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Lou Dobbs Tonight

Colin Powell Visits Iraq; Kerry-Edwards Begins Campaign Tour In Pennsylvania

Aired July 30, 2004 - 18:00   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.


(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN HOST (voice-over): Tonight, the chairman of the September 11 commission says government reorganization alone will not be enough to prevent another terrorist attack. Two leading members of the Senate Governmental Affairs Committee will join me, Senator Arlen Specter and Senator Mark Dayton.

President Bush goes on the offensive against the Democrats and Senator John Kerry.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: My opponent has good intentions, but intentions do not always translate to results.

PILGRIM: Senator Kerry and Senator Edwards launch a nationwide tour after the Democratic convention.

In "Middle Class Squeeze," the future of Social Security. An issue many political candidates would rather avoid.

UNIDENTIFIED MALE: Social Security, as you know, is a very hot political issue.

And Democracy at risk, growing concerns over e-voting. Congressman Rush Holt wants every touch-screen voting machine to leave a paper trail. Congressman Holt is my guest tonight.

ANNOUNCER: This is LOU DOBBS TONIGHT for Friday, July 30th. Here now for an hour of news, debate and opinion, sitting in for Lou Dobbs who is on vacation, Kitty Pilgrim.

(END VIDEOTAPE)

PILGRIM: Good evening. The chairman of the September 11 commission today said intelligence reforms alone will not be sufficient to make this country safe from terrorist attack. Thomas Kean told Senators the government needs to do much more to protect the United States. Among Kean's proposals, much tougher border security.

Congressional correspondent Ed Henry reports.

(BEGIN VIDEOTAPE)

ED HENRY, CNN CORRESPONDENT (voice-over): The assessment from commission co-chair Lee Hamilton was harsh. Nearly three years after 9/11, the government is still not doing enough. LEE HAMILTON, 9/11 COMMISSION VICE CHAIRMAN: We find a desire to move ahead, but the whole government just is not acting with the urgency we think is required across the board.

HENRY: With President Bush's handling of national security a top issue in the campaign, that could be a politically explosive statement. So a Republican Senator quickly sought clarification.

SENATOR NORM COLEMAN, (R) MINNESOTA: This is a political season. And this should not be a political football. And I could see a headline, "Chairmen Say Lack of Urgency."

HENRY: The commission co-chairmen stress they were not singling out Bush officials like Condi Rice.

KEAN: No, and we didn't say that in our report about any of those people, and wouldn't. The sense of urgency is there, but the sense of urgency must be extended, magnified.

HENRY: The co-chairs pressed for all 41 of their proposals to reform the government. They warned that just shuffling some bureaucratic boxes will not do the job.

KEAN: If we do not carry out all important recommendations we have outlined in foreign policy, in border security, in transportation security and other areas, reorganizing government alone is not enough to make us safe and more secure.

HENRY: But Senator Susan Collins tried to put the brakes on the pressure to move fast on all fronts. She chaired the first of many hearings coming from nearly a dozen different congressional panels.

SUSAN COLLINS, (R) MAINE: We must act with speed, but not in haste. We must be bold, but we cannot be reckless. We must protect not just the lives of our citizens, but also those values that make life worth living.

HENRY: Senators in both parties expressed civil liberties concerns about the push for a national counterterrorism center. And there was hearty debate over creating a director of national intelligence. But one Democrat suggested delay would be a mistake.

SENATOR TOM CARPER, (D) DELAWARE: Carpe diem, it's the only Latin I know, seize the day. And there's something to be said for seizing the day, particularly when it's so hard to get anything done around here.

(END VIDEOTAPE)

HENRY (on camera): The bottom line here, is that the commissioners are really going to keep the heat on Congress. In addition to all the testimony over the next month that Kean and Hamilton and other commissioners will be giving on Capitol Hill, there's some 15 hearings in fact in the House alone, in August, there is also going to be a road show where commission members are going to go from coast to coast, Seattle to Boston, to start giving speeches, local media interviews trying to drum up support for their recommendations. They're trying to keep the heat on Congress, Kitty.

PILGRIM: Thanks very much, Ed Henry.

Well, President Bush today said it's not enough to advocate reform of our intelligence community. The President said, quote, "You have to be able to get it done."

And President Bush today hit the campaign trail one day after the Democrats ended their convention. Kathleen Koch traveled with the President today as he campaigned in key battleground states. And Elaine Quijano is following the Kerry-Edwards campaign and reports from Pennsylvania. So we begin with Kathleen Koch in Grand Rapids, Michigan -- Kathleen.

KATHLEEN KOCH, CNN CORRESPONDENT: Well, Kitty, the President quite a reception from audiences in the two battleground states that he's already hit today, starting with Missouri this morning and then coming here to Grand Rapids, Michigan this afternoon.

And the President really trying to recapture the national spotlight here. He's trotted out today not only a new ad, but also a new stump speech, really focusing not only on his record of accomplishment but on a broad vision for the future. The President saying that he has a proven record of success.

(BEGIN VIDEO CLIP)

BUSH: When it comes to reforming schools to provide an excellent education for all our children, results matter. When it comes to healthcare reforms to give families more access and more choices, results matter. When it comes to improving our economy and creating new jobs, results matter.

(END VIDEO CLIP)

KOCH: President Bush also talked about his opponent John Kerry, firing some shots at him saying that Senator Kerry does not have a proven record of success when it comes to reforming the intelligence services. He criticized Senator Kerry for proposing trillions of dollars in new spending that the President alleged would be paid for with higher taxes. And on the war on terror, President Bush said that while the world is safer, it's still not safe.

(BEGIN VIDEO CLIP)

BUSH: We have more to do to wage and win the war against terror. America's future depends on our willingness to lead in the world. If America shows uncertainty and weakness in this decade, the world will drift toward tragedy. This will not happen on my watch.

(END VIDEO CLIP)

KOCH: Now, the President's 9/11 task force met for roughly two hours this morning at the White House. Senior White House officials said that they're making very good progress, that they should have some suggestions ready for action by the President soon. We don't know when that will be. We're thinking perhaps as early as next week, looking toward Monday.

Now also, what that official, while calling the 9/11 commission's recommendations comprehensive and very laudable, the official insisted that that commission did not have a corner on the marketplace of ideas, saying that the President's task force could very well propose some new suggestions that go above and beyond what the 9/11 commission has recommended. Back to you, Kitty.

PILGRIM: All right, thanks very much. Kathleen Koch.

Senator Kerry and Senator Edwards today began a two-week tour of 21 states. Now, they're hoping to build on the momentum of the Democratic convention in Boston and tonight, the candidates are in Pennsylvania. Elaine Quijano reports from Harrisburg, Pennsylvania -- Elaine.

ELAINE QUIJANO, CNN CORRESPONDENT: Good evening, Kitty. Fresh off the Democratic National Convention, team Kerry-Edwards wasted no time and set out today. And we've just learned they've added another state, Tennessee, to that cross country tour. A tour that campaign officials are dubbing the "Believe in America Tour."

So 22 states is what these two senators will cover. Senator Kerry and his running mate, Senator John Edwards headed straight here to Pennsylvania, a key battleground state.

Their first stop was Scranton, where Governor Ed Rendell presented Kerry with a Louisville Slugger, telling the Massachusetts Senator that he hit one out of the park with his speech last night.

Now, a recent poll shows Kerry in the lead, but of course the campaign is not taking anything for granted. John Kerry's message here, focusing in part on an issue they hope will resonate with voters here: healthcare.

(BEGIN VIDEO CLIP)

SEN. JOHN KERRY (D-MA), PRESIDENTIAL CANDIDATE: On day one, when I take up that oath of office, we're sending to congress a bill that will end America's shame of being the only industrial nation in the world that doesn't understand health care is not a privilege for the wealthy and the connected and the elected. It is a right for all Americans. And we're going to make it available to all Americans.

QUIJANO: Now, the two senators will be logging some 3,500 miles over the next two weeks. As I said, visiting 22 states nationwide as part of this push. They are scheduled to make a stop here in Harrisburg, Pennsylvania, the state capital and already, Kitty, people have lined up for blocks in order to see the newly minted Democratic ticket -- Kitty.

PILGRIM: All right, thanks very much Elaine Quijano.

Turning overseas, Secretary of State Colin Powell today made a surprise visit to Baghdad. Powell is the most Senior U.S. Official to visit Iraq since the transfer of power to the Iraqis one month ago. His visit came as U.S. Marines killed 13 Iraqis in fierce fighting in Fallujah. Matthew Chance has the report from Baghdad -- Matthew.

MATTHEW CHANCE, CNN CORRESPONDENT: Thanks, Kitty. And this was an unannounced visit of Secretary of State Powell. He came to Baghdad wearing a bullet-proof vest. Details of that trip remaining secret right up until the last minute.

It's also the highest level visit of a U.S. official to Iraq since the transfer of sovereignty last week. And as such it's being interpreted here as something of a gesture of support for this interim government, increasingly under fire.

There were intensive meetings with Iraqi and U.S. officials here. Talks focusing on reconstruction, the political process and, of course, security. Colin Powell making the point to reporters that all those problems are interrelated in the sense that together, they are deterring companies and countries alike from operating in Iraq.

(BEGIN VIDEO CLIP)

COLIN POWELL, U.S. SECRETARY OF STATE: The world must stand united. We cannot let this kind of activity deter us, or cause us to go off course. As tragic as these incidents are when they come along, kidnappings and then the murder of those who have been kidnapped, we must continue to persevere. But obviously it does have a deterring effect.

(END VIDEO CLIP)

CHANCE: As if to underline the seriousness of the security threat here, in the hours before Colin Powell arrived, fierce fighting reported in the flash point town of Fallujah. U.S. marines coming under heavy mortar attack there and responding in force, calling in tank and artillery fire, as well as an air strike at one point.

One of several air strikes that have been called in to Fallujah in recent months which U.S. commanders on the ground say has become something of a haven for insurgents since it was handed over to Iraqi control supposedly last April -- Kitty.

PILGRIM: Thanks very much, Matthew Chance.

Now, Iraq is one of the biggest foreign policy crises facing the country. But in an quick update of flash points around the world, here's some developments in several key strategic areas.

(BEGIN VIDEO TAPE)

PILGRIM (voice-over): Uzbekistan, a key U.S. ally. Suicide bombers attacked the U.S. embassy and Israeli embassy. A top Uzbeki official is also targeted. That attack kills at least three and wounds nine others.

Pakistan, another U.S. ally. An assassination attempt on prime minister designate Shaukat Aziz. Aziz survives the attack, but at least five others were killed. Iran resumes testing of its nuclear facility. That defies the concern of the world community and the IAEA, the UN's nuclear watchdog agency. Secretary of State Colin Powell today says Iran continues to be a worry because of its nuclear stance, and its activities in Iraq.

POWELL: We are uneasy about some of the actions that Iran has been taking in the south. The influence that they are trying to gain in the south.

PILGRIM: In Taiwan, that island is conducting war games, putting on a show of force. Last week, China flexed its muscle in military exercises involving 18,000 troops. Experts say tensions between Taiwan and China are high.

KENNETH LIBERTHAL, UNIVERSITY OF MICHIGAN: I think it's very important in Taipei, in Beijing, and also in Washington to start trying to focus on changing the agenda and asking, how can we assure long-term stability here?

(END VIDEOTAPE)

PILGRIM: All key areas of strategic interest to the United States, along with the Middle East, one of the longest-lasting crises of all.

Still to come, how quickly should congress reform our intelligence community? I'll be joined by two leading senators, Senator Arlen Specter and Senator Mark Dayton.

Homeland security: Tom Ridge may be planning to quit. We'll tell you one possible reason next.

And the Kerry-Edwards ticket hopes for a lasting bounce in the polls after the Democratic Convention. Senior political analyst Bill Schneider will have a report.

(COMMERCIAL BREAK)

PILGRIM: The September 11 commission wants a massive overhaul of our intelligence community to protect this country from another terrorist attack. And today, the Senate Governmental Affairs Committee became the first congressional panel to hold a hearing on intelligence reforms.

Now, tonight, I'm joined by two leading members of that committee. Senator Arlen Specter of Pennsylvania and Senator Mark Dayton of Minnesota. And thank you, gentlemen, for joining us.

SENATOR ARLEN SPECTER, (R) PENNSYLVANIA: Glad to be with you.

PILGRIM: Senator Specter, let me start with you. Senator Lieberman, who's the ranking Democrat on your committee, suggested that the role of national intelligence director could be created in the next six months. Do you think that's a realistic time frame?

SPECTER: I think it is realistic, because we are now living under the threat of an attack from al Qaeda. We've had the director of the FBI and the Secretary of Homeland Defense (sic) say we can expect it between now and Election Day. So that's very, very ominous.

We have had the Senate Intelligence Committee talk about the failures of intelligence as to Iraq and now the 9/11 commission has told us --repeated something we have known for a long time. And that is, that if you have all of the intelligence agencies so that it's under one umbrella, we might well have prevented 9/11.

So I think that there's a real sense of urgency. And we went back from recess today, back to Washington, and I think it's something we can do relatively promptly.

We've got a lot of experience in the field. And I think it's doable to have it done yet this year.

PILGRIM: An accelerated timetable. Senator Dayton, the House leadership has announced they will hold -- at least six committees, will hold about 15 hearings during August. What's the purpose of these hearings? And when you hear the word hearings, it doesn't really suggest movement. Do you think much will be accomplished in these hearings?

SENATOR MARK DAYTON, (D) DELAWARE: Well, I can't speak for the House but in the Senate, we have Armed Services which I sit on, and also Government Affairs, and Susan Collins the Senator from Maine who chairs the Government Affairs deserves a lot of credit for getting us back here right away. And I think we will act on it, as Senator Specter said.

I'm very concerned about what the commission's report shows about the operational deficiencies on 9/11. The FAA, NORAD, the National Defense failed in serious respects, and then somebody seriously misrepresented the facts a week later to try to cover up the failures. That's what we need to get a handle on operationally so it doesn't happen again.

PILGRIM: What would be your main focus? The intelligence overhaul, what's your main concern personally?

DAYTON: Well, I'd want to do what's best for the country in terms of the balance between consolidation so we have coordination and communication but also so it's not a monolithic one view for everything.

But I'm even more concerned about the operational side, because no matter how good our intelligence, no matter how good our organization, if people don't function in a crisis, then we're not going to be effective.

PILGRIM: You know, Senator Susan Collins who's the chairwoman of the committee has said that the national intelligence director is a sound idea. Do you think President Bush would support this kind of a structure?

SPECTER: I think that it's very likely that the President will. He has been cautious, studying the situation. But the idea of having somebody in overall control has been with us for some time. Senator Lieberman and I introduced the Homeland Security Bill 30 days after 9/11. And we tried very hard with the creation of a new cabinet officer to have under the new secretary the authority to direct. And that has been resisted, because of the turf struggles and the institutional objections made by CIA, FBI and the Department of Defense.

But we have seen repeatedly evidence of their cultures of concealment. And I think the need is pretty plain. And my instinct is, the President is obviously going to have to speak for himself, but I think the evidence is sufficient to warrant having this national director.

PILGRIM: Let me ask you this: the chairmen of the 9/11 commission, Tom Kean and Lee Hamilton said yesterday they were going to seek private charitable donations to continue the work on the commission. What are your views on this? Do you think this is constructive? Is this to leave out the potential -- keep it independent? Let me ask you, Senator Dayton.

DAYTON: If there's concern on their part about necessary independence, we ought to provide that. They performed an enormous service to our nation and we ought to pay for it out of public funds and they ought to have complete authority and complete freedom from any funding source.

PILGRIM: And yet, there's this road show that's beginning that will conceivably generate some support. What's your view, Senator Specter?

SPECTER: Oh, I don't think they need to go on the road. They can just stay in Washington. They had made the point that they were prepared to travel the country. But that's not necessary.

You have hearings which are under way. The Congress has responded by cutting into the recess, which is what we should have done. The leaders, Senator Frist, Senator Daschle, have asked for a bill by the end of September. I think that is realistic. And wait and see, Kitty, I think you may find the Congress in session during October.

When we're under a threat of attack from al Qaeda, between now and November 2, I believe you're going to see very, very substantial, concerted action. So the commission doesn't have to go around with a tin cup and travel the country. The Congress is going to take care of this.

PILGRIM: Well, gentlemen, we commend you on your efforts and wish you every success. Senator Specter and Senator Dayton, thank you for joining us tonight.

SPECTER: Nice being with you. Thank you, Kitty.

PILGRIM: The nation's top anti-terrorism official is reportedly considering leaving his post. Now, the Associated Press reports that Homeland Security Secretary Tom Ridge could resign as early as later this year. And the reason is, Ridge wants to make more money so he can send two children -- his two children, to college.

Now, Ridge reportedly earns more than $175,000 a year. He also owns a nearly $900,000 home in Maryland and as much as $800,000 in stocks and funds.

Many of you wrote in about this story. Let's take a look at our e-mail.

Ken Klein from Three Lakes, Wisconsin says, "You are wondering if the middle class is being squeezed. Now, take, for example, Homeland Security Secretary Tom Ridge, who is considering leaving his job, because he doesn't feel he can put his two sons through college comfortably on the salary that he is receiving. Now, the middle class isn't being squeezed, it's being stomped on and squashed."

Well, we will share more of your thoughts later in the show, but in the meantime, thousands of people who want a job with Donald Trump are lined up in New York City tonight and they are hoping for the chance to become the Donald's next apprentice.

Now, the would-be reality show contestants gathered outside of Trump Towers as early as yesterday, even though auditions don't begin until 10:00 p.m. tonight. Now, the winner will run one of Trump's properties, which is a daunting task considering Trump's hotel and casino business is reportedly on shaky financial ground.

Still ahead tonight, John Kerry heads back to the campaign trail and we'll have a report on the impact of the Democratic National Convention.

And our panel of journalists will join us with more on the election campaign.

And then, "Middle Class Squeeze." Tonight, a special report on how John Kerry plans to tackle the Social Security crisis.

(COMMERCIAL BREAK)

ANNOUNCER: LOU DOBBS TONIGHT continues. Sitting in for Lou Dobbs, Kitty Pilgrim.

PILGRIM: Now for weeks, national polls on the presidential election have found President Bush and Senator Kerry in a statistical dead heat. Democrats, of course, are hoping their convention in Boston will change that, but history shows post-convention bounces are not always a sure thing. Bill Schneider reports.

(BEGIN VIDEOTAPE)

BILL SCHNEIDER, CNN POLITICAL ANALYST (voice-over): Question: What has been the most successful Democratic Convention in recent years? The one with the biggest bounce? Answer: 1992. Democrats marketed themselves as New Democrats, the Party of Change.

CLINTON: It's time to change America.

SCHNEIDER: What really gave the Democrats a lift was this man's decision during the convention to pull out of the race and say nice things about the Democrats.

ROSS PEROT, FORMER PRESIDENTIAL CANDIDATE: The Democratic Party has revitalized itself.

SCHNEIDER: The Democrats got more than a bounce in '92. They got a blast-off: 16 points, the mother of all bounces.

Democrats also hold the record for two of the least successful conventions. One was the Chicago catastrophe of 1968 when the only thing that got a bounce was the heads of the protesters. Voters were not impressed. Hubert Humphrey actually lost points.

The other was 1972, when the Democratic convention was so out of control, the nominee gave his acceptance speech at 2:30 in the morning. It's kind of hard to get a bounce from people who are asleep.

(END VIDEOTAPE)

SCHNEIDER: Now, Kitty, Republicans have been calling me and they're saying, if Kerry gets the expected bounce, which is normal, he'll end this week 15 points ahead of President Bush. That's what we expect, they say.

The Democrats are calling me and saying, no, no, no, there are so few people who have not made up their minds, everybody is so polarized, that we don't expect any bounce at all. So if we get two or three points that will be a triumph. And this is called a spin war.

PILGRIM: Yes, I would guess so. But Bill, when will we know if it is a real bounce, or when there's a real bounce?

SCHNEIDER: We will be interviewing people over the weekend. Some people see me in the street here in Boston, and said, "Bill, what's the bounce?"

Well, I said, "You know, we can't call people at 2:00 in the morning and ask about Kerry's speech." You've got to let people talk about it, talk to friends, coworkers, think about. We'll be calling people over the weekend and we'll tell you Sunday afternoon right here on CNN what the real bounce is.

PILGRIM: OK, Bill. But I think 2:00 is perfectly reasonable. Thank you, Bill.

SCHNEIDER: Of course, just wake them up and say, "What do you think?"

PILGRIM: Right. Thank a lot, Bill Schneider.

Well, joining me for more on this new phase of the presidential campaign are three of the nation's top journalists. Karen Tumulty is the national political correspondent for "TIME." Roger Simon is political editor for "U.S. News and World Report" and there in Washington. And joining me right here in New York is Jim Ellis, chief of correspondents at "Businessweek." And thank you all for being here.

Let's start with John Kerry. Let's start with you, Karen, what was your assessment now that the doors have shut and everyone's taken the bus home?

KAREN TUMULTY, TIME MAGAZINE: Well, you know, really, Thursday night was all that mattered at this convention. And Kerry, the expectations were fairly low. But he definitely cleared them.

In fact, I found that this speech, and I've been watching a lot of John Kerry's speeches over the last couple of years. What really struck me about this one was the fact that this is the only speech I've ever seen that actually sounded better coming out of John Kerry's lips than it did reading it on paper.

PILGRIM: That's really interesting. Roger, you've certainly seen your share. What's your view?

ROGER SIMON, U.S. NEWS AND WORLD REPORT: As Karen said, expectations were low and John Kerry met them. I mean, it may have been the best speech he's ever given and you can't expect more from anyone than that, which is not the same thing as saying it was a great speech.

An hour after it was over, I was having trouble remembering a single line from it. But it certainly was a solid performance. He accomplished what he wanted to accomplish. He certainly projected strength.

And for those so inclined, they could certainly imagine him in the Oval Office or taking the oath of office on the Capitol steps next January, which is really all you want out of these speeches anyway.

PILGRIM: We have two votes for personal best, Jim. Do you think the message was clear enough or strong enough?

JIM ELLIS, "BUSINESSWEEK": I think that some of the message was out there. I think that he did a poor job of expressing what he wants to do with the economy. I think that that's something that's sort of complicated. It probably will have to wait a while.

But I think he did a fantastic job in sort of reframing some things that people think about Democrats. He came across as very patriotic, which in recent years, people don't think about Democrats.

He also came across as sort of values oriented, but at the same time redefining what are the values we ought to be worrying about. And he sort of put that notion out there that one party doesn't have a monopoly on values.

PILGRIM: He's been casting himself very aggressively in the role of commander-in-chief. Let's listen to something he said at the event.

(BEGIN VIDEO CLIP)

JOHN KERRY, DEMOCRATIC PRESIDENTIAL NOMINEE: I will be a commander-in-chief who will never mislead us into war. I will have a vice president who will not conduct secret meetings with polluters to rewrite our environmental laws. I will have a secretary of defense who will listen to the advice of military leaders, and I will appoint an attorney general who will uphold the Constitution of the United States.

(END VIDEO CLIP)

PILGRIM: Karen, a positive message overall, but yet a little twist in it. Do you think this was effective?

TUMULTY: Yes, this was as direct and as blunt an attack as we heard from John Kerry. In a speech where -- by the way -- he only mentioned George Bush's name once. As convention speech attacks go, it was certainly not the harshest I have seen. And again, it was really balanced, I thought, by really trying to spell out for the first time what his own values were.

PILGRIM: Roger?

SIMON: It was good red meat stuff. And the line about "I will never mislead us into war" was a clever play on words. But it opened a door for him that he didn't go through that I thought he should have, which is to explain his own votes on Iraq.

And I realize that some people are going to say, "Well, you're not going to use a speech to explain the biggest negative attack that the other side makes against you." But I really think John Kerry has not explained that to the American people.

He voted for the war, as did his vice presidential nominee. And yet he voted against funding it. It's an issue that the Republicans hit him over the head with every time they give a major speech, and eventually, he's going to have to explain it more clearly than he has in the past.

PILGRIM: Yes, the ubiquitous flip-flop charge. Do you think he managed to address this effectively?

ELLIS: Well, he didn't really address it at all, which, I guess, in his context was he addressing it effectively by doing a Clinton: dodging the whole issue, and instead sort of draping the Republican flag around himself.

I was stunned by -- this could have been the Republican Convention eight years ago. I mean, he has done a very good job of sort of co-opting issues from the other side: values, national defense, the fact that I will be a strong leader. That's what people want to hear. And they'll have to wait later for the details because a lot of the details for either party aren't here yet.

PILGRIM: Let's take another listen. There was a point about oil that I thought was very interesting, and I'd like to get into that.

(BEGIN VIDEO CLIP)

KERRY: We value in America that controls its own destiny because it's finally and forever independent of Mideast oil. What does it mean for our economy and our national security when we have only 3 percent of the world's oil reserves, yet we rely on foreign countries for 53 percent of what we consume?

I want an America that relies on its ingenuity and innovation, not the Saudi royal family.

(END VIDEO CLIP)

PILGRIM: Karen, every president going back: Nixon, Carter, all the way back, they've talked about dependence on foreign oil. Do you think this was something that deserved this kind of prominence in the speech?

TUMULTY: Well, what really jumped out at me was this direct reference to the Saudi royal family. In fact, this is something that people have been suggesting John Kerry do, and he has not really attacked that issue as directly as some of his advisors even have hoped.

And I would really love to see the polling on that one. What is going on out there that has opened up what they think is a political opportunity by directly attacking the Saudi royal family? This, in fact, could be almost the Michael Moore effect in the film.

PILGRIM: Yes, Roger, was this oil discussion a vehicle for some other agenda?

SIMON: Yes, I think you just have to mention the Saudi royal family and it brings to mind the Bush administration's ties to the Saudis. Not only the Michael Moore charge that President Bush allowed hundreds of Saudis to leave the country right after 9/11 when all flights were grounded, as a favor to the Saudi government, but it also brings up the ties of Cheney and Halliburton that did business in Saudi Arabia for years.

You have to be clever in your choice of enemies, and Kerry has picked a very good enemy. The Saudi family does not have a lot of friends in the United States. And it's not likely to have any more as this campaign wears on, and I think it was one of the best lines that John Kerry delivered.

PILGRIM: Jim, they're telling me we're out of time. Do you want to add one more thing?

ELLIS: I just think that he's picked an easy target. I think it's worthy of debate. We need to talk more about it, but it's one of those things in Washington right now you don't want to say.

PILGRIM: Thanks very much for joining us. Have a great weekend. Jim Ellis, Karen Tumulty and Roger Simon, thanks a lot. That brings us to the subject of tonight's poll. Did Senator Kerry's speech last night make the case that he is presidential material? You decide: yes, no, or undecided. Cast your vote at cnn.com/Lou. We'll bring you the results a little bit later in the broadcast.

Tonight, we conclude our special report on the Middle Class Squeeze, and the Democrats' plans to fight it; and tonight, Social Security.

Millions of Americans are depending on Social Security as their main source of income in retirement. But the system is in desperate need of reform, and there are doubts about whether any plan can fix it. Bill Tucker reports.

BILL TUCKER, CNN CORRESPONDENT: Rather than say what he and John Edwards will do to fix Social Security, Democratic presidential hopeful John Kerry is saying what he won't do.

(BEGIN VIDEO CLIP)

KERRY: As president, I will not privatize Social Security. I will not cut benefits.

(END VIDEO CLIP)

TUCKER: Privatize, or creating individual Social Security accounts, is an idea promoted by President Bush to keep the system running.

Currently, 45 million Americans rely on Social Security. The monthly checks make up 38 percent of the income of the elderly, and they help keep many senior citizens above the poverty level.

But in about 15 years, the system will be paying out more than it's bringing in. Sooner or later, something will have to give.

(BEGIN VIDEO CLIP)

MICHAEL TANNER, CATO INSTITUTE: Every two-year election cycle that we wait to address Social Security reform ends up costing about $320 billion in additional expenses in terms of whatever it is we do with the program.

(END VIDEO CLIP)

TUCKER: The Kerry campaign doesn't treat Social Security as a stand alone issue, but the platform addresses it by saying that a growing economy along with restored fiscal discipline to cut the deficit, will lay the groundwork for a bipartisan effort at reform. And don't look for Social Security reform to be high on anyone's campaign banner.

(BEGIN VIDEO CLIP)

DAVID CERTNER, AAPP: Social Security, as you know, is a very hot political issue. Many candidates don't want to touch it.

(END VIDEO CLIP)

TUCKER: The last serious effort at Social Security reform came in 1983 because the system was on the verge of going bust.

And it should be pointed out that both Presidents Clinton and Bush campaigned with platforms that included the idea of Social Security reform, and neither did anything about it -- Kitty.

PILGRIM: All right, thanks a lot Bill Tucker.

Still ahead tonight: new developments in the case of missing e- voting records in Florida. And we'll be joined by Congressman Rush Holt. He says that frogsters can tamper with the touch-screen voting machines.

Plus, cracks in the alliance between the United States and Britain? Why the British have warned Defense Secretary Donald Rumsfeld about a possibility of a new trade dispute.

And in "Heroes", the remarkable story of Captain John Smathers, the most decorated Army Reserve soldier in "Operation Iraqi Freedom."

(COMMERCIAL BREAK)

PILGRIM: A follow-up tonight to a story we told you about last night about missing records from a Florida election two years ago.

Now, election officials now say the electronic voting records were not lost in a computer crash as they first thought. Officials say they found the records on a compact disk.

Now this story raised new concerns about the integrity of electronic voting in this country, and my guest tonight has been one of the most outspoken members of Congress on e-voting concerns. Congressman Rush Holt of New Jersey joins me from Princeton, New Jersey. And, thank you very much for joining us.

RUSH HOLT, DEMOCRATIC NEW JERSEY CONGRESSMAN: Good to be with you, Kitty. Thank you.

PILGRIM: What's your biggest concern about the election in November? Do you think that this system is safe, or can it be fixed in time?

HOLT: Well, it's not that there are new concerns raised by what happened in Florida, it's the same old concerns. Anything of value should be subject to an independent audit. In the case of voting, it should be subject to a recount, not in every case but if there's a suspicion, or in some fraction of the instances, there should be a recount.

Well, with these new electronic voting machines, they are simple, clear, easy to use, and totally unverifiable. Another words, a recount is meaningless. Now, you don't have to buy into conspiracy theories, you don't have to say that there's going to be widespread fraud, to say that sometimes there are mistakes in computers. They could be innocent, unintentional mistakes or, yes, they could be malicious hacking.

Whatever, just as long as there's a possibility, there should be the capability of an independent audit. Without a parallel paper audit trail, you can't have a recount. When I say to my colleagues in Congress, you can either support my legislation that calls for a parallel paper audit trail, or you could sign a waiver for any recount in any future election in which you stand for office. That gets their attention.

PILGRIM: Ideally, you'd like to have a receipt in your hand the way you would for an ATM or any other electronic device that you interact with. And yet, we're told this is not possible. Do you think that it is?

HOLT: Well, of course it's possible. You know, one of the major manufacturers of the election machines, the voting machines, is also a manufacturer of ATM cash machines, the bank machines.

So they have perfected printers. In fact, we know how to make printers. It shouldn't be a receipt to carry away; that's actually opening the door to fraud. You could sell proof of who you voted for, for example. But there should be a record that the voter can inspect and then that record stays at the polling place, with the official election records becomes the vote of record, and is available should there be need for a recount.

PILGRIM: How do you account for the push-back on this? It seems a very simple and logical a step.

HOLT: It really is hard to understand. I think, at first, some people thought, well -- I mean, some Republicans thought well this is Democrats trying to get even with Republicans for Florida.

But what's interesting, just in the last week in Florida, the Republicans in Miami Dade County have sent mailers, evidently it's to all Republicans in Miami Dade -- I'm not sure -- urging them to prepare to vote by absentee ballot because the voting machines, they say, are unverifiable.

That's an ironic twist that the Republicans have been sending that out. There's no reason why this should be partisan at all. If, in fact, the machines in Miami Dade County are not verifiable, by each voter, then a mailing should go out to all voters, Republicans and Democrats.

Now in some states, the secretaries of state, for example in California or Missouri and other places, have taken it into their own hands since the federal legislation hasn't moved. And they're banning machines, these electronic machines, that don't meet the criteria.

PILGRIM: They're just taking it into their own hands.

HOLT: Yes, and in many counties here in my own county, the county executive has asked for expanded criteria to use absentee paper ballots.

PILGRIM: Well, we very much count on you to sort through it for us. And thanks for explaining it to us tonight. Congressman Rush Holt of New Jersey.

HOLT: Thank you, Kitty.

PILGRIM: A lot of you are writing in regarding electronic voting. So here are a few of the comments:

Heidi of Santa Barbara, California, emails: "A voter-verified paper record that is checked by the voter and retained by election officials is the only sure way of doing a recount. The most applicable analogy is an ATM. Personally, I think my vote is worth more than the $20 bills I request from an ATM.

And James Nix, from St. Mary's, Georgia writes: "I think the electronic voting with paper receipts seems like a good idea. I'm just wondering what will be done with the receipts after the vote is cast."

And Steve Helt of Oklahoma writes: "I don't think any one of us would shop at a grocery store that didn't provide a paper receipt. And they want us to vote without getting a receipt? Absurd."

Well, send us your thoughts at LouDobbs@cnn.com.

Still ahead tonight: Britain warns Donald Rumsfeld it may stop buying arms from U.S. companies. We'll have a report.

And, in "Heroes": Army reservist Captain John Smathers. He survived insurgent attacks and helped restore order in Baghdad. His story next.

(COMMERCIAL BREAK)

PILGRIM: The United States and Britain, our closest ally in the war on terror, are heading towards a major trade dispute over defense contracts. Jim Boulden reports.

JIM BOULDEN, CNN REPORTER: It's being seen by some as retaliation. The announcement last week by Britain's Defense Secretary Jeff Hoon, that a European company won a billion dollar contract to supply unmanned surveillance drones.

The loser was U.S. manufacturer Northrop Grumman. Why? Because London is accusing Washington of unfair trade practices when it comes to defense contracts.

(BEGIN VIDEO CLIP)

DAVID MULHOLLAND, "JANE'S DEFENCE WEEKLY": The U.K. government thought, when they joined the U.S. in Iraq, that they would be viewed more favorably. But, in fact, no. The U.S. is still saying, "Oh, but we can't trust our good allies the Brits."

(END VIDEO CLIP)

BOULDEN: That anger boiled over in a letter dated June 16th from Hoon to U.S. Defense Secretary Donald Rumsfeld. Hoon complain that legislation now working its way through Congress will make it even harder for non-U.S. firms to compete for American defense contracts. If it passes, Hoon warns Britain would have to have an exemption, or consider whether to continue buying from U.S. defense firms.

Last year the White House sided with Britain when some in Congress tried to tighten the rules to make it harder for non-American companies to compete for arms contracts.

American defense companies are siding with Britain this time, worried about retaliation and loss of U.K. market share.

(BEGIN VIDEO CLIP)

PETER SPEIGEL, "FINANCIAL TIMES": If you talk to any of the major companies, the big four, big five, they are all very concerned about this. They really do worry that this market will close to them. It's a big percentage of business to a lot of them. Ratheon does about 20 percent of its business internationally and a lot of that comes from the U.K.

(END VIDEO CLIP)

BOULDEN: As a staunch ally, Britain also wants a waiver to arms traffic regulations, which would allow it to easily obtain certain U.S. defense technologies. Right now, only Canada has such a waiver.

But some in Congress worry Britain's export regulations are too loose and might allow sensitive U.S. technology to third countries.

That waiver has been promised to Britain by the past two White House administrations. But it's been stalled for years by some in Congress citing national security worries: one more reason Britain is threatening a trade war over the weapons of war. Jim Boulden, CNN, London.

PILGRIM: Now, "Heroes." Tonight, the story of Captain John Smathers, the most decorated reserve soldier in "Operation Iraqi Freedom." Lisa Sylvester reports.

(BEGIN VIDEOTAPE)

LISA SYLVESTER, CNN REPORTER: Forty-six-year-old John Smathers is comfortable in many roles: full-time lawyer and part-time Army Reserve soldier. But he's reluctant to call himself a hero.

(BEGIN VIDEO CLIP)

JOHN SMATHERS, U.S. ARMY RESERVES: A lot of the accomplishments that we made were made as a team. On an individual basis, we all did our jobs. And that's how we viewed it at the time we were doing it. We were just doing our job.

(END VIDEO CLIP)

SYLVESTER: The Maryland personal injury attorney was originally not supposed to be on the front lines. But the 3rd Infantry Division needed a lawyer prepared to go into combat.

Smathers saw plenty of fighting. He earned two Purple Hearts, Four Bronze Stars, and an Army Commendation Medal, making him the most decorated Army Reserve soldier in Operation Iraqi Freedom. He describes an insurgent attack on his convoy.

(BEGIN VIDEO CLIP)

SMATHERS: The vehicle was just riddled with bullets, and I could hear the bullets, as I was ducking, I could hear the bullets just bouncing all around the vehicle. It just was going on forever.

(END VIDEO CLIP)

SYLVESTER: His arm was broken in two places when his Humvee flipped over. But he kept fighting.

While in Iraq, Captain Smathers also foiled a bank robbery, helped restore power in Baghdad, and rewrote the traffic laws. Under Saddam Hussein, traffic officers were both judge and jury.

(BEGIN VIDEO CLIP)

SMATHERS: Whatever the traffic judges did was fine. There was no appeal from their decision. So they were like gods on the street, and people were very fearful of them.

(END VIDEO CLIP)

SYLVESTER: Captain Smathers is now in physical therapy to regain full use of his arm: a small price to pay for the patriotism his father instilled in him.

(BEGIN VIDEO CLIP)

SMATHERS: He had always told me, "America is the greatest country on the face of the earth. There's more freedoms here than any other nation. And, if you don't believe that, go to some other nation and you'll want to come over here as quickly as possible." And he's right.

(END VIDEO CLIP)

SYLVESTER: Captain Smathers brought back a football that served as his diary in Iraq. And he has the memories of the Iraqi children who welcomed American troops; children, who he says, are now better off.

Lisa Sylvester, CNN, Laurel, Maryland.

(END VIDEOTAPE)

PILGRIM: Glad to have you home, Captain. We'll be right back.

(COMMERCIAL BREAK)

PILGRIM: On Wall Street, stocks snapped a five-week losing streak, and the Dow rose 10 points on the day, the NASDAQ added six, the S&P rose a point. A higher week but a tough month for investors, and Christine Romans is here with the report. Christine?

CHRISTINE ROMANS, CNN REPORTER: Well, Kitty, stock investors say goodbye and good riddance to a terrible month for stocks.

Investors fear earnings have peaked and high energy prices will hurt consumers. In fact, second quarter growth figures today show the weakest consumer spending in three years.

And oil prices keep moving higher. A record today, above $43 a barrel. Oil now up 11 percent this month and 40 percent over the past year. Tech stocks lost 8 percent in July, the worst month in a year, and the Dow and the S&P were also weak.

And then there's anxiety over jobs. A new survey shows unemployed Americans, lucky enough to find new jobs, are willing to work for less. The survey from the Bureau of Labor Statistics says more than five million Americans lost their jobs between 2001 and 2003. More than half of those people found new work and more than half of those are now earning less money, Kitty.

PILGRIM: Sad. Thank you, Christine.

Well, still ahead, we'll have the results of tonight's poll.

(COMMERCIAL BREAK)

PILGRIM: Here are the results now of tonight's poll. Did Senator Kerry's speech last night make the case he is presidential material? Ninety-two percent of you said yes, and there's three months until Election Day.

Thanks for joining us tonight. Please join us Monday with Senator Joseph Lieberman, Ranking Member of the Government Affairs Committee. He joins us to discuss the 9/11 Commission Report.

For all of us here, good night from New York. Have a great weekend.

Anderson Cooper 360 is next.

END

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 July 30, 2004 - 18:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN HOST (voice-over): Tonight, the chairman of the September 11 commission says government reorganization alone will not be enough to prevent another terrorist attack. Two leading members of the Senate Governmental Affairs Committee will join me, Senator Arlen Specter and Senator Mark Dayton.

President Bush goes on the offensive against the Democrats and Senator John Kerry.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: My opponent has good intentions, but intentions do not always translate to results.

PILGRIM: Senator Kerry and Senator Edwards launch a nationwide tour after the Democratic convention.

In "Middle Class Squeeze," the future of Social Security. An issue many political candidates would rather avoid.

UNIDENTIFIED MALE: Social Security, as you know, is a very hot political issue.

And Democracy at risk, growing concerns over e-voting. Congressman Rush Holt wants every touch-screen voting machine to leave a paper trail. Congressman Holt is my guest tonight.

ANNOUNCER: This is LOU DOBBS TONIGHT for Friday, July 30th. Here now for an hour of news, debate and opinion, sitting in for Lou Dobbs who is on vacation, Kitty Pilgrim.

(END VIDEOTAPE)

PILGRIM: Good evening. The chairman of the September 11 commission today said intelligence reforms alone will not be sufficient to make this country safe from terrorist attack. Thomas Kean told Senators the government needs to do much more to protect the United States. Among Kean's proposals, much tougher border security.

Congressional correspondent Ed Henry reports.

(BEGIN VIDEOTAPE)

ED HENRY, CNN CORRESPONDENT (voice-over): The assessment from commission co-chair Lee Hamilton was harsh. Nearly three years after 9/11, the government is still not doing enough. LEE HAMILTON, 9/11 COMMISSION VICE CHAIRMAN: We find a desire to move ahead, but the whole government just is not acting with the urgency we think is required across the board.

HENRY: With President Bush's handling of national security a top issue in the campaign, that could be a politically explosive statement. So a Republican Senator quickly sought clarification.

SENATOR NORM COLEMAN, (R) MINNESOTA: This is a political season. And this should not be a political football. And I could see a headline, "Chairmen Say Lack of Urgency."

HENRY: The commission co-chairmen stress they were not singling out Bush officials like Condi Rice.

KEAN: No, and we didn't say that in our report about any of those people, and wouldn't. The sense of urgency is there, but the sense of urgency must be extended, magnified.

HENRY: The co-chairs pressed for all 41 of their proposals to reform the government. They warned that just shuffling some bureaucratic boxes will not do the job.

KEAN: If we do not carry out all important recommendations we have outlined in foreign policy, in border security, in transportation security and other areas, reorganizing government alone is not enough to make us safe and more secure.

HENRY: But Senator Susan Collins tried to put the brakes on the pressure to move fast on all fronts. She chaired the first of many hearings coming from nearly a dozen different congressional panels.

SUSAN COLLINS, (R) MAINE: We must act with speed, but not in haste. We must be bold, but we cannot be reckless. We must protect not just the lives of our citizens, but also those values that make life worth living.

HENRY: Senators in both parties expressed civil liberties concerns about the push for a national counterterrorism center. And there was hearty debate over creating a director of national intelligence. But one Democrat suggested delay would be a mistake.

SENATOR TOM CARPER, (D) DELAWARE: Carpe diem, it's the only Latin I know, seize the day. And there's something to be said for seizing the day, particularly when it's so hard to get anything done around here.

(END VIDEOTAPE)

HENRY (on camera): The bottom line here, is that the commissioners are really going to keep the heat on Congress. In addition to all the testimony over the next month that Kean and Hamilton and other commissioners will be giving on Capitol Hill, there's some 15 hearings in fact in the House alone, in August, there is also going to be a road show where commission members are going to go from coast to coast, Seattle to Boston, to start giving speeches, local media interviews trying to drum up support for their recommendations. They're trying to keep the heat on Congress, Kitty.

PILGRIM: Thanks very much, Ed Henry.

Well, President Bush today said it's not enough to advocate reform of our intelligence community. The President said, quote, "You have to be able to get it done."

And President Bush today hit the campaign trail one day after the Democrats ended their convention. Kathleen Koch traveled with the President today as he campaigned in key battleground states. And Elaine Quijano is following the Kerry-Edwards campaign and reports from Pennsylvania. So we begin with Kathleen Koch in Grand Rapids, Michigan -- Kathleen.

KATHLEEN KOCH, CNN CORRESPONDENT: Well, Kitty, the President quite a reception from audiences in the two battleground states that he's already hit today, starting with Missouri this morning and then coming here to Grand Rapids, Michigan this afternoon.

And the President really trying to recapture the national spotlight here. He's trotted out today not only a new ad, but also a new stump speech, really focusing not only on his record of accomplishment but on a broad vision for the future. The President saying that he has a proven record of success.

(BEGIN VIDEO CLIP)

BUSH: When it comes to reforming schools to provide an excellent education for all our children, results matter. When it comes to healthcare reforms to give families more access and more choices, results matter. When it comes to improving our economy and creating new jobs, results matter.

(END VIDEO CLIP)

KOCH: President Bush also talked about his opponent John Kerry, firing some shots at him saying that Senator Kerry does not have a proven record of success when it comes to reforming the intelligence services. He criticized Senator Kerry for proposing trillions of dollars in new spending that the President alleged would be paid for with higher taxes. And on the war on terror, President Bush said that while the world is safer, it's still not safe.

(BEGIN VIDEO CLIP)

BUSH: We have more to do to wage and win the war against terror. America's future depends on our willingness to lead in the world. If America shows uncertainty and weakness in this decade, the world will drift toward tragedy. This will not happen on my watch.

(END VIDEO CLIP)

KOCH: Now, the President's 9/11 task force met for roughly two hours this morning at the White House. Senior White House officials said that they're making very good progress, that they should have some suggestions ready for action by the President soon. We don't know when that will be. We're thinking perhaps as early as next week, looking toward Monday.

Now also, what that official, while calling the 9/11 commission's recommendations comprehensive and very laudable, the official insisted that that commission did not have a corner on the marketplace of ideas, saying that the President's task force could very well propose some new suggestions that go above and beyond what the 9/11 commission has recommended. Back to you, Kitty.

PILGRIM: All right, thanks very much. Kathleen Koch.

Senator Kerry and Senator Edwards today began a two-week tour of 21 states. Now, they're hoping to build on the momentum of the Democratic convention in Boston and tonight, the candidates are in Pennsylvania. Elaine Quijano reports from Harrisburg, Pennsylvania -- Elaine.

ELAINE QUIJANO, CNN CORRESPONDENT: Good evening, Kitty. Fresh off the Democratic National Convention, team Kerry-Edwards wasted no time and set out today. And we've just learned they've added another state, Tennessee, to that cross country tour. A tour that campaign officials are dubbing the "Believe in America Tour."

So 22 states is what these two senators will cover. Senator Kerry and his running mate, Senator John Edwards headed straight here to Pennsylvania, a key battleground state.

Their first stop was Scranton, where Governor Ed Rendell presented Kerry with a Louisville Slugger, telling the Massachusetts Senator that he hit one out of the park with his speech last night.

Now, a recent poll shows Kerry in the lead, but of course the campaign is not taking anything for granted. John Kerry's message here, focusing in part on an issue they hope will resonate with voters here: healthcare.

(BEGIN VIDEO CLIP)

SEN. JOHN KERRY (D-MA), PRESIDENTIAL CANDIDATE: On day one, when I take up that oath of office, we're sending to congress a bill that will end America's shame of being the only industrial nation in the world that doesn't understand health care is not a privilege for the wealthy and the connected and the elected. It is a right for all Americans. And we're going to make it available to all Americans.

QUIJANO: Now, the two senators will be logging some 3,500 miles over the next two weeks. As I said, visiting 22 states nationwide as part of this push. They are scheduled to make a stop here in Harrisburg, Pennsylvania, the state capital and already, Kitty, people have lined up for blocks in order to see the newly minted Democratic ticket -- Kitty.

PILGRIM: All right, thanks very much Elaine Quijano.

Turning overseas, Secretary of State Colin Powell today made a surprise visit to Baghdad. Powell is the most Senior U.S. Official to visit Iraq since the transfer of power to the Iraqis one month ago. His visit came as U.S. Marines killed 13 Iraqis in fierce fighting in Fallujah. Matthew Chance has the report from Baghdad -- Matthew.

MATTHEW CHANCE, CNN CORRESPONDENT: Thanks, Kitty. And this was an unannounced visit of Secretary of State Powell. He came to Baghdad wearing a bullet-proof vest. Details of that trip remaining secret right up until the last minute.

It's also the highest level visit of a U.S. official to Iraq since the transfer of sovereignty last week. And as such it's being interpreted here as something of a gesture of support for this interim government, increasingly under fire.

There were intensive meetings with Iraqi and U.S. officials here. Talks focusing on reconstruction, the political process and, of course, security. Colin Powell making the point to reporters that all those problems are interrelated in the sense that together, they are deterring companies and countries alike from operating in Iraq.

(BEGIN VIDEO CLIP)

COLIN POWELL, U.S. SECRETARY OF STATE: The world must stand united. We cannot let this kind of activity deter us, or cause us to go off course. As tragic as these incidents are when they come along, kidnappings and then the murder of those who have been kidnapped, we must continue to persevere. But obviously it does have a deterring effect.

(END VIDEO CLIP)

CHANCE: As if to underline the seriousness of the security threat here, in the hours before Colin Powell arrived, fierce fighting reported in the flash point town of Fallujah. U.S. marines coming under heavy mortar attack there and responding in force, calling in tank and artillery fire, as well as an air strike at one point.

One of several air strikes that have been called in to Fallujah in recent months which U.S. commanders on the ground say has become something of a haven for insurgents since it was handed over to Iraqi control supposedly last April -- Kitty.

PILGRIM: Thanks very much, Matthew Chance.

Now, Iraq is one of the biggest foreign policy crises facing the country. But in an quick update of flash points around the world, here's some developments in several key strategic areas.

(BEGIN VIDEO TAPE)

PILGRIM (voice-over): Uzbekistan, a key U.S. ally. Suicide bombers attacked the U.S. embassy and Israeli embassy. A top Uzbeki official is also targeted. That attack kills at least three and wounds nine others.

Pakistan, another U.S. ally. An assassination attempt on prime minister designate Shaukat Aziz. Aziz survives the attack, but at least five others were killed. Iran resumes testing of its nuclear facility. That defies the concern of the world community and the IAEA, the UN's nuclear watchdog agency. Secretary of State Colin Powell today says Iran continues to be a worry because of its nuclear stance, and its activities in Iraq.

POWELL: We are uneasy about some of the actions that Iran has been taking in the south. The influence that they are trying to gain in the south.

PILGRIM: In Taiwan, that island is conducting war games, putting on a show of force. Last week, China flexed its muscle in military exercises involving 18,000 troops. Experts say tensions between Taiwan and China are high.

KENNETH LIBERTHAL, UNIVERSITY OF MICHIGAN: I think it's very important in Taipei, in Beijing, and also in Washington to start trying to focus on changing the agenda and asking, how can we assure long-term stability here?

(END VIDEOTAPE)

PILGRIM: All key areas of strategic interest to the United States, along with the Middle East, one of the longest-lasting crises of all.

Still to come, how quickly should congress reform our intelligence community? I'll be joined by two leading senators, Senator Arlen Specter and Senator Mark Dayton.

Homeland security: Tom Ridge may be planning to quit. We'll tell you one possible reason next.

And the Kerry-Edwards ticket hopes for a lasting bounce in the polls after the Democratic Convention. Senior political analyst Bill Schneider will have a report.

(COMMERCIAL BREAK)

PILGRIM: The September 11 commission wants a massive overhaul of our intelligence community to protect this country from another terrorist attack. And today, the Senate Governmental Affairs Committee became the first congressional panel to hold a hearing on intelligence reforms.

Now, tonight, I'm joined by two leading members of that committee. Senator Arlen Specter of Pennsylvania and Senator Mark Dayton of Minnesota. And thank you, gentlemen, for joining us.

SENATOR ARLEN SPECTER, (R) PENNSYLVANIA: Glad to be with you.

PILGRIM: Senator Specter, let me start with you. Senator Lieberman, who's the ranking Democrat on your committee, suggested that the role of national intelligence director could be created in the next six months. Do you think that's a realistic time frame?

SPECTER: I think it is realistic, because we are now living under the threat of an attack from al Qaeda. We've had the director of the FBI and the Secretary of Homeland Defense (sic) say we can expect it between now and Election Day. So that's very, very ominous.

We have had the Senate Intelligence Committee talk about the failures of intelligence as to Iraq and now the 9/11 commission has told us --repeated something we have known for a long time. And that is, that if you have all of the intelligence agencies so that it's under one umbrella, we might well have prevented 9/11.

So I think that there's a real sense of urgency. And we went back from recess today, back to Washington, and I think it's something we can do relatively promptly.

We've got a lot of experience in the field. And I think it's doable to have it done yet this year.

PILGRIM: An accelerated timetable. Senator Dayton, the House leadership has announced they will hold -- at least six committees, will hold about 15 hearings during August. What's the purpose of these hearings? And when you hear the word hearings, it doesn't really suggest movement. Do you think much will be accomplished in these hearings?

SENATOR MARK DAYTON, (D) DELAWARE: Well, I can't speak for the House but in the Senate, we have Armed Services which I sit on, and also Government Affairs, and Susan Collins the Senator from Maine who chairs the Government Affairs deserves a lot of credit for getting us back here right away. And I think we will act on it, as Senator Specter said.

I'm very concerned about what the commission's report shows about the operational deficiencies on 9/11. The FAA, NORAD, the National Defense failed in serious respects, and then somebody seriously misrepresented the facts a week later to try to cover up the failures. That's what we need to get a handle on operationally so it doesn't happen again.

PILGRIM: What would be your main focus? The intelligence overhaul, what's your main concern personally?

DAYTON: Well, I'd want to do what's best for the country in terms of the balance between consolidation so we have coordination and communication but also so it's not a monolithic one view for everything.

But I'm even more concerned about the operational side, because no matter how good our intelligence, no matter how good our organization, if people don't function in a crisis, then we're not going to be effective.

PILGRIM: You know, Senator Susan Collins who's the chairwoman of the committee has said that the national intelligence director is a sound idea. Do you think President Bush would support this kind of a structure?

SPECTER: I think that it's very likely that the President will. He has been cautious, studying the situation. But the idea of having somebody in overall control has been with us for some time. Senator Lieberman and I introduced the Homeland Security Bill 30 days after 9/11. And we tried very hard with the creation of a new cabinet officer to have under the new secretary the authority to direct. And that has been resisted, because of the turf struggles and the institutional objections made by CIA, FBI and the Department of Defense.

But we have seen repeatedly evidence of their cultures of concealment. And I think the need is pretty plain. And my instinct is, the President is obviously going to have to speak for himself, but I think the evidence is sufficient to warrant having this national director.

PILGRIM: Let me ask you this: the chairmen of the 9/11 commission, Tom Kean and Lee Hamilton said yesterday they were going to seek private charitable donations to continue the work on the commission. What are your views on this? Do you think this is constructive? Is this to leave out the potential -- keep it independent? Let me ask you, Senator Dayton.

DAYTON: If there's concern on their part about necessary independence, we ought to provide that. They performed an enormous service to our nation and we ought to pay for it out of public funds and they ought to have complete authority and complete freedom from any funding source.

PILGRIM: And yet, there's this road show that's beginning that will conceivably generate some support. What's your view, Senator Specter?

SPECTER: Oh, I don't think they need to go on the road. They can just stay in Washington. They had made the point that they were prepared to travel the country. But that's not necessary.

You have hearings which are under way. The Congress has responded by cutting into the recess, which is what we should have done. The leaders, Senator Frist, Senator Daschle, have asked for a bill by the end of September. I think that is realistic. And wait and see, Kitty, I think you may find the Congress in session during October.

When we're under a threat of attack from al Qaeda, between now and November 2, I believe you're going to see very, very substantial, concerted action. So the commission doesn't have to go around with a tin cup and travel the country. The Congress is going to take care of this.

PILGRIM: Well, gentlemen, we commend you on your efforts and wish you every success. Senator Specter and Senator Dayton, thank you for joining us tonight.

SPECTER: Nice being with you. Thank you, Kitty.

PILGRIM: The nation's top anti-terrorism official is reportedly considering leaving his post. Now, the Associated Press reports that Homeland Security Secretary Tom Ridge could resign as early as later this year. And the reason is, Ridge wants to make more money so he can send two children -- his two children, to college.

Now, Ridge reportedly earns more than $175,000 a year. He also owns a nearly $900,000 home in Maryland and as much as $800,000 in stocks and funds.

Many of you wrote in about this story. Let's take a look at our e-mail.

Ken Klein from Three Lakes, Wisconsin says, "You are wondering if the middle class is being squeezed. Now, take, for example, Homeland Security Secretary Tom Ridge, who is considering leaving his job, because he doesn't feel he can put his two sons through college comfortably on the salary that he is receiving. Now, the middle class isn't being squeezed, it's being stomped on and squashed."

Well, we will share more of your thoughts later in the show, but in the meantime, thousands of people who want a job with Donald Trump are lined up in New York City tonight and they are hoping for the chance to become the Donald's next apprentice.

Now, the would-be reality show contestants gathered outside of Trump Towers as early as yesterday, even though auditions don't begin until 10:00 p.m. tonight. Now, the winner will run one of Trump's properties, which is a daunting task considering Trump's hotel and casino business is reportedly on shaky financial ground.

Still ahead tonight, John Kerry heads back to the campaign trail and we'll have a report on the impact of the Democratic National Convention.

And our panel of journalists will join us with more on the election campaign.

And then, "Middle Class Squeeze." Tonight, a special report on how John Kerry plans to tackle the Social Security crisis.

(COMMERCIAL BREAK)

ANNOUNCER: LOU DOBBS TONIGHT continues. Sitting in for Lou Dobbs, Kitty Pilgrim.

PILGRIM: Now for weeks, national polls on the presidential election have found President Bush and Senator Kerry in a statistical dead heat. Democrats, of course, are hoping their convention in Boston will change that, but history shows post-convention bounces are not always a sure thing. Bill Schneider reports.

(BEGIN VIDEOTAPE)

BILL SCHNEIDER, CNN POLITICAL ANALYST (voice-over): Question: What has been the most successful Democratic Convention in recent years? The one with the biggest bounce? Answer: 1992. Democrats marketed themselves as New Democrats, the Party of Change.

CLINTON: It's time to change America.

SCHNEIDER: What really gave the Democrats a lift was this man's decision during the convention to pull out of the race and say nice things about the Democrats.

ROSS PEROT, FORMER PRESIDENTIAL CANDIDATE: The Democratic Party has revitalized itself.

SCHNEIDER: The Democrats got more than a bounce in '92. They got a blast-off: 16 points, the mother of all bounces.

Democrats also hold the record for two of the least successful conventions. One was the Chicago catastrophe of 1968 when the only thing that got a bounce was the heads of the protesters. Voters were not impressed. Hubert Humphrey actually lost points.

The other was 1972, when the Democratic convention was so out of control, the nominee gave his acceptance speech at 2:30 in the morning. It's kind of hard to get a bounce from people who are asleep.

(END VIDEOTAPE)

SCHNEIDER: Now, Kitty, Republicans have been calling me and they're saying, if Kerry gets the expected bounce, which is normal, he'll end this week 15 points ahead of President Bush. That's what we expect, they say.

The Democrats are calling me and saying, no, no, no, there are so few people who have not made up their minds, everybody is so polarized, that we don't expect any bounce at all. So if we get two or three points that will be a triumph. And this is called a spin war.

PILGRIM: Yes, I would guess so. But Bill, when will we know if it is a real bounce, or when there's a real bounce?

SCHNEIDER: We will be interviewing people over the weekend. Some people see me in the street here in Boston, and said, "Bill, what's the bounce?"

Well, I said, "You know, we can't call people at 2:00 in the morning and ask about Kerry's speech." You've got to let people talk about it, talk to friends, coworkers, think about. We'll be calling people over the weekend and we'll tell you Sunday afternoon right here on CNN what the real bounce is.

PILGRIM: OK, Bill. But I think 2:00 is perfectly reasonable. Thank you, Bill.

SCHNEIDER: Of course, just wake them up and say, "What do you think?"

PILGRIM: Right. Thank a lot, Bill Schneider.

Well, joining me for more on this new phase of the presidential campaign are three of the nation's top journalists. Karen Tumulty is the national political correspondent for "TIME." Roger Simon is political editor for "U.S. News and World Report" and there in Washington. And joining me right here in New York is Jim Ellis, chief of correspondents at "Businessweek." And thank you all for being here.

Let's start with John Kerry. Let's start with you, Karen, what was your assessment now that the doors have shut and everyone's taken the bus home?

KAREN TUMULTY, TIME MAGAZINE: Well, you know, really, Thursday night was all that mattered at this convention. And Kerry, the expectations were fairly low. But he definitely cleared them.

In fact, I found that this speech, and I've been watching a lot of John Kerry's speeches over the last couple of years. What really struck me about this one was the fact that this is the only speech I've ever seen that actually sounded better coming out of John Kerry's lips than it did reading it on paper.

PILGRIM: That's really interesting. Roger, you've certainly seen your share. What's your view?

ROGER SIMON, U.S. NEWS AND WORLD REPORT: As Karen said, expectations were low and John Kerry met them. I mean, it may have been the best speech he's ever given and you can't expect more from anyone than that, which is not the same thing as saying it was a great speech.

An hour after it was over, I was having trouble remembering a single line from it. But it certainly was a solid performance. He accomplished what he wanted to accomplish. He certainly projected strength.

And for those so inclined, they could certainly imagine him in the Oval Office or taking the oath of office on the Capitol steps next January, which is really all you want out of these speeches anyway.

PILGRIM: We have two votes for personal best, Jim. Do you think the message was clear enough or strong enough?

JIM ELLIS, "BUSINESSWEEK": I think that some of the message was out there. I think that he did a poor job of expressing what he wants to do with the economy. I think that that's something that's sort of complicated. It probably will have to wait a while.

But I think he did a fantastic job in sort of reframing some things that people think about Democrats. He came across as very patriotic, which in recent years, people don't think about Democrats.

He also came across as sort of values oriented, but at the same time redefining what are the values we ought to be worrying about. And he sort of put that notion out there that one party doesn't have a monopoly on values.

PILGRIM: He's been casting himself very aggressively in the role of commander-in-chief. Let's listen to something he said at the event.

(BEGIN VIDEO CLIP)

JOHN KERRY, DEMOCRATIC PRESIDENTIAL NOMINEE: I will be a commander-in-chief who will never mislead us into war. I will have a vice president who will not conduct secret meetings with polluters to rewrite our environmental laws. I will have a secretary of defense who will listen to the advice of military leaders, and I will appoint an attorney general who will uphold the Constitution of the United States.

(END VIDEO CLIP)

PILGRIM: Karen, a positive message overall, but yet a little twist in it. Do you think this was effective?

TUMULTY: Yes, this was as direct and as blunt an attack as we heard from John Kerry. In a speech where -- by the way -- he only mentioned George Bush's name once. As convention speech attacks go, it was certainly not the harshest I have seen. And again, it was really balanced, I thought, by really trying to spell out for the first time what his own values were.

PILGRIM: Roger?

SIMON: It was good red meat stuff. And the line about "I will never mislead us into war" was a clever play on words. But it opened a door for him that he didn't go through that I thought he should have, which is to explain his own votes on Iraq.

And I realize that some people are going to say, "Well, you're not going to use a speech to explain the biggest negative attack that the other side makes against you." But I really think John Kerry has not explained that to the American people.

He voted for the war, as did his vice presidential nominee. And yet he voted against funding it. It's an issue that the Republicans hit him over the head with every time they give a major speech, and eventually, he's going to have to explain it more clearly than he has in the past.

PILGRIM: Yes, the ubiquitous flip-flop charge. Do you think he managed to address this effectively?

ELLIS: Well, he didn't really address it at all, which, I guess, in his context was he addressing it effectively by doing a Clinton: dodging the whole issue, and instead sort of draping the Republican flag around himself.

I was stunned by -- this could have been the Republican Convention eight years ago. I mean, he has done a very good job of sort of co-opting issues from the other side: values, national defense, the fact that I will be a strong leader. That's what people want to hear. And they'll have to wait later for the details because a lot of the details for either party aren't here yet.

PILGRIM: Let's take another listen. There was a point about oil that I thought was very interesting, and I'd like to get into that.

(BEGIN VIDEO CLIP)

KERRY: We value in America that controls its own destiny because it's finally and forever independent of Mideast oil. What does it mean for our economy and our national security when we have only 3 percent of the world's oil reserves, yet we rely on foreign countries for 53 percent of what we consume?

I want an America that relies on its ingenuity and innovation, not the Saudi royal family.

(END VIDEO CLIP)

PILGRIM: Karen, every president going back: Nixon, Carter, all the way back, they've talked about dependence on foreign oil. Do you think this was something that deserved this kind of prominence in the speech?

TUMULTY: Well, what really jumped out at me was this direct reference to the Saudi royal family. In fact, this is something that people have been suggesting John Kerry do, and he has not really attacked that issue as directly as some of his advisors even have hoped.

And I would really love to see the polling on that one. What is going on out there that has opened up what they think is a political opportunity by directly attacking the Saudi royal family? This, in fact, could be almost the Michael Moore effect in the film.

PILGRIM: Yes, Roger, was this oil discussion a vehicle for some other agenda?

SIMON: Yes, I think you just have to mention the Saudi royal family and it brings to mind the Bush administration's ties to the Saudis. Not only the Michael Moore charge that President Bush allowed hundreds of Saudis to leave the country right after 9/11 when all flights were grounded, as a favor to the Saudi government, but it also brings up the ties of Cheney and Halliburton that did business in Saudi Arabia for years.

You have to be clever in your choice of enemies, and Kerry has picked a very good enemy. The Saudi family does not have a lot of friends in the United States. And it's not likely to have any more as this campaign wears on, and I think it was one of the best lines that John Kerry delivered.

PILGRIM: Jim, they're telling me we're out of time. Do you want to add one more thing?

ELLIS: I just think that he's picked an easy target. I think it's worthy of debate. We need to talk more about it, but it's one of those things in Washington right now you don't want to say.

PILGRIM: Thanks very much for joining us. Have a great weekend. Jim Ellis, Karen Tumulty and Roger Simon, thanks a lot. That brings us to the subject of tonight's poll. Did Senator Kerry's speech last night make the case that he is presidential material? You decide: yes, no, or undecided. Cast your vote at cnn.com/Lou. We'll bring you the results a little bit later in the broadcast.

Tonight, we conclude our special report on the Middle Class Squeeze, and the Democrats' plans to fight it; and tonight, Social Security.

Millions of Americans are depending on Social Security as their main source of income in retirement. But the system is in desperate need of reform, and there are doubts about whether any plan can fix it. Bill Tucker reports.

BILL TUCKER, CNN CORRESPONDENT: Rather than say what he and John Edwards will do to fix Social Security, Democratic presidential hopeful John Kerry is saying what he won't do.

(BEGIN VIDEO CLIP)

KERRY: As president, I will not privatize Social Security. I will not cut benefits.

(END VIDEO CLIP)

TUCKER: Privatize, or creating individual Social Security accounts, is an idea promoted by President Bush to keep the system running.

Currently, 45 million Americans rely on Social Security. The monthly checks make up 38 percent of the income of the elderly, and they help keep many senior citizens above the poverty level.

But in about 15 years, the system will be paying out more than it's bringing in. Sooner or later, something will have to give.

(BEGIN VIDEO CLIP)

MICHAEL TANNER, CATO INSTITUTE: Every two-year election cycle that we wait to address Social Security reform ends up costing about $320 billion in additional expenses in terms of whatever it is we do with the program.

(END VIDEO CLIP)

TUCKER: The Kerry campaign doesn't treat Social Security as a stand alone issue, but the platform addresses it by saying that a growing economy along with restored fiscal discipline to cut the deficit, will lay the groundwork for a bipartisan effort at reform. And don't look for Social Security reform to be high on anyone's campaign banner.

(BEGIN VIDEO CLIP)

DAVID CERTNER, AAPP: Social Security, as you know, is a very hot political issue. Many candidates don't want to touch it.

(END VIDEO CLIP)

TUCKER: The last serious effort at Social Security reform came in 1983 because the system was on the verge of going bust.

And it should be pointed out that both Presidents Clinton and Bush campaigned with platforms that included the idea of Social Security reform, and neither did anything about it -- Kitty.

PILGRIM: All right, thanks a lot Bill Tucker.

Still ahead tonight: new developments in the case of missing e- voting records in Florida. And we'll be joined by Congressman Rush Holt. He says that frogsters can tamper with the touch-screen voting machines.

Plus, cracks in the alliance between the United States and Britain? Why the British have warned Defense Secretary Donald Rumsfeld about a possibility of a new trade dispute.

And in "Heroes", the remarkable story of Captain John Smathers, the most decorated Army Reserve soldier in "Operation Iraqi Freedom."

(COMMERCIAL BREAK)

PILGRIM: A follow-up tonight to a story we told you about last night about missing records from a Florida election two years ago.

Now, election officials now say the electronic voting records were not lost in a computer crash as they first thought. Officials say they found the records on a compact disk.

Now this story raised new concerns about the integrity of electronic voting in this country, and my guest tonight has been one of the most outspoken members of Congress on e-voting concerns. Congressman Rush Holt of New Jersey joins me from Princeton, New Jersey. And, thank you very much for joining us.

RUSH HOLT, DEMOCRATIC NEW JERSEY CONGRESSMAN: Good to be with you, Kitty. Thank you.

PILGRIM: What's your biggest concern about the election in November? Do you think that this system is safe, or can it be fixed in time?

HOLT: Well, it's not that there are new concerns raised by what happened in Florida, it's the same old concerns. Anything of value should be subject to an independent audit. In the case of voting, it should be subject to a recount, not in every case but if there's a suspicion, or in some fraction of the instances, there should be a recount.

Well, with these new electronic voting machines, they are simple, clear, easy to use, and totally unverifiable. Another words, a recount is meaningless. Now, you don't have to buy into conspiracy theories, you don't have to say that there's going to be widespread fraud, to say that sometimes there are mistakes in computers. They could be innocent, unintentional mistakes or, yes, they could be malicious hacking.

Whatever, just as long as there's a possibility, there should be the capability of an independent audit. Without a parallel paper audit trail, you can't have a recount. When I say to my colleagues in Congress, you can either support my legislation that calls for a parallel paper audit trail, or you could sign a waiver for any recount in any future election in which you stand for office. That gets their attention.

PILGRIM: Ideally, you'd like to have a receipt in your hand the way you would for an ATM or any other electronic device that you interact with. And yet, we're told this is not possible. Do you think that it is?

HOLT: Well, of course it's possible. You know, one of the major manufacturers of the election machines, the voting machines, is also a manufacturer of ATM cash machines, the bank machines.

So they have perfected printers. In fact, we know how to make printers. It shouldn't be a receipt to carry away; that's actually opening the door to fraud. You could sell proof of who you voted for, for example. But there should be a record that the voter can inspect and then that record stays at the polling place, with the official election records becomes the vote of record, and is available should there be need for a recount.

PILGRIM: How do you account for the push-back on this? It seems a very simple and logical a step.

HOLT: It really is hard to understand. I think, at first, some people thought, well -- I mean, some Republicans thought well this is Democrats trying to get even with Republicans for Florida.

But what's interesting, just in the last week in Florida, the Republicans in Miami Dade County have sent mailers, evidently it's to all Republicans in Miami Dade -- I'm not sure -- urging them to prepare to vote by absentee ballot because the voting machines, they say, are unverifiable.

That's an ironic twist that the Republicans have been sending that out. There's no reason why this should be partisan at all. If, in fact, the machines in Miami Dade County are not verifiable, by each voter, then a mailing should go out to all voters, Republicans and Democrats.

Now in some states, the secretaries of state, for example in California or Missouri and other places, have taken it into their own hands since the federal legislation hasn't moved. And they're banning machines, these electronic machines, that don't meet the criteria.

PILGRIM: They're just taking it into their own hands.

HOLT: Yes, and in many counties here in my own county, the county executive has asked for expanded criteria to use absentee paper ballots.

PILGRIM: Well, we very much count on you to sort through it for us. And thanks for explaining it to us tonight. Congressman Rush Holt of New Jersey.

HOLT: Thank you, Kitty.

PILGRIM: A lot of you are writing in regarding electronic voting. So here are a few of the comments:

Heidi of Santa Barbara, California, emails: "A voter-verified paper record that is checked by the voter and retained by election officials is the only sure way of doing a recount. The most applicable analogy is an ATM. Personally, I think my vote is worth more than the $20 bills I request from an ATM.

And James Nix, from St. Mary's, Georgia writes: "I think the electronic voting with paper receipts seems like a good idea. I'm just wondering what will be done with the receipts after the vote is cast."

And Steve Helt of Oklahoma writes: "I don't think any one of us would shop at a grocery store that didn't provide a paper receipt. And they want us to vote without getting a receipt? Absurd."

Well, send us your thoughts at LouDobbs@cnn.com.

Still ahead tonight: Britain warns Donald Rumsfeld it may stop buying arms from U.S. companies. We'll have a report.

And, in "Heroes": Army reservist Captain John Smathers. He survived insurgent attacks and helped restore order in Baghdad. His story next.

(COMMERCIAL BREAK)

PILGRIM: The United States and Britain, our closest ally in the war on terror, are heading towards a major trade dispute over defense contracts. Jim Boulden reports.

JIM BOULDEN, CNN REPORTER: It's being seen by some as retaliation. The announcement last week by Britain's Defense Secretary Jeff Hoon, that a European company won a billion dollar contract to supply unmanned surveillance drones.

The loser was U.S. manufacturer Northrop Grumman. Why? Because London is accusing Washington of unfair trade practices when it comes to defense contracts.

(BEGIN VIDEO CLIP)

DAVID MULHOLLAND, "JANE'S DEFENCE WEEKLY": The U.K. government thought, when they joined the U.S. in Iraq, that they would be viewed more favorably. But, in fact, no. The U.S. is still saying, "Oh, but we can't trust our good allies the Brits."

(END VIDEO CLIP)

BOULDEN: That anger boiled over in a letter dated June 16th from Hoon to U.S. Defense Secretary Donald Rumsfeld. Hoon complain that legislation now working its way through Congress will make it even harder for non-U.S. firms to compete for American defense contracts. If it passes, Hoon warns Britain would have to have an exemption, or consider whether to continue buying from U.S. defense firms.

Last year the White House sided with Britain when some in Congress tried to tighten the rules to make it harder for non-American companies to compete for arms contracts.

American defense companies are siding with Britain this time, worried about retaliation and loss of U.K. market share.

(BEGIN VIDEO CLIP)

PETER SPEIGEL, "FINANCIAL TIMES": If you talk to any of the major companies, the big four, big five, they are all very concerned about this. They really do worry that this market will close to them. It's a big percentage of business to a lot of them. Ratheon does about 20 percent of its business internationally and a lot of that comes from the U.K.

(END VIDEO CLIP)

BOULDEN: As a staunch ally, Britain also wants a waiver to arms traffic regulations, which would allow it to easily obtain certain U.S. defense technologies. Right now, only Canada has such a waiver.

But some in Congress worry Britain's export regulations are too loose and might allow sensitive U.S. technology to third countries.

That waiver has been promised to Britain by the past two White House administrations. But it's been stalled for years by some in Congress citing national security worries: one more reason Britain is threatening a trade war over the weapons of war. Jim Boulden, CNN, London.

PILGRIM: Now, "Heroes." Tonight, the story of Captain John Smathers, the most decorated reserve soldier in "Operation Iraqi Freedom." Lisa Sylvester reports.

(BEGIN VIDEOTAPE)

LISA SYLVESTER, CNN REPORTER: Forty-six-year-old John Smathers is comfortable in many roles: full-time lawyer and part-time Army Reserve soldier. But he's reluctant to call himself a hero.

(BEGIN VIDEO CLIP)

JOHN SMATHERS, U.S. ARMY RESERVES: A lot of the accomplishments that we made were made as a team. On an individual basis, we all did our jobs. And that's how we viewed it at the time we were doing it. We were just doing our job.

(END VIDEO CLIP)

SYLVESTER: The Maryland personal injury attorney was originally not supposed to be on the front lines. But the 3rd Infantry Division needed a lawyer prepared to go into combat.

Smathers saw plenty of fighting. He earned two Purple Hearts, Four Bronze Stars, and an Army Commendation Medal, making him the most decorated Army Reserve soldier in Operation Iraqi Freedom. He describes an insurgent attack on his convoy.

(BEGIN VIDEO CLIP)

SMATHERS: The vehicle was just riddled with bullets, and I could hear the bullets, as I was ducking, I could hear the bullets just bouncing all around the vehicle. It just was going on forever.

(END VIDEO CLIP)

SYLVESTER: His arm was broken in two places when his Humvee flipped over. But he kept fighting.

While in Iraq, Captain Smathers also foiled a bank robbery, helped restore power in Baghdad, and rewrote the traffic laws. Under Saddam Hussein, traffic officers were both judge and jury.

(BEGIN VIDEO CLIP)

SMATHERS: Whatever the traffic judges did was fine. There was no appeal from their decision. So they were like gods on the street, and people were very fearful of them.

(END VIDEO CLIP)

SYLVESTER: Captain Smathers is now in physical therapy to regain full use of his arm: a small price to pay for the patriotism his father instilled in him.

(BEGIN VIDEO CLIP)

SMATHERS: He had always told me, "America is the greatest country on the face of the earth. There's more freedoms here than any other nation. And, if you don't believe that, go to some other nation and you'll want to come over here as quickly as possible." And he's right.

(END VIDEO CLIP)

SYLVESTER: Captain Smathers brought back a football that served as his diary in Iraq. And he has the memories of the Iraqi children who welcomed American troops; children, who he says, are now better off.

Lisa Sylvester, CNN, Laurel, Maryland.

(END VIDEOTAPE)

PILGRIM: Glad to have you home, Captain. We'll be right back.

(COMMERCIAL BREAK)

PILGRIM: On Wall Street, stocks snapped a five-week losing streak, and the Dow rose 10 points on the day, the NASDAQ added six, the S&P rose a point. A higher week but a tough month for investors, and Christine Romans is here with the report. Christine?

CHRISTINE ROMANS, CNN REPORTER: Well, Kitty, stock investors say goodbye and good riddance to a terrible month for stocks.

Investors fear earnings have peaked and high energy prices will hurt consumers. In fact, second quarter growth figures today show the weakest consumer spending in three years.

And oil prices keep moving higher. A record today, above $43 a barrel. Oil now up 11 percent this month and 40 percent over the past year. Tech stocks lost 8 percent in July, the worst month in a year, and the Dow and the S&P were also weak.

And then there's anxiety over jobs. A new survey shows unemployed Americans, lucky enough to find new jobs, are willing to work for less. The survey from the Bureau of Labor Statistics says more than five million Americans lost their jobs between 2001 and 2003. More than half of those people found new work and more than half of those are now earning less money, Kitty.

PILGRIM: Sad. Thank you, Christine.

Well, still ahead, we'll have the results of tonight's poll.

(COMMERCIAL BREAK)

PILGRIM: Here are the results now of tonight's poll. Did Senator Kerry's speech last night make the case he is presidential material? Ninety-two percent of you said yes, and there's three months until Election Day.

Thanks for joining us tonight. Please join us Monday with Senator Joseph Lieberman, Ranking Member of the Government Affairs Committee. He joins us to discuss the 9/11 Commission Report.

For all of us here, good night from New York. Have a great weekend.

Anderson Cooper 360 is next.

END

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