Return to Transcripts main page

Parker Spitzer

Ship Commander Under Fire; Pakistani Unrest; GOP Freshmen Agenda

Aired January 03, 2011 - 20:00   ET


ELIOT SPITZER, CNN ANCHOR: Good evening. Welcome to the program. I'm Eliot Spitzer.


Up first tonight, a strange, disturbing story. And it comes from the top ranks of the Navy. In an apparent attempt to raise morale on the aircraft carrier Enterprise, the ship's number-two officer instituted a sort of home movie night.

What is in those movies is shocking -- anti-gay slurs, simulated masturbation and liberal use of a hateful word, "faggot." Keep in mind the commander in question, Captain Owen Honors, is now the top officer of that Navy fighting ship.

We have some clips to share with you from the videos. Please be advised that they contain graphic language. Here's Captain Honors himself, playing three different characters, introducing a "greatest hits" reel of video clips.


CAPT. OWEN HONORS, USS ENTERPRISE: As usual, the admiral and the captain have no idea about the contents of the video or movie this evening. And they should not be held accountable in any judicial sense.

Over the years I've gotten several complaints about inappropriate material during these videos. Never to me personally, but gutlessly through other channels. This evening, all of you bleeding hearts and you fag school boy, why don't you just go ahead and hug yourselves for the next 20 minutes or so, because there's a really good chance you're going to be offended tonight.


PARKER: Now these next scenes come from a video about water conservation. It depicts mock homosexual interactions between both men and women.


PARKER: A Navy statement on all of this says in part, quote, "Production of videos like the ones produced four to five years ago on USS Enterprise were not acceptable then and are acceptable now or still not acceptable in today's Navy. The Navy is investigating the incident."

SPITZER: Are the videos simply bad humor or deeply offensive innuendo? And should the captain keep his job?

Joining us are Commander Kirk Lippold, who sat in a very similar position as commander of the USS Cole, a Navy warship attacked by al Qaeda while stationed in Yemen, and Jeffrey Toobin, CNN's senior legal analyst and a friend of the show.



SPITZER: Thanks for joining us. And Captain, you as well. Thank you for being with us.

PARKER: Captain Lippold, I wanted to start with you. I've watched the video. What do you think should happen to him? Should he be punished or is he best left in place? What would best serve the country?

CMDR. KIRK LIPPOLD, FMR. COMMANDING OFFICER, USS COLE: I think right now the Navy is very, very careful and judicious in when they go to select who are going to be the executive officers, who then fleet up to be the commanding officers of aircraft carriers.

There are a handful of individuals that, quite frankly, are put in the unique position of taking battle groups and a warship like an aircraft carrier out to defend U.S. interests worldwide. They're not chosen lightly.

He has 27 years of experience in the Navy. And quite frankly, he should not be judged on what is a one-time poor lack of judgment in doing this. And I don't think it's going to affect his overall career and nor should it.

SPITZER: You know, Jeff, let me ask you, first, do you agree that he should keep his command, having seen this video? And second, if this same behavior were undertaken by the CEO of a major public company and the board of directors were looking at this video, what would the appropriate response by the board of directors be? And is that relevant in the context of the Navy?

TOOBIN: I think it is relevant and I think a CEO who did this would probably be fired. And I think that would be the likely result here. And I think it's important to say, it's a tragedy. Because, you know, this Captain Honors, from all that we can tell, has served his country well and bravely for decades. He has this enormously important job, responsible for thousands of sailors on this single ship.

But you know let's not -- you know use -- use fake words here. I mean, there is a lot of bigotry on that video. It is anti-gay, it is anti-woman, and it's not right. And I don't think someone like that should be commanding a ship. Whether they should lose their whole job in the Navy, I don't know. But certainly commanding an important ship, it seems wrong to me at this point.

PARKER: Well, it does seem -- I mean, it's very offensive, and it is -- you know, there was a time when that would have been perfectly fine if it were still an all-boys club and everybody could have their -- you know, their sense of humor and -- but those times have changed and there are women on that boat and it was highly, highly offensive, I think, to women and certainly, to gays who are perhaps at that time still living undercover, essentially.

TOOBIN: And I would only add that it is not just offensive to women and gays, it is offensive to men and straight people as well.


TOOBIN: But this is not --

PARKER: But that -- but I mean it was hostile.

TOOBIN: This is not acceptable behavior in the 21st century, period.

PARKER: So you don't think we're sort of imposing civilian values on a military environment? Perhaps this is a better question for you, Commander, because we have -- you know, we do have certain rules that are enforceable in the civilian world.

Are we trying to -- are we imposing those values on people who are in a wartime scenario, where they have to vent and just blow off steam, as the captain has claimed?

LIPPOLD: Well, quite frankly, I -- when you look at imposing civilian values, I think it's the other way around. I think the civilians look at the military and say not only should you represent our values, but they should be represented to the highest standards possible, and they should exceed civilian values and norms, quite frankly, because we are the standard bearers worldwide for how the United States and our military are perceived.

So don't think you should look down on that. As a matter of fact, you should hold the military to a higher standard of performance and behavior and decorum.

PARKER: Well, I'm happy to do that, but Commander, I mean this fellow showed such poor judgment. Does that not reflect on his broader judgment?

LIPPOLD: Well, I looked at the video in total this afternoon, and took the time to watch the entire thing. I mean, there is clearly foul language in it, but then again, if we were going to do about that, we would have been without a commander in chief in President Clinton and we'd be without a vice president today.

When you look at some of the actions that go on in the video, they are of poor quality. When this -- when the executive officer makes a statement that the commanding officer and the admiral that are aboard can't be held accountable for what's this, that doesn't fly.

A captain is a captain and he is responsible for what goes on his ship, period, dot, end of statement. The fact that he has fleeted up to that position, he should know that today. And the fact that the admiral was the senior officer embarked, I would find it difficult to believe that his staff did not become aware of this video, watch some of it, yet probably said nothing to him.

SPITZER: Commander, that actually is the issue I want to pursue. When I watch the video and I saw those sort of false disclaimers, we're responsible, don't hold the captain, the admiral responsible. Clearly others knew. This was broadcast to 6,000 sailors on this vessel. Word of this was everywhere.

So is this now going to become sort of like a virus that spreads through to the higher ranks in the Navy, as information about this is tracked to other people?

LIPPOLD: I don't believe so. I think what you have to look at, and I believe the Navy's going to do a complete and thorough investigation, but I think you're going to find it is an isolated incident. If it does begin to expand and show that this behavior is normal, then clearly the Navy is going to -- have to re-set and re- educate some of the value systems in their senior officers. And I believe that they have the capability of doing that.

PARKER: Well, assuming he keeps his position, what would you recommend? I mean, what do you see as appropriate punishment or whatever the repercussions are?

LIPPOLD: What I think you're going to see is he'll probably get a senior officer counseling on this type of behavior and how he should never have put himself in that position. And I think they're going to judge his performance throughout his entire command tour to determine his suitability for a future in the Navy.

I don't think we should relieve him off the cuff just to satisfy some social desire for political correctness. I think we have to look at the sum total of his performance on board throughout his executive officer tour and now his commanding officer tour before they make any snap decision. And the investigation should run its course as well.

TOOBIN: I mean I agree with everything the captain said except one thing. You know, this is not just political correctness. This is offensive conduct. If you were a woman on that ship, a woman sailor, serving your country and see the way women are treated. If you are a gay sailor who, you know, was in the closet, as you had to be during the year of "Don't Ask, Don't Tell," this is offensive conduct.

So to dismiss it as just political correctness, I think that's unfair. I do think the captain is also right, though, that we have the right and the obligation to expect a higher standard from military officials than --

PARKER: Well, I want to just add to that, Jeffrey.

TOOBIN: Than lower standards.

PARKER: It's not just offensive, it's hostile.


PARKER: I mean that's a hostile environment if you're a woman and you see some of the things -- we didn't show nearly what was in that film. There are some much worse scenes, more offensive, but you know that's hostile. You don't feel safe in that environment.

LIPPOLD: And there's one point that I'd like to bring out as well. Although it's only been briefly discussed in the media, one of the issues is that several people raised questions regarding the appropriateness of this video and supposedly were brushed off.

I think that the Navy owes it to go back and take a real hard look at were there legitimate issues raised by the crew on that video and were they dismissed out of hand, or were they, in fact, investigated and they find that action was taken, the commanding -- or the executive officer was spoken to by the captain or the admiral.

I think that's what the investigation's going to find. But I think if people raise this as an issue, especially women and those people who may have been in the closet at the time, came out and raised issues with it and were just dismissed out of hand, then there is a larger issue that this can be looked into.

SPITZER: I hate to make predictions about where inquiries will lead, but I would bet heavily that you will find when this is investigated that there were e-mails, communications that will radiate out and much more significantly. And this delved up to the very top, not only on that vessel but elsewhere.

Too many people simply saw it and there were complaints, as were alluded to at the very beginning of the video, when he speaks disparagingly of those who raised the complaints.

But I want to switch gears for a second.

Commander, how does this compare to what General McChrystal said with respect to the top civilian leadership, the president and the vice president, comments for which he was removed not many months ago.

Is this a more egregious or less egregious violation of an officer's obligation, in your view?

LIPPOLD: Well, I think it's less egregious. I mean when you have a senior general speaking out against the commander in chief and his staff and those underneath him, that's clearly indicative and that could be perceived as challenging the president's authority.

In this one, it's just clearly in poor taste and is done against what many accept as social norms, and obviously well below the military norms that we should expect for behavior from senior officers.

SPITZER: Jeff, what's your view on that?

TOOBIN: It's a tough call. I don't know which -- I don't know which is worse because, you know, at one level, McChrystal was just sort of talking politics. And that doesn't affect the soldiers in the field. But you know there is a chain of command and he was offensive, if not actually violating the chain of command.

If you are a woman on that ship, you are a lot more directly threatened by that video than anything McChrystal said --

LIPPOLD: I think what you have also that needs to be considered, in the case of General McChrystal, it wasn't that there was a one-time incident and that was it. There were a couple of incidents that led up to the ultimate situation, and the interviews with "Rolling Stone," he had been calibrated once. It clearly was not all that effective and went on.

In the case of this individual, this captain, there's a one-time filament. I think what you need to look at is what has been his attitude and how has he dealt with his crew, both in his role as executive officer and now as commanding officer.

I think the Navy's going to go back and they're going to interview his crew. They're going to determine what the command climate is and they need to determine, has his attitudes affected the combat readiness of that aircraft carrier? And if it has, then that's a whole different ball game and he shouldn't remain in command.

TOOBIN: Well --

LIPPOLD: But if the investigation determines that there was more to it, and that he, in fact, is looking out for those women, that he understands based upon the circumstances when he made that video, that it was inappropriate and wrong, and that he's since adjusted his behavior and how he leads, then I think we need to take that into consideration.

TOOBIN: Agree with all that, but it was a series of videos, it wasn't just one.

PARKER: It was weekly, actually, over a period of time. I'm not sure what -- how long, exactly.

SPITZER: Right. Although I'm not sure if we know if every one of them was as offensive as this one. I think there are weekly videos, but we don't know the content.


SPITZER: All of this will be delved into down the road.

Anyway, Commander Lippold, Jeff Toobin, thank you so much for being with us. Unfortunately, I think this is not the last we will hear of this very issue.

UP next, a nuclear power in chaos as Pakistan is rocked by political turmoil. We'll be right back.


FAREED ZAKARIA, HOST, "FAREED ZAKARIA GPS": If a new government comes into power, which has a more anti-American coloration, it becomes more difficult to do these operations. It becomes more difficult for the military to operate.

The current civilian government in Pakistan is actually very pro- American. It has been very willing to allow us to do things.



PARKER: Pakistan may well be the most dangerous country on the earth right now. It is, of course, a nuclear armed nation, and as there is some danger the government may collapse in the next few days.

SPITZER: Of course when we talk about Pakistan, we're also talking about Afghanistan. Many Pakistanis are deeply angry over the American military presence in the region. And add to that, a crippling debt crisis in Pakistan.

PARKER: Here to help us wade through this mess and what it may mean for U.S./Pakistan relations is CNN's own foreign affairs expert, Fareed Zakaria.

Fareed, welcome and thanks for joining us.

ZAKARIA: Pleasure.

PARKER: Simple question, is Pakistan's government going to fall?

ZAKARIA: It might, but it doesn't matter. Because what you're talking about is the civilian democratically elected government, which doesn't actually run the country. The Pakistani military runs the country, particularly on the crucial issues of national security, internal issues relating to terrorism.

On those issues, the structural authority and command remains pretty clear. Even if you do have this parliamentary coalition collapsing, what will most likely happen is the -- there will be a re- grouping of some form of -- you know, there will be a new set of alliances made, a new prime minister probably comes into office. But it won't change that much on the ground.

SPITZER: That is the question that was central, every time I was reading these articles. The military controls the nukes. And there's a civilian government separate and apart from that. But when Hillary Clinton as secretary of state, of course, went over recently to talk to them about control of the nukes, with whom did she deal? The military or the civilian government?

ZAKARIA: Well, naturally, you have to deal with both because there is the fiction that the civilian government is actually -- SPITZER: Right. But it's a fiction?

ZAKARIA: It's largely a fiction on issues of -- that are crucially related to nuclear weapons or the issue of whether or not they will go into the terrorist strongholds. The civilian government does have some authority.

I mean I don't mean -- this is not a banana republic. But the truth of the matter is, without -- think of it as -- you know, the Turkish military used to play this role. Without the military's active consent, nothing is going to happen.

SPITZER: Here's my way of looking at this. We are spending $100 billion a year in Afghanistan. The stated reason, of course, is the Taliban and al Qaeda, but really what we're worried about is the nukes in Pakistan, to a great extent.

How much would it cost us to get the Pakistani economy back on its feet, if we were to take that $100 billion and say, let's instead inject it into the Pakistani economy in a way that would be transformative?

ZAKARIA: Well, first, to take your premise, it's not just that it's the nukes we worry about, the Taliban and al Qaeda are, of course, largely in Pakistan. In fact, by most CIA estimates, they're almost exclusively --

SPITZER: Right --


ZAKARIA: Al Qaeda is largely in Pakistan.

PARKER: How does that affect our -- you know, we're trying very hard to get Pakistan to cooperate more with us in terms of tracking the terrorists that are going back and forth between Pakistan and Afghanistan. Does this affect that at all?

ZAKARIA: It's not clear yet, but what's absolutely clear is that we have to figure out a way to make that happen. The reason I say it's not clear is that what we're doing in Pakistan, these drone attacks, there seems to have been occasional joint raids where the U.S. has been involved actually and on the ground.

This is all very unpopular in Pakistan. So if a new government comes into power, which has a more anti-American coloration, it becomes more difficult to do these operations, it becomes more difficult for the military to operate.

The current civilian government in Pakistan is actually very pro- American. It has been very willing to allow us to do things. I mean, I often am criticized by them. They come after me, because I point out that they don't actually run the country which is separate from whether they're good guys. And by and large, these are all pro- American, anti-terrorist, anti-jihad people. They're all good people. They just don't have that much power in the country. PARKER: Now just to be clearer, Fareed, when we are talking to Pakistan about cooperating with us and fighting terrorists and tracking al Qaeda, are we talking to the military or are we talking to the civilian government or both?

ZAKARIA: We're talking to both and we're very aware that you have to talk to the military to get things done. Now the U.S. military now has a very deep relationship with the Pakistani military.

SPITZER: But it strikes me then that we're really, by launching the drone attacks, being in Afghanistan, we are alienating the Pakistani government, and we in a way are also undercutting our own ability to secure the nukes as we need them to be secured down the road.

ZAKARIA: The nukes are secure because the Pakistani military is a pretty disciplined, organized force. It's not jihadi in the way that sometimes you hear a popular (INAUDIBLE).

What you're describing, Eliot, is the very complicated balancing act that the U.S. government is trying to play in Afghanistan and Pakistan. And I think you're right that fundamentally, we have an excessively military approach in Afghanistan, as the dominant kind of part of this strategy.

It's not one you can recalibrate very quickly or very easily because you do need to maintain some presence. But I think that the direction you're suggesting is the direction we should go in, but it is the direction the president wants to go in. I mean that -- the whole point is in July of this year -- we can finally say this year.


ZAKARIA: There will be true drawdowns in Afghanistan. And yet there's going to be very substantial military and civilian aid to Pakistan. So the balance you're describing is being shifted in precisely that way.

PARKER: Fareed, tell me a little bit about the Pakistani on the street. I mean, you tell us that Pakistanis are upset with our drone attacks that do kill civilians occasionally. That's -- we understand that they would find fault with us in that regard. And the government, certain aspects, are pro-American, but how does the man on the street -- man and woman on the street -- feel about the U.S.? And do they understand our goals in Afghanistan? Are they sympathetic to those goals?

ZAKARIA: That's a very tough question. I think that the Pakistani -- the average Pakistani, first of all, like people in much -- I mean that part of the world, are fascinated by America. They're fascinated by America because of its ingenuity, its modernity.

I think there has been a sense that America is this kind of willful, careless superpower that favors them one day and then withdraws favors. They have this very deep sense that America has abandoned them at various points in their history after having been a friend.

And that sense of the kind of capriciousness of American power is very palpably felt. Then the final component to it is just this rise of radical Islamic movements, radical Islamic ideology that is very anti-American. And Pakistan for some reason has proved to be an extraordinary breeding ground for that.

So if you look at the poll numbers, Pakistan is among the most anti-American places in the world. I mean it's really bizarre given the amount of aid we give this country, the amount of attention it has been given, the numbers are on -- you know, what suggest that you have a very, very large people-to-people problem, a very large public relations and public diplomacy problem that we haven't gotten anywhere near solving.

SPITZER: All right. Fareed, as always, fascinating. We will continue this conversation no doubt in the weeks and months ahead.

PARKER: Ahead, the new Congress will have dozens of new faces. We'll speak to one of them, a freshman on his way to Washington who has big plans to try to take apart the president's health care plan. Stay with us.


DAVID SCHWEIKERT (R), ARIZONA CONG.-ELECT: You have the right as an American to be dumb and not carry insurance. But you should also have the responsibility to deal with the cost of that action.



SPITZER: The new Congress is wasting no time in upending President Obama's agenda. Republicans say they'll try to repeal the health care law as soon as Friday.

PARKER: Only two days after they're sworn into office, the 84 new Republican freshman members will cast a procedural vote, the first step toward passing repeal.

Joining us tonight from Phoenix is one of those freshmen, Congressman-elect David Schweikert, Republican from Arizona.


SCHWEIKERT: It's good to be here.

PARKER: Congressman-elect, it's pretty clear that you won't actually be able to pass a repeal. That's not going to go through the Senate and the president is going to veto any repeal that comes out of the House. So what can you really do here with health care?

SCHWEIKERT: Well, there becomes the rub. There's many of us who would like to, you know, completely repeal and then replace. You know, start dealing with those things that are the actual issues we have problems with. And I'm hoping somewhere in there is where we come to an agreement with the Senate.

You know if it's truly pre-existing conditions, if it's truly portability, then let's carve out, let's deal with those issues, instead of something on the scale that was done last year.

SPITZER: You know, Congressman, you talked about -- you just mentioned pre-existing conditions and portability, two things that are intensely popular that are in the health care plan that President Obama signed into law, what you call Obamacare, the issue that you -- either you being the Republican Party continues to raise is the individual mandate.

Now let me ask you this question about it, if I might. If somebody who's uninsured shows up at an emergency room and gets care, as they're required to by federal law, who's supposed to pay for that?

SCHWEIKERT: Well, ultimately, they should pay for it. Now they may not have the insurance at that moment, and functionally, you and I as a society end up covering that cost. But the fact of the matter is, that person is going to have their wages garnished. They're going to be being pursued for years for that cost.

SPITZER: Wait. Do you --

SCHWEIKERT: So how do you create -- well, no. How do you create programs that provide access to at least that major medical, the types of health insurance, so we have -- we minimize those folks who are uninsured?

SPITZER: Look, I think everybody who's been in government, as you have been, and I have been, wants to minimize the number of people without insurance, and that was some -- one of the things we did in New York was try to drive down the cost of getting insurance, but when people still refuse to buy it, yet they get the care, who should pay for that?

I mean should they, in fact, be held responsible for that? Do you think that that's a fair notion?

SCHWEIKERT: Yes. It's absolutely a fair notion. And your experience in New York and our experience here in Arizona is as we often tried to reach out and expand coverage. We were stunned with the additional incremental costs that came with that. And often our costs projections, as you saw in New York, were way off base.

SPITZER: But wasn't the idea behind the individual mandate basically saying to people who do not buy insurance, since you're going to get the care, we're going to charge you something so that when you get it, you can pay -- you've paid for it. Isn't -- is that a notion you think is fair at its root?

SCHWEIKERT: No. Because at some point, you have the right as an American to be dumb and not carry insurance. But you should also have the responsibility to deal with the cost of that action.

SPITZER: But do you think that that person should then be denied care when they get to the hospital?

SCHWEIKERT: No, you provide the urgent care that's needed, and then you also have to have that individual understand, because they chose not to participate in insurance, they chose not to be responsible, that they're going to have a cost that's going to follow them around, sometimes for years.

PARKER: Wow, that's pretty punitive, I have to say. Let's switch gears --

SCHWEIKERT: But that's reality. Why is it punitive for society to have to pay the cost and not the individual?

SPITZER: No, no, Congressman, I actually agree with you. Society shouldn't pay the cost, but I think the better, more efficient way to get people to bear their own cost is, in fact, to require them to participate in the insurance environment, which is what the entire notion of insurance would be. You and I don't disagree about their obligation to pay. It's a question of mechanically how you get them to do so.

SCHWEIKERT: OK. But even if we talk about some of the mechanics that are in the health care bill as it is today, for many folks, and many businesses, it's better to go naked and say, I'll pay the fine. And if someone has the accident, they have the trouble, boom, they get their insurance then. So even in the design of the health care bill as it is today, it doesn't work.

PARKER: Well, when I said it's punitive, I mean, not everybody can afford to buy insurance. Not everybody is employed, and therefore can't get it through an employee, and costs are astronomical. I don't know how you --

SCHWEIKERT: Actually, we --

PARKER: Go ahead.

SCHWEIKERT: No, no, and I'm sorry, I didn't mean to step on you. That's why in Arizona we have something we call access. In other parts of the country, it's Medicare. And there's huge populations in there. There's also creative things we as the new Congress need to be doing working with states to provide more flexibility, and also provide some graduation for those very populations you're talking about, that can't afford it straight up today, but maybe could afford parts of it.

SPITZER: Congressman, there's no question about that. We want to come up with alternatives that are less expensive, but I think it was interesting, certainly interesting to me, that Governor Romney, a very conservative Republican, embraced the notion of the individual mandate as a governor, understanding that that was really the best way to get people to pay their fair share. Certainly as the governor, when I was the governor of New York, I agreed with that notion. I think most people who look at insurance think that that is the best way to get participation. SCHWEIKERT: But once again, and one of the things I love about states being allowed to go out and experiment and try new things, but look at the numbers coming out of Massachusetts. It's not working. So we're going to have to sort of learn from their experience, go back to the drawing board, and see if we can find a more market-based freedom-oriented solution.

PARKER: Well, given what we have in place, what is it you would fix specifically to make the health care plan work more broadly? Or are you in favor of eliminating it altogether and just delegating to the states?

SCHWEIKERT: No, I'm actually one of those who would repeal and then incrementally replace on the mechanical things that the federal government can help the states with. And you and I, we could all spend probably a couple of hours here incrementally going over each step. I have some experience with our programs we've done here in Arizona. And we've done some terrific things. But as also the federal mandates, and we call it maintenance of effort requirements, have grown and grown, you're also bankrupting a state like Arizona.

PARKER: Well, if we go through that point by point for two hours, I'm going to have to check into the emergency room.

SPITZER: All right.

SCHWEIKERT: Well, we'll do it over at Starbucks.

PARKER: OK. Several. All right, David Schweikert, thanks so much for being with us.

SCHWEIKERT: Happy to be here.

PARKER: Ahead on the show, as if Facebook weren't successful enough, Goldman Sachs just invested another $500 million in the company. When we come back, we'll find out why. Stay with us.


HENRY BLODGET, EDITOR, BUSINESS INSIDER: A company with 600 million users worldwide, probably headed to a billion or two billion. People are building their lives around it. It's not like a news site that you visit and you leave. People are actually building their entire lives about it. So the bet is, not only advertising revenue, but commerce revenue and other opportunities will flow out of that.



PARKER: The ultimate friending today. Goldman Sachs and a Russian investment group poured $500 million into the most popular destination on the web, social networking site Facebook, getting one percent of the company in return.

SPITZER: The deal values the company at $50 billion. That makes Facebook worth more than United, American, Delta, JetBlue, and Southwest combined. The question is, why?

PARKER: Joining us tonight, legendary tech analyst, Henry Blodget, now the editor of the online news site Business Insider, and William Cohan, who is now writing a book about Goldman Sachs.

Welcome to you both. Thanks for joining us.


SPITZER: All right. So let's get the question -- answer the ultimate question, why is it worth $50 billion? Henry, give us a talk to how you get to these numbers.

HENRY BLODGET, EDITOR, BUSINESS INSIDER: So I'll give you a talk as to how Goldman is probably approaching it. And I haven't seen the numbers, only Goldman Sachs has seen the numbers. But they put their own money up for it, so they presumably like them.

The bull story is, this is a company with 600 million users worldwide, probably headed to a billion or two billion. People are building their lives around it. It's not like a news site that you visit and you leave. People are actually building their entire lives about it. So the bet is not only advertising revenue but commerce revenue and other opportunities will flow out of that. Obviously, we're very early. They only have about $2 billion of revenue now.

SPITZER: OK. That's $2 billion of revenue. Somehow that's the number circulating. How much profit?

BLODGET: A small amount of profit, probably $100 million, $200 million. So on a PE basis, it's absurd.


BLODGET: Obviously, Goldman is looking forward.

SPITZER: Here's my question. I've got three teenage daughters. They have Facebook sites. It is like oxygen to them, but like oxygen, they don't pay for it. So where's the money coming from? Explain how you make money on this?

COHAN: Well, I'm no expert on how they think they're going to make money. That's a big mystery for all these social networking sites. At the moment, as Henry could tell better than I could, they have the eyeballs, right? They have the 500 million -- last time I heard it was 500 million. Now today, Henry is saying it's 600 million. By the way, last week, Facebook's valuation was $42 billion in the private market. Today, a week later, it's $50 billion with a Goldman Sachs validation. It doesn't get any better than that. How they make money --

PARKER: Wait a minute, I'm a Facebook user, and I'm also a person who wants to be rich. Why is it that Goldman Sachs can come in and make this investment in a company that's not public and I cannot? How does that work? BLODGET: Apparently you're not rich enough. You just have to be a Goldman Sachs client, and they will now put you in Facebook through a special purpose vehicle.

PARKER: Special purpose vehicle.

BLODGET: Membership has its privileges.

PARKER: Well, but now, wait a minute, doesn't the SEC have rules so that if you have 499 investors, then you have to disclose financial information?

COHAN: Absolutely. And that's what they're investigating right now as we speak, and this fact is going to add fuel to that fire. But you could actually go on to the secondary market in one of these private trading markets that exist now in Facebook stock, and if you wanted to, you could probably buy some too. I don't know whether it would be easy or not. I've not tried to do it, but it's out there for you to do.

PARKER: But my point is, Goldman is representing itself as one investor when it might be representing thousands, so isn't that a problem?

BLODGET: We'll see how the --

That is the vehicle. It is create a company that is a single investor and that you buy shares in that company. That's the message.

COHAN: But this real issue came up, you know, over the last few weeks, because in this secondary trading market, people have been buying and selling Facebook shares for months now. And I think the SEC is figuring out that there's probably more than 500 people doing that.

SPITZER: This is a critically important way for the early investors and the founders to begin to cash out what is otherwise an illiquid investment. But more interesting to me perhaps is how Goldman finances its investment. And, Bill, where do they get the money to do this?

COHAN: So Goldman is doing this off their balance sheet, Eliot, which is not through one of their private equity funds, not through presumably one of their hedge funds. They probably -- if I were Goldman, I would be going to the Fed window --


COHAN: -- getting it for 50 basis points or less --

SPITZER: Let me understand this. Wait a minute. So as taxpayers, we're lending them the money. They're investing it in Facebook. They pay us 50 basis points and they get all the upside?

COHAN: Absolutely.

BLODGET: Who's representing me in this bargain? I want a lawyer at the table.

PARKER: We need a good attorney general.

BLODGET: -- urging the banks to do ever since the bailout is take more risks.


BLODGET: Take more loans. That's what they're doing with our money and they're going to get all the upside.

SPITZER: But to come back to the revenue, because I'm still troubled by this notion that advertising is going to get them enough revenue to justify $50 billion valuation. How much advertising do they have right now?

BLODGET: Approximately $2 billion. Some big percentage of that is advertising. Most of it is advertising. They have very targeted ads. I can buy Harvard graduates in a particular class who are interested in a particular thing. It's very targeted. But the big bet is that this is going to look like Google, which also had an extraordinary revenue ramp. Everybody said oh, it's just a search engine, no revenue. They discovered the most powerful advertising product in the history of the world. The idea is that Facebook will come in to those products.

PARKER: Henry, when you say Facebook, people live there. I mean, a lot of people who e-mail me e-mail me from that site. They do all sorts of things. Do you think they'll add that search machine? But what else are they going to do with all that money?

COHAN: Look --

PARKER: Is Facebook going to take over the world?

BLODGET: No. And the other revenue stream they have is they take a piece of virtual gaming, when it's there. When you buy stuff in games like -- there are so many games that people now spend time doing, they're the new soap operas. When you buy stuff, Facebook gets a big cut of that. So it's not just advertising.

SPITZER: But so many of that bothers you. When Google -- for this question, only one thing. When Google does all of that targeting, it does it based upon the search. And it knows based upon my search who I am, what I'm doing. How does Facebook get all this information? Does it read the e-mails back and forth? Does it read the messages?

BLODGET: You tell it. So in other words -- Eliot Spitzer, Harvard law, attorney general, governor, if I want to target the governor, you can.

PARKER: Stop sucking up, Henry.

BLODGET: Absolutely. But you tell them that. That's what your daughters have done too, by the way. SPITZER: So they're digesting this information and they're getting all -- now at some point, do people begin to say, this is 1984 and pull back?

COHAN: I think there's a very important thing that has to be said here. In that I don't think Goldman really cares, for instance, if the valuation proves out at $50 billion or not. Because I think what they're thinking is, I can take this $375 million that I just invested.


COHAN: I'm going to get the IPO of this thing. I'm going to be the lead manager of this IPO, and I'm going to sell it to the public. Regardless of how it trades in the aftermarket, I'm going to be able to sell it for a higher valuation of $50 billion. The revenue streams to me, Goldman Sachs, investment banking fees, asset management fees, managing Mark Zuckerberg's account are going to be more than paying off for me.

SPITZER: This is almost market manipulation. It's not, but they're almost saying, by virtue of our putting this money in, we guarantee --

COHAN: It's validation. And that's what Mark Zuckerberg wanted here. He can't justify this valuation on any grounds, you know, based on revenue or net income, but it's incredibly validating. Last week, it was worth $42 billion. Today, $50 billion is what Goldman Sachs says it's worth. That's incredibly powerful for Mark Zuckerberg and more power to him if he can get it done.


PARKER: Is it most likely that these circumstances are going to force Facebook to go public?

COHAN: The SEC is going to force Facebook to go public and their Venture Capital investors who've been waiting for the big payoff. Because you know, you can trade in the secondary market in small little bits and drabs, but you know, the Venture Capital guys, they want the big payday and they want the big liquidity payday, which they can only really get through an IPO and then a secondary offering.

PARKER: What's the best deal for an ordinary investor, a retail investor, as we're called?

COHAN: Invest in Goldman Sachs. Because that's where you're going to get the payoff.

SPITZER: I'm going to put you guys on the spot. One year from today, market cap of Facebook, north or south of $50 billion?

COHAN: North.


SPITZER: Come on, Bill. You're an investment banker. You've written these books. Give it to us.

COHAN: I'm going to say this is a bubble and we're at the top here and this is a ridiculous valuation.

SPITZER: You've experienced bubbles. Bubble or not?

BLODGET: Absolutely -- on Facebook, no. I think there is justification. I think it's going to be north, but it's hugely risky. I would not put my own money in it. But I think --

SPITZER: But you'd put your grandmother's --


PARKER: Henry Blodget, William Cohan, thanks so much for being with us.

COHAN: Thank you, Kathleen.

SPITZER: When we come back, the new year has gotten off to an ominous start. And no, I'm not just talking about the Republicans taking over the House. We'll take a look at the mysterious phenomenon right out of a horror movie. Stay with us.


PARKER: Finding a dead bird on your doorstep usually means you should probably go back to bed. So what to make of 5,000 dead birds? Take a look.

Officials now say that 5,000 dead birds fell from the sky in Arkansas on New Year's eve, no less. What a way to start 2011.

SPITZER: My goodness. The birds began dropping from the sky just before midnight on New Year's eve. They landed on roads, rooftops and lawns, all within a two-mile radius of the town of Beebe, Arkansas. And it gets weirder. The day before, just 100 miles away, over 100,000 dead fish washed up on the banks of the Arkansas River.

PARKER: The fish were probably killed by a disease or something in the water. Autopsies on the birds have revealed no poisons or bacteria, so the two events don't seem related. But still, it's a strange coincidence and sad.

SPITZER: Indeed, it is. About those birds, they may have died in some kind of mid-air collision or even lightning or hail. Or maybe even fireworks. That's right, New Year's eve fireworks could have scared the birds to death, quite literally. But one local citizen had his own take on things. Take a listen.


UNIDENTIFIED MALE: It's something out of a movie, exactly, hazmat people walking around, not telling us anything. I thought it was out of an Albert Hitchcock movie.


PARKER: Well, I'm not sure if those special effects still hold up, but looking at this real-life incident in Arkansas, it makes it easier to understand why that movie was so scary.

SPITZER: We'll keep track of this story and let you know what they finally figure out about this very bizarre incident.

PARKER: Coming up, now that the NFL playoff schedule is set, how did the pundits do? Did they correctly predict who's in, or did they fumble the ball? We'll keep score and tackle that metaphor when we come back.


MAX KELLERMAN, CNN CONTRIBUTOR: Pete Carroll, who was the coach of USC and turned them into a powerhouse, turned down all kinds of offers from the NFL that made a lot of sense for him. Then suddenly he takes the Seahawks job. They're not very good. In fact, they weren't very good. In a weak division, they went 7-9, but they won the division at 7-9 and so they host the defending Super Bowl champion, New Orleans Saints, in the first round. And Pete Carroll is sitting like the cat who ate the canary once again.



SPITZER: The NFL playoffs begin this weekend and after 17 weeks of the regular season, there were plenty of surprises and lots of disappointments.

PARKER: As the countdown to the Super Bowl begins, we have CNN contributor Max Kellerman joining us from Los Angeles to do some Monday night quarterbacking on how this season's predictions stacked up to reality.

Max, great to have you with us.

MAX KELLERMAN, CNN CONTRIBUTOR: Great to be here, as always.

PARKER: All right. Well, let's look at "Sports Illustrated"'s top NFL writer Peter King's predictions.

SPITZER: Let's start with the NFC. Not so well here. He missed four of the six playoff teams. Max, what do you make of that? Were these just, you know, huge mistakes these obvious, you know, choices he should have -- you know, he should have done better than that, don't you think?

KELLERMAN: The thing about the NFL is that it's essentially a league of perfect parody. In other words, intrinsically, most teams are 8-8 teams. Lucky ones go 10-6, unlucky ones, 6-10. There are a few if you put them on -- you know, you stood on a bell curve, there are a few at either end. The lucky ones go 12-4. The unlucky ones, 10-6, you get the idea. Let's take the Patriots, for example. He picked them to make the playoffs but as a wild card team. He figured they're going to get a little unlucky one of these years. The Patriots every year you want to sound like a smart guy. They're the odds-on favorite because of Bill Belichick. They're just a beautifully-run organization. And so if you want to sound like you know what you're talking about in football, take the Patriots to win the whole thing. You'll be right more than if you pick any other team.

PARKER: Max, can we just get to the heart of the matter here.


PARKER: What is this obsession with predicting sports? You said when you want to look smart about football --

KELLERMAN: Gambling.

PARKER: Oh, that's what it's about. So these guys -- so Pete King's like, he's getting -- he has high, I guess he has lots of credit with people who gamble? Is that it? See, I don't know anything about this.

KELLERMAN: The NFL spread is impossible to beat. It's actually the wisdom of crowds, right? That's what the odds are. The odds in any kind of gambling operation for sports simply reflect what the crowd thinks is going to happen.

SPITZER: Let me ask you a different question, though. Seriously, now, about the Giants, Giants, as you said, 10-6, good season. Don't make the playoffs. Seahawks, below 500, 7-9. Does this make sense? Do they need to re-jiggle who gets in and who doesn't?

KELLERMAN: Maybe. Pete Carroll, who was the coach of USC and turned them into a powerhouse, turned down all kinds of offers from the NFL that made a lot of sense for him. Then suddenly he takes the Seahawks job. And why is he taking this job? Because there was a scandal about to break and USC was going to have sanctions against them. And sure enough that's what happened, and Pete Carroll wound up with the Seahawks, where a lot of people thought as the head coach, he would suffer his comeuppance. They're not very good. In fact, they weren't very good. In a weak division, they went 7-9, but they won the division at 7-9, and so they host the defending Super Bowl champion, New Orleans Saints, in the first round. And Peter Carroll is sitting like the cat who ate the canary once again.

PARKER: Max, I'm sure this is fascinating to someone out there, but I want to get back to this gambling --

KELLERMAN: Yes, but not to you.

PARKER: No, I just don't -- you know, it's like a foreign language to me. I don't know much about how this all works. So let me just ask you, is it easier to predict some sports than others? KELLERMAN: It is. Because the -- baseball and football are fundamentally probabilistic. In other words, you can stack the deck in your favor as much as possible, but that doesn't guarantee anything. There are too many variables in football. Baseball, it's the nature of the game, it's fundamentally probabilistic. In basketball, in the NBA, for instance, in a best of seven series, the better team almost always wins. And so it's easier to forecast. Baseball and football is much more of a crapshoot.

SPITZER: Well, this comes down to a couple of things, if you want to be serious about it. First, you've got much longer series when you get basketball, 82 games. Baseball, 162. Football, much shorter. The other thing is the way the teams are put together, the impact of money in baseball is much greater than it is in football, arguably, or some of the other teams, where you can really buy your team over time although that has had mixed results in baseball. So you can predict with some greater accuracy in some of these sports who's going to do well over the long run.

KELLERMAN: Yes. I also think just it's the fundamental nature of the sport. In baseball, it doesn't matter how great your cleanup hitter is, he can only come up when his time in the order says he's hitting fourth, he's going to bat four, five times a game. You can't choose when you use him. In basketball, if you have Michael Jordan, you get the ball in Michael Jordan's hands every time. Football, you may say it's a similar situation. You can get the ball in the hands of your best player every time, but there are so many variables on a football field. It's 11 on 11 as opposed to 5 on 5 in basketball. They're really -- it's just really different sports and really depends what you're playing in terms of how to forecast them.

And incidentally, Kathleen, in terms of gambling, that goes for fantasy sports too, which is sort of a form of competition or gambling.

SPITZER: Max, since you've explained why it's so hard to predict football and justified all the other guys, who's going to win the Super Bowl? And I want the spread with precision.

KELLERMAN: I don't know what the spread is at the moment. You know, the teams -- I think that it would be most interesting if the Eagles played the Patriots in the Super Bowl, and we got a Michael Vick/Tom Brady Super Bowl to see who the real MVP of this season is, in spite of whoever winds up getting the award. The winner of that game, if it were come off of the Super Bowl, we would find out who the best quarterback in the NFL is.

SPITZER: Right. Absolutely.

Well, one takeaway for me, Max, is life is unpredictable, eat dessert first.


PARKER: Max, thanks so much for being with us. That was awesomely fascinating. All right. KELLERMAN: Anytime you can awesomely fascinate Kathleen Parker, you're doing well.

SPITZER: All right.

PARKER: You've accomplished that. Thanks, Max.

Be sure to join us tomorrow night.

SPITZER: Good night from New York. Anderson Cooper starts right now.