney there.

But House Republicans, Kyra, they say that this is about showing that the U.S. is serious about getting their fiscal house in order and that this is all about making sure that, you know, the -- economically the U.S. will be on firm footing for some time.

I think even though there is this veto threat, Kyra, from the White House, the hope here and among some Democrats, is that a vote on this in the House and a vote in the Senate will perhaps give some Republicans political cover so they can say they really push for something conservative but they couldn't get it. It gives them some cover perhaps to then ultimately vote to increase the debt ceiling.

Of course, House Republicans, Kyra, as you know, they've been pretty unbending on their demand so it's unclear if that's actually how this would play out.

PHILLIPS: And then you've got the Gang of Six presentations of senators today. Let's talk about what that is about.

KEILAR: Yes, that's right. So this is a presentation that's coming from five members of the Gang of Six which were three Republicans, three Democratic senators who are trying to come to some sort of agreement, presenting this to a smaller number of about 40, 50 senators. And it's a plan, according to Senator Kent Conrad, the chairman of the Senate Budget Committee, that would include -- let see, $3.6 or $3.7 trillion in deficit savings over 10 years.

That's a pretty hefty plan, Kyra. It also tackles entitlement reform. The bottom line, you want to know here about two weeks out from this August 2nd deadline for increasing the debt ceiling is this going to have any effects on the talks? And the answer is it's really a little too late for it.

The environment or the appetite for really doing something about that big has been certainly elusive. The president and Republicans haven't been able to do that so this is really something, I think, more forward looking than something that's going to affect these discussions going on right now. They're looking at a more modest plan -- Kyra.

PHILLIPS: Brianna Keilar, at the White House. Brianna, thanks so much.

So you'd think that as the deadline nears for a deal on the debt ceiling we'd all be saying no thanks? Well, not necessarily.

Paul Steinhauser at the political desk in Washington with some new poll numbers -- Paul.

PAUL STEINHAUSER, CNN DEPUTY POLITICAL DIRECTOR: Kyra, Americans seem to be divided on the need to raise the debt ceiling by August 2nd or not. Four polls over the last week, including two just in the last 24-hour show that Americans are really split. Divided on the issue.

Take a look at this one from CBS News, and you can see right there that -- on the left side right there, you can see that 46 percent say, yes, the debt ceiling needs to be raised but 49 percent saying no.

But check that jump in support from early June until now of people who say, yes, the debt ceiling needs to be raised. Of course, there is a partisan divide on that question with Democrats saying raise the debt ceiling, independents, Republicans not so much.

How about if there is an agreement? Should it include just spending cuts or should tax increases also be included? You know Republicans on the Hill say no way to tax increases but three new polls over the last week indicate that a majority -- a solid majority of Americans say yes, tax increases should be part of the deal.

And check this out from the same CBS poll. This is very interesting. As you would agree. Imagine Democrats 71 percent say yes, it should include both spending cuts and tax increases, 68 percent for independents. But look at that. Fifty-five percent of Republicans, even 53 percent of self-described Tea Party members say that yes, some kind of tax increases should be part of any agreement to raise the debt ceiling -- Kyra?

PHILLIPS: Paul Steinhauser, thanks so much.

And we'll have your next political update in just about an hour. And a reminder for all the latest political news you can just go to our Web site CNNPolitics.com.

East Africa's worst drought in decades is helping spawn the world's biggest refugee camp with thousands more people arriving every week desperate for food and water. The camp is in Kenya -- most of its refugees from Somalia.

Zain Verjee is joining us with more on this.

Good morning, Zain.

ZAIN VERJEE, CNN INTERNATIONAL ANCHOR: Good morning, Kyra.

This is the largest refugee camp in the world. It's called Dadaab. And it's right near the Kenyan border with Somalia. There's something like 500,000 people now in that refugee camp.

And thousands of Somalis are pouring across the border to escape the scorching heat. They have no food, no water, no shelter in Somalia. And so, they are coming to Kenya.

Aid agencies are saying that it's really difficult to give them everything that they need and it's also even tougher to get the food to Somalia to help them out simply because of the instability and the fighting that has rocked that country.

It's such a difficult situation for people, Kyra, because they are walking across the border. They can't afford the $40 drive it takes to get from Somalia to the Dadaab refugee camp.

It's put a lot of pressure on the Kenyan government who aid agencies are accusing actually of food-dragging a little bit and not expanding this camp to accommodate more Somalis. The Kenyan government is saying that they need to deal with the instability and security around the area first.

But when you look at these images, it's a really difficult situation for hundreds of thousands of Somalis and it could get worse, because the drought isn't expected to ease up any time soon -- Kyra.

PHILLIPS: Zain Verjee, live out of London for us -- Zain, thanks.

And is this a sign of the times? A road sign in North Carolina hacked with a pretty controversial political message. We'll have the details in cross-country.

And we're just minutes away from going live to London. Rupert Murdoch, head of News Corp, under fire for the hacking scandal. Set to appear before a parliamentary committee in just about 13 minutes.

There have been arrests, resignations. And we'll hear what Rupert Murdoch has to say, if anything, when we take you live to London for the grilling.

(COMMERCIAL BREAK)

PHILLIPS: Checking stories cross country.

New legal troubles possibly for Casey Anthony. Bounty hunter Leonard Padilla says he plans to sue for money that he spent searching for missing 2-year-old Caylee Anthony in 2008. He says he felt conned when the trail revealed -- or the trial revealed rather that Anthony knew her daughter was dead all along.

In North Carolina, DOT crews have corrected an electronic road sign that was programmed with what some are calling a political message. Over the weekend someone apparently hacked into the sign and changed it to read "Impeach Obama."

And prove you can find almost everything at Wal-Mart. A South Carolina couple claims to have found and image of Jesus Christ on a Wal-Mart receipt. They say they discovered it after coming home from church one Sunday.

We're just minutes away from going live to London. Rupert Murdoch, the head of News Corp, is under fire for the hacking scandal, set to appear before a parliamentary committee just 13 minutes from now. As, you know, there have been arrests, resignations among not only some of his top executives, but high-ranking police officials as well 37.

We are waiting to hear what he and his son have to say about it.

(COMMERCIAL BREAK)

PHILLIPS: All right. He is one of the world's most powerful media moguls. He is going to go face-to-face with the most powerful lawmakers in the U.K. We are talking about Rupert Murdoch. And he is going to face outraged members of the British parliament that want some answers about the scandal that has engulfed Murdoch's media empire.

We are talking about bribery, hacking and corruption of power, words you're likely to hear over and over in today's hearing.

Let's talk more about this and put it in perspective with our Jeffrey McCracken, joining us again. He is a senior business writer with "Bloomberg News" and "Business Week."

And something that I didn't get to ask you about, Jeffrey, the last time that we talked as we started this hour -- is just talking about Murdoch's empire, the fact that it is totally under assault right now. We are talking about one of the richest men in the world.

As you know, because your company has reported on this -- so many lawsuits in the past that have been settled. Millions of dollars out of Murdoch's pockets have silenced -- I guess we could say -- many things, or a number of allegations that could have gone -- gotten a lot bigger, possibly to the point of what we are seeing now.

Is it possible he could go broke on this one? Is that even possible to talk about the fact he could spend so much money trying to fight this to the bitter end that he could lose all of his money?

JEFFREY MCCRACKEN, SENIOR BUSINESS WRITER, BLOOMBERG NEWS & BUSINESS WEEK: I don't think that's likely. I think that's beyond what could occur or what occurred here. He has lost -- or he and his family have lost, if you look at their holdings in News Corp and you look at how the shares have tumbled the last two weeks, they have lost about $1 billion in their network or in their value.

But I don't think you could see a situation where he and News Corp lose all their money fighting off these suits. This is just one of those situations, I think, where every day, there's the drip, drip, drumbeat of news. And given what he does and given all the competition -- you know, my organization, your organization, "The New York Times," et cetera, et cetera, there's just going to be an enormous amount of coverage and this is just going to roll on for some time.

What we don't know is what will come of the FBI investigations and what kind of effect they could have, obviously -- or the Department of Justice here looking into the Foreign Corrupt Practices Act and whether News Corp bribed foreign officials and that could be a serious thing as well.

To your point --

PHILLIPS: Yes, go ahead.

MCCRACKEN: -- I don't just think you would ever -- I don't think you have to worry, I don't think Rupert is going to worry about living in the poor house in his later years. PHILLIPS: But we are talking about a number of legal consequences here in the U.S., not just Britain, which is, obviously, one of the main reasons why we are watching this so closely.

MCCRACKEN: Right. Exactly. There's a lot going on here. I think actually what's probably important to consider is those legal liabilities or the possibilities of lawsuits, the possibilities of millions and billions going out for settlements, that's weighing down -- that is weighing down his wealth in a big way because that weighs down the shares of his company, which is where he's got a lot of his wealth tied up.

As you point out, they've settled, spend hundreds of millions of dollars settling with other companies and with victims of alleged phone hacking or victims that have had other allegations, so that's weighing down the company. It's also weighing down their ability to take certain steps.

And what I mean by that is -- let's say they decided, OK, these newspapers are 3 percent of our revenues and they are causing 99 percent of our headaches. Perhaps we should consider selling them. Perhaps that's what the market wants. Perhaps that would appease our critics.

But you can't really sell them or you can't get a whole lot for them when, you know, there's this overhang of liability, of legal liability, tied to each one of those properties and assets.

PHILLIPS: Jeffrey McCracken, stay with us.

Rupert Murdoch about to testify and we are going to take it live. A quick break and our live coverage continues.

(COMMERCIAL BREAK)

PHILLIPS: Once again, we are going live to London, where you are about to watch Rupert Murdoch basically get grilled by parliament there in London. A lot of questions about what has gone wrong within News Corporation.

We want to take you now for special coverage of this testimony. Richard Quest, live outside British parliament.

Richard, take it from here.

(BEGIN VIDEO CLIP)

(SHOUTING)

RICHARD QUEST, CNN INTERNATIONAL ANCHOR (voice-over): Anger, frustration and questions directed at Rupert Murdoch and his media empire.

UNIDENTIFIED MALE: This was a schoolgirl, a 13-year-old girl who'd gone missing. QUEST: Missing, then found murdered. A girl whose voice mail messages were hacked, then deleted. Her family given hope she was still alive. That hacker allegedly paid by one of Murdoch's British newspapers, the ""News of the World"."

Thirteen-year-old Mili Dowler is just one face, one victim, potentially amongst thousands.

UNIDENTIFIED MALE: There is a firestorm, if you like that, is engulfing parts of the media, parts of the police, and, indeed, our political system's ability to respond.

QUEST: And drawing into question ties between the press, the companies that own them, and the government at the highest levels.

UNIDENTIFIED MALE: He just doesn't get it. He just doesn't get it.

QUEST: Bags of evidence left sitting in a basement for years. Senior journalists from the newspaper now under investigation. Those journalists were hired by both 10 Downing Street and Scotland Yard. Those decisions taking their toll at the top.

UNIDENTIFIED MALE: I wish we had (INAUDIBLE) involved in this affair differently. I didn't and that's that.

QUEST: Rupert Murdoch, his son James, and Rebekah Brooks. The chain of command over the tabloid embroiled by scandal for almost a decade. Today, they're called before parliament.

UNIDENTIFIED MALE: This isn't a man who doesn't know what's going on. Everybody around (ph) him, scared to death to do anything that he doesn't like. So he's the spider in the middle of this web.

UNIDENTIFIED MALE: Yes, he did apologize many times. I don't think somebody could have held their hands -- head in their hands so many times and say they are they were sorry.

QUEST: An apology, even answers. It may not be enough.

(END VIDEO CLIP)

QUEST: Good afternoon to you. It is just after 2:30 in the afternoon, 9:30 on the Eastern seaboard of the United States. And this is CNN's live coverage of what will be one of the most important days in British history British parliamentary history, in the British parliamentary life, and, of course, for the media industry, not only in the United Kingdom but around the world.

It is the day when Rupert Murdoch and his son and his former editor go before a parliamentary select committee to give evidence on a phone- hacking scandal that has simply mushroomed into corruption, bribery, and questions over who knew what.

Moments from now, the three are scheduled to give testimony to the 10 members of Britain's Parliamentary Select Committee on culture, media and sport. And the question -- to what extent did those people know about or should have known about the cover-up in the widespread phone- hacking at News International and ""News of the World"."

We shall now go to the pictures from the committee room. It is rough and ready today, because these events are happening as we speak. We are going to show you what is happening. Rupert and James Murdoch are in the committee room. We need to hear every moment of this.

Let us listen to when the see when the committee chairman John Whittingdale begins.

(BEGIN COVERAGE)