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Trent Lott Steps Down; Senate Republicans Turn to Frist for Fresh Start; Wall Street Pays $1 Billion for Mistakes

Aired December 21, 2002 - 10:00   ET

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

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


SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Welcome to CNN's SATURDAY EDITION, where our journalists have the inside scoop on the stories they covered this week. I'm Suzanne Malveaux.
The White House walks a tight rope as controversial remarks force Trent Lott to bow out as the Senate's Republican leader.

DANA BASH, CNN CAPITOL HILL PRODUCER: I'm Dana Bash. Eager to leave the Lott controversy behind, Senate Republicans turn to a Tennessee lawmaker for a new leader and a fresh start.

RYM BRAHIMI, CNN CORRESPONDENT: I'm Rym Brahimi in Baghdad. I'll be coming back to you later to tell you about Iraq's message to the United States: Essentially, "If you think we're hiding weapons of mass destruction, prove it."

KATHLEEN HAYS, CNNfn CORRESPONDENT: I'm Kathleen Hays. Wall Street agrees to pony up a billion dollars for its missteps. Effective punishment or a slap on the wrist?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: And I'm Barbara Starr. The Pentagon gets a green light to begin building a missile defense. But have the kinks been ironed out for a foolproof system?

We'll be talking about all of these stories, U.N. producer Liz Neisloss will join us later, and we'll hear the president's weekly radio address at the end of the hour. But first, this news alert from CNN headquarters in Atlanta.

(NEWSBREAK)

MALVEAUX: Well, publicly, President Bush stayed above the fray over whether or not Senator Trent Lott should continue as the Senate's Republican leader. But the White House was clearly concerned about the impact of the remarks that the Mississippi lawmaker seemed to endorse racial segregation. The decision not to weigh in on Lott's political future may have been what sealed his fate.

What was very interesting about this was that it seemed as if the silence is what spoke the loudest, louder than the president's words or even his aides', whether or not Lott should go.

And clearly, there was a great deal of concern inside the White House as well as outside among Republicans. First of all, whether or not it was going to allow -- or get in the way of the Republican agenda, the White House agenda, moving forward in the next year. And, secondly, whether or not it was going to really impact or undermine the outreach to the African-American community, a very big problem the White House saw with this.

HAYS: You know, Suzanne, so many people think that there was no grief at the White House over Lott's departure and that, in fact, they were in the thick of it, behind the scenes, skillfully helping push him out the door.

MALVEAUX: The big question is whether or not the White House orchestrated this. I know that is all of the buzz. The White House insists that it did not. I ask you to make up your own minds and judge it.

Here is what our sources are telling us how it happened. When President Bush found out about these remarks, there were discussions, there were meetings that were involving Karl Rove, his chief political adviser, media advisers, Dan Bartlett, the liaison to Congress, as well, Nick Calio, all of them involved in these series of meetings, what are we going to do about this?

The president was on his way to Philadelphia on Air Force One, was going over the language with Karen Hughes. You know, she left the White House but the two of them very much in sync. What are we going to say?

He makes this speech condemning the remarks, saying they're offensive, publicly admonishing Lott, saying this is not spirit of America.

Those closest to the president say that it was in his heart, this is what he felt he had to say, but at the same time he was not unaware of what this could end up doing, the Domino effect, that that was not his intent but that they were clearly aware that that could happen, that could be the outcome.

STARR: But for a White House that is so politically savvy, they had to have known his statements, combined with the deafening silence in the days after that that you describe, that this would be the result. They can't be surprised.

MALVEAUX: Not surprised at all.

And what happened afterwards was equally as important, because then you had the comments that Lott made afterwards really didn't sit very well, did not do the job. Those inside the White House disappointed. Again, when he went on BET, disappointed that it wasn't happening. Lost the base, lost the conservative base completely when he said he was going for affirmative action. Nobody believed that that was even the case. They believed he didn't have a leg to stand on at that point.

And then you knew the handwriting was on the wall when Secretary Powell came out, admonishing him, the highest ranked African-American on the Cabinet, as well as his own brother, Governor Jeb Bush, comes out publicly as well. I mean, people knew, they understood what this would mean.

At the same time, White House saying, "Look, that was not the intent of the president." But at the same time, they realized and they understood what the possible outcome would be.

STARR: And, Dana, you've covered the Senate for so long. What's your sense of Trent Lott in all this? He seemed, to a lot of people, a little bit disconnected possibly. Did he understand what was really -- that this train had begun to leave the station, what was about to happen?

BASH: You know, just covering Trent Lott for so long, he is definitely somebody who is skeptical of the media, skeptical of any kind of big media storm, and somebody who always -- when things were written, things were said about him or about the party that he didn't agree with, he was somebody who would always come up to the person who wrote it, come up to the person who said it and say something about it to them or have an aide at least do that. So he's very aware of, and skeptical of, what goes on in the media.

But in this particular case, if you talk to people who were very close to him, they say he just kind of didn't get it, didn't get the absolute magnitude of this until it was too late. He went on vacation. He was in Florida in Key West. He didn't come back. And if you talk to people close to him, as I have, they felt that he was doing a lot -- making a lot of the decisions on strategy, on how to deal with this, on his own. He was just kind of flying by the seat of his pants, so to speak.

HAYS: But, Dana, I'm curious, what is the mood in Congress now? I mean, are people, like, disappointed that he's gone, or are they delighted that there's going to be a change of leadership? Did he, you know, did he lack sufficient friends and supporters? Had he made too many enemies over the years?

BASH: I don't think it's really that he made too many enemies, but he certainly, at the same time, he didn't necessarily have a lot of good friends who would really push for him. I mean, I think at the highest level, in terms of the vote counting, the highest number of votes that we found, and probably what he found, was about 10, maybe a dozen, who he was sure were going to go for him.

And actually, that's one thing that, just in observing all of this, I knew that part of the reason why Trent Lott, I think, pulled out in such a fast way is because he would always say to us that he is one of the best vote counters in the Senate. He's been doing it for 20 years, he knows how to count votes. And he probably counted his own votes and realized, you know, "I just don't have them. It's too late. I'm going to have to pull out."

MALVEAUX: Well, I'll tell you one thing, Dana, I spoke with a congressional aide, a Democrat, and she said, "Look, you know, he was going to be the poster boy for bad behavior, anywhere from judges' nominations, anything dealing with affirmative action, dealing with race." And so some of the Democrats, of course, they were -- you know, it's really a mixed bag. They were kind of upset about it. They said, "Well, yeah, it's the right decision, but politically, it works very well for the Republicans."

And I have to say, Nick Calio, who's the legislative liaison for the president, he was very adamant that the White House not get involved in the process. Because he was aware of the potential backlash, Dana, as you know, that would come from the senators if they got too heavily involved in this. But there was a real debate in the White House about how they should really handle this, how aggressive they should be.

BASH: And, you know, the interesting thin in kind of watching the way the White House handled this throughout the past couple of weeks, it's almost like they took a page from Bill Clinton's play book, or at least Dick Morris, the political strategist, Dick Morris' play book, of triangulation. The White House is very careful to separate themselves from Trent Lott and anything that he said that could have been construed as racially insensitive, and to Democrats.

And they really did a good job of having Ari Fleischer get out there every single day and talk about what the president wants to do, what the president wants to do for civil rights. And it really, in an ironic way, gave the White House an opportunity to talk about the president's civil rights initiatives, to talk about the president's civil rights agenda in a way that they might not have been able to do, or at least get any traction on, had this controversy not erupted.

HAYS: Yes. Well, it's interesting how Wall Street reacted, because I think, you know, one of the factors cited for Wall Street doing better on Friday after (inaudible) so poorly was just getting it settled, getting it behind the president. Presumably, the idea now, the White House is free to continue to pursue its agenda. And I think the worry was that this could have derailed things a bit.

BASH: Well, Kathleen, if the Lott controversy proved anything, it's that political fortunes can sink or soar over night. We'll talk about Trent Lott's likely successor, Bill Frist, and where Republicans go from here, when CNN's SATURDAY EDITION continues.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. LINCOLN CHAFEE (R), RHODE ISLAND: I don't think any of us are really happy with the apologies. And that was the difficult part. The Friday press conference just didn't connect with the American people, and I think many of us felt that this was going to be just an ongoing controversy.

(END VIDEO CLIP)

BASH: Rhode Island Senator Lincoln Chafee, the first Republican on Capitol Hill to call for colleague Trent Lott's resignation.

Welcome back to CNN's SATURDAY EDITION.

Even before Senator Lott announced that he would step aside, the jockeying to replace him as Republican leader had already begun. And by last night, it became evident that Bill Frist of Tennessee was almost certain to win out.

And I have to tell you, talking to Democrats last night on Capitol Hill, who were licking their chops about all the controversy surrounding Trent Lott, were kind of wincing when they realized that Bill Frist was going to be the new Republican leader, because they think that Republicans have actually scored a political coup here.

Because even though Bill Frist is a Southern conservative -- he's a conservative Republican, he's somebody who comes across as very affable, very friendly, very -- comes across as very mainstream. He's a heart surgeon who spends his recess in Africa on his own dime performing heart surgery on the needy in Africa. And he's known as a go-to guy around the Capitol on health care issues. He is known to help tourists in the Capitol who collapse, run to their aid, help them...

MALVEAUX: He sounds like a Superman.

BASH: He does sound like a Superman.

Now, that's what he's known as. But you can bet that Democrats have already started to flip through his record and try to find any black marks at all. They're already bringing up the fact that his family owns a huge health care company that has been investigated for fraud. And they're going to dig a lot into issues like that, no question about it.

STARR: But, Dana, this very seemingly nice, affable, intellectual senator -- obviously, not too far beneath the surface is a very skilled political operative. This coup apparently happened over a period of hours. How did he pull it off?

BASH: You know, it's really amazing. It's as if he took the course in How To Be a Majority Leader 101. When you talk to people who have been around the Hill for a long time and you say, how do these leadership races work in this club, the Senate? And it's really, the bottom line is you have to come out early, and you have to come out loudly. And that's exactly what Bill Frist did. And it just so happens that he is a likable guy.

And the ironic thing is that he did it despite the fact that he's very close with the White House. Because there are a lot of senators who do not take kindly to having somebody who they think the White House is essentially shoving down their throats as their own leader.

HAYS: But, Dana, I think that's a very important point for people who are outside the Beltway, people on Wall Street, citizens, to say, OK, great, he won, he's obviously a skillful guy. But is he just -- is he simply merely like the mouthpiece, the rubber stamp for the White House policies? If you support the White House, nothing wrong with that. Is there any way in which he's a guy who has a vision or an agenda that's going to shape this uniquely in a Bill Frist kind of way?

BASH: Well, there's no question that he is extremely close with the White House. He was the liaison for the Bush campaign to the Senate way back in 2000. He worked hand-in-hand with them as the chairman of the National Republican Senatorial Committee, the person who got the majority of Republicans elected this past election year. So he is very close with them.

However, he is known to kind of be a leader on very specific issues, health care issues, and to go out and really forge compromise on issues like Medicare. He worked a lot on bioterrorism legislation. So he certainly has worked across party lines, with people like Ted Kennedy, not exactly a Republican guy.

MALVEAUX: Can you talk about his record, though? I mean, I'm hearing that it's very similar to Senator Lott's, that there's not very much difference between the two. And I'm really wondering, how is that going to play in terms of the Republican agenda, the White House agenda, if you have someone who has voted very similarly when it comes to race relations, affirmative action, things like that. Are we seeing someone who is pretty much recycled in terms of those issues?

BASH: Well, he's not far apart from Trent Lott in terms of his voting record, but again, it's that demeanor he has that the Republicans are hoping can kind of help change the face of the Republican Party, so to speak, and change the way that they approach things.

And certainly, like we talked about before, this episode with Trent Lott is going to propel the issue of civil rights into the forefront. And the president has already been trying to work on issues like his faith-based initiative, which he thinks will help reach out to African-Americans, and he hopes that Bill Frist will be the guy to do that.

MALVEAUX: Dana, real quick what happens to Lott, what happens to Lott now? I mean, there's talk about this soft landing, a cushy position, but that doesn't look like that's happening.

BASH: It's not. You know, it might happen, because there is so much good will toward him now because he didn't let this thing drag out until January 6, which is what it was supposed to do.

But what's interesting about Lott, just in covering the guy, is, you know, you have to realize that he has this humongous real estate in the Capitol, palatial offices, tons of staff in the Capitol, security, access to world leaders, access to the White House, as majority leader. And now he is going to be the junior senator from the state of Mississippi. What a difference. It is going to be a world of difference for Trent Lott.

MALVEAUX: Well, thanks a lot, Dana Bash.

And from the shakeup in the Senate to the showdown with Iraq, we'll talk with U.N. producer Liz Neisloss about the reaction to Iraq's weapons declaration and what it means for the possibility of war, when CNN's SATURDAY EDITION continues.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

HANS BLIX, CHIEF U.N. WEAPONS INSPECTOR: It's evidence that we are missing. If you are sure that they had a program, say, on anthrax or on VX, well, then you can say they omitted information about that, because there wasn't much on it.

(END VIDEO CLIP)

LIZ NEISLOSS, CNN PRODUCER: That's chief U.N. weapons inspector Hans Blix saying Iraq's 12,000-page weapons declaration adds up to a missed opportunity.

Welcome back to CNN's SATURDAY EDITION. I'm Liz Neisloss.

This week at the United Nations, Hans Blix and his nuclear weapons counterpart, Mohamed El-Baradei, gave the Security Council their first thoughts on this massive document. They told the Council it's a lot of rehashed material, and in some places, it actually appears to contradict what weapons inspectors already know.

Now, not surprisingly, the U.S., inside a closed-door meeting and publicly, said this document is deception, it's lies, and it's not enough.

MALVEAUX: Now, Liz, I understand, too, they said that Iraq was in material breach. What does that mean exactly? Because I thought that was language that would really trigger military action, if it's true that there's a zero-tolerance policy.

NEISLOSS: Well, actually, many of us thought that as well. Material breach, in short, means that a treaty has been broken. That's the legal definition. In this case, it refers to the resolution, the ceasefire resolution after the Gulf War. And so, the fact that the U.S. has not actually made a brisk move toward military action was a very interesting signal.

HAYS: So what is the signal? What's the U.S. strategy? I think a lot of people figure they're not declaring war more quickly because they have to get the ducks in a row militarily before they can really do that.

NEISLOSS: Well, it's pretty much that. And it was interpreted at the U.N. this week as laying the groundwork, building the case. And Colin Powell, I think, spelled it out very clearly. He said, "Look, we are putting out a body of evidence," but he also gave a warning at the end of that. He said, "We are not optimistic. We're very disappointed. It basically doesn't look good."

But diplomats see this as the U.S. way of being very cautious, building a political case. One, maybe morbid but perhaps accurate analogy was, look, this is one nail in the coffin for Iraq from the U.S. perspective. They need more nails. How many nails they need is not yet clear. But they're going to move through this very methodically.

STARR: Liz, what are we going to see over this next few weeks from the U.N. weapons inspection process? We have heard that they are going to press ahead, that the U.S. is now going to offer -- and the British are going to offer to share some intelligence with the inspectors about where they believe weapons might be located.

What are we going to see out of the U.N. in the next few weeks?

NEISLOSS: Well, out of the U.N. I think you're going to see -- out of the U.N. headquarters in New York you're going to see a lot of watching. In Baghdad, on the ground with weapons inspectors, you may see a change in style. It may not be apparent to the public.

The nuclear weapons side of the inspections basically said this week, "Look, we've finished the reconnaissance phase. Now we're going to move into an investigative phase." What that means is they may go back to sites two and three times. They're going to target, they're going to bring multiple teams.

But the intelligence that you mentioned is something that has frustrated inspectors over time, and they've expressed this. And finally this week, the U.S. said, "We're ready, we're going to hand you some stuff."

And it's not exactly clear how they will give it out. Reportedly, the U.S. is going to give its intelligence kind of slowly, on a piece- by-piece basis. They're very cautious about intelligence not leaking back to the Iraqis. They want to use it carefully, target it.

MALVEAUX: Liz, can you talk a little bit about the timetable? Because the sources that we spoke with this week were saying that the administration is really going to gather all of this information, they're going to analyze it. And they are looking at the end of January, the beginning of February, to actually make a decision about whether or not military action is going to be necessary, whether or not we're going to go to war.

Do you have a sense of what they're looking at, in terms of the, you know, the timetable?

NEISLOSS: Well, at the U.N., it's actually fairly clear. January 27th will be the next time that Hans Blix sits down with the Security Council members and says, "OK, here is my more thorough assessment. This is what we have found." What we saw this past week was really an initial assessment.

So January 27th could be another make-it-or-break-it date. But the U.S. this week made clear they want to hear from Hans Blix and weapons inspectors more often. So it's hard to say what will unfold.

HAYS: Liz, can I ask you about what Blix found in the documents? He says, "Nothing new." Was there anything new? And of course, the Iraqis, their little caveat was, "Well, you know, we gave you some new stuff that's in Arabic that hasn't been translated yet."

NEISLOSS: Right. And I've also heard some of the Arabic is actually literally physically hard to read on the document. So that process will continue. There were some new bits. Blix told the Security Council behind this closed-door meeting, one of the things we got was the air force, the famous air force document. Now, this is a document that a weapons inspector found in a safe at an Iraqi air force base. It apparently, according to weapons inspectors, may indicate something about what Iraq is saying about their chemical weapons. It may show that they actually have more mustard gas shells then they have actually fessed up to.

At the time, this controversial document was, I guess, in the hands of this weapons inspector, she wanted to take it with her, she sat down to take notes -- and this was back in 1998, I believe -- with Iraqis present. The Iraqis apparently started to get very nervous, snatched the document away from her, and she went back. The Security Council demanded this document. Her boss at the time actually said to her, "Well, why didn't you just stuff it in your bra?"

(LAUGHTER)

But this is the document that is actually mentioned in Blix's notes. It's hard to say whether this is the one that the weapons inspector looked at, but you know...

HAYS: Well, you know, see, women do have some advantages, places they could stuff documents potentially.

(LAUGHTER)

Liz Neisloss, thank you.

Still ahead, Wall Street prepares to fork over a billion dollars in fines, but next, we'll check in with CNN's Rym Brahimi to gauge the situation inside Iraq. Plus, the president's weekly radio address at the end of the hour. All coming up on CNN's SATURDAY EDITION. And a news alert in two minutes.

(COMMERCIAL BREAK)

(NEWSBREAK)

(BEGIN VIDEO CLIP)

ADM. AL-SAADI, IRAQI SCIENTIFIC ADVISER: We are not worried. It's the other party that is worried because there's nothing that they can pin on us. All their statements were mere allegations, not supported by evidence.

(END VIDEO CLIP)

BRAHIMI: President Saddam Hussein's top scientific adviser, General Amer al-Saadi, there, saying that if the U.S. has any information, then it should prove that Iraq still has weapons of mass destruction. Also saying that the United Nations, if it has unanswered questions on Iraq's declaration, well, Iraq is ready to answer them.

I'm Rym Brahimi in Baghdad.

A lot of things happening this week, with Iraq saying it is not in material breach. Iraq saying essentially that this is all a political game, but that the U.S.'s statement saying Iraq is in material breach don't have the ground to stand on, also not based on any scientific basis.

Iraqi officials saying, "We're prepared to answer any questions." The Iraqi newspapers also accusing the U.S. of wanting to launch a war against Iraq because it failed in Afghanistan and it failed with the economy.

STARR: Now, Rym, it's Barbara. When the Iraqis say that they are willing to answer any questions, what about this very key issue of allowing Iraqi scientists to be interviewed by the United Nations weapons inspectors? Is there any indication Baghdad will allow scientists to be interviewed or even to leave the country to be interviewed by the U.N. team?

BRAHIMI: Well, those are two separate issues, Barbara. There have been a few indications, but you've put your finger on a very -- what seems to be, at any rate, a very sore issue here, not an issue that many people have been willing to answer.

The thing that -- the part they are willing to answer about is, yes, they are going to submit to the United Nations that list of scientists exactly as the United Nations has requested it to be. It's a hierarchy list, so starting with the top of the pyramid, the top scientific people, if you will, down to the bottom of the pyramid, the technicians, people that the U.N. inspectors can interview.

Now, whether these people can be interviewed outside the country, that's something that Iraqi officials say, "Well, we haven't been asked that yet, and we'll cross that bridge when we get there." But the feeling of President Saddam Hussein's top scientific adviser, who briefed reporters a couple of days ago, he said, "Well, Hans Blix is an expert at international law. He should know what he can ask us and what he cannot ask us."

NEISLOSS: Rym, this week, actually, Hans Blix added something to that thought, and he said -- and he's expressed many times his doubts about the ability to either be a defection agency or he's not an abduction agency. But he said, look, if we take these people out, it's possible Iraq will go immediately to where they worked and destroy any evidence. So, you know, he also has a fear.

BRAHIMI: Yes, that's what the -- it seems, you know, that the Iraqis are sort of counting on Dr. Hans Blix's reluctance maybe to go that path. And so that's probably why they're not pronouncing themselves on this issue.

That said, I mean, they've come forward in terms of they will agree to submit that list, and of course they haven't told us who is going to be on that list. We understand there are probably going to be some few high-level officials. But again, the issue of them being interviewed outside of the country is a very, very delicate issue. And this was why they didn't want this resolution, this is why when they accepted the resolution they accepted it under protest, because this was specifically one of the issues that Iraq said was an attempt against its national sovereignty.

HAYS: Rym, what about the people? It's just hard for us to imagine that they wouldn't be frightened, anxious, and feeling more and more like people here feel, that there's inevitably going to be a war, and inevitably a war that the United States, in one form or another, will win.

BRAHIMI: Yes, that's a very good point you make there. You see, the people -- for weeks now, even since the inspectors have been allowed in, they always had the feeling, from what they've said at least publicly, that, well, we're having a temporary reprieve. Meaning the U.S. won't bomb us now but they will eventually find an excuse to attack us.

And now, we went out in the streets a couple of days ago, asked people that same question, what do you feel, do you think something -- and they said, "Well, of course we've been expecting that. We didn't expect the U.S. to hold its guns much longer anyway." People making plans...

HAYS: Do they support Saddam Hussein?

BRAHIMI: You see, that's something they're not prepared to say. No, they don't say that, especially not in front of a camera, definitely not.

But, you know, they do say one thing that's interesting. They say -- I think the feeling is, if any change is going to happen, they're worried about that change coming with a war. I think that's the key issue. And they're really right now thinking of, what do we do if there is a war? Do we take our kids to the countryside, do we stay in town, do we try and leave the country? There's not massive stocking, no, you know, massive buying. The supermarket shelves are still full. But that's about it.

May I just add one thing really quickly. We have some really nice pictures of Iraq's Christian minority here preparing Christmas. And, you see, in all this context, with the drums of war beating, well, they're still trying to have this -- make this as merry a Christmas as possible. We spoke to people who are buying Christmas trees in the streets, and they were saying, well, the U.S. is a Christian nation, they shouldn't be attacking us, they shouldn't be doing this. So this is essentially their message for this Christmas.

STARR: Well, we're going to look forward to seeing those pictures.

Our thanks to Rym Brahimi in Baghdad.

The possibility of war with Iraq raises concerns about the United States' ability to defend itself against missile attacks. We'll talk about the Pentagon's plans on that front as our SATURDAY EDITION continues.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, SECRETARY OF DEFENSE: We do not have a missile defense capability. The United States cannot defend itself currently against ballistic missiles coming from anywhere, from the sea or from another continent.

(END VIDEO CLIP)

STARR: Defense Secretary Donald Rumsfeld explaining the U.S. vulnerability to missile attacks.

Welcome back to CNN's SATURDAY EDITION.

This week, President Bush directed the Pentagon to have a basic missile defense system ready for use by 2004. But the results of missile defense tests have been mixed, and there are questions about how much protection the multibillion-dollar program can actually provide.

And this becomes very interesting. This is a program of about $8 billion a year in spending. Nobody has any idea how much it will eventually cost. It's aimed at protecting the United States against a possible missile attack by North Korea. That's pretty much the threat they're looking at. And this was a campaign promise, as you remember, Suzanne, by President Bush, that there will be a missile defense.

And so we had one day at the Pentagon this week of missile defense day. "We're doing a missile defense program." But there is no question that the Pentagon, turning right back to the top issue there, remains totally focused on war planning for Iraq.

MALVEAUX: How is it tied to Iraq?

STARR: Well, the issue at hand really there is, can any of these countries attack the United States with an intercontinental ballistic missile? Who is out there threatening us? Now, of course, the skeptics will tell you they ought to be a lot more worried about airplanes crashing into buildings, God forbid.

HAYS: Isn't the idea that these -- there's nobody that, right now, has the missile capability among the rogue states to get the United States with some kind of weapon of mass destruction? I mean, it seems to me that's what I read this week...

STARR: On an intercontinental ballistic missile.

HAYS: ... that they're fighting a threat -- yes, exactly, that may exist but doesn't really exist right now.

STARR: There are people... HAYS: And they're making people wonder, why don't they fight the threats we do have, like terror?

STARR: But people will tell you North Korea is a possibility in the near-term future. Skeptics will tell you the North Korean economy is in such terrible shape, they can't possibly really complete a program. But...

NEISLOSS: And, Barbara, there's a lot more concern, actually, among experts, about North Korea than about the U.S.'s major focus, Iraq.

But I am going to ask you to take out your crystal ball a little bit. All this military build-up related to Iraq, does it have something to do with the timetable and maybe not readiness or just positioning perfectly in the way that, at the U.N., there's a diplomatic positioning and laying out of various steps?

STARR: Absolutely, Liz, there's something very precise going on this week. Tommy Franks is at the White House meeting with President Bush for two days. And he tells the president, "Look, if you want to be ready for a possible war in the February/March time frame, you have to give me the thumbs-up, you have to give me the go-ahead. I have to start moving troops," he says, "and equipment and putting things into place now."

But all accounts, the window opens mid-February. That is partially weather-driven in the desert. It is partially when they will be ready, when they will have enough troops, airplanes, bombs, tanks in place to begin an initial military action. They have got to get started now, and that's what's happening.

And I just want to add in, there's another very interesting wrinkle this week. For the first time, the Pentagon is now officially openly talking about all of this because they want Saddam Hussein, they say, to see the optics, the pictures on CNN and other television networks, of thousands of troops flooding into the Gulf. They want them to see it.

MALVEAUX: So how much of this is psychological? It seems like it's really kind of a psychological, you know, battle that's going on.

STARR: The propaganda war is under way, and the news media is very aware of that. Everything they tell us is for a reason.

HAYS: And I would think that, from their side, when you read about the troops in Iraq, a third of what they had in '90, '91, in many cases. They don't have as many armaments to fight with. They really seem like kind of a tattered, rag-tag force.

STARR: The conscripts, the regular army forces really are a sad lot -- underpaid, underfed, you know, cannon fodder for Saddam Hussein, by all accounts.

But the real concern remains those weapons of mass destruction. Can the U.S. get to Saddam and get him out of power... HAYS: Will Saddam follow a scorched Earth policy?

STARR: Will he follow a scorched Earth policy.

And the other interesting thing we heard this week from a very senior military official was, what happens if the U.S. invades Iraq and the U.S. military, just like the weapons inspectors, can't find any of those weapons of mass destruction? What if they go and they don't find anything?

MALVEAUX: Are your sources saying that there's any chance we can prevent war? Or does it look like it's inevitable, at this time?

STARR: It depends, as they say, as it has for the last period of weeks and months, on Saddam. They're putting the ball in his court.

HAYS: And that's a big question mark.

A lot more questions to look at and answer, from defending the homeland to protecting investors. We'll talk about the troubles that led Wall Street to put up over a billion dollars, and what do they mean for consumers. CNN's SATURDAY EDITION will be right back.

(COMMERCIAL BREAK)

UNIDENTIFIED MALE: I think it's about time. Actually, it's too late for most of us. We lost a lot of money when we relied on recommendations from people who we had no idea at the time were making recommendations that were not objective. They had an interest, and they shouldn't have.

(END VIDEO CLIP)

HAYS: Reaction to the news that 10 of the nation's biggest brokerage firms have agreed to pay $1.5 billion to resolve conflict- of-interest allegations.

Welcome back to CNN's SATURDAY EDITION.

The firms were under investigation for allegedly misleading investors about stock information. This agreement is intended to dramatically alter the way Wall Street does business.

Certainly, a victory for New York State Attorney General Eliot Spitzer. If you think back, when he started out on this crusade, when the e-mails came to light, say, from Merrill Lynch, Internet analyst Henry Blodgett, that behind the scenes they were calling stocks dogs, pieces of crap, that the firm was still keeping a positive buy rating on. That really got people going.

But Eliot Spitzer was way out in front on this. He was not initially supported by the Securities and Exchange Commission, he didn't have much congressional support. Clearly a victory for him.

I think it's a big question, though, what it really is going to do for investors. Certainly, Wall Street firms now have to keep investment banking and research analysts separate, OK. So that means you shouldn't have that kind of shenanigans. And they're going to set up some independent research you can look at along with, you know, the brokerage house research. And beyond that, it remains to be seen, I think, what it means.

STARR: But what's the impact of $1.5 billion in penalties on Wall Street? Are these guys going to really hurt from that?

HAYS: Well, I think momentarily -- I personally think, no, not that much -- they can afford to pay it. Citigroup is ponying up the most, $300 million. Merrill, $200 million; they've already paid $100 million of it. But think of their market capitalization, billions of dollars.

And in fact, Sandy Weill, the head of Citigroup, part of this settlement was they are not -- Eliot Spitzer, anyway, isn't going to pursue him for any kinds of potential wrongdoings he may have committed, like when he allegedly asked Jack Grubman, the Star Telecom analyst, to change, upgrade his rating on AT&T so Citigroup could get the investment banking deal, or when Citigroup donated a million dollars to an Upper East Side nursery school to help get Jack Grubman's kids into school.

Now, Jack Grubman, as part of this too, we find out, barred from the securities industry for life, has to pay $15 million. It remains to be seen if there's any kind of prosecution.

And again, Barbara, what's interesting to me is, all this money being set aside, they think some of it will be earmarked for investors. They have no idea how they'll decide who gets it, because it will be very difficult for many people to prove that they bought a stock solely, mainly because of an analyst's recommendation that was flawed. A lot of us bought stocks at the top and lost money.

MALVEAUX: Does it mean a spike in the oil prices?

HAYS: A spike in oil prices regarding the...

MALVEAUX: I mean, how will that impact the market?

HAYS: Well, the spike in the oil prices has been a big deal this week. And it's interesting because, you know, up until recently when we've talked about oil prices and the economy going to slow things down, we've talked about Iraq.

STARR: Venezuela.

HAYS: But it's Venezuela.

And it's just so interesting to me, when you look at...

STARR: Nobody's noticing.

HAYS: ... the White House and where people are putting their attention, as you said, the focus now is in the Pentagon, build up troops for Iraq. And meanwhile, this Venezuelan strike drags on and on and on. It's the fourth largest supplier of crude oil to the United States. They also supply us some gasoline. Oil prices over $30 a barrel this week, and people think there's potential for them to move higher, especially once and if something goes on with Iraq.

STARR: Is that increase in oil prices now being driven more by this little-noticed situation in Venezuela rather than fears about war in the Persian Gulf?

HAYS: Absolutely. This latest spike -- in fact, I was down at the New York Mercantile Exchange this week actually talking to oil traders. And that's what they said, "Hey, the big story is Venezuela." Iraq is there in the background. It potentially will have an impact when things get going again. But Venezuela has -- and it's interesting because you think about all the supply we have in the world, right? Because there is potentially lots of supply. But in the near term, it takes about three or four weeks for the tankers to get from the Middle East to the U.S. It's only four or five days to get oil from Venezuela.

So it's a near-term, right-in-our-backyard supplier. And when things stop there, almost no exports coming out, it makes a big difference.

STARR: And while Wall Street's reacting, you know, by bits and pieces to all of that, how are they reacting to the deficit situation? Change in leadership in the Senate; very clear President Bush is going to get his tax cut policy enacted, by all accounts; deficits are going to go up. Does Wall Street have a reaction to that looming prospect?

HAYS: Well, there's two reactions. I think a lot of people on Wall Street think that the economy is still struggling, businesses aren't investing, and that businesses need some further incentive, that we need tax relief, that maybe consumers could use a little tax relief.

And as much as you can get a Bob Rubin, former treasury secretary, saying deficits are bad, many economists will say, "Hey look, right now the economy is weak. And one reason we have a deficit is because, in a weak economy, tax receipts go down."

And in fact, when you're weak, it is the time to take the steps like cutting taxes, maybe spending, to get the economy going again. Many economists will say it's OK to run the deficit up now. The question will be down the road, if you can get it back under control.

STARR: Well, it will be fascinating to see how this unfolds at a very time when war is imminent.

HAYS: Absolutely.

OK, that's it, I'm sorry to say, for our SATURDAY EDITION. But thanks so much to my colleagues, and thank all of you for watching.

A news alert is next, followed by People in the News with Denzel Washington. But first, the president's weekly radio address. GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Good morning. As families across the nation gather to celebrate Christmas, Laura and I want to extend our best wishes for the holidays.

We hope that this Christmas will be a time of happiness in your home and a time of peace in the world. In this season, we celebrate with our families, and deeply miss loved ones who are no longer with us. Thousands of families in our nation are still grieving over the terrible losses that came to them last year on September the 11th. We have not forgotten their loss, and we continue to pray for their comfort.

The Christmas season brings a deeper concern for our fellow citizens in need. Our country is prosperous, yet we must also remember there are pockets of despair in America. Some men and women are facing the struggled of illness and old age with no one to help them or pray with them. Other Americans fight against terrible addictions. Some young men have no family but a gang. Some teenage moms are abandoned and alone. And some children wonder if anybody loves them.

We all share a responsibility to help, both through our government and through individual acts of compassion. In this season of giving, I hope all Americans will look for opportunities to donate and volunteer where the need is greatest. By reaching out to a neighbor in need, we make our country a more just and generous place.

Our entire nation is also thinking at this time of year of the men and women in the military, many of whom will spend Christmas at posts and bases far from home. They stand between Americans and grave danger. They serve in the cause of peace and freedom. They wear the uniform proudly, and we are so proud of them.

I have met with these idealistic young men and women across America and around the world. I know the sacrifices they make. And in every place they serve, they can know that they have the love of their families and the gratitude of their nation.

At this time of year, we appreciate all the blessings that fill our lives, especially the great blessing that came on a holy night in Bethlehem. The Christmas story speaks to every generation. It is the story of a quiet birth in a little town on the margins of an indifferent empire. Yet that single event set the direction of history and still changes millions of lives.

For over two millennia, Christmas has carried the message that God is with us, and because he is with us, we can always live in hope.

The world we live in is very different from the world of ancient Bethlehem. Our need for that hope is still unchanged. In all the challenges and dangers of our day, we still seek the promise of peace on Earth.

Thank you for listening, and Merry Christmas.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com




for Fresh Start; Wall Street Pays $1 Billion for Mistakes>


Aired December 21, 2002 - 10:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Welcome to CNN's SATURDAY EDITION, where our journalists have the inside scoop on the stories they covered this week. I'm Suzanne Malveaux.
The White House walks a tight rope as controversial remarks force Trent Lott to bow out as the Senate's Republican leader.

DANA BASH, CNN CAPITOL HILL PRODUCER: I'm Dana Bash. Eager to leave the Lott controversy behind, Senate Republicans turn to a Tennessee lawmaker for a new leader and a fresh start.

RYM BRAHIMI, CNN CORRESPONDENT: I'm Rym Brahimi in Baghdad. I'll be coming back to you later to tell you about Iraq's message to the United States: Essentially, "If you think we're hiding weapons of mass destruction, prove it."

KATHLEEN HAYS, CNNfn CORRESPONDENT: I'm Kathleen Hays. Wall Street agrees to pony up a billion dollars for its missteps. Effective punishment or a slap on the wrist?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: And I'm Barbara Starr. The Pentagon gets a green light to begin building a missile defense. But have the kinks been ironed out for a foolproof system?

We'll be talking about all of these stories, U.N. producer Liz Neisloss will join us later, and we'll hear the president's weekly radio address at the end of the hour. But first, this news alert from CNN headquarters in Atlanta.

(NEWSBREAK)

MALVEAUX: Well, publicly, President Bush stayed above the fray over whether or not Senator Trent Lott should continue as the Senate's Republican leader. But the White House was clearly concerned about the impact of the remarks that the Mississippi lawmaker seemed to endorse racial segregation. The decision not to weigh in on Lott's political future may have been what sealed his fate.

What was very interesting about this was that it seemed as if the silence is what spoke the loudest, louder than the president's words or even his aides', whether or not Lott should go.

And clearly, there was a great deal of concern inside the White House as well as outside among Republicans. First of all, whether or not it was going to allow -- or get in the way of the Republican agenda, the White House agenda, moving forward in the next year. And, secondly, whether or not it was going to really impact or undermine the outreach to the African-American community, a very big problem the White House saw with this.

HAYS: You know, Suzanne, so many people think that there was no grief at the White House over Lott's departure and that, in fact, they were in the thick of it, behind the scenes, skillfully helping push him out the door.

MALVEAUX: The big question is whether or not the White House orchestrated this. I know that is all of the buzz. The White House insists that it did not. I ask you to make up your own minds and judge it.

Here is what our sources are telling us how it happened. When President Bush found out about these remarks, there were discussions, there were meetings that were involving Karl Rove, his chief political adviser, media advisers, Dan Bartlett, the liaison to Congress, as well, Nick Calio, all of them involved in these series of meetings, what are we going to do about this?

The president was on his way to Philadelphia on Air Force One, was going over the language with Karen Hughes. You know, she left the White House but the two of them very much in sync. What are we going to say?

He makes this speech condemning the remarks, saying they're offensive, publicly admonishing Lott, saying this is not spirit of America.

Those closest to the president say that it was in his heart, this is what he felt he had to say, but at the same time he was not unaware of what this could end up doing, the Domino effect, that that was not his intent but that they were clearly aware that that could happen, that could be the outcome.

STARR: But for a White House that is so politically savvy, they had to have known his statements, combined with the deafening silence in the days after that that you describe, that this would be the result. They can't be surprised.

MALVEAUX: Not surprised at all.

And what happened afterwards was equally as important, because then you had the comments that Lott made afterwards really didn't sit very well, did not do the job. Those inside the White House disappointed. Again, when he went on BET, disappointed that it wasn't happening. Lost the base, lost the conservative base completely when he said he was going for affirmative action. Nobody believed that that was even the case. They believed he didn't have a leg to stand on at that point.

And then you knew the handwriting was on the wall when Secretary Powell came out, admonishing him, the highest ranked African-American on the Cabinet, as well as his own brother, Governor Jeb Bush, comes out publicly as well. I mean, people knew, they understood what this would mean.

At the same time, White House saying, "Look, that was not the intent of the president." But at the same time, they realized and they understood what the possible outcome would be.

STARR: And, Dana, you've covered the Senate for so long. What's your sense of Trent Lott in all this? He seemed, to a lot of people, a little bit disconnected possibly. Did he understand what was really -- that this train had begun to leave the station, what was about to happen?

BASH: You know, just covering Trent Lott for so long, he is definitely somebody who is skeptical of the media, skeptical of any kind of big media storm, and somebody who always -- when things were written, things were said about him or about the party that he didn't agree with, he was somebody who would always come up to the person who wrote it, come up to the person who said it and say something about it to them or have an aide at least do that. So he's very aware of, and skeptical of, what goes on in the media.

But in this particular case, if you talk to people who were very close to him, they say he just kind of didn't get it, didn't get the absolute magnitude of this until it was too late. He went on vacation. He was in Florida in Key West. He didn't come back. And if you talk to people close to him, as I have, they felt that he was doing a lot -- making a lot of the decisions on strategy, on how to deal with this, on his own. He was just kind of flying by the seat of his pants, so to speak.

HAYS: But, Dana, I'm curious, what is the mood in Congress now? I mean, are people, like, disappointed that he's gone, or are they delighted that there's going to be a change of leadership? Did he, you know, did he lack sufficient friends and supporters? Had he made too many enemies over the years?

BASH: I don't think it's really that he made too many enemies, but he certainly, at the same time, he didn't necessarily have a lot of good friends who would really push for him. I mean, I think at the highest level, in terms of the vote counting, the highest number of votes that we found, and probably what he found, was about 10, maybe a dozen, who he was sure were going to go for him.

And actually, that's one thing that, just in observing all of this, I knew that part of the reason why Trent Lott, I think, pulled out in such a fast way is because he would always say to us that he is one of the best vote counters in the Senate. He's been doing it for 20 years, he knows how to count votes. And he probably counted his own votes and realized, you know, "I just don't have them. It's too late. I'm going to have to pull out."

MALVEAUX: Well, I'll tell you one thing, Dana, I spoke with a congressional aide, a Democrat, and she said, "Look, you know, he was going to be the poster boy for bad behavior, anywhere from judges' nominations, anything dealing with affirmative action, dealing with race." And so some of the Democrats, of course, they were -- you know, it's really a mixed bag. They were kind of upset about it. They said, "Well, yeah, it's the right decision, but politically, it works very well for the Republicans."

And I have to say, Nick Calio, who's the legislative liaison for the president, he was very adamant that the White House not get involved in the process. Because he was aware of the potential backlash, Dana, as you know, that would come from the senators if they got too heavily involved in this. But there was a real debate in the White House about how they should really handle this, how aggressive they should be.

BASH: And, you know, the interesting thin in kind of watching the way the White House handled this throughout the past couple of weeks, it's almost like they took a page from Bill Clinton's play book, or at least Dick Morris, the political strategist, Dick Morris' play book, of triangulation. The White House is very careful to separate themselves from Trent Lott and anything that he said that could have been construed as racially insensitive, and to Democrats.

And they really did a good job of having Ari Fleischer get out there every single day and talk about what the president wants to do, what the president wants to do for civil rights. And it really, in an ironic way, gave the White House an opportunity to talk about the president's civil rights initiatives, to talk about the president's civil rights agenda in a way that they might not have been able to do, or at least get any traction on, had this controversy not erupted.

HAYS: Yes. Well, it's interesting how Wall Street reacted, because I think, you know, one of the factors cited for Wall Street doing better on Friday after (inaudible) so poorly was just getting it settled, getting it behind the president. Presumably, the idea now, the White House is free to continue to pursue its agenda. And I think the worry was that this could have derailed things a bit.

BASH: Well, Kathleen, if the Lott controversy proved anything, it's that political fortunes can sink or soar over night. We'll talk about Trent Lott's likely successor, Bill Frist, and where Republicans go from here, when CNN's SATURDAY EDITION continues.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. LINCOLN CHAFEE (R), RHODE ISLAND: I don't think any of us are really happy with the apologies. And that was the difficult part. The Friday press conference just didn't connect with the American people, and I think many of us felt that this was going to be just an ongoing controversy.

(END VIDEO CLIP)

BASH: Rhode Island Senator Lincoln Chafee, the first Republican on Capitol Hill to call for colleague Trent Lott's resignation.

Welcome back to CNN's SATURDAY EDITION.

Even before Senator Lott announced that he would step aside, the jockeying to replace him as Republican leader had already begun. And by last night, it became evident that Bill Frist of Tennessee was almost certain to win out.

And I have to tell you, talking to Democrats last night on Capitol Hill, who were licking their chops about all the controversy surrounding Trent Lott, were kind of wincing when they realized that Bill Frist was going to be the new Republican leader, because they think that Republicans have actually scored a political coup here.

Because even though Bill Frist is a Southern conservative -- he's a conservative Republican, he's somebody who comes across as very affable, very friendly, very -- comes across as very mainstream. He's a heart surgeon who spends his recess in Africa on his own dime performing heart surgery on the needy in Africa. And he's known as a go-to guy around the Capitol on health care issues. He is known to help tourists in the Capitol who collapse, run to their aid, help them...

MALVEAUX: He sounds like a Superman.

BASH: He does sound like a Superman.

Now, that's what he's known as. But you can bet that Democrats have already started to flip through his record and try to find any black marks at all. They're already bringing up the fact that his family owns a huge health care company that has been investigated for fraud. And they're going to dig a lot into issues like that, no question about it.

STARR: But, Dana, this very seemingly nice, affable, intellectual senator -- obviously, not too far beneath the surface is a very skilled political operative. This coup apparently happened over a period of hours. How did he pull it off?

BASH: You know, it's really amazing. It's as if he took the course in How To Be a Majority Leader 101. When you talk to people who have been around the Hill for a long time and you say, how do these leadership races work in this club, the Senate? And it's really, the bottom line is you have to come out early, and you have to come out loudly. And that's exactly what Bill Frist did. And it just so happens that he is a likable guy.

And the ironic thing is that he did it despite the fact that he's very close with the White House. Because there are a lot of senators who do not take kindly to having somebody who they think the White House is essentially shoving down their throats as their own leader.

HAYS: But, Dana, I think that's a very important point for people who are outside the Beltway, people on Wall Street, citizens, to say, OK, great, he won, he's obviously a skillful guy. But is he just -- is he simply merely like the mouthpiece, the rubber stamp for the White House policies? If you support the White House, nothing wrong with that. Is there any way in which he's a guy who has a vision or an agenda that's going to shape this uniquely in a Bill Frist kind of way?

BASH: Well, there's no question that he is extremely close with the White House. He was the liaison for the Bush campaign to the Senate way back in 2000. He worked hand-in-hand with them as the chairman of the National Republican Senatorial Committee, the person who got the majority of Republicans elected this past election year. So he is very close with them.

However, he is known to kind of be a leader on very specific issues, health care issues, and to go out and really forge compromise on issues like Medicare. He worked a lot on bioterrorism legislation. So he certainly has worked across party lines, with people like Ted Kennedy, not exactly a Republican guy.

MALVEAUX: Can you talk about his record, though? I mean, I'm hearing that it's very similar to Senator Lott's, that there's not very much difference between the two. And I'm really wondering, how is that going to play in terms of the Republican agenda, the White House agenda, if you have someone who has voted very similarly when it comes to race relations, affirmative action, things like that. Are we seeing someone who is pretty much recycled in terms of those issues?

BASH: Well, he's not far apart from Trent Lott in terms of his voting record, but again, it's that demeanor he has that the Republicans are hoping can kind of help change the face of the Republican Party, so to speak, and change the way that they approach things.

And certainly, like we talked about before, this episode with Trent Lott is going to propel the issue of civil rights into the forefront. And the president has already been trying to work on issues like his faith-based initiative, which he thinks will help reach out to African-Americans, and he hopes that Bill Frist will be the guy to do that.

MALVEAUX: Dana, real quick what happens to Lott, what happens to Lott now? I mean, there's talk about this soft landing, a cushy position, but that doesn't look like that's happening.

BASH: It's not. You know, it might happen, because there is so much good will toward him now because he didn't let this thing drag out until January 6, which is what it was supposed to do.

But what's interesting about Lott, just in covering the guy, is, you know, you have to realize that he has this humongous real estate in the Capitol, palatial offices, tons of staff in the Capitol, security, access to world leaders, access to the White House, as majority leader. And now he is going to be the junior senator from the state of Mississippi. What a difference. It is going to be a world of difference for Trent Lott.

MALVEAUX: Well, thanks a lot, Dana Bash.

And from the shakeup in the Senate to the showdown with Iraq, we'll talk with U.N. producer Liz Neisloss about the reaction to Iraq's weapons declaration and what it means for the possibility of war, when CNN's SATURDAY EDITION continues.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

HANS BLIX, CHIEF U.N. WEAPONS INSPECTOR: It's evidence that we are missing. If you are sure that they had a program, say, on anthrax or on VX, well, then you can say they omitted information about that, because there wasn't much on it.

(END VIDEO CLIP)

LIZ NEISLOSS, CNN PRODUCER: That's chief U.N. weapons inspector Hans Blix saying Iraq's 12,000-page weapons declaration adds up to a missed opportunity.

Welcome back to CNN's SATURDAY EDITION. I'm Liz Neisloss.

This week at the United Nations, Hans Blix and his nuclear weapons counterpart, Mohamed El-Baradei, gave the Security Council their first thoughts on this massive document. They told the Council it's a lot of rehashed material, and in some places, it actually appears to contradict what weapons inspectors already know.

Now, not surprisingly, the U.S., inside a closed-door meeting and publicly, said this document is deception, it's lies, and it's not enough.

MALVEAUX: Now, Liz, I understand, too, they said that Iraq was in material breach. What does that mean exactly? Because I thought that was language that would really trigger military action, if it's true that there's a zero-tolerance policy.

NEISLOSS: Well, actually, many of us thought that as well. Material breach, in short, means that a treaty has been broken. That's the legal definition. In this case, it refers to the resolution, the ceasefire resolution after the Gulf War. And so, the fact that the U.S. has not actually made a brisk move toward military action was a very interesting signal.

HAYS: So what is the signal? What's the U.S. strategy? I think a lot of people figure they're not declaring war more quickly because they have to get the ducks in a row militarily before they can really do that.

NEISLOSS: Well, it's pretty much that. And it was interpreted at the U.N. this week as laying the groundwork, building the case. And Colin Powell, I think, spelled it out very clearly. He said, "Look, we are putting out a body of evidence," but he also gave a warning at the end of that. He said, "We are not optimistic. We're very disappointed. It basically doesn't look good."

But diplomats see this as the U.S. way of being very cautious, building a political case. One, maybe morbid but perhaps accurate analogy was, look, this is one nail in the coffin for Iraq from the U.S. perspective. They need more nails. How many nails they need is not yet clear. But they're going to move through this very methodically.

STARR: Liz, what are we going to see over this next few weeks from the U.N. weapons inspection process? We have heard that they are going to press ahead, that the U.S. is now going to offer -- and the British are going to offer to share some intelligence with the inspectors about where they believe weapons might be located.

What are we going to see out of the U.N. in the next few weeks?

NEISLOSS: Well, out of the U.N. I think you're going to see -- out of the U.N. headquarters in New York you're going to see a lot of watching. In Baghdad, on the ground with weapons inspectors, you may see a change in style. It may not be apparent to the public.

The nuclear weapons side of the inspections basically said this week, "Look, we've finished the reconnaissance phase. Now we're going to move into an investigative phase." What that means is they may go back to sites two and three times. They're going to target, they're going to bring multiple teams.

But the intelligence that you mentioned is something that has frustrated inspectors over time, and they've expressed this. And finally this week, the U.S. said, "We're ready, we're going to hand you some stuff."

And it's not exactly clear how they will give it out. Reportedly, the U.S. is going to give its intelligence kind of slowly, on a piece- by-piece basis. They're very cautious about intelligence not leaking back to the Iraqis. They want to use it carefully, target it.

MALVEAUX: Liz, can you talk a little bit about the timetable? Because the sources that we spoke with this week were saying that the administration is really going to gather all of this information, they're going to analyze it. And they are looking at the end of January, the beginning of February, to actually make a decision about whether or not military action is going to be necessary, whether or not we're going to go to war.

Do you have a sense of what they're looking at, in terms of the, you know, the timetable?

NEISLOSS: Well, at the U.N., it's actually fairly clear. January 27th will be the next time that Hans Blix sits down with the Security Council members and says, "OK, here is my more thorough assessment. This is what we have found." What we saw this past week was really an initial assessment.

So January 27th could be another make-it-or-break-it date. But the U.S. this week made clear they want to hear from Hans Blix and weapons inspectors more often. So it's hard to say what will unfold.

HAYS: Liz, can I ask you about what Blix found in the documents? He says, "Nothing new." Was there anything new? And of course, the Iraqis, their little caveat was, "Well, you know, we gave you some new stuff that's in Arabic that hasn't been translated yet."

NEISLOSS: Right. And I've also heard some of the Arabic is actually literally physically hard to read on the document. So that process will continue. There were some new bits. Blix told the Security Council behind this closed-door meeting, one of the things we got was the air force, the famous air force document. Now, this is a document that a weapons inspector found in a safe at an Iraqi air force base. It apparently, according to weapons inspectors, may indicate something about what Iraq is saying about their chemical weapons. It may show that they actually have more mustard gas shells then they have actually fessed up to.

At the time, this controversial document was, I guess, in the hands of this weapons inspector, she wanted to take it with her, she sat down to take notes -- and this was back in 1998, I believe -- with Iraqis present. The Iraqis apparently started to get very nervous, snatched the document away from her, and she went back. The Security Council demanded this document. Her boss at the time actually said to her, "Well, why didn't you just stuff it in your bra?"

(LAUGHTER)

But this is the document that is actually mentioned in Blix's notes. It's hard to say whether this is the one that the weapons inspector looked at, but you know...

HAYS: Well, you know, see, women do have some advantages, places they could stuff documents potentially.

(LAUGHTER)

Liz Neisloss, thank you.

Still ahead, Wall Street prepares to fork over a billion dollars in fines, but next, we'll check in with CNN's Rym Brahimi to gauge the situation inside Iraq. Plus, the president's weekly radio address at the end of the hour. All coming up on CNN's SATURDAY EDITION. And a news alert in two minutes.

(COMMERCIAL BREAK)

(NEWSBREAK)

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ADM. AL-SAADI, IRAQI SCIENTIFIC ADVISER: We are not worried. It's the other party that is worried because there's nothing that they can pin on us. All their statements were mere allegations, not supported by evidence.

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BRAHIMI: President Saddam Hussein's top scientific adviser, General Amer al-Saadi, there, saying that if the U.S. has any information, then it should prove that Iraq still has weapons of mass destruction. Also saying that the United Nations, if it has unanswered questions on Iraq's declaration, well, Iraq is ready to answer them.

I'm Rym Brahimi in Baghdad.

A lot of things happening this week, with Iraq saying it is not in material breach. Iraq saying essentially that this is all a political game, but that the U.S.'s statement saying Iraq is in material breach don't have the ground to stand on, also not based on any scientific basis.

Iraqi officials saying, "We're prepared to answer any questions." The Iraqi newspapers also accusing the U.S. of wanting to launch a war against Iraq because it failed in Afghanistan and it failed with the economy.

STARR: Now, Rym, it's Barbara. When the Iraqis say that they are willing to answer any questions, what about this very key issue of allowing Iraqi scientists to be interviewed by the United Nations weapons inspectors? Is there any indication Baghdad will allow scientists to be interviewed or even to leave the country to be interviewed by the U.N. team?

BRAHIMI: Well, those are two separate issues, Barbara. There have been a few indications, but you've put your finger on a very -- what seems to be, at any rate, a very sore issue here, not an issue that many people have been willing to answer.

The thing that -- the part they are willing to answer about is, yes, they are going to submit to the United Nations that list of scientists exactly as the United Nations has requested it to be. It's a hierarchy list, so starting with the top of the pyramid, the top scientific people, if you will, down to the bottom of the pyramid, the technicians, people that the U.N. inspectors can interview.

Now, whether these people can be interviewed outside the country, that's something that Iraqi officials say, "Well, we haven't been asked that yet, and we'll cross that bridge when we get there." But the feeling of President Saddam Hussein's top scientific adviser, who briefed reporters a couple of days ago, he said, "Well, Hans Blix is an expert at international law. He should know what he can ask us and what he cannot ask us."

NEISLOSS: Rym, this week, actually, Hans Blix added something to that thought, and he said -- and he's expressed many times his doubts about the ability to either be a defection agency or he's not an abduction agency. But he said, look, if we take these people out, it's possible Iraq will go immediately to where they worked and destroy any evidence. So, you know, he also has a fear.

BRAHIMI: Yes, that's what the -- it seems, you know, that the Iraqis are sort of counting on Dr. Hans Blix's reluctance maybe to go that path. And so that's probably why they're not pronouncing themselves on this issue.

That said, I mean, they've come forward in terms of they will agree to submit that list, and of course they haven't told us who is going to be on that list. We understand there are probably going to be some few high-level officials. But again, the issue of them being interviewed outside of the country is a very, very delicate issue. And this was why they didn't want this resolution, this is why when they accepted the resolution they accepted it under protest, because this was specifically one of the issues that Iraq said was an attempt against its national sovereignty.

HAYS: Rym, what about the people? It's just hard for us to imagine that they wouldn't be frightened, anxious, and feeling more and more like people here feel, that there's inevitably going to be a war, and inevitably a war that the United States, in one form or another, will win.

BRAHIMI: Yes, that's a very good point you make there. You see, the people -- for weeks now, even since the inspectors have been allowed in, they always had the feeling, from what they've said at least publicly, that, well, we're having a temporary reprieve. Meaning the U.S. won't bomb us now but they will eventually find an excuse to attack us.

And now, we went out in the streets a couple of days ago, asked people that same question, what do you feel, do you think something -- and they said, "Well, of course we've been expecting that. We didn't expect the U.S. to hold its guns much longer anyway." People making plans...

HAYS: Do they support Saddam Hussein?

BRAHIMI: You see, that's something they're not prepared to say. No, they don't say that, especially not in front of a camera, definitely not.

But, you know, they do say one thing that's interesting. They say -- I think the feeling is, if any change is going to happen, they're worried about that change coming with a war. I think that's the key issue. And they're really right now thinking of, what do we do if there is a war? Do we take our kids to the countryside, do we stay in town, do we try and leave the country? There's not massive stocking, no, you know, massive buying. The supermarket shelves are still full. But that's about it.

May I just add one thing really quickly. We have some really nice pictures of Iraq's Christian minority here preparing Christmas. And, you see, in all this context, with the drums of war beating, well, they're still trying to have this -- make this as merry a Christmas as possible. We spoke to people who are buying Christmas trees in the streets, and they were saying, well, the U.S. is a Christian nation, they shouldn't be attacking us, they shouldn't be doing this. So this is essentially their message for this Christmas.

STARR: Well, we're going to look forward to seeing those pictures.

Our thanks to Rym Brahimi in Baghdad.

The possibility of war with Iraq raises concerns about the United States' ability to defend itself against missile attacks. We'll talk about the Pentagon's plans on that front as our SATURDAY EDITION continues.

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DONALD RUMSFELD, SECRETARY OF DEFENSE: We do not have a missile defense capability. The United States cannot defend itself currently against ballistic missiles coming from anywhere, from the sea or from another continent.

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STARR: Defense Secretary Donald Rumsfeld explaining the U.S. vulnerability to missile attacks.

Welcome back to CNN's SATURDAY EDITION.

This week, President Bush directed the Pentagon to have a basic missile defense system ready for use by 2004. But the results of missile defense tests have been mixed, and there are questions about how much protection the multibillion-dollar program can actually provide.

And this becomes very interesting. This is a program of about $8 billion a year in spending. Nobody has any idea how much it will eventually cost. It's aimed at protecting the United States against a possible missile attack by North Korea. That's pretty much the threat they're looking at. And this was a campaign promise, as you remember, Suzanne, by President Bush, that there will be a missile defense.

And so we had one day at the Pentagon this week of missile defense day. "We're doing a missile defense program." But there is no question that the Pentagon, turning right back to the top issue there, remains totally focused on war planning for Iraq.

MALVEAUX: How is it tied to Iraq?

STARR: Well, the issue at hand really there is, can any of these countries attack the United States with an intercontinental ballistic missile? Who is out there threatening us? Now, of course, the skeptics will tell you they ought to be a lot more worried about airplanes crashing into buildings, God forbid.

HAYS: Isn't the idea that these -- there's nobody that, right now, has the missile capability among the rogue states to get the United States with some kind of weapon of mass destruction? I mean, it seems to me that's what I read this week...

STARR: On an intercontinental ballistic missile.

HAYS: ... that they're fighting a threat -- yes, exactly, that may exist but doesn't really exist right now.

STARR: There are people... HAYS: And they're making people wonder, why don't they fight the threats we do have, like terror?

STARR: But people will tell you North Korea is a possibility in the near-term future. Skeptics will tell you the North Korean economy is in such terrible shape, they can't possibly really complete a program. But...

NEISLOSS: And, Barbara, there's a lot more concern, actually, among experts, about North Korea than about the U.S.'s major focus, Iraq.

But I am going to ask you to take out your crystal ball a little bit. All this military build-up related to Iraq, does it have something to do with the timetable and maybe not readiness or just positioning perfectly in the way that, at the U.N., there's a diplomatic positioning and laying out of various steps?

STARR: Absolutely, Liz, there's something very precise going on this week. Tommy Franks is at the White House meeting with President Bush for two days. And he tells the president, "Look, if you want to be ready for a possible war in the February/March time frame, you have to give me the thumbs-up, you have to give me the go-ahead. I have to start moving troops," he says, "and equipment and putting things into place now."

But all accounts, the window opens mid-February. That is partially weather-driven in the desert. It is partially when they will be ready, when they will have enough troops, airplanes, bombs, tanks in place to begin an initial military action. They have got to get started now, and that's what's happening.

And I just want to add in, there's another very interesting wrinkle this week. For the first time, the Pentagon is now officially openly talking about all of this because they want Saddam Hussein, they say, to see the optics, the pictures on CNN and other television networks, of thousands of troops flooding into the Gulf. They want them to see it.

MALVEAUX: So how much of this is psychological? It seems like it's really kind of a psychological, you know, battle that's going on.

STARR: The propaganda war is under way, and the news media is very aware of that. Everything they tell us is for a reason.

HAYS: And I would think that, from their side, when you read about the troops in Iraq, a third of what they had in '90, '91, in many cases. They don't have as many armaments to fight with. They really seem like kind of a tattered, rag-tag force.

STARR: The conscripts, the regular army forces really are a sad lot -- underpaid, underfed, you know, cannon fodder for Saddam Hussein, by all accounts.

But the real concern remains those weapons of mass destruction. Can the U.S. get to Saddam and get him out of power... HAYS: Will Saddam follow a scorched Earth policy?

STARR: Will he follow a scorched Earth policy.

And the other interesting thing we heard this week from a very senior military official was, what happens if the U.S. invades Iraq and the U.S. military, just like the weapons inspectors, can't find any of those weapons of mass destruction? What if they go and they don't find anything?

MALVEAUX: Are your sources saying that there's any chance we can prevent war? Or does it look like it's inevitable, at this time?

STARR: It depends, as they say, as it has for the last period of weeks and months, on Saddam. They're putting the ball in his court.

HAYS: And that's a big question mark.

A lot more questions to look at and answer, from defending the homeland to protecting investors. We'll talk about the troubles that led Wall Street to put up over a billion dollars, and what do they mean for consumers. CNN's SATURDAY EDITION will be right back.

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UNIDENTIFIED MALE: I think it's about time. Actually, it's too late for most of us. We lost a lot of money when we relied on recommendations from people who we had no idea at the time were making recommendations that were not objective. They had an interest, and they shouldn't have.

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HAYS: Reaction to the news that 10 of the nation's biggest brokerage firms have agreed to pay $1.5 billion to resolve conflict- of-interest allegations.

Welcome back to CNN's SATURDAY EDITION.

The firms were under investigation for allegedly misleading investors about stock information. This agreement is intended to dramatically alter the way Wall Street does business.

Certainly, a victory for New York State Attorney General Eliot Spitzer. If you think back, when he started out on this crusade, when the e-mails came to light, say, from Merrill Lynch, Internet analyst Henry Blodgett, that behind the scenes they were calling stocks dogs, pieces of crap, that the firm was still keeping a positive buy rating on. That really got people going.

But Eliot Spitzer was way out in front on this. He was not initially supported by the Securities and Exchange Commission, he didn't have much congressional support. Clearly a victory for him.

I think it's a big question, though, what it really is going to do for investors. Certainly, Wall Street firms now have to keep investment banking and research analysts separate, OK. So that means you shouldn't have that kind of shenanigans. And they're going to set up some independent research you can look at along with, you know, the brokerage house research. And beyond that, it remains to be seen, I think, what it means.

STARR: But what's the impact of $1.5 billion in penalties on Wall Street? Are these guys going to really hurt from that?

HAYS: Well, I think momentarily -- I personally think, no, not that much -- they can afford to pay it. Citigroup is ponying up the most, $300 million. Merrill, $200 million; they've already paid $100 million of it. But think of their market capitalization, billions of dollars.

And in fact, Sandy Weill, the head of Citigroup, part of this settlement was they are not -- Eliot Spitzer, anyway, isn't going to pursue him for any kinds of potential wrongdoings he may have committed, like when he allegedly asked Jack Grubman, the Star Telecom analyst, to change, upgrade his rating on AT&T so Citigroup could get the investment banking deal, or when Citigroup donated a million dollars to an Upper East Side nursery school to help get Jack Grubman's kids into school.

Now, Jack Grubman, as part of this too, we find out, barred from the securities industry for life, has to pay $15 million. It remains to be seen if there's any kind of prosecution.

And again, Barbara, what's interesting to me is, all this money being set aside, they think some of it will be earmarked for investors. They have no idea how they'll decide who gets it, because it will be very difficult for many people to prove that they bought a stock solely, mainly because of an analyst's recommendation that was flawed. A lot of us bought stocks at the top and lost money.

MALVEAUX: Does it mean a spike in the oil prices?

HAYS: A spike in oil prices regarding the...

MALVEAUX: I mean, how will that impact the market?

HAYS: Well, the spike in the oil prices has been a big deal this week. And it's interesting because, you know, up until recently when we've talked about oil prices and the economy going to slow things down, we've talked about Iraq.

STARR: Venezuela.

HAYS: But it's Venezuela.

And it's just so interesting to me, when you look at...

STARR: Nobody's noticing.

HAYS: ... the White House and where people are putting their attention, as you said, the focus now is in the Pentagon, build up troops for Iraq. And meanwhile, this Venezuelan strike drags on and on and on. It's the fourth largest supplier of crude oil to the United States. They also supply us some gasoline. Oil prices over $30 a barrel this week, and people think there's potential for them to move higher, especially once and if something goes on with Iraq.

STARR: Is that increase in oil prices now being driven more by this little-noticed situation in Venezuela rather than fears about war in the Persian Gulf?

HAYS: Absolutely. This latest spike -- in fact, I was down at the New York Mercantile Exchange this week actually talking to oil traders. And that's what they said, "Hey, the big story is Venezuela." Iraq is there in the background. It potentially will have an impact when things get going again. But Venezuela has -- and it's interesting because you think about all the supply we have in the world, right? Because there is potentially lots of supply. But in the near term, it takes about three or four weeks for the tankers to get from the Middle East to the U.S. It's only four or five days to get oil from Venezuela.

So it's a near-term, right-in-our-backyard supplier. And when things stop there, almost no exports coming out, it makes a big difference.

STARR: And while Wall Street's reacting, you know, by bits and pieces to all of that, how are they reacting to the deficit situation? Change in leadership in the Senate; very clear President Bush is going to get his tax cut policy enacted, by all accounts; deficits are going to go up. Does Wall Street have a reaction to that looming prospect?

HAYS: Well, there's two reactions. I think a lot of people on Wall Street think that the economy is still struggling, businesses aren't investing, and that businesses need some further incentive, that we need tax relief, that maybe consumers could use a little tax relief.

And as much as you can get a Bob Rubin, former treasury secretary, saying deficits are bad, many economists will say, "Hey look, right now the economy is weak. And one reason we have a deficit is because, in a weak economy, tax receipts go down."

And in fact, when you're weak, it is the time to take the steps like cutting taxes, maybe spending, to get the economy going again. Many economists will say it's OK to run the deficit up now. The question will be down the road, if you can get it back under control.

STARR: Well, it will be fascinating to see how this unfolds at a very time when war is imminent.

HAYS: Absolutely.

OK, that's it, I'm sorry to say, for our SATURDAY EDITION. But thanks so much to my colleagues, and thank all of you for watching.

A news alert is next, followed by People in the News with Denzel Washington. But first, the president's weekly radio address. GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Good morning. As families across the nation gather to celebrate Christmas, Laura and I want to extend our best wishes for the holidays.

We hope that this Christmas will be a time of happiness in your home and a time of peace in the world. In this season, we celebrate with our families, and deeply miss loved ones who are no longer with us. Thousands of families in our nation are still grieving over the terrible losses that came to them last year on September the 11th. We have not forgotten their loss, and we continue to pray for their comfort.

The Christmas season brings a deeper concern for our fellow citizens in need. Our country is prosperous, yet we must also remember there are pockets of despair in America. Some men and women are facing the struggled of illness and old age with no one to help them or pray with them. Other Americans fight against terrible addictions. Some young men have no family but a gang. Some teenage moms are abandoned and alone. And some children wonder if anybody loves them.

We all share a responsibility to help, both through our government and through individual acts of compassion. In this season of giving, I hope all Americans will look for opportunities to donate and volunteer where the need is greatest. By reaching out to a neighbor in need, we make our country a more just and generous place.

Our entire nation is also thinking at this time of year of the men and women in the military, many of whom will spend Christmas at posts and bases far from home. They stand between Americans and grave danger. They serve in the cause of peace and freedom. They wear the uniform proudly, and we are so proud of them.

I have met with these idealistic young men and women across America and around the world. I know the sacrifices they make. And in every place they serve, they can know that they have the love of their families and the gratitude of their nation.

At this time of year, we appreciate all the blessings that fill our lives, especially the great blessing that came on a holy night in Bethlehem. The Christmas story speaks to every generation. It is the story of a quiet birth in a little town on the margins of an indifferent empire. Yet that single event set the direction of history and still changes millions of lives.

For over two millennia, Christmas has carried the message that God is with us, and because he is with us, we can always live in hope.

The world we live in is very different from the world of ancient Bethlehem. Our need for that hope is still unchanged. In all the challenges and dangers of our day, we still seek the promise of peace on Earth.

Thank you for listening, and Merry Christmas.

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for Fresh Start; Wall Street Pays $1 Billion for Mistakes>