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North Korea Tests Missiles to World Condemnation; Ken Lay Dies; Atlantic City Casinos Shut Down Due to Budget Crisis; Miami Terror Suspects Denied Bail; Effectiveness of U.S. Missile Defense System Vital

Aired July 05, 2006 - 13:00   ET

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

FREDRICKA WHITFIELD, CNN ANCHOR: Hello, I'm Fredricka Whitfield, in for Kyra Phillips.
North Korea's missile test. Now the world weighs in. We could hear from President Bush for the first time this hour.

An unexpected death. Former Enron chairman Ken Lay died in Aspen. We'll have reaction and a look at Lay's life.

And New Jersey's money troubles. Casinos close, money is running out. A government shut-down.

LIVE FROM starts right now.

UNIDENTIFIED FEMALE: Stand by.

WHITFIELD: Poised for weeks and launched on the Fourth of July. So what else do we know about Korea's missiles? A total of seven were test fired in a span of about 14 hours. The tests began shortly after 2:30 p.m. Eastern yesterday, just about the time the Space Shuttle Discovery launched at the Kennedy Space Center.

One of the missiles was long-range. The other six were short range SCUD type missiles. The long-range missile failed less than a minute after firing. U.S. officials say none of the missiles posed a threat to any American interests.

Condemning without overplaying. The Bush administration responds to the North Korean missile tests in measured tones. CNN White House correspondent Suzanne Malveaux has more on the strategy for handling what one top official called provocative behavior -- Suzanne.

SUZANNE MALVEAUX, CNN CORRESPONDENT: Well, Fred, we heard from the White House press secretary, Tony Snow, just wrapping up a briefing moments ago, saying, look, let's not be breathless here like this is the beginning of World War III. Clearly, this is a White House that is trying to play down the significance of North Korea's moves.

Tony Snow also saying that, look, President Bush has not picked up the phone and reached out to world leaders about this, that this is something that is being handled on the ministerial level. That is Secretary Rice reaching out to her counterparts from South Korea, China, Japan and Russia. And clearly an attempt by the administration to say, look, we are involved and engaged in an international effort with the international community, whether or not it's the emergency session of the U.N. Security Council, whether or not it's members of the six-party talks or other allies here, that this is not going to be a situation where the United States is in a standoff with North Korea.

And again, Tony Snow earlier today saying, look, this is about North Korea's neighborhood. This is about multilateralism.

(BEGIN VIDEO CLIP)

TONY SNOW, WHITE HOUSE PRESS SECRETARY: It was anticipated that something like this might happen. So there were ongoing efforts by the United States and its allies, A, to try to avert this and, B, to start gaming out some things that would happen.

As I said earlier today, given what happened, I don't think anybody had a specific scenario for seven missile launches on the 4th and 5th of July. But I am wary of trying to get into sort of specific things that the leaders may have discussed.

I think right now, as Secretary Rice has said and also Ambassador Bolton, all parties now are trying to figure out realistically how to make a positive difference through diplomatic means.

(END VIDEO CLIP)

WHITFIELD: And Fred, of course, the big question is whether or not that is even going to be effective. Critics point out to the fact it was four years ago President Bush labeled North Korea as one of the members of the axis of evil.

Since then what we have seen? North Korea's nuclear arsenal has increased. It has abandoned the six party talks. And now we see these missile launches.

So just how effective are these six party talks? Just how effective are those leaders of Japan, as well as South Korea and China going to be in pushing North Korea to comply, to abandon its nuclear ambitions. That, Fred, we don't have the answer to. But this administration insisting that it is sticking with the method it has used before. We will wait and see whether or not those statements from Russia, actions from those countries, are really strong enough to make any difference at all -- Fred.

WHITFIELD: Suzanne Malveaux at the White House, thanks so much.

The word provocative, unwise, irresponsible and reckless; the speakers, world leaders firing condemnation back at North Korea. And here in the U.S., the test firings refocused debate on how, if at all, to defend against enemy missiles.

Our senior Pentagon correspondent, Jamie McIntyre, joins me now.

And so Jamie, are the prospects looking better that this country is in a better position to protect itself against such a test firing?

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: You know, in some sense, this test by North Korea of its long-range missile and a series of shorter and medium-range missiles is also a test for the U.S. military's ability to monitor and to respond to what was going on.

The long-range Taepodong missile, again, sort of blew up, apparently less than a minute after it took off, before it even crested the horizon. That didn't provide much of a test for the U.S., although they were able to monitor the launch from the moment took off, about 5 in the morning Korea time.

But the launch of half a dozen short and medium-range missiles, which we're told were a mix of SCUD missiles and so-called Nodong missiles. These are shorter range missiles that were fired in the hours before the Taepodong launch and also in several hours afterward, also provided an opportunity for the U.S. military to monitor what was going on.

The U.S. did have a series of ships in the Sea of Japan that were able to tell what was going on. Two Aegis destroyers were there. They were equipped with standard missiles that could have, in theory, shot down some of the shorter range missiles, but no attempt was made to shoot them down.

Sources say that the missiles were fired from a southern launch facility in North Korea up toward the north, toward the Soviet Union.

If the Taepodong had been launched into space, it would have provided the first test of the space-based interceptor system. That would have been missiles from either Alaska and California could have been in an attempt to intercept those, but again because of the determination there was no immediate threat. Those missiles, while active, were never actually considered for an intercept.

But the U.S. military was able to monitor the progress of both of these missile tests and in that sense, they were able to test their systems, as well -- Fredricka.

WHITFIELD: So Jamie, is it being revealed at what point the U.S. makes a determination when to try to intercept?

MCINTYRE: Well, what they would have to determine is that a missile was on a trajectory to hit the United States, and that's something that they would have to decide, really within the first minute or two.

But in this case, they were never able to see what the trajectory was of the Taepodong, because it didn't make it up high enough in the sky. As I said, it didn't even crest the horizon. But if it was determined that the missile posed a threat to the U.S. and if the payload was undetermined, then the United States might make a decision to try to shoot it down.

WHITFIELD: All right. Jamie McIntyre, thanks so much. And we'll continue this conversation, about the technology involved here, with our General Shepperd.

The launch heard around the world. Make that launches. North Korea's test firings, light an international fuse. The U.N. Security Council is meeting today in emergency session. CNN's Richard Roth joins me with more on the global response -- Richard.

RICHARD ROTH, CNN CORRESPONDENT: Fredricka, the U.N. Security Council nations met for a couple of hours this morning at the Security Council in an urgent situation. Afterwards the ambassadors told the press, in effect, they're going to be working on a resolution. Now, they may not be in agreement that a resolution is necessary. We're already seeing signs of a split.

But the U.S., Britain, Japan and France, they're unified. And John Bolton said the U.S. wants a firm resolution to be launched at North Korea.

(BEGIN VIDEO CLIP)

JOHN BOLTON, U.S. AMBASSADOR TO U.N.: Because no member defended what the North Koreans have done. And I think that the tenor of that discussion shows how little support there is in the international community as a whole for these North Korean missile launches.

We will now begin discussion, as Ambassador Oshima said, of their draft resolution and proceed in a deliberate fashion, hoping to reach agreement on it at an earlier time.

(END VIDEO CLIP)

ROTH: Diplomats say that the proposed resolution the U.S. favors would cut off financing and shipping of material to North Korea, anything that could be used as a dual use, perhaps, for missile production.

The Japanese are very strong behind this. Missiles landed in the Sea of Japan overnight. The Japanese want a tough resolution.

(BEGIN VIDEO CLIP)

KENZO OSHIMA, JAPANESE AMBASSADOR TO U.N.: So all of these considerations should go into the consideration of response from the council. We hope the response of the council will be swift, strong and -- and resolute.

(END VIDEO CLIP)

ROTH: But Russia and China giving indications they would not back a resolution at this time, which is the strongest the Security Council -- the strongest measure they could do. They would like a simple statement from the council. That's what was issued in 1998 after a deadlock here following a launch of a missile by North Korea.

The North Korean ambassador made a rare appearance inside the hallways of the United Nations today, coming over from his nearby office, but he wasn't saying much as reporters grilled him during the rain in New York.

(BEGIN VIDEO CLIP)

OSHIMA: So all of these concentrations should go in concentration from the response from the council. We hope the response of the council will be swift strong and -- and resolute.

(END VIDEO CLIP)

ROTH: Well, we just wanted to remind you in case you missed it the first time, that was the Japanese ambassador again saying what kind of resolution he wants. We saw a glimpse of the North Korean ambassador, Pak Gil Yon, but he went back to his mission here from the United States without any -- making -- without making any official comment.

Back to you.

WHITFIELD: All right. Thanks so much, Richard.

Former Enron chairman Ken Lay died overnight in Colorado. Lay went from humble beginnings to the top of a multibillion dollar corporation, but his legacy includes one of the biggest business meltdowns in American history, a meltdown in which he was tried and convicted. Reporter Lauren Freeman of CNN affiliate KPRC in Houston looks back.

(BEGIN VIDEOTAPE)

LAUREN FREEMAN, KPRC CORRESPONDENT (voice-over): Ken Lay and Enron came synonymous with corporate abuse and accounting fraud following the collapse of Enron in 2001.

Lay was the CEO and chairman of the company from 1986 until his resignation on January 23, 2002. Except for a few months in 2001, when he was chairman, Jeffrey Skilling was CEO.

On July 7, 2004, he was indicted by a grand jury on 11 counts of securities fraud and related charges. On January 31, 2006, following four and a half years of preparation by government prosecutors, Lay's and Skilling's trial began.

Judge Sim Lake discussed one charge of securities fraud against Lay on March 26 after the government rested its case.

After 56 days of testimony and six days of jury deliberations, Lay was found guilty on May 25, 2006, of all 10 remaining counts against him. The jury convicted Lay of one count of conspiracy, three counts of securities fraud, and two counts of wire fraud.

In a separate bench trial, Judge Sim Lake found Lay guilty on three counts of making false statements to banks and one count of bank fraud. Because each count carries a 5- to 10-year sentence, legal experts said Lay could have faced 20 to 30 years in prison.

(END VIDEOTAPE) WHITFIELD: And that was Lauren freeman at KPRC reporting.

When Enron was riding high, Ken Lay was the toast of Houston, one of the richest men in town, a patron of the arts and a political contributor. Opinions turned harsh after Lay's role in Enron's collapse became public. Here are -- or here, rather, is some of the reaction in Houston on the news of Lay's death earlier today.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Shocked. Speechless.

UNIDENTIFIED MALE: Very surprised, extremely surprised. But not really that surprised due to the stress that he was under at the time.

UNIDENTIFIED FEMALE: You know, I pray condolences to his family, and I hope that they're OK.

(END VIDEO CLIP)

WHITFIELD: Ken Lay and Enron, at one time near the top of corporate America. Billions of dollars were lost when the company collapsed. Much of the blame was directed at Lay, who was convicted this spring of fraud. This morning Ken Lay died in Colorado, reportedly of a heart attack.

CNN's Ed Lavandera is on his way to Aspen, which is the place of Ken Lay's death, and he joins us now by phone.

Ed, was he with his family members in Aspen?

ED LAVANDERA, CNN CORRESPONDENT: That's our understanding, is that he was, we believe, with his wife at a home they have near Aspen. And right now the family is saying that they might be able to release some more details about what happened after they spend the next few hours and perhaps the next day or so contacting family members and telling them about what has happened and, of course, sharing with them privately the details of -- of what happened here overnight in Aspen.

You know, Ken Lay has a rather large family. Many of those people were alongside him from the very beginning of the -- of the Enron debacle and up until the very end, when he was convicted at the end of May.

WHITFIELD: And so Ed, what do you know about the time that he was planning on spending with family, whether it be in Colorado or at some other place of respite while he was still awaiting sentencing?

LAVANDERA: I'm not exactly sure what his plans were over the next couple of months. Of course, he was convicted in May. He had some time before he -- before the sentencing phase of the trial would culminate.

You know, but initially after Enron fell apart, Ken Lay was rarely seen in public in Houston. He spent very little time there. As you can imagine, there were so many people who had vilified him and had quite a bit of contempt for him.

I think that softened over time a little bit. I was told that over the last year or so that he was starting to make more public appearances, seen in restaurants, charity events, and that sort of thing.

And I had always suspected that the property that he had up here in Aspen, the home where he apparently spent quite a considerable amount of time with family, that that might have been one of the properties that they were afraid of losing, or would have to lose, to pay off some of the legal debts or debts.

WHITFIELD: And so Ed, if you're still with me, I'm not sure, because you're on a cell phone, and we may have lost him.

Actually, we did lose him. All right. We'll try to reconnect with Ed Lavandera at some point, on the way to Aspen, the place of death now for Ken Lay earlier.

Turn out the lights. The party is over. Atlantic City casinos closed their doors this morning, the latest casualties of New Jersey's budget crisis. CNN's Mary Snow is there.

And so the lights are, well, still are kind of still on behind you there, Mary. But there are no people at the slot machines. So what are casino operators to do?

MARY SNOW, CNN CORRESPONDENT: That's right, Fredricka. And you know, one of the unusual things, it's so quiet in here. Usually, you would hear these slot machines going a mile a minute. It's really like a ghost town here.

As you mentioned, this is just one of a dozen casinos ordered to shut down at 8 a.m. this morning. This by a state mandate, all because of that budget impasse that's been going on for the past couple of days here in New Jersey.

Now, a lot of people we spoke with today thought that lawmakers were bluffing. They felt that the threat of a shutdown would not materialize. So they were pretty shocked and angry this morning when they were told that they would have to leave.

We ran into one woman from New York who is very angry, because her vacation was disrupted.

(BEGIN VIDEO CLIP)

CAROL SORANI, GAMBLER: I'm miserable. I can't believe this. This is worse than the blackout. At least the blackout happened naturally, almost naturally. But this is supernatural. This is like totally outrageous. OK. I don't understand what the budget has to do with the casinos. He wants to change something, that's fine. But the casinos should remain open. All they're going to do is lose money.

(END VIDEO CLIP) SNOW: Now the reason the casinos shut down is because they can only operate with state monitors on the premises. These state monitors are part of nonessential state workers being furloughed. There are about 45,000 throughout the state in all different kinds of agencies.

And this morning, Governor Jon Corzine addressed the legislature, saying basically, he felt that his hands were tied.

(BEGIN VIDEO CLIP)

GOV. JON CORZINE (D), NEW JERSEY: In particular, I have no authority, nor is there any law to support the notion that casino inspectors are essential state employees as sometimes been suggested. Nor would it be legal or appropriate in a world where we have to protect the public, from a homeland security context, where we need to protect people from violence in our streets, to assign state troopers to work as casino regulators.

(END VIDEO CLIP)

SNOW: And now, it's really just a waiting game. Many of the people who came here, packing up leaving. This is really the main attraction, gambling, even though hotels are still open.

And also a lot of the businesses around here, not necessarily casinos, are also feeling the pinch, because so many people leaving. Business has pretty much stopped -- Fredricka.

WHITFIELD: And so let's talk about the financial impact. How much money is being lost, note being spent, et cetera?

SNOW: Well, you know, just for the state alone, it's estimated that these casinos, and this is a conservative estimate, generate about $1.2 million per day in tax revenue. So that is one of the figures for starters, of just how much the state is losing with these casinos closed.

WHITFIELD: All right. Mary Snow, thanks so much from Atlantic City.

SNOW: Sure.

WHITFIELD: So who can help calm the tension over North Korea? We'll hear from the man the United States is sending to the region to work with Asian allies. More LIVE FROM next. You're watching CNN, the most trusted name in news.

(COMMERCIAL BREAK)

WHITFIELD: You're looking at a rather rainy, kind of soggy day at the White House shot there, where hours after North Korea test- fired missiles and just one week before the G-8 summit, we're expecting to hear from President Bush. He'll be emerging from the White House, where he is currently meeting with the Georgian president. And hopefully, we will be hearing from the president, maybe giving his first comments since the test-firing of those missiles in North Korea. We'll be bringing that to you live when it happens.

Diplomacy, negotiations, no more missile launches. Overwhelmingly, that's what the international community wants. The top American negotiator in the North Korean standoff will head to Asia. Christopher Hill says he's looking in one direction for help.

(BEGIN VIDEO CLIP)

CHRISTOPHER HILL, ASSISTANT SECRETARY OF STATE: We need China as a member of the six-party process and maybe, more importantly, as the host of that process. As you know, all the meetings take place in China. We need China to be very, very firm with their neighbors and, frankly, with their long-term allies, the North Koreans, on what is acceptable behavior and what is not acceptable behavior.

(END VIDEO CLIP)

WHITFIELD: And if North Korea has an ally, it's China, though the two nations could hardly be considered on the best of terms. Still, any move by the U.N. Security Council against Pyongyang needs Beijing's blessing.

CNN's Jaime Florcruz is on -- is, rather, in the Chinese capitol.

(BEGIN VIDEOTAPE)

JAIME FLORCRUZ, CNN CORRESPONDENT (voice-over): More than 16 hours after North Korea test-fired a long-range missile and several shorter range missiles, a long-awaited reaction from China.

"We are seriously concerned about the events," foreign ministry spokesman Liu Jianchan said in a statement posted on the ministry web site. "We hope that all sides will maintain calm and restraint."

Such careful wording reflects China's diplomatic dilemma. Last week the Chinese foreign minister met with his South Korean counterpart to discuss the threats of the north testing missiles. But they could not stop Pyongyang, showing that China's role is more of a middle man than a strongman.

China is North Korea's neighbor and close ally, its main provider of food, oil, and economic aid. That's why the U.S. and Japan are pressuring China to lean on North Korea.

But Pyongyang will expect China to block any international sanctions, especially at the U.N. Security Council, where China wields veto power.

DAVID ZWEIG, POLITICAL ANALYST: Well, China's role seems to be quite crucial, because no one else seems to be able to solve the problem right now. So the Americans -- the Americans are looking at the use of force, and nobody wants to see that happen. And the only intermediary right now that seems to have some leverage, potentially, is China. FLORCRUZ: China is urging North Korea and the U.S. to stick to diplomacy. Just a day before the missile test, China was still hoping to restart the six-party talks.

JIANG YU, CHINESE FOREIGN MINISTRY (through translator): China is talking with all parties to look for a beneficial way to promote the talks and discuss the concerns of all parties.

FLORCRUZ (on camera): China is keen to show that it can be a peacemaker, not a troublemaker. That again, will be put to the test when China joins the discussions at the U.N. on just how to react to North Korea's missile launches.

Jaime Florcruz, CNN, Beijing.

(END VIDEOTAPE)

WHITFIELD: Trying to stop a bullet with a bullet, the U.S. missile defense plan, in a nutshell. But will it work in an actual attack? The ahead on CNN, the most trusted name in news.

(COMMERCIAL BREAK)

WHITFIELD: Well, this just in, remember those six men accused of conspiring to blow up the Sears Tower in Chicago? Well, apparently, they were in court today in a federal court in Miami. CNN producer John Couwels is on the line with us.

You were in court and, John, what happened?

JOHN COUWELS, CNN PRODUCER: Today the continuation of the arraignment from Friday was resumed. And the -- the four attorneys had questioned the FBI agent, Tony Vazquez (sic). And each attorney had the opportunity to give a closed cross, followed by the prosecution.

The judge did decide to issue no bond for all six defendants. The seventh is still being held in Atlanta, in the process of being transferred back to Miami.

The judge based these decision on the fact that there was not -- there was too much evidence based by the government in this possible crime scenario. And the judge felt that the prosecution had -- gave too much evidence in order to support the charges that are against the gentlemen.

And it primarily was the fear of the risk of flight, even though all six defendants -- well, five of the six defendants had very close ties in -- near in the Miami area and in the U.S. One defendant is from the Dominican Republic and does not -- does not have legal status here in the U.S.

But at this point the judge has decided that pretrial detention was required.

WHITFIELD: And so what about their defense? What was the argument there, given that already many of the public defenders representing these suspects have said they didn't have very much money, so I imagine the argument would be how could they be a flight risk?

COUWELS: Many of them -- unanimously all had the same comment to say that nobody had any money. Nobody had the resources. They didn't have the weapons. They didn't have plans of the Sears Tower, the blueprints of the Sears Tower. There was nothing substantial. They reissued the statement that was used the U.S. attorney using his own words against him that it was more aspirational than conversational.

And one attorney for the defense had said that this was nothing but a scam. The government set it up to knock it down, that they set up the entire scenario only to turn around and knock down and say that this was all planned by them, continuing the idea that this was more of a setup by the U.S. government.

WHITFIELD: All right, but in the end, at least from today's bond hearing, the defense kind of lost that battle, with the federal judge ruling that all six men will continue to be held without bond as they await their trial. Too much evidence, John Couwels was reporting to us, presented by the feds. All right, thank so much, John.

(BUSINESS HEADLINES)

WHITFIELD: And from the White House we're still awaiting comments from President Bush after North Korea test-fires seven missiles. We hope to hear from the president momentarily. When that happens, we'll bring that to you.

Well, what if, what if North Korea targeted say Anchorage or Seattle, or Los Angeles or Phoenix? Excuse me. What could the U.S. do?

CNN Pentagon correspondent Barbara Starr investigates.

(BEGIN VIDEOTAPE)

BARBARA STARR, CNN PENTAGON CORRESPONDENT (voice-over): If the launch were an attack, could we shoot down the North Korean missile? A feat described as the equivalent of stopping one moving bullet using another moving bullet. There have been 10 tests of the U.S. interceptor. Only half have worked.

JOHN PIKE, GLOBALSECURITY.ORG: If the missile-defense system was a baseball player, and had a batting average of .500, you'd say it was doing pretty good. If it's only working half of the time, and it's the only thing standing between you and an incoming hydrogen bomb, you'd say it's not working very well at all.

STARR: The five tests that failed, one as recently as last February, had various technical problems. Pentagon officials say those have been solved, and they are now confident that missiles would work during an attack, mainly because there were four consecutive successful hits against target missiles in 2001 and 2002.

But that was four years ago. Since then, much of the technology has been upgraded.

But one defense official familiar with the program acknowledges a major criticism, that the testing done so far is not realistic.

UNIDENTIFIED MALE: All systems are go for launch. Standby for terminal count.

STARR: That it's all been scripted out ahead of time, as most weapons tests are.

Analysts say the U.S. may still have problems shooting down anything more complex than a single warhead. The biggest risk still may be the continuing uncertainty about North Korea's real intentions.

PIKE: And it's possible that one day they'll provoke crisis, get in over their head, and suddenly we'll find ourselves in a shooting war with them. Under those circumstances, you might hope that you had a reliable missile defense, because they might not prove completely deterrable.

STARR (on camera): Later this summer, a new round of anti- missile testing by the U.S. will begin. Officials say that round will be more realistic testing to try and make sure that all of the technology works in the future, in case there is an attack.

Barbara Starr, CNN, the Pentagon.

(END VIDEOTAPE)

WHITFIELD: The long-range missile test was widely expected, but intelligence agencies were caught off guard by the launch of the shorter-range missiles. Just what does North Korea have up its sleeve? Jim Walsh is an international security analyst at MIT. He joins us now from Boston.

Jim, good to see you.

JIM WALSH, INTL. SECURITY ANALYST, MIT: It's always good to see you, Fredricka.

WHITFIELD: So what do you believe is the motivation here?

WALSH: Well, I think you put your finger on an important point -- if this was just a test of a long-range missile so that they could continue progress on a long-range missile, then that's all they would have tested. But they didn't just test the Taepodong II, they shot off a whole bunch of short-range missiles, missiles that we knew that they had, missiles that they don't need to test.

WHITFIELD: And why did they do that?

WALSH: Well, they did it, I think, in order to send a political message. If you're testing missiles you don't need to test, then you're simply trying to capture the world's attention, to get them, the rest of the world and particularly the United States, to focus on North Korea. Not Iraq, not Iran, not Afghanistan, but North Korea. Because the six-party talk process has broken down, and we have been adrift for several months now.

WHITFIELD: But North Korea is in isolation by choice?

WALSH: Yes and no. I think there's a lot of revisionist history we've heard over the last 24 hours or so. You are absolutely right to say that North Korea has refused to come back to the six-party talks. But let's go back less an year ago. My, what a difference a year makes. A year ago, North Korea had announced it was going to join the six-party talks, we had meetings, there was an agreement in principle. Things seemed to be going well.

Then at a certain point, the United States decided that it would impose economic penalties on North Korea, it would go after their banking practices and their alleged counterfeiting practices. And the North Koreans didn't like that very much, and their response to our action was to withdraw from the six-party talks. So we had some positive momentum. That's gone nowhere. And this is actually an attempt to restart the process.

WHITFIELD: And when we talk about the world reacting, the U.S. making it clear they don't like this, Japan doesn't like this, Russia and China are saying we're not so crazy about this, either -- when we talk about leverage, China really does have the most leverage, doesn't it, to try to influence North Korea? Given that so much food and oil, other supplies, go in North Korea from China. So what can China do?

WALSH: Well, Fredricka, you're right. Of all the countries, I think China and then also South Korea have the closest ties to North Korea. We have no ties, so we have no leverage. But I think often American commentators overplay that point. And here's why.

Yes, there's a long-standing historical and emotional bond between the Chinese and the North Koreans. But that relationship is a complex one. It is almost a love/hate relationship. The North Koreans feel an affinity for the Chinese, and yet they are wary of the Chinese.

They're -- when I was in Pyongyang last summer, Chinese officials would say to me, we love our Chinese friends, but we're afraid that the Chinese and the Americans, these two big powers, are going to cut us -- cut a deal and leave us out in the cold. They think that they're a little country surrounded by giants; by Japan, which has a big economy; by Russia, by China, by the United States.

And so they're -- they like China, but they're wary of China. And this latest development, where China tells them not to test and they test anyway, that raises real concerns, I think.

WHITFIELD: Do you see this going from diplomatically being resolved to potentially militarily being resolved?

WALSH: I can't see any military resolution to this problem. Certainly, the U.S. is in no position to launch military action, given what's happened in Iraq. So I -- we have no choice but to pursue diplomacy, but in a more effective manner.

WHITFIELD: All right, Jim Walsh of MIT, thanks so much.

WALSH: Thank you.

WHITFIELD: Those North Korean missiles that we're talking about today, at least one type supposedly can reach American soil, scuds. And you've seen those before. But Nodong, Taepodong, what's next? You're about to get some answers. Our military analyst, retired Major General Don Shepperd, is coming up in the next hour of LIVE FROM.

Radio talk show host Rush Limbaugh is off the hook. The Associated Press is reporting Limbaugh will not face criminal charges for having a bottle of Viagra with someone else's name on the label. Limbaugh was detained June 26th at Palm Beach International Airport when officials found the Viagra in his bag. His lawyers says the prescription for the erectile dysfunction drug was written in the name of Limbaugh's doctor for privacy purposes.

The death of Ken Lay comes as a shock to many who followed the Enron trial. And even though we saw him several times walking in and out of court, we rarely heard from the man who led the company in its troubled times. Coming up, what Ken Lay told our Larry King in an appearance on CNN.

(COMMERCIAL BREAK)

WHITFIELD: Well, momentarily, we'll be bringing you comments from the White House, as well as from the State Department today in the nation's capitol. We'll be hearing from the president, as well as his State Department spokesperson, on the test firing coming out of North Korea within the past 24 hours. It would be the first time that we've heard from the president directly on this subject matter. When it happens, we'll be taking that live.

Back to our other top story today, the death of former Enron CEO Ken Lay. It was almost two years ago, July 8th, 2004, when Lay pleaded not guilty to charges stemming from the collapse of his company. Four days later, he sat down and talked with CNN's Larry King about those charges, about his company and about himself.

Here are some of the excerpts.

(BEGIN VIDEOTAPE)

KEN LAY, ENRON FOUNDER: ... I, through my whole life, had lived my life in a certain way to make sure that I would never violate any law -- certainly never any criminal laws -- and always maintained that the most important to me was my integrity, was my character, were my values, and then -- and have always taken that very seriously.

I always took my role as a leader -- and certainly chairman and CEO of a major company -- very seriously as to our employees and trying to create opportunities for them and create opportunities where they could even, as I said many times, could realize their God-given potential and maybe realize more potential than even they realize they had. And of course, through doing that, be able to provide financially and otherwise for their families in a way that they'd never really dreamed of. So, at the very end, for the Enron collapse to have occurred -- and obviously occurring in such a short period of time --- and absolutely wiping a lot of people out financially -- I'm sure emotionally and otherwise, too -- where they could not, in fact, realize their dreams, whether it be education for their kids or a new home or their retirement, whatever, it's been incredibly painful.

LARRY KING, CNN ANCHOR: Have you heard or spoken to President Bush since all of this?

LAY: President Bush...

KING: Current President Bush.

LAY: Current President Bush. Not since sometime back in 2001, and that would have been before all of this occurred.

KING: He didn't call you to offer any condolences, feel bad, or anything? I mean, you two were very close, weren't you?

LAY: I considered us reasonably close and, certainly, I shared his business council and did some other things. But again, Larry, I'm realistic about that. I mean, it's not good -- it wasn't good for him and maybe not good for me, for us, to talk after this all started happening.

KING: As a CEO, does the Truman doctrine apply: "the buck stops here"? In other words, if something happens in the company, knowledge or non-knowledge shouldn't be an issue, you have to take the fall?

LAY: Well, the buck stops here from this standpoint, Larry. And I've said, I take responsibility for what happened at Enron, both good and bad. But I cannot take responsibility for criminal conduct that I was unaware of.

KING: When did you know -- we got to break here in a second -- something was wrong?

LAY: Well, the first time that I really got concerned that there might be something wrong was well into October, Larry. And really, more like the third to fourth week of October when some things began to be revealed about these related-party transactions and Andy's involvement in them and potentially's Andy's income that he was receiving from them, all of which didn't fit what we'd been told, we as a board or me as a CEO for over two years.

KING: Were you shocked?

LAY: Very shocked.

KING: Is he the main culprit?

LAY: Well, from everything we know, he at least was the -- at least orchestrated it and led it. He was the one that went to Jeff Skilling and then from Jeff Skilling, he came to me to recommend that we do what we ended up doing on those related-party transactions with board approval, of course.

KING: Would you say he pulled it off?

LAY: He pulled it off and, indeed, a number of our safeguards failed us, too. But he pulled it off and we know now that he was misleading me and the board as far as the balance sheet and liquidity position but also the amount of time he was spending on these related- party transactions.

KING: You bear no anger?

LAY: I've prayed and gotten over that, Larry. I mean, I certainly still find it disgusting as to what happened because of what he did. And, obviously, it caused an enormous amount of pain for all of our employees and of course more for some than others, but all of our employees, retirees, investors, creditors, everybody else.

So just enormous damage was done by what he did. But I try. I mean, again -- he's got a higher being to answer to some day than certainly me or anybody on this earth. And from my standpoint I try not to dwell on anger. I just try to move forward.

KING: Are you financially OK?

LAY: Well, I guess it depends how you say financially OK. I...

KING: In your own...

LAY: Well, I mean, I -- the facts are that about 95 percent of my net worth disappeared in 2001. We went from something over $400 million to something under $20 million, if you take out the money that has been reserved for legal fees and settlements that are pending. And indeed, on the liquid side, we probably have less than $1 million.

KING: You are a religious person, right?

LAY: I am.

KING: Have you always had this faith?

LAY: I have. My father was a Baptist minister and he was ordained a Baptist minister while I was very young, probably 2, 3- years-old. But even before that, I mean, both my parents came from very religious families, had a very strong faith. So, I grew up in the church. I mean, I can recall as a very young boy sitting in the front pew and maybe falling asleep in my mother's lap even with my father preaching.

KING: Does that sustain you?

LAY: That certainly sustains me. It sustains my wife and my whole family. No, it gives you a strength and an understanding that is very necessary, particularly in times of trial like this. But I very strongly believe that there is a God and that God is in charge of what's going on in our lives. He's in charge of all of this. I can't tell you the reason that...

KING: And he's putting you through this?

LAY: I think he's allowing me to go through this and there's a purpose for that, and maybe even before eternity maybe, in fact, I'll find out what that purpose was.

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WHITFIELD: Two events we're awaiting in Washington, as we wrap up the first hour of LIVE FROM. You're looking at the live pictures right now. Comments from the Oval Office where the president is meeting with the president of Georgia -- we're expecting President Bush and his first comments on the North Korea missile test launches.

Also, word from the State Department expected in a few minutes. We'll bring those to you when they happen. LIVE FROM back in two minutes.

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