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The Situation Room

Stimulus Package Examined; Stephen Harper Interview

Aired February 21, 2009 - 18:00   ET

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

WOLF BLITZER, CNN HOST: An unprecedented stimulus package. A massive plan to fix the foreclosure crisis. And now talk of nationalizing American banks. Mind-blowing medicine for the ailing U.S. economy. Two key Obama administration officials are here to discuss. Plus, Republican Senator Orrin Hatch with his take.

Also, the president makes his first trip abroad to Canada, a crucial ally in Afghanistan, but planning to pull out its forces, even as the U.S. is deploying 17,000 more troops. I'll talk about that and more in an exclusive interview with Canada's Prime Minister Stephen Harper.

And the new attorney general sparks controversy, calling America essentially a nation of cowards when it comes to race. Is he right? I'll ask the president of the National Urban League Mark Morial.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: All of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to continue to deepen, a crisis which is unraveling home ownership, the middle class, and the American dream itself. But if we act boldly and swiftly to arrest this downward spiral, then every American will benefit.

(END VIDEO CLIP)

I'm Wolf Blitzer here in THE SITUATION ROOM. We want to welcome our viewers in the United States and around the world.

The Obama administration has unveiled its ambitious $75 billion housing program. It's aimed at helping up to 9 million struggling homeowners. But since the president announced that foreclosure prevention plan, many of you have been wondering, who qualifies and who doesn't?

(BEGIN VIDEOTAPE)

Joining us now is the man who will play a central role in implementing this plan. He's Shaun Donovan, the secretary of Housing and Urban Development.

Mr. Secretary, thanks for coming in.

SHAUN DONOVAN, SECRETARY, HOUSING AND URBAN DEVELOPMENT: It's great to be with you, Wolf.

BLITZER: All right. We've got a lot -- from our viewers -- a lot of practical questions. If you give us a direct answer, you'll reassure a lot of folks out there.

A lot of people are concerned that they work really hard, they struggle to make their mortgage payments every month. Sometimes they get a second job to make their mortgage payments. They don't go on vacations. They don't go out to dinner. They just want to make those mortgage payments.

They feel their neighbor who maybe isn't working that hard is going to get a bonanza from the federal government and they're going to still play by the old rules. What do you say to those folks?

DONOVAN: Well, I would say, the great thing about this plan is it's going to help them as well. First of all, interest rates have been at historic lows, and we're going to make sure they stay that way.

Also, one of the things for borrowers who are struggling to pay, but have been paying, up to now modification plans from lenders haven't reached them. Our plan changes that and makes sure that if you're struggling to make your payment, but you're still current, this plan can help you as well.

BLITZER: How do you weed out those who are just trying to game the system, take advantage of the system, and say, you know what, Uncle Sam will take care of me?

DONOVAN: Well, you know what? First of all, no owner -- no investor owners or flippers are going to be eligible for the program.

BLITZER: People who flip houses just to make money.

DONOVAN: That's exactly right. They aren't eligible under this program.

And second of all, we're going to make absolutely sure that we verify people's incomes, that we make sure that those mortgages are legitimate mortgages before we modify them. So you can rest assured we'll be watching to make sure we don't do that.

BLITZER: And what about those folks out there who bought, let's say, a $600,000 home knowing they can only afford really a $300,000 home, but they said, what the hell, I'll go for it?

DONOVAN: Well, you know what? Those folks that are so deep under water, that aren't going to be able to be sustainable in home ownership, they're not going to qualify for the program as well.

But Wolf, I think one thing is very important for the American people to understand -- is that even if you're current on your payment, you're not struggling to pay your mortgage, but your next door neighbor is being foreclosed, a recent study shows that that can lower the value of your house by up to 9 percent. That's $20,000.

We believe this plan will help to raise values of houses by $6,000 on average across this country. So this is important to do to stop foreclosures for everyone, not just those who are at risk. BLITZER: Is there anything for the folks out there who don't own a home but who are renting an apartment or renting a house, and they simply are struggling right now and they're about to be kicked out? Is there anything in this housing plan that you have that's going to help them?

DONOVAN: I'm glad you asked, Wolf, because one thing few people recognize is, about a third of the folks who are displaced by foreclosures are renters. And so one of the key things in the recovery bill that the president signed on Tuesday is a record level of support to prevent homelessness among renters in particular, but also some homeowners who are really at risk of foreclosure, the most at risk of all the folks here. And that's going to be a great boon to local communities that are trying to avoid the problems of shelters going up and families at risk...

(CROSSTALK)

BLITZER: But I just want to be precise -- only those people who are renting an apartment or a house that's foreclosed will get some benefit, or will people who are renting from big landlords and they can't make their rent, will they get any benefit?

DONOVAN: I'm glad you asked that. These benefits are available to any renter, anybody who's at risk of homelessness, whether they're in a foreclosed home or not. So it will help them too.

BLITZER: All right. That's good to know.

The banks, especially those banks who have received billions from the U.S. government in guarantees, the bailout, as they say, what are you going to do to make sure that they offer these loans, that they cooperate? Because there's some suggestion out there they're not going to want to do it and that maybe a judge is going to have to come in and force them to do it.

DONOVAN: Well, let's be clear. The president made -- said yesterday that anybody, any lending institution that takes these funds from TARP, is required to participate in the modification program. No ifs ands or buts. That was very, very clear.

BLITZER: Shaun Donovan is the Housing Secretary.

(END VIDEOTAPE)

Still, many of those banks holding those mortgages are themselves on very shaky ground right now. And there's growing talk even among some conservative circles of nationalizing troubled American banks, something unthinkable only months ago. I spoke about that with Lawrence Summers, Director of the White House National Economic Council and a former Treasury Secretary.

(BEGIN VIDEOTAPE)

BLITZER: The former Federal Reserve chairman, Alan Greenspan -- a man you know very well -- he told the "Financial Times" this. He said: "It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring. I understand that once in a hundred years, this is what you do."

Those are pretty surprising words coming from Alan Greenspan.

But is that wise?

SUMMERS: You know, I'm not going to get into a public argument with Alan Greenspan. And I know very well from the time that I was at the Treasury Department that on financially sensitive questions, the Treasury Secretary speaks for the administration.

What I will say this is that we need a lot of financial repair in this economy. And Secretary Geithner has laid out a framework that provides for that. It starts from stress tests of financial institutions so that we have an accurate assessment of where they are. Frankly, given the way regulation has worked for many years now, we don't have that accurate sense of where we are.

And then we'll be in a position to move forward. And we'll be in a position to move forward where we're restarting the flow of credit, where we're assuring all those in the real economy, outside the financial economy -- whether it's the homeowners who have a mortgage, whether it's the depositors...

BLITZER: All right...

SUMMERS: ...whether it's the lenders -- that they're -- that this financial system is going to be made to work better for them than it has been in recent months.

BLITZER: But is it fair to say you want the American people to assume -- and correct me if I'm wrong -- that you have no plans or don't think it will be necessary to nationalize...

SUMMERS: Wolf, I think I...

BLITZER: ...the banks?

SUMMERS: Wolf, you know how this game -- you know how this game works. I think I made very clear where the administration stands.

BLITZER: Yes. Well, obviously, I -- when you said you didn't want to disagree publicly with Alan Greenspan, I assume you disagree with him.

SUMMERS: I think I made clear where the -- I think I made clear where the administration stands. And it's certainly for a strong and vigorous program of financial repair. And certainly that program is going to have a great deal of emphasis on accountability for those within financial institutions who have contributed to the problems that we have.

(END VIDEOTAPE)

BLITZER: Lawrence Summers, one of the president's top economic advisers. The president gets his historic stimulus package. (BEGIN VIDEO CLIP)

OBAMA: The plan that's been put together without earmarks or the usual pork barrel spending, it's a plan that will be implemented with an unprecedented level of transparency and accountability.

(END VIDEO CLIP)

BLITZER: But it's without a single Republican vote in the House and only three in the Senate that it was approved. Why was the GOP so opposed and what will they do now? I'll ask Republican Senator Orrin Hatch.

Also, the new attorney general grants everyone's attention, calling America, I'm quoting now, essentially a nation of cowards when it comes to race. Did he go too far?

And the war in Iraq, launched in fear of weapons of mass destruction, now almost six years later, more than 4,000 American troops killed. How did the U.S. get it so wrong? And what's next for Iraq? I'll ask a former U.N. weapons inspector.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: The road to recovery will not be straight. We will make progress and there may be some slippage along the way. It will demand courage and discipline or demand a new sense of responsibility that's been missing from Wall Street all the way to Washington.

(END VIDEO CLIP)

BLITZER: President Obama signed the $787 billion stimulus bill into law this week after getting zero Republican votes in the House and just three in the senate. Many GOP leaders are skeptical about Mr. Obama's plans for jump-starting the economy, fixing the foreclosure mess, and encouraging bipartisanship.

Joining us now, Senator Orrin Hatch, Republican of Utah. He's a key member of the Senate Finance Committee. Senator, thanks for coming in.

SEN. ORRIN HATCH (R), UTAH: Nice to be with you, Wolf.

BLITZER: Are you in favor of nationalizing some of these troubled major U.S. banks?

HATCH: I'm not. But the original way of doing this was, of course, to lend to them, take various forms of preferred stock, and have an interest in the bank that hopefully would be paid off so that the taxpayers would be reimbursed for all the monies that we're putting up. I prefer that system to any nationalization of the banks.

BLITZER: Is that system going to work?

HATCH: Well, I don't know. I mean, in all honesty, I don't think it's been put together as well as it should. But - you know, and let's face it, some of these banks maybe should fail.

You know, one of the things we need to do is get rid of those that have been fly-by-nights, those who haven't worked within good financial constraints. Sometimes you have to let them fail. But naturally, we don't want the major banks in our society to fail. And we should do everything we can if they have a reasonable chance of really remaining secure, we should do everything we can to keep them going.

BLITZER: Because $350 billion of that bailout, already so-called Tarp money already has been spent. Now the next batch of $350 billion is about to be spent. If it requires more than the total $700 billion, are you with the administration on that?

HATCH: Well, I want to help the administration, but one of the things that I kind of resent is that Barack Obama has presented this as though Republicans are not for anything. Of course we are. Some of the big problems with this so-called fiscal stimulus bill, number one, it was totally partisan. The first two bills out of the shot, the chip bill and the so-called stimulus bill were purely partisan bills. We were willing to work with them.

But -- and secondly, 74% of the stimulus bill is spending. Only about 26% is what you call revenue loss. and a lot of that isn't going to work, giving $8 a week to people to spend isn't going to help stimulate this economy. We've already proven that that doesn't work.

And then, you know, the president kind of indicated the Republicans don't want anything. That's just not true. We would like to have a lot more in this bill. For instance, 1% goes to stimulate business. My gosh, small business is where the jobs are.

BLITZER: Well, what do you think of the housing foreclosure package they put together, because there seems to be some growing concern, outrage in some quarters, that folks who have been playing by the rule are going to get stuck footing the bill for those that have gotten, perhaps, carried away.

HATCH: Well, the vast majority of people in our society play by the rules. And yeah, they're going to have to pay for all of these extra spending projects, but I'm somewhat encouraged. Because at least the president has finally recognized that what really has caused this wasn't the Bush administration, it was Wall Street, it was Fannie and Freddie.

I'm not for not doing anything. I want to do everything we can to turn this around. But if you're going to go into the housing market with $75 billion more, you better make these recourse loans so people realize they really have the obligation. You better make sure that the ones who have played by the rules are not getting screwed here, which they will be, I feel confident the way some of the people in Washington act. And you better make sure that, you know, that the people who get this money are capable of maintaining the mortgages and maintaining their homes.

BLITZER: Should Utah accept the $1.5 billion or $2 billion or whatever is included in the stimulus package earmarked for Utah?

HATCH: Well, I kind of agree with the southern -- governors who are willing to say, hey, we just as soon not have this money. But I don't blame any state for accepting the money at this time. Utah's going to get by fine whether we get that money or not. I was up at the state legislature. They're cutting programs to make us live within our budget constraints. That's something the federal government doesn't do. That's something the Obama administration isn't doing. It's something that Bush could have done much better on.

And frankly, we're just encouraging them by giving them more and more money to blow on programs that may or may not work. And frankly, I'm really concerned about it. But I am encouraged that the president's willing to do something about the housing situation.

BLITZER: On that note, we'll leave it. Senator Hatch, thanks for coming in.

HATCH: You bet.

BLITZER: President Obama may have gotten a few economic pointers on his first trip abroad since taking office. So what is the Canadian prime minister doing right? We'll talk about that with Stephen Harper in an exclusive interview.

Plus this...

(BEGIN VIDEO CLIP)

ERIC HOLDER: This station has still not come to grips with its racial past, nor has it been willing to contemplate in a truly meaningful way the diverse future it is fated to have.

(END VIDEO CLIP)

BLITZER: Strong words from America's first black attorney general on race relations in this country. I'll ask the president of the National Urban League if Eric Holder got it right.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

HOLDER: Though this nation has proudly thought of itself has an ethnic melting pot, in things racial, we have always been and we, I believe, continue to be, in too many ways, essentially a nation of cowards. Though race-related issues continue to occupy a significant portion of our political discussion, and though there remain many unresolved racial issues in this nation, we, average Americans, simply do not talk enough with each other about things racial.

(END VIDEO CLIP)

BLITZER: And joining us now, the former mayor of New Orleans, the current president of the National Urban League, Mark Morial.

Mr. Mayor, thanks for coming in.

MARK MORIAL, PRES., NATIONAL URBAN LEAGUE: Thank you, Wolf. Thanks for having me.

BLITZER: You've heard in full context what Eric Holder, the attorney general, had to say, essentially, us being a nation of cowards when it comes to race. Is he right?

MORIAL: When you take his statement in context, he's right. And it showed courage for him to say that. Essentially, the idea that we don't and we are not comfortable talking about race in an intelligent, thoughtful way, that's grounded in fact and not in emotion. So I applaud him for his courage.

Some -- it's easy to take that word "coward" out of context, but I think the essence of the word was that he wanted to shock our conscience into understanding that when it comes to the difficult issues and the challenging issues of race, we need to be more forthcoming. We need to be more, I think, willing to engage each other. And I hope that people are not distracted by taking his comments out of context, but at looking at what he really said.

BLITZER: He was speaking also within the context of February being black history month in the United States. But there has been a lot of criticism of what he said. Ron Christy, who himself worked in the Bush White House, he was on CNN. And he was very critical of what Eric Holder said. I'll play a little clip for you.

(BEGIN VIDEO CLIP)

RON CHRISTY: Race, as you know, is a very divisive issue. And the chief law enforcement officer of this country is supposed to dispense race, excuse me, dispense justice in a nonracial way.

(END VIDEO CLIP)

BLITZER: You know, he said he was speaking himself, Ron Christy, as a proud black man as well. What do you think of that criticism that maybe he went too far, Eric Holder?

MORIAL: Well, I think I would expect it from -- that type of criticism from Ron. The fact of the matter is, it's refreshing to have an attorney general who understands that one of the essences of justice is understanding this nation's racial legacy, this nation's racial history. Because if we're going to heal it, and if we're going to continue to move in a forthright direction, then I think we need to talk about it.

And as the nation's not only chief law enforcement officer, but as the nation's chief justice officer, I think what Eric Holder did is perhaps shock us into a continuing conversation. I think if it's left at just his sound bite, and not his entire remarks, then it is easy for one to be distracted and perhaps to react in a certain way. But it's important that what he said is that we do have a difficult time engaging, Wolf. And I can testify to that in the work that I've done, that it's tough, it's sometimes uncomfortable. For blacks, and whites, for Hispanics and Asians, for all of us to understand that this pursuit of racial justice, which should be the hallmark of this country, is within reach and within grasp.

BLITZER: All right. Mayor, you saw that controversial cartoon in "The New York Post." It has two cops shooting a chimpanzee, if you will. The caption reading, they'll have to find someone else to write the next stimulus bill. And it's caused a huge uproar, because the argument is that that chimpanzee is President Obama. Is this satire, or did it go over the line?

MORIAL: You know, when I saw it, I immediately felt that it was political satire across the line and it lacked common sense. No connection whatsoever between the unfortunate incident with the chimpanzee and the stimulus package and President Obama.

BLITZER: Because the cartoonist himself said this. Do you really think I'm saying Obama should be shot? I didn't see that in the cartoon. It's about the economic stimulus bill. If you're going to make that about anybody, it would be the House Speaker Nancy Pelosi, which it's not.

MORIAL: Yeah, well, I think the artist is trying to defend himself. But what the artist should sometimes consider, it's not the way in which he sees the picture, but it's the way in which his audience might see the cartoon. And what I noted is, when I saw the article, I noted that the cartoonist's name was not anywhere on the cartoon. "The New York Post" needs to apologize, but I think "The New York Post" needs to adopt a standard of decency and common sense when it comes to political satire.

It was critical from a racial standpoint. But also, what are you saying about the New York City police, who were also characterized in that cartoon? It was political satire over the line.

BLITZER: Marc Morial is the president of the National Urban League. Thanks for coming in.

MORIAL: Thanks so much, Wolf.

BLITZER: On Friday, "The New York Post" issued a statement saying, "To those who were offended by the image, we apologize."

(BEGIN VIDEO CLIP)

OBAMA: Now is a time where we've got to be very careful about any signals of protectionism.

(END VIDEO CLIP)

BLITZER: But Prime Minister Stephen Harper of Canada worries about buy-America only provisions in the U.S. economic plan. The prime minister is here to explain. And regarding Pakistan, worries that terrorists could get hold of nuclear weapons.

And people called murderist thugs potentially running an area near Pakistan's capital. I'll talk about that and more with U.S. Special Representative to Afghanistan and Pakistan, Richard Holgren. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: As neighbors, we are so closely linked that sometimes we may have a tendency to take our relationship for granted. But the very success of our friendship throughout history demands that we renew and deepen our cooperation here in the 21st century.

(END VIDEO CLIP)

BLITZER: President Obama has made his first foreign trip since taking office. He didn't travel very far, getting a warm reception in Canada. But the allies do have some serious issues. From potential trade disputes in these tough economic times, to differing views in the war on Afghanistan.

In my exclusive interview, I asked the Prime Minister Stephen Harper if Canada will withdraw its forces from Afghanistan.

(BEGIN VIDEOTAPE)

STEPHEN HARPER, CANADIAN PRIME MINISTER: We're operating according to a parliamentary resolution. We got consensus on that, which will keep us there for three more years. And as I say, our plan is to hand that off to the Afghan forces themselves at the end of that period of time.

BLITZER: Is it winnable? Is it doable? The entire NATO commitment to Afghanistan, do you see victory when all is said and done?

HARPER: Well, I guess, Wolf, it depends what we define victory as.

BLITZER: What is the definition of victory from your perception?

HARPER: Well, you know, I think a lot of people in the past have been suggesting that, you know, victory is the complete defeat of the insurgency and the replacement of a failed state in Afghanistan with a modern liberal democracy.

I don't think that's realistic. I think what we should be aiming for in Afghanistan is a viable state that respects, you know, obviously, some democratic norms. But I think, ultimately, the insurgency will last a long time.

Afghanistan, through most of its history, has been an untamed country. So I think the idea we're going to wipe out an insurgency is completely unrealistic. What we want is a central government that can maintain day-to-day responsibility for its own security. I think that's what we should define victory as.

BLITZER: Prime minister, let's talk about some of the economic issues facing the U.S. and Canada right now.

HARPER: Sure.

BLITZER: In the economic stimulus package that President Obama signed into law, and I'll quote from an editorial in "The Los Angeles Times", "the final version signed Tuesday states that only U.S. steel and other materials will be used in the public works projects funded under the $787 billion measure, unless doing so would violate existing trade disagreements." The editorial was entitled "Obama to Canada -- sorry." What do you say about that? How's that going to play in Canada?

HARPER: Well, look, this is -- as you know, these provisions in the stimulus package have been a concern worldwide. That said, the package was modified to say that the U.S. would respect its international trade obligations.

Obviously, we'll be watching the implementation of that in Canada. We've just proceeded with our own stimulus package. It's not quite as big as the United States, because obviously, our economic difficulties at this point are not nearly as deep.

But nevertheless, we have a stimulus package ourselves. We didn't impose buy-Canada provisions. In fact, on the contrary, we actually removed duties on some important imports, partly for our own interest, and partly to stimulate trade.

I do think, Wolf, this is a huge risk to the world right now. If there's one thing that could turn a recession into a Depression, it is protectionist measures across the world. I'm very encouraged by the fact that President Obama said that he was concerned about that as well. And I'm confident with the modifications that are made that the administration will implement this in a responsible way that won't cause protectionist actions across the globe. Because that would truly plunge us into a very long and deep economic...

BLITZER: Because the devil is in the details, as they say. If you don't like the way they implement this provision, would Canada retaliate?

HARPER: Well, look, if any country doesn't respect its obligations, Canada and other countries have recourse under international trade law. That said, Wolf, I think this is a debate we would rather avoid.

BLITZER: As you know, another potential thorn out there in U.S./Canadian relations involves NAFTA, the North American Free Trade Agreement. You remember what President Obama said during the campaign about reopening, perhaps, some of the provisions of NAFTA. Here's what he told the CBC this week.

(BEGIN VIDEO CLIP)

OBAMA: As I've said before, NAFTA, the basic framework of the agreement, has environmental and labor protections as side agreements. My argument has always been that we might as well incorporate them into the full agreement so that they're fully enforceable.

(END VIDEO CLIP)

BLITZER: Are you open to reopening NAFTA, if you will?

HARPER: Well, I think we have to be careful what we're talking about. Obviously, we're always prepared to look at ways to make NAFTA work better. I think, quite frankly, NAFTA and the predecessor, Canada U.S. Free Trade Agreement, have been very good for both countries. I don't think, in any way, we're each other's trading problems. We're the biggest trade relationship in the world that has grown exponentially on both sides under this agreement. So I think it's all very positive.

We're always willing to look at ways that could work better, but it's a fine line between looking at ways to make it work better, and actually starting to open the agreement. I think if you actually open the agreement, I think you would get into a negotiation that would never terminate.

BLITZER: The president was complimentary to Canada on how it's been dealing with its economic crisis, especially in the banking sector. Listen to this excerpt of what he told the CBC.

(BEGIN VIDEO CLIP)

OBAMA: In the midst of this enormous economic crisis, I think Canada has shown itself to be a pretty good manager of the financial system and the economy in ways that we haven't always been here in the United States.

(END VIDEO CLIP)

HARPER: We've had more prudent regulations. We've also had more activist regulation. Our regulators meet with a financial sector more regularly to monitor it. And we've also had a banking sector that's, I think, more prudential. The fact of the matter is our leverage ratios are much lower in Canada.

Now, some of that, Wolf, you know, as I say, these things aren't always easily translatable. Obviously, something has to be done about regulation in the United States and internationally. But the fact of the matter is we have a relatively small number of financial institutions. And it's easier to regulate them and to exercise moral persuasion on them than it would be in a system structured the way you have in the United States.

BLITZER: The prime minister of Canada, Stephen Harper speaking with me.

Nearly six years after the U.S. invasion of Iraq, the man who led the failed search for weapons of mass destruction in Iraq is now talking about what went wrong.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: It seems that our government can do really three things. It can throw money at problems, it can build bureaucracies, and it can bomb things.

(END VIDEO CLIP)

BLITZER: Just ahead, the difficult search for truth in Iraq. It continues.

And plans now are set for the U.S. troop buildup in Afghanistan. Here's the question. Will it work? Will it be a waste? I'll ask President Obama's special representative to Afghanistan and Pakistan, Richard Holbrooke. He's here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ARI FLEISCHER, FMR. WHITE HOUSE PRESS SECRETARY: Just scratch our heads, how can we be wrong? It wasn't just us that thought he was weapons of mass destruction. The Egyptians thought it, the French thought it, the Germans thought it, the United Nations thought it, Bill Clinton's CIA thought it. We all thought it.

(END VIDEO CLIP)

BLITZER: A turnaround in Iraq after years and years of wrong moves by U.S. policy makers. That's the assessment of an integrity insider who led the hunt for Saddam Hussein's weapons.

(BEGIN VIDEOTAPE)

BLITZER: And joining us now is Charles Duelfur. He served as a deputy chairman to the U.N. weapons inspection team in Iraq from 1993 to 2000. He then led the CIA/Iraq survey group looking for weapons of mass destruction in Iraq after the overthrow of Saddam Hussein.

His new book is entitled "Hide and Seek: the Search for Truth in Iraq."

Charles, thanks very much for coming in.

CHARLES DUELFER, AUTHOR, "HIDE AND SEEK": Thank you.

BLITZER: Are you confident that Iraq right now is heading in the right direction?

DUELFER: I think they are. I think the last elections were very helpful. The sad thing is, I think we could have been at this position at the end of 2003 or early 2004, except for some decisions which were made immediately after occupying Baghdad.

BLITZER: Who's to blame for that?

DUELFER: I think the decision to put all our money on external opposition groups, largely the civilian leadership of the Pentagon made some decisions that are regrettable in retrospect.

BLITZER: Are you talking about the defense secretary at that time? Donald Rumsfeld?

DUELFER: Defense Secretary and his staff. They elected to go with people who had not been to Iraq in a long time, external opposition groups. And they elected not to use information that -- about Iraqis in Iraq who could be helpful to us.

BLITZER: Were there others in the government warning Rumsfeld and people at the Pentagon, don't do this?

DUELFER: There was a decision made in the previous year in 2002 to keep the CIA away from planning for post-war work in Iraq. There was an elected decision to keep the CIA out of that. And I think that was a mistake. Because the CIA had good information about the internal dynamics of Iraq.

Curiously enough, the administration elected to believe and use the information about weapons of mass destruction, which turned out to be wrong.

BLITZER: That was CIA information, though, right?

DUELFER: Largely CIA, that's correct. But they elected not to use and not to believe the CIA assessments about the...

BLITZER: How could the intelligence community, the U.S. government, the Bush administration have gotten it so wrong? The whole justification, at least, so much of the justification for going to war against Saddam Hussein was because of weapons of mass destruction.

DUELFER: Well, I think weapons of mass destruction was one of the reasons why the president elected to get Saddam. Bear in mind, and people often forget now, that in 2001, 2002, the sanctions were crumbling around Saddam. The one tool that we had for containing Saddam was falling apart. So something had to be done.

BLITZER: But the major argument that Colin Powell made at the United Nations Security Council was WMD, which turned out to be nonexistent.

DUELFER: That's true, but that was not the only reason why Saddam was dangerous. Saddam had a track record of invading other countries. He certainly had a track record of using and building WMD. And as we learned afterward when we debriefed Saddam and the people around him, he retained the aspiration. Once sanctions had fallen, he was going to reconstitute his WMD programs.

BLITZER: So looking back, you say the war was justified?

DUELFER: I think the decision to go to war was correct. Sadly, I don't think the United States doesn't have many fine tools. I mean, it seems that our government can do really three things. It can throw money at problems, it can build bureaucracies, and it can bomb things. If there's an activity which requires something more akin to brain surgery, sadly, I don't think we can do that. BLITZER: Would it be a mistake right now over the next 16 months as President Obama wants for all U.S. combat troops to get out of Iraq?

DUELFER: I think a phasedown is appropriate. I think Iraq is finally showing that it can build itself, starting from the center. It needs a strong central government, which will be inclusive of many of the parties and draw them into the center. When we first went in, some of our decisions had the effect of causing the wheel to fly apart. I think in the course of the next 18 months, there'll be much -- far fewer decisions or stories on Iraq.

BLITZER: Here's what you write in the book "Hide and Seek." You write, "political appointees with little or no experience are placed in critical positions. The regular flushing of key staff to be replaced with new political appointee assures that experience does not accumulate."

When I read that, I thought of Leon Panetta, the former Clinton White House chief of staff member of Congress who's now going to be the CIA director. Is that a mistake?

DUELFER: I don't think that is necessarily a mistake. It depends on how Panetta wants to run the agency.

BLITZER: He's got no real hands-on experience conducting intelligence.

DUELFER: Well, that's true, but his deputy does. And I think there's a core of people at the CIA who know what they're doing. But it is a fact that the United States tends to allow people to learn on the job.

I was in a position where I had to explain to Iraqis, you know, why is it that we were doing certain things. Do these people really know what's going on? And what we had was a group of people first went in, they treated Iraq like some type of social science experiment. And there was a lot of tragedies as a result of that.

BLITZER: Looking back, the mistake on WMD, there were no significant stockpiles, no stockpiles of WMD biological chemical nuclear in Iraq, who was largely responsible? How could that happen? Looking ahead to avoid that kind of blunder down the road?

DUELFER: I think there's a couple of lessons from that experience. One is you have to keep challenging your assumptions. Throughout the 1980s and 1990s, we had every reason to believe that Saddam had WMD. And he did have WMD. He gradually got rid of it. It got to a point where finally he was telling the truth and no one would believe him at that point in time.

Looking forward, looking to other cases like North Korea and Iran, we should not preemptively cut off sources of information. In the case of Iraq, in the end of 1990s and 2000, I was probably the only senior American who had spent any time with the regime in Baghdad. We had no embassy.

It would be sad if we ended up in the same position in Tehran. I think there's an argument for keeping a presence in a country, even though they are diametrically opposed to everything we believe in.

BLITZER: Good point. Charles Duelfer is the author of "Hide and Seek: The Search for Truth in Iraq." Charles, thanks very much for coming in.

DUELFER: Thank you, Wolf.

BLITZER: Before going to Canada, President Obama spoke to the Canadian Broadcasting Corporation and said this about Afghanistan.

(BEGIN VIDEO CLIP)

OBAMA: I think Afghanistan is still winnable in the sense of our ability to ensure that it is not a launching pad for attacks against North America.

(END VIDEO CLIP)

BLITZER: The president is outlining some bold moves involving more U.S. troops for Afghanistan. I'll talk about that and more with a special representative to Afghanistan and Pakistan, Ambassador Richard Holbrooke.

Plus, Earth, Wind, and Fire getting ready to come to the White House.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: We have not been as focused as we need to be on all the various steps that are needed in order to deal with Afghanistan. You've got narco trafficking that is funding the Taliban. If there is a perception that there's no rule of law in Afghanistan. If we don't solve the issue of the border between Afghanistan and Pakistan, then we're probably not going to solve the problem.

(END VIDEO CLIP)

BLITZER: President Obama in an interview with the Canadian Broadcasting Corporation ahead of his trip this week to Ottawa, speaking bluntly about the war in Afghanistan and the resurgent Taliban and al Qaeda. The president is ordering an additional 17,000 U.S. troops to Afghanistan, a controversial move with no guaranteed results.

And joining us now, the former United States Ambassador to the United Nations, the current special envoy for Afghanistan and Pakistan, Richard Holbrooke.

Ambassador, thanks very much for coming in.

RICHARD HOLBROOKE: Good to be with you, Wolf.

BLITZER: You're just back from a critically important mission to Afghanistan, Pakistan, elsewhere in the region. A lot of folks are fearful that this whole troop buildup in Afghanistan right now could turn out to be a waste, given the inherent problems in that country. Can you look in the camera and tell the American people right now it's not a waste, this is going to work?

HOLBROOKE: There's no question that these troops are necessary. This was a request that General McKiernan (ph), the commander in Afghanistan, and General Petraeus, the Centcom commander, put into President Bush last summer. It did not get action on and it landed on President Obama's desk on day one.

There was no question, and I can tell you this having just been in Afghanistan, that these troops are needed to stop the deteriorating situation.

BLITZER: But will it work?

HOLBROOKE: Will it work? It will turn the tide, but I cannot tell you for sure what will happen after that, because there are many other variables. This is a war that includes political components, military components. And the president has asked us to give him a full-scale strategic review, which we're doing now. And we are going to try to revamp strategy in a way that upgrades the civilian and economic and reconstruction components.

And above all, Wolf, we've got to deal with Pakistan. We have to stem the deterioration in the tribal areas.

BLITZER: I want to get to Pakistan in a moment, but Russ Feingold, the Democratic senator from Wisconsin, a member of the intelligence committee, he says you guys may have it reversed. This is what he said on Tuesday. He said, "we need to make sure we have a strategy in place for Afghanistan that will actually work before we commit thousands more U.S. troops. A military escalation without a strategy to address the complex problems facing Afghanistan in the region could alienate the Afghan people and make it much more difficult to achieve our top national security goal of defeating al Qaeda."

So you say you're going to come up with a strategy, but the decision to send troops, additional troops, double the U.S. troop presence has already been made?

HOLBROOKE: It's not a doubling, Wolf. It's about a 40 or 45% increase. The doubling is some kind of misunderstanding. But let me go to my friend, Russ Feingold's point. Because in an ideal world, Senator Feingold would be correct. You do everything in the core order he suggested. But in the real world, the military, having waited for six or seven months for action on their request, made the case to the president that if these troops were not sent immediately, the effect on the situation, our ability to support the government of Afghanistan in their elections and to help with reconstruction would be severely compromised.

BLITZER: A lot of us are concerned about what's happening in Pakistan, especially this deal that they reached with the Taliban to effectively give them authority in a critically important part of the country. What's going on here? You just met with the leadership there. HOLBROOKE: I not only met with them, I talked to President Zardari of Pakistan on the phone about two hours ago. And I expressed to him the same kind of concern you have just stated to me. It's hard to understand this deal in Swap, the area you're talking about, less than 100 miles from the capital of Islamabad. President Zardari says it's an interim arrangement while they stabilize the situation. He doesn't disagree that the people who are running Swat now are murderous thugs and militants and they pose a danger not only to Pakistan, but to the United States and...

BLITZER: Did he give you a commitment to stop it?

HOLBROOKE: To stop what?

BLITZER: The deal.

HOLBROOKE: Well, he hasn't signed the deal.

BLITZER: Will he?

HOLBROOKE: That I don't know, but the issue isn't whether he signs the deal or not, the issue is the negotiations themselves. And I'm concerned and I know Secretary Clinton is and the president is that this deal, which is portrayed in the press as a truce, is not -- does not turn into a surrender. President Zardari has assured us it's not the case.

BLITZER: Here's what your friend and colleague, the former Secretary of State Madeleine Albright told me in December about Pakistan. Listen to this.

(BEGIN VIDEO CLIP)

MADELEINE ALBRIGHT, FORMER SECRETARY OF STATE: My own sense is Pakistan has everything that gives you an international migraine. It has nuclear weapons, it has terrorism, extremists, corruption, very poor. And it's in a location that's really, really important to us.

(END VIDEO CLIP)

BLITZER: How worried are you, ambassador, that Pakistan's nuclear arsenal could get into the hands of terrorists?

HOLBROOKE: This is a legitimate concern. The United States cannot ignore it. The American intelligence community has briefed us. Of course, we're new in government, Wolf, as you know. We've been in the office as a team less than a month. But we have been assured by the American intelligence community that this arsenal is under the control of the Pakistan military. But it's an issue of high concern and it can't be ignored. .

BLITZER: You brokered a deal - a peace deal in Bosnia. What's harder, what you did in Bosnia or what you're trying to do now in Afghanistan and Pakistan?

HOLBROOKE: This is harder, Wolf. BLITZER: Much harder?

HOLBROOKE: Much harder.

BLITZER: Good luck on your assignment. It's a tough one, Ambassador Holbrooke. Thanks very much for coming in.

HOLBROOKE: Thank you, Wolf. It's good to be with you again.

BLITZER: All right, listen up to this. A '70s disco flashback that just may get President Obama out on the dance floor. We'll tell you what's going on this weekend at the White House. (COMMERCIAL BREAK)

BLITZER: One of my personal favorites, "Earth, Wind, and Fire," the group that was hot in the '70s likely will be on fire Sunday night at the White House. President Obama has invited the group to perform during his dinner with the nation's governors. Good luck to them.

I'm Wolf Blitzer here in THE SITUATION ROOM. Please join us weekdays from 4:00 to 7:00 p.m. Eastern and every Saturday at 6:00 p.m. Eastern on CNN and at this time every weekend on CNN International. The news continues next right here on CNN.