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In the Arena

Strauss-Kahn Scandal a Witch Hunt?; The Chambermaid's Tale; NBA Executive Comes Out

Aired May 17, 2011 - 20:00   ET

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

ELIOT SPITZER, CNN HOST: Good evening and welcome to the program. I'm Eliot Spitzer.

Our top story tonight, Dominique Strauss-Khan is on suicide watch right now at New York's notorious Rikers Island jail. The powerful head of the International Monetary Fund is now reduced to this. He is not even allowed to have shoe laces in his shoes. The lights in his small cell stay on 24 hours a day, and guards check on him every 30 minutes. A Rikers official reportedly ordered the suicide watch as a precaution.

We'll have powerful reaction tonight from Strauss-Kahn's angry defenders and friends, and from the alleged victim.

But first a look at the other stories we're drilling down on tonight.

(BEGIN VIDEO CLIP)

SPITZER: The NBA is a tough game.

UNIDENTIFIED MALE: Look at that.

SPITZER: But the toughest guy in the league may never have scored a point. The guy in charge of the Phoenix Suns comes out of the closet and into the arena.

And want to take on the bad guys? Ask a New York attorney general. No, not that one. The new one. That may be the only way to get the Wall Street banks who thought they got away with it.

ERIC SCHNEIDERMAN, NEW YORK ATTORNEY GENERAL: And I think it should be unacceptable to everyone in the United States.

SPITZER: Then friend or foe? Which one is Pakistan? As new revelations emerge, E.D. Hill asks, can our enemy's enemy ever be trusted again?

(END OF VIDEO CLIP)

SPITZER: Now for our headliner segment. What happened inside that hotel room? Only two people know. One of them is sitting in a jail cell. The other one, a hotel maid, is in hiding. She is a widow and single mother from Guinea with no formal education and little English.

Her lawyer, Jeffrey Shapiro, spoke to CNN just a few hours ago in his first national television interview. He described her version of what happened behind closed doors.

(BEGIN VIDEO CLIP)

JEFFREY SHAPIRO, ATTORNEY FOR ALLEGED VICTIM: She was instructed to go in the room to clean the room, and while she was in there she was sexually assaulted by this man. And then she escaped -- managed to escape, and when she did, she reported it to security and it was then reported to the police and the events took place after that.

She was afraid for her life. She was being physically and sexually assaulted. And her whole idea was to get out of there and get away from this man, which thank God she was successful in doing.

There wasn't any aspect of this encounter which in any way could be construed as consensual or anything other than physical and sexual assault of this young woman. Her world has been turned upside down.

This is a person who was a hardworking woman. She's a single mother supporting a 15-year-old young woman. They live together. And she was grateful to have a job for which she could provide food and shelter for her -- the two of them.

Since this has occurred, she's not been able to go home. She can't go back to work. She has no idea what her future is going to be.

This is a person who assaulted her and raped her, and she's -- any television program that she turns on is -- he's pictured on it. And she has to relive this. It's a nightmare that keeps recycling in her mind. And she can't escape from it.

What I think this case is about is a man who apparently believed that he could do whatever he wished to do to whomever he wished to do whenever he wished to do it. And perhaps there are places in this world where he could do that, but fortunately, New York City isn't one of them.

(END OF VIDEO CLIP)

SPITZER: Meanwhile, people who know Dominique Strauss-Khan say this is nothing more than a witch hunt, that these allegations could not possibly be true.

Moments ago I spoke to one of them, Bernard Henri Levy, prominent French writer. I asked him why he's so certain of Strauss-Khan's innocence.

(BEGIN VIDEOTAPE)

BERNARD-HENRI LEVY, FRENCH JOURNALIST: Why? Because I know Dominique Strauss-Khan. I know him since a very long time, and I am -- in the depths of my soul, I am convinced that he cannot be the man who is depicted in some of the American and European medias today.

He is a man who is -- who loves his family. He is a man who has no brutality in him. He is a man who may -- of course, who likes life, women, but I cannot imagine him committing such a crime as an act of rape.

Rape and Strauss-Khan, for me, and I really choose my words, is contradictory. This is the reason why I wrote this piece.

SPITZER: In what way do you believe he has been treated unfairly so far?

LEVY: You know, it is always unfair when the press, and not the most serious press, takes the place of the judge. Dominique Strauss- Khan will have a fair trial. I know that. When I see some of these media -- but it is true in America, but also in France. We have the same sort of press, depicting him as a pervert, depicting him as a sort of a serial criminal without having no element, no evidence is not acceptable.

So there is a sort of manhunt which is absolutely opposite to the values of the European and American system of justice. You have two potential victims, the woman who says that she has been raped and the man who says that he did not commit the rape.

It's a very serious situation. You cannot rely on this tabloid press and in these -- on these popular permanent tribunal trials where every man in New York, every man in Paris acts as if he was a judge. No.

SPITZER: Certainly set aside the media and the excesses of the media at different times, you also wrote in your article -- and I want to quote here for a moment -- you say, "I am troubled by a system of justice modestly termed accusatory, meaning that anyone can come along and accuse another fellow of any crime."

That is, in fact, the foundation of our judicial system. People level accusations. They then have to swear to them. And, in fact, that is what the complainant, the victim, so alleged victim in this case has done.

Do you have any reason to doubt the veracity of her complaint?

LEVY: What I say is that in this system, which is the American system, there is good side and bad side. The bad side is that for someone like Dominique Strauss-Khan. If it appears that the claim is false, if it appears that he did not commit the crime of which he is accused, the current moment, the moment of today will be something terrible which will follow him until the end of his life.

There is something so violent, so cruel, so brutal in these images which have been showed of him, and really worldwide. I know that it is a case of any man and that there is a sort of democratic obligation to treat each man as if -- equally. But the problem is that this is hypocrisy. Everybody knows that Dominique Strauss-Khan is not exactly anyone. Anybody, everybody knows that an average man suspected of having committed a crime goes out of the police station there will be no photograph. There will be nobody. If it is Dominique Strauss- Khan, director of the IMF, you will have the press of all over the world.

So the apparent equality of treatment between the average guy and Dominique Strauss-Khan turns out to be a real inequality. It tends to be really unfair for him.

SPITZER: If what you're saying is that an accusation once leveled, even if disproven the reputational harm is never undone, there's absolutely no question about that, Bernard. That is true in any accusatory system.

But again, that's why I come back to the question, do you have any reason not to believe the woman whose accusation is at the heart of this case right now?

LEVY: I have no reason. I have no reason, Eliot. I was not in the 2806 room of Sofitel. I have of course no reason. The only thing which I can say is that -- and I know what I'm saying -- I am a friend of Dominique Strauss-Khan since a quarter of a century. And this sort of attitude, this crime of which he is accused does not match with the Dominique Strauss-Khan I know. It does not match. It is not him.

SPITZER: Do you think given the current state of affairs, given the integral role the IMF plays in world finance, for the good of the world economy, he should step down nearly to permit the IMF to reassume its position of negotiating the international loan agreements that need to be consummated?

LEVY: One thing I'm sure of is that if Dominique Strauss-Khan had to go out of IMF, it would not be good for the world economy, and it would not be good for the balance of powers and the check and balances all over the world.

SPITZER: Final question, Bernard. Do you believe -- do you put any credence in the theories that this was perhaps a setup orchestrated by the party of President Sarkozy?

LEVY: Of course not. This is really plot theory, conspiracy theory. When people are destabilized, where they are shocked by an event which they do not understand, they try to find a plot because it is comfortable to have a plot. It is comfortable to believe in a conspiracy. It is an easy explanation of something who appears as such a big shock.

SPITZER: Bernard-Henri Levy, always fascinating and educational to talk to you. Thank you so much for joining us.

LEVY: Thank you.

SPITZER: So what's next in this case? How does the IMF chief at the center of it all plot his defense? Joining me now is Paul Callan. He's a former New York City prosecutor and currently a criminal defense attorney who has handled high-profile sexual assault cases from both sides.

Paul, thanks for being here.

PAUL CALLAN, FORMER NYC PROFESSOR: Nice to be here.

SPITZER: So let's set the stage. This Friday, a critical day. Until then, the defendant sits in Rikers Island alone in a jail cell under suicide watch. Why is Friday so critical?

CALLAN: Well, you know, for this man, one of the most powerful men in the world in terms of the economic system of the world, it must be a horrible thing, sitting in that cell, you know, on Rikers Island.

And this Friday is of big importance because under New York law, the prosecutor has to hand down an indictment by Friday. In other words, whether 23 members of a grand jury, there's a prosecutor now moving quickly to try to get the case in because the grand jury has to indict by Friday or he has to be released under New York law.

SPITZER: Now it was famously said by a former chief judge of the New York Court of Appeals, the highest court in New York, that a grand jury would indict a ham sandwich if it were asked to do so.

So how much evidence needs to be presented and will the victim have to testify in the grand jury?

CALLAN: Most assuredly, I think the victim will have to testify. There's a low standard of proof. The prosecutor just has to meet a minimum standard to show that there's enough for the case to go forward to trial. It's not beyond a reasonable doubt.

It's a very one-sided presentation by a prosecutor. Usually the defense is rarely in the grand jury, although I must say this. The defendant does have the right to testify. He could testify if he wanted to.

SPITZER: Now the defense does not have the right to cross- examine the prosecution witness, but as you do witnesses -- singular or plural -- but as you said, the defendant, Dominique Strauss-Khan, could choose to testify if he wanted to. Will he do so?

CALLAN: I think it's highly unlikely, although I will say, Eliot, occasionally a defense attorney pulls a surprise, throws his client before the grand jury because if they choose not to indict, case over. And we're dealing with a very egotistical politician here who might say to Ben Brafman, I'm going in to the grand jury to convince them of my innocence. I don't think it'll happen but that would be a stunning development.

SPITZER: Have you ever put your defendants in?

CALLAN: I did it once in a case where --

SPITZER: It worked?

CALLAN: Ironically, it was a maid who had defended herself against abuse. I surprised the prosecutor, put her in, no true bill. The case ended there. So it was a gamble by me.

SPITZER: Dominique Strauss-Khan can't do it yet because he would then be cross-examined. He'd be locked into a story. He may choose never to testify. It is a dangerous, high-risk proposition. OK.

CALLAN: Very much so.

SPITZER: Once -- assuming an indictment is returned, he's then arraigned in front of a Supreme Court judge and then something important happens, another bail application is made. So he could get out Friday or after this indictment is handed up.

What do you think happens at the next bail application?

CALLAN: Well, very interesting, because the decision not to put bail on this case is very, very unusual. You know, in New York, we see this happen occasionally, almost always in murder cases. Very rarely in a sexual assault case. And pretty much everybody has the right to bail.

The criminal court judge, though, said he's a flight risk, we're afraid he's going to go back to France, no bail. A new judge now, a Supreme Court judge, the trial court judge, will take a look at this and possibly reverse that decision and set bail.

SPITZER: OK. The fundamental tension in this case, everything we've heard, is this going to be an alibi defense where the defendant says, I wasn't even there, or is he going to say yes, there was sex, but it was consensual? How do you read the tea leaves, pros and cons of the defense for either one?

CALLAN: Hard to read these tea leaves because Ben Brafman, who's the defense attorney and by the way very highly respected defense attorney, floated a number of trial balloons at the arraignment. He said, first of all, this is not a case of forcible compulsion. Well, that would suggest then consent is the defense. You don't say it's not force if you're trying to say your client was elsewhere.

But then later in the arraignment he said the timeline suggests that he was having lunch with his daughter and maybe he was elsewhere. So it -- he was floating alibi and consent at the same time. Inconsistent defenses. So I don't think they've settled on a defense at this point in time.

And the bottom line on sexual assault cases, only two people in the room, Eliot, as you've said. And it comes down really to the physical evidence and other evidence that corroborates one story or the other. Is there videotape? Is there physical evidence?

There's going to have to be something to corroborate her story to support a conviction in this case, and we don't know at this point. SPITZER: The tapes, the forensics, this is what it's going to come down, kind of like a TV setup, I hate to say, because the real world is not TV, but in this case, some of that stuff will be in fact much like TV.

CALLAN: Very true.

SPITZER: All right, Paul Callan. Thanks so much for being with us.

Coming up, the locker room isn't known for diversity or sensitivity. Thanks to one NBA executive, that could change. But first, E.D. Hill joins me.

E.D., you've been looking at the growing problem this country has with Pakistan.

E.D. HILL, CNN CONTRIBUTOR: That's right. Pakistan has just said that they're going to take immediate steps to prove to us that they are working with us in the war against terrorist organizations. But a former CIA director will join us, and he'll tell us what they aren't offering that we really do need to help our national security.

SPITZER: All right. Thanks, E.D.. All that and more. Stay right here.

(COMMERCIAL BREAK)

SPITZER: Now for our "Heart of the Matter" segment, it's the last frontier. If you're in pro sports you can't be openly gay. Think about it, you can't name one current player who is in any sport. So when the CEO of an NBA team came out as gay, it was front-page news in "The New York Times" and sent shockwaves through the sports world.

Rick Welts, CEO of the Phoenix Suns, has been involved in pro hoops since his teenage years as a ball boy for the Seattle Supersonics. As a marketer, he reinvigorated the NBA brand, helping create the Olympic Dream Team, the WNBA, the All-Star Weekend. But through it all he kept his private life a secret. Until yesterday.

Welcome, Rick Wells.

RICK WELTS, PRESIDENT AND CEO, PHOENIX SUNS: Thank you.

SPITZER: Welcome. Congratulations. So why now? That's the question everybody wants to know. Why did you wait this long and was there something specific about the sports world that forced you to keep this inside?

WELTS: Well, for me it was a long -- it's a culmination of a long personal journey. You know really it wasn't until this moment in time today sitting here with you that I was really -- I thought prepared to do that.

And certainly the fear that drove that was that if that aspect of my life became public, that it would limit my ability to follow what was really my passion, to be a part of team sports and to be a part of everything that I love about it. And I was concerned that that disclosure could limit what I would be able to do in my career.

SPITZER: What was it that you saw in the locker room, in the executive suites, in this sort of psychology of the NBA that persuaded you that you couldn't be openly gay and successful in that arena?

WELTS: Well, certainly nothing you unique to the NBA and nothing that I would characterize as a hostile environment of any kind. There is just what I've kind of termed a conspiracy of silence where it's just a topic that's not discussed. It's just nothing that is comfortable to be a part of our work environment, you know, totally out of step probably with where our society is today but it still exists.

SPITZER: That's what I want to pursue. Why is the sports world out of step? Because in other environment, legal profession, the acting profession, the arts, science, academia, there don't seem to be these inhibitions, yet in sports it is so much, as you have felt it, day in and day out.

WELTS: Yes.

SPITZER: Part of that culture. Why?

WELTS: You know it's interesting. There are those who have said, it's no big deal what I've done, but I don't think I'd be sitting here with you today if it wasn't a big deal. And I don't know. You know it's something I think about the team, the sports culture where you depend upon the trust of your teammates, you depend upon their confidence in you as somebody who can do what they're supposed to do.

And I think the culture of team sports goes into the front office as well. We're competitive. We're all there for a reason. And it's just something about that environment that breeds it.

SPITZER: Now just as you were making this decision to announce to the world what had been a secret, a tough secret to carry with you, Kobe Bryant and the incident where he let loose a slur towards an NBA referee, David Stern, the commissioner, immediately slapped him with a $100,000 fine. He then apologized.

Did that make you question whether this was the right thing to do or make you that much more certain it was important to do it?

WELTS: Well, the irony of the timing is it was the day before that I had been sitting in David Stern, the commissioner's office, to kind of discuss this with him. And then the next night Kobe went off.

You know, I think it reinforced that probably it was the time because I think that will probably remembered also as a teaching moment. And I think he's apologized for it. I don't -- you know I think he regrets doing it very much. But it was a conversation starter, for sure, and led to another step in the dialogue. SPITZER: And were there unique moments over the course of your career that it was harder than others? When Magic Johnson, for instance, came out and told people he had HIV, and there was pushback and that there was conversations in the early '90s, I think, in the NBA.

Was that a moment you said, gee, I'm carrying a secret here, I want to be part of this conversation and discuss what it means to be HIV positive? How did that affect you?

WELTS: Well, you know, I'm not even sure that the issues are related, but it was -- you know, it was a scary time for us, absolutely, and it was a time I was very proud of the NBA's response in trying to educate people.

But I wasn't ready. And I think that's what this is about, is about when someone is personally ready to be table to take this step. I wasn't ready then.

SPITZER: Right. And just so it's clear, the response within the NBA has been what?

WELTS: Just spectacular. You know, I've heard from several of the NBA owners in the last 48 hours and so many of my co-workers. Today actually in the green room I was just reading an e-mail from somebody who's an executive in sports who I don't know who just said thank you, you know, this is going to make a difference in my life.

And that's really I guess the motivation -- not I guess, it was the motivation for choosing such a public route to do this.

SPITZER: Now let me ask you a tough question. Can you name publicly other gay men in the sports world?

WELTS: No, because --

SPITZER: And what does that tell you?

WELTS: Well, in the 40 years that I have been in sports, no one has ever asked me, and I've never asked anyone.

SPITZER: Charles Barkley -- Charles Barkley put out a statement today saying it's inevitable there have been other, you know, gay men on the teams he's placed with and Charles Barkley, to his credit, says, who cares? We all play basketball.

But what does it tell you that -- you know there are other gay men but nobody has had the willpower to cross the line you just crossed?

WELTS: Just that it is a huge commitment personally to decide in some cases to put at risk everything that you feel you've accomplished. Whether that's true or not I think we'll learn a little bit by the aftermath of what's happened with me.

SPITZER: Now look, I know the NBA has been putting together PSAs, public service announcements, with an array of players and all that is wonderful. But it seems to me the only thing that will really solve this is others following your example.

Isn't that right? When it becomes part and parcel of daily life, a PSA on TV just doesn't do it.

WELTS: Well, you know, I think we're going to learn from this about what happens. I don't know what my future is. I don't know where my career is going to go. I don't know what opportunities I will have. I think that's part of the big problem with players. There's no example out there. No one has ever done it. No one really knows what's going to happen.

And I think based on the incredible outpouring that's come to me because of this I think it will be encouraging for others to do the same.

SPITZER: Amidst all the good news, the positive reinforcement from David Stern on down through the entire NBA, any negative pushback?

WELTS: Nothing. I mean absolutely nothing. Of the hundreds and hundreds of e-mails I've gotten in the last two days, not one has -- you know, been in a negative in tone at all.

SPITZER: And real quick, your views on same-sex marriage? For it, against it?

WELTS: You know, I look at the word equal and I'm still looking for the asterisk. I can't really see where that is.

SPITZER: All right. All right. Rick Welts, thanks so much. Congratulations. Tough, courageous move. And hopefully one that moves our society forward.

WELTS: Thank you so much.

SPITZER: Thank you so much for being here.

Here's the question. When you trust your enemy more than you trust your ally, what do you call it? Answer, Pakistan. E.D. Hill looks at a partnership that's going south. When we come back.

(COMMERCIAL BREAK)

HILL: You know it's well known that the U.S. gives Pakistan billions of dollars a year theoretically because it helps America fight the war on terror. Now it turns out many of the claims for cash Pakistan makes are -- let's just say questionable.

Here's one of the examples reported today in the "Wall Street Journal" from internal Pentagon documents.

They billed this $50 million for hygiene and chemicals. OK, like Purell? $26 million for barbed wire, and that buys enough barbed wire to go back and forth and back and forth and back and forth, they keep on going out of the border between Pakistan and Afghanistan. A lot of barbed wire. And then $70 million for radar maintenance. How often does it crash?

Well, needless to say, those kinds of bills are forcing the U.S. to question what's legitimate and what's not. It seems U.S. officials have come to the conclusion much of that is bogus.

The U.S. denial rates have climbed from a low of 1.6 percent in 2005 to now denying about 44 percent. That's in 2009, the last full year we have records for. And at this point, trust between the two countries is nearly nonexistent. Pakistan has done little to crush terror networks along the Afghan border, and a lot of people say it may be time to pull the plug on Pakistani aid.

Now, a little over two weeks since the raid on Osama bin Laden's compound, the relationship between the two countries is never functional. A majority of Americans think it is likely that Pakistani officials were helping the most wanted terrorist in the world to hide, and many are clamoring for an explanation.

So what exactly is going on? This man knows. James Woolsey is the former head of the CIA, now a venture capitalist, and joins us from Washington.

Thanks for being with us.

JAMES WOOLSEY, FORMER CIA DIRECTOR: Good to be with you, E.D.

HILL: A mess. That's I think a pretty fair way to describe our relationship with Pakistan. Senator Kerry just got back from meeting with the prime minister. He says that Pakistan is going to take immediate steps to help. They said we'll give you the helicopter tail back. Now I'm assuming they've already have everything they need off that. What do we really need them to give us?

WOOLSEY: We need them to go after the Haqqani Network. There are several terrorist groups up there in their territory across the border from Afghanistan, but the Haqqani Network is the worst, you know, the ones that are killing the most Americans and allies and Afghans in their attacks across the border. That just needs to stop. It's just completely unacceptable.

We've had working relationships with Pakistan off and on for some time, and some things we've worked on well together. I think better when General Musharraf was there, frankly, than more recently. But a lot of the people we have caught or killed they're affiliated with Al Qaeda or some of those other terrorist organizations. That is a result of working with Pakistan. But the situation with bin Laden having been in that building right next to their military academy camp is just very hard to not be extremely suspicious that they knew.

HILL: Let me ask you specifically about this, because something just didn't seem to make a whole lot of sense to me. And that was I get that we don't tell the Pakistanis that we're going in ahead of time because we're afraid someone is going to tip off bin Laden. But once we're in there on the ground fighting, why not call them? Because it seems the only reason not to let them know, because we are at this point now facing the possibility of an armed confrontation with an ally, the only reason not to let them know, hey, we're in there doing this just, you know, to let you know, is because we were afraid they might actively take arms or matters against us.

WOOLSEY: Or just shut everything down and tell us thank you for the phone call but your people are going to be our prisoners soon. I mean, I don't know what they would have done. It would have been a big gamble to run the operation in such a way as to let them know anything before we got out of the country. But this is a complicated situation. I mean, it was possible, I think, the odds are down around five or 10 percent, but it's possible that a few people somewhere in the ISI, Pakistani intelligence, knew that bin Laden was there, but the very top people did not. I think that's unlikely, but it's possible that very few people in the Pakistani system knew they were there.

HILL: You know, now we're getting more details about the operation. And I'm just playing devil's advocate because people are saying this, mostly on the Internet, but they're still saying it -- the story has changed numerous times. What exactly happened in the raid? Where the SEALS were let down, where bin Laden was when they confronted him, was he armed, was he reaching for a gun? We're getting another list of details today that aren't necessarily the same as the original ones. Why such a change in the specifics?

WOOLSEY: Well, I think there are two things. First of all, they really did encounter a terrible problem with that helicopter that couldn't operate in the warm air well enough and they had to crash it and bring another helicopter in. It's marvelous that they were able to pull that off. So there was a lot of extreme difficulty that the SEALs surmounted, and bravo. The other is that the administration has a propensity for getting information out very quickly in order to try to beat the -- people like you and even the folks on Twitter and so forth.

HILL: Yes.

WOOLSEY: So it's -- and sometimes if you release a story early, you do it before you've thought through it enough or before you've gotten the correcting facts a few hours later. For example --

HILL: Let me ask you about the pace with which the information was let out and what was revealed, because Secretary Gates made some rather scathing comments about the safety and security of these extremely brave men who went and conducted this mission, saying that because they had agreed in the Situation Room they're not releasing operational details, and he says lo and behold, you know, within a day, everything's being blabbed out there. How severe was it that the details that were released did come out?

WOOLSEY: I think they said some very, very stupid things.

HILL: Like what?

WOOLSEY: For example, why in the world would they release the fact that in the intelligence material that the SEALs collected we had a list of the locations of Al Qaeda safe houses? Why would you want Al Qaeda and the public to know that you had a list of their safe houses? Why not watch the safe houses secretly and see who comes and goes?

HILL: Yes.

WOOLSEY: See if you have to follow someone? I mean, they said some things that it's just to me it's unimaginable that they would have gone public with that.

HILL: You know, something else has happened in Pakistan recently, and tell me what this means, because I was kind of shocked by it. In December, the CIA station chief in Pakistan was outed. And then all of a sudden, as soon as that bin Laden raid occurs, the new CIA station chief is outed. The first one, you know, he's like my life is in danger, he heads out of the country. This one apparently is staying there. But what does that do? If we can't trust them to do the intelligence and, you know, attack these guys, we've got our intelligence people on the ground there. What does this do to our operations by having them release these names?

WOOLSEY: I think there's a great deal of hostility on the part of the ISI, Pakistani intelligence, much more hostility than there is in the Pakistani army. But the Pakistani intelligence people, for example, General Pasha, the head of intelligence's speech Friday to Pakistani legislature, was really, really harsh on the United States. And I think that the intelligence folks there are really quite at odds with the whole idea of working together with Americans. And I think they are probably the ones that are protecting the Haqqani and some of the other networks in part because Pakistan would rather have a chaotic Afghanistan than a stable Afghanistan that's friendly to India.

HILL: Yes. All right.

WOOLSEY: The last thing it wants is Afghanistan and India getting along well on its two flanks.

HILL: James Woolsey, couldn't ask for a better guest to help us understand what's going on there and put it into context. Thank you very much for joining us.

WOOLSEY: Good to see you again. E.D.

HILL: All right.

Coming up next, Eliot knows all about investing banks. He's been waiting for someone else to take up the challenge, and somebody has. When we come back.

(COMMERCIAL BREAK)

ELIOT SPITZER, HOST: Now in the continuing series we call "They Got Away With It." We know a lot about the banking meltdown that almost ruined our economy. We know that more than 26 million Americans are out of work. We know that four million families lost their homes, but there's still a great deal we don't know. Why? Because incredibly, there has not been a single criminal investigation that's been thorough by a prosecutor, until now.

New York Attorney General Eric Schneiderman has launched an investigation into the mortgage securities businesses of Goldman Sachs, Bank of America and Morgan Stanley. Maybe, just maybe, someone will finally be held accountable.

My guests have been following this story closely. Josh Rosner is an expert in mortgage finance issues and one of the first analysts to point out the major problems at Fannie Mae and Freddie Mac. And Matt Taibbi has written extensively on this topic for "Rolling Stone" where he famously described Goldman Sachs as a, quote, "great vampire squid."

All right, Matt. Let's begin with you. At a very structural level, set the stage for us. What have the banks been accused of doing here?

MATT TAIBBI, CONTRIBUTING EDITOR, "ROLLING STONE": So, basically, this was one giant hot potato game. You had your lenders like Countrywide and New Century in Long Beach, and they were creating huge masses of these subprime loans using every manner of fraud available. They were, you know, falsifying income statements, putting people who didn't have documentation, weren't citizens, getting people into bigger loans than they could afford. You had these huge masses of fraudulent loans, and they were securitizing them, making them these giant pools, chopping them up into securities to be sold later. And what the banks are accused of doing is taking these loans that they know in some cases are fraudulent and securitizing them anyway and then moving them off to investors without telling them what the risk is.

SPITZER: So basically, this is selling a piece of junk to somebody else without telling them it's a piece of junk.

TAIBBI: Right. This is alchemy. It's pure alchemy. You're taking something that's basically worthless and extremely risky and on the other side you're selling it as highly valuable AAA-rated securities.

SPITZER: And so to use the car metaphor that you used in one of your articles, this is like a used car dealer selling you a car knowing the brakes are no good and not telling you that.

TAIBBI: Right. You have a whole lot full of cars that you know are defective, that you know aren't going to make it to the first stop light, and yet you represent that they're new cars and that they're going to last forever.

SPITZER: And so the guys who bought this stuff suffered the consequences. All the loans blew up. They took the losses and they suffered the consequences of the fraud that had been committed.

TAIBBI: Right. One of the first people to suffer, eventually we all suffered because when the bailouts happen, we ended up paying for it on the other end.

SPITZER: Exactly.

JOSHUA ROSNER, MORTGAGE FINANCE ANALYST: Part of the reason so many ended up where they did, which is defaulting in crap (ph), is because the investment banks at the very end seem to have been trying to clear out their remaining inventory, the day-old bread, the bread that they knew they wouldn't be able to offload as the crisis was knocking at our door.

SPITZER: So this all comes down to one big question of what did the banks know and when did they know it and who did they tell.

ROSNER: Absolutely.

SPITZER: So what we have to do here is just trace the information they had, their knowledge, what they had up here, about how bad these loans were.

ROSNER: Now, isn't it shocking to you, Eliot, that here we are almost four years after the crisis has begun? There hasn't been a single credible investigation by a federal agency or a state authority of the problems from the mortgage origination through the foreclosure process.

SPITZER: Matt, why is that? Have you spoken to a lot of these prosecutorial offices? Have they not done the inquiry? Have they not answered or tried to answer the simple question, what did the banks know, show me every piece of paper about the loans, let me read it so I know what you knew and then I can compare that to what you told people?

TAIBBI: Well, I mean, we know that the Senate has done this investigation very thoroughly. If you'll just look at the Levin report, they looked at the case of one bank, Washington Mutual, and they very clearly, they found evidence that Washington Mutual looked at pools of loans that their risk management offices were telling them, these loans are fraudulent, a large numbers of these loans are fraudulent, and yet they went ahead and securitized those loans anyway. So we have evidence of this happening. It's not like it's going to be hard for these prosecutors to find.

SPITZER: Put up on the screen an e-mail that I think goes to this very issue. The subject line says "Utopia," and then the quote in the e-mail is "I think I found a white elephant, flying pig and unicorn all at once." This isn't medieval literature.

TAIBBI: Right.

SPITZER: This is Wall Street talking.

Matt, what is this? What's the context here and what is that e- mail?

TAIBBI: This was Goldman in 2007. They were looked -- they had a whole bunch of toxic mortgage assets and they were looking for someone on whom they could unload some of these deadly assets, and they found in one case with a deal called advocates (ph), I think it was -- they found someone who would take a large amount of these assets off their hands, and this is the marketing guy basically circulating an e-mail celebrating the fact that they found the ultimate sucker, we found a white elephant, a flying pig and a unicorn all at once, someone dumb enough to take this stuff.

ROSNER: The interesting thing there is the banks, the investment banks will say, but hold on, these are institutional, qualified institutional buyers. They're sophisticated. They should have known. OK. But it goes back to if you're withholding information from them, if you're intentionally not giving them the information that you had to assess what you're selling to them, how sophisticated could they have been?

SPITZER: Matt, last question. What will the impact be on the structure of the banking industry if Eric Schneiderman, the New York A.G., digs in and finds, in fact, that the major banks withheld information about the poor quality of these loans?

TAIBBI: From talking to investigators and former regulators about this issue, what they say is wherever they look they're going to find it. They're going to find as much fraud as they want to find. And if they actually start going down this rabbit hole and digging in, if this is a real serious investigation and not a political settlement, which is what this other Tom Miller thing appears it could turn into, it could be devastating to the banks. I mean, there could be banks that could end up out of business if they go far enough with this whole thing.

ROSNER: One could say it could call into question the credibility and integrity of the stress test that we did on our largest banks back in the spring of 2009.

SPITZER: All right. Josh, Matt, thank you so much. Clearly an issue we will continue to pursue days, week, months ahead. Thank you guys so much.

Coming up, the birther controversy is over. Right? A new book says not so fast. And no, I'm not kidding. Stay with us.

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SPITZER: Just when you think you've seen it all in this business, you realize you're missing the biggest story of the year. Here it is, folks.

"Where's the Birth Certificate?" No, it's not a put-on or an "SNL" sketch. It's a book that came out today, and it purports to blow the lid off President Obama's right to be president. And you're saying wait a minute, didn't the president answer that question? He showed it to us on April 27, remember? End of story. Right?

Wrong. The author and his publisher aren't going to let little things like facts spoil three years of so-called research and marketing strategy. In fact, according to the author's press release, the president's release of his birth certificate was, and I quote, "a preemptive strike against this book."

Before I can sign it to the 99-cent shelf, let's be fair. The book became an instant bestseller on amazon.com a month before its official publication with over 150,000 copies presold. Yikes. There's a sucker born every minute. I'll be right back.

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SPITZER: Massive flooding is making life miserable for lots of people along the Mississippi River. The historic surge of water is heading towards New Orleans. That's where John king is in Butte LaRose, Louisiana. It's one of the towns being flooded to protect New Orleans and Baton Rouge. Within days, they expect water there 15 feet above flood level. And today, the governor of Louisiana said water levels could stay way up for a month.

John, what's the latest?

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Well, Eliot, you see me here. I'm about chest deep. This is Butte LaRose. In this community, this was dry just the other day. I would ask Doug to pan out a bit.

You see that deck out there. That's about 45, 50 yards from me. That is where the river normally begins. And if he goes more to the right, you'll see a metal railing. It's getting a bit dark, but you see the metal railing over there. That's a walkway. Those are railings to put your hands on to take you out to what is normally the edge of the river.

This has been rising steadily. The crest here isn't until a week from now on Tuesday. This is part of that Morganza Spillway. They opened it up. They're sending the floodwaters here to keep them from Baton Rouge, to keep them from New Orleans. And if you keep going right, you'll see some homes right along the water here. No sandbags here, no urgent flood control. This is a deliberate flood and these homes will be hit with water. The question is just how high.

In Butte LaRose, they know some of these homes could be destroyed. I talked to the parish president tonight. He said probably a thousand homes in this community will be inundated, just completely buried because of the deliberate flood.

Eliot, earlier today, we were up north in the river. At one point you had Vidalia, Louisiana, on one side, Natchez, Mississippi, on the other. On the Vidalia side along the river front, $100 million, a hospital, an office complex, a convention center. Hesco baskets surround them. At one point today, there was a breach in that. The mayor was very concerned he would lose his economic backbone. Tonight, they have secured that, but they're still worried because the river could crest there in a couple of days.

Across on the Natchez side, most of the Antebellum homes, it's a beautiful historic town, most of the homes are up on the hillside so they're protected. But we went down to the Coast Guard station, which, as you would expect, is right along the river, and that is flooded. They have an inch or so of water inside the Coast Guard building.

I had these waders on. I was in the water outside there. Urgently, they're trying to protect that. You see this all up and down the Mississippi, Eliot. And in many communities, the cresting, some of it will be Saturday. The cresting here will be next Tuesday. As you mentioned, the governor says these record waters will be here forever.

You have to trust me, I'm chest deep here. This drops off pretty quickly if I start going back this way. It goes down quickly and within days it will be up in these homes, Eliot. It is a striking, striking challenge for this state.

SPITZER: You know, John, you see that, it is just devastating. Is there any estimate? First, you said the governor said apparently it could be up to a month until the water recedes. Any way to estimate the economic damage in those communities that were sacrificed in order to save New Orleans and Baton Rouge?

KING: Well, these homes will be destroyed. The question is can you replace them. Hundreds of millions of dollars. Crops lost in this community and others. The barges can't come down the Mississippi at the normal rate, so shipping has been derailed. Hundreds of millions of dollars. That's the best I can say right now, Eliot, because they'll be adding this up for weeks and weeks and weeks. Even after the cresting, water has to recede.

SPITZER: And real quickly, does FEMA come in to protect these individuals? What is the federal agency that will come in? Is there an insurance, anything, real quickly, that will help them?

KING: Some of them have insurance. Otherwise, the governor, local officials are already talking to FEMA and the federal government trying to help those once the houses are gone. They're trying to bring back those people, Eliot.

SPITZER: All right. Thanks for joining us, John. Thanks so much.

Good night from New York. "PIERS MORGAN TONIGHT" starts right now.