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On the Story

A look at Investigation, Political uproar over CIA Idenity Leak; Will New Allegations Hurt Schwarznegger Days Before Recall?

Aired October 04, 2003 - 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.


DANA BASH, CNN WHITE HOUSE CORRESPONDENT: Welcome to CNN's ON THE STORY, where our journalists have the inside word on the stories we covered this week. I'm Dana Bash, on the story of the investigation and political uproar this week over the leak of a CIA operative's identity.
BARBARA STARR, CNN PENTAGON CORRESPONDENT: I'm Barbara Starr, on the story of the widening espionage investigation inside the U.S. military, where the U.S. detained some of the most dangerous terror suspects.

KELLY WALLACE, CNN NATIONAL CORRESPONDENT: I'm Kelly Wallace in California, where Arnold Schwarzenegger hopes allegations he groped women and spoke admiringly of Adolph Hitler won't cost him the lead in the final days of the recall vote.

KELLY ARENA, CNN JUSTICE DEPARTMENT CORRESPONDENT: I'm Kelly Arena, in Atlanta, on the story of why a federal judge this week slapped down federal prosecutors in the case against a top terrorism suspect, saying no death penalty, no reference to 9/11, when the case moves to trial.

KATHLEEN HAYS, CNN CORRESPONDENT: And I'm Kathleen Hays, on the story of a whiplash stock market, those hard-to-shake doubts about this recovery. And we're going to wake up sports correspondent Josie Burke in Hawaii. She's been waiting for Kobe Bryant to arrive in training camp just before his preliminary hearing next week on a charge of sexual assault. She's also going to discuss how race and football sapped talk meister Rush Limbaugh.

We'll listen to the president's weekly radio address at the end of the hour. If you have any thoughts, email us at onthestory@cnn.com.

Now straight to Dana Bash, and spies, leaks and politics.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: If there's a leak out of my administration, I want to know who it is. And if the person has violated a law, that person will be taken care of.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

SEN. CHARLES SCHUMER (D), NEW YORK: What has gone on in this case is one of the most dastardly, despicable things that I have seen in my more than 20 years in Washington.

(END VIDEO CLIP)

BASH: "We'll take care of it," says President Bush, hammered in the headlines and roughed up by Democrats over the leak of the identity of a CIA operative whose husband, former Ambassador Joe Wilson, has criticized the administration and the intelligence it publicized before the war in Iraq. And Tuesday, I was at the White House at the crack of dawn, and I was called to White House spokesman Scott McClellan's office, where he told myself and other reporters who were crazy enough to be there at that hour that there was, in fact, a full blown investigation of this case, and that the White House was asked to hold on to any and all documents that could be related to it.

And as he was telling us the story, on his computer an e-mail popped up from the White House counsel that was sent to him, and everybody else at the White House, saying that they should hold on to those documents. And by yesterday, they were told, in another e-mail, by Tuesday at 5:00, everybody who has anything relating to Ambassador Wilson or his wife or any of the journalists involved, they need to give it over to the Justice Department.

WALLACE: Dana, we were watching those briefings this week with school Scott McClellan. He was getting pummeled by reporters, including yourself. What is going on behind the scenes? How worried are White House aides about this, and what is the strategy to deal with it?

BASH: That's a good question, Kelly. And, actually, I'll tell you the story to sort of illustrate it.

The day after the first briefing, where Scott McClellan got a lot of questions -- I actually counted 80 one day on this subject -- I got an e-mail from a Republican aide in Congress to somebody who is pretty close to the White House, soliciting me, telling me that his boss wanted to come on camera and talk about the subject, not only to defend the White House, and to defend the president, but also to criticize Ambassador Joe Wilson as somebody who was a Democrat, somebody who has contributed to Senator Kerry's campaign.

So the White House is letting their friends in Congress, the RNC, attack Joe Wilson, and Democrats in general, for politicizing this issue, while at the White House, they're being very careful to say, time and time again, that they're promising to cooperate. The president thinks this is an outrage. And they're going to do whatever they can to get to the bottom of it.

ARENA: Dana, the guessing game obviously in full swing. But a lot of attention being focused on the office of the vice president. Some heat being felt over there?

BASH: Well, it's interesting that you ask that question, because when you talk to anybody who works at the White House about trying to get a real sense of the mood, what is the mood -- I mean, this is the first time this White House, the Bush White House, has gotten these kinds of requests on this kind of story, with this kind of political magnitude. We certainly heard about it a lot during the Clinton years.

But they say, you know, we are a business -- the Bush White House, they say, is run like a business. And they're still very much a businesslike atmosphere. We're doing what we are told, but nobody is running through the hallways with their hair on fire.

As a matter of fact, somebody said to me that they were getting criticized for almost being in denial because they were focused on just doing their work. So it's hard to get a real sense that there's a real fear inside the White House.

ARENA: Well also, Dana, it's probably important to point out that this investigation goes way beyond the White House...

BASH: That's right.

ARENA: It includes the State and the Pentagon and the CIA. So this leak could have come from a variety of places. I'm sorry, I just cut somebody off.

STARR: But the question, I think, that really is going to emerge over the next few days is, what about the Republicans? Right now, appear to be supporting the White House, supporting President Bush on this. How worried is the White House that they can hold their Republican allies, and how do they justify not asking, not supporting an independent look at all of this, since John Ashcroft is one of the president's closest allies?

BASH: That's a very good question. So far, in general, there haven't been any Republican cracks, so to speak. I mean, they have been generally in lockstep. There was one indication from Senator Arlen Spector, another from Senator Olympia Snowe, both Republican, who suggest perhaps that John Ashcroft, the attorney general, should consider stepping aside and letting others take over because of his close ties to the White House. Obviously, he's a Bush appointee.

But in terms of the special prosecutor, they are saying that they believe -- and Kelly Arena can speak to this -- that they believe that this is going to be done by career professionals. The person in charge of the investigation's a 30-year career Justice Department investigator. He's been working on issues like this for a long time. And they say that these are professionals who can do this without worrying about conflicts of interest. And that's how they're deflecting this so far.

HAYS: Dana, what I want to ask you about is something that I know we actually talked about earlier in the week, and that was "The Washington Post" article that really stunned me and makes me think about what is going on at this White House? Because they talked supposedly about a senior administration official who basically kind of ratted on to other administration officials who were feeding this information to apparently six journalists before Robert Novak even picked it up.

It makes you wonder, what is going on? What kind of, you know, castle politics or whatever are going on over at the White House? It's supposed to be so well run, a tight ship. It's not looking so tight right now.

BASH: Well, those are certainly their allegations from Democrats, saying that -- I mean, this is sort of how the whole thing started, is that Ambassador Wilson said that somebody at the White House or in the administration was trying to sort of get back at him for criticizing the administration by going through his wife and, in the end, sort of outing his wife's identity as a CIA agent. But they are essentially making -- staying away from the whole political part of it, and they're trying to keep this whole question within the confines of the investigation and the legal question now.

HAYS: But Wilson says he'll give up the names of the people who talked to him if the FBI asks him, no?

BASH: Wilson is saying that. And that is probably going to be part of the Justice Department investigation, absolutely.

WALLACE: Dana, put this in perspective. Dana, I was going to ask you, you had David Kay coming out, looking into whether there are any weapons of mass destruction in Iraq. And obviously, he's come forward saying nothing just yet.

You had the president coming out trying to speak positively about this report. This, on top of this non-stop reporting about the CIA leak, dropping poll numbers. I mean, behind the scenes there has to be a lot of concern right now about all these stories together and the president's popularity in the country.

BASH: Kelly, it was really interesting to watch what happened yesterday. You mentioned the weapons of mass destruction issue. David Kay, who has been searching for a couple of months in Iraq for any weapons of mass destruction or programs, went to Congress on Thursday and said that there really weren't any weapons found so far. That was what all of the newspapers around the country said. That's what Americans woke up to yesterday morning, the headline saying "No Weapons Found."

Two times before 11:30 in the morning yesterday, the president came out, unsolicited, and actually read from David Kay's report the parts that he thought -- and the White House thought -- sort of bolstered their argument that perhaps it's not a lost cause, that perhaps there were weapons programs. Clearly indicating that there was a lot of sensitivity to this. There was a lot of sensitivity to Democrats who jumped on David Kay's report, saying this is proof that the whole claim that Saddam Hussein was a threat wasn't actually justified.

WALLACE: Well, Dana, from that political storm in Washington to another political storm here on the West Coast, in California -- we're talking about the recall -- allegations, apologies across the state, campaign blitzes. I'll have all of that when ON THE STORY continues after this break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GOV. GRAY DAVIS (D), CALIFORNIA: This race is coming down to Arnold Schwarzenegger and Gray Davis. And in the end, people will do the right thing.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

ARNOLD SCHWARZENEGGER (R), CALIFORNIA GUBERNATORIAL CANDIDATE: Yes, it is true that I was on rowdy movie sets and I have done things that were not right which I thought then was playful, but now I recognize that I have offended people.

(END VIDEO CLIP)

WALLACE: Gray Davis, a governor fighting to hold on; Arnold Schwarzenegger, a challenger trying to fight off allegations he groped women, and once said he admired Adolph Hitler. Welcome back to ON THE STORY. I'm Kelly Wallace.

We are in Clovis, California, just outside Fresno. This is day three of the Arnold Schwarzenegger bus tour. And I can tell you, the Schwarzenegger strategy right now is to try to stay on message, address these allegations, and move on. And then we are seeing some accusations from these Republicans that the Democrats are responsible for these stories to try to bring down Arnold Schwarzenegger.

The strategy for Governor Gray Davis and his aides, to try not to address these allegations, to say it's up to the voters to decide. Both men, Gray Davis, Arnold Schwarzenegger, crisscrossing the state today, Schwarzenegger by bus, Davis by plane. The goal is trying to increase turnout for that election on Tuesday.

STARR: Kelly, when you see Schwarzenegger on TV, and you see Maria Shriver, his wife, brimming with confidence, very optimistic, behind the scenes are they worried?

WALLACE: Well, Barbara, they're still confident. Thursday was probably the biggest and toughest day for Arnold Schwarzenegger. This was the day he woke up, the "L.A. Times" story, a well reported story. Six different women saying that Arnold Schwarzenegger at some time groped them over the past few decades.

Then later in the day, ABC News first to break the story that years ago, in a 1975 interview for a documentary about his life, Arnold Schwarzenegger said that he admired Hitler when he was growing up in Austria. So the candidate having to do a tremendous amount of damage control. And I can tell you, that damage control till will continue.

All day on the bus yesterday, Arnold Schwarzenegger's top advisors talking to reporters throughout the day, trying to dispute these allegations, saying Schwarzenegger has apologized for behaving badly, now they're trying to move on. They are getting some comfort, Barbara, in the fact that their overnight numbers, Thursday going into Friday, they say, showed a slight increase in support for Schwarzenegger, following the apology. But they also know they really won't know if there's any damage until Tuesday.

HAYS: Kelly, you know what's interesting to me? "The New York Post" -- I flew down to Washington this morning from New York City so I had "The New York Post." The cover picture is Arnold leaning into a crowd, shaking hands.

You know, there's half a dozen adoring women's faces staring back up at him. And I think that's really an interesting question now, because he already has better support among men than women. Will even some Republican women feel they have a little less enthusiasm for supporting him, if these allegation, some as recent as the year 2000, when he was a pretty mature man with a wife and four kids, if those kinds of things prove to be true?

WALLACE: Well, that is the key question, Kathleen, because it's interesting. Arnold Schwarzenegger's support on the part of women voters actually went up a bit after his appearance in the one and only debate he chose to participate in. And it was interesting. So he showed some gains with women voters.

Now, of course, will he see some of those gains taken away? Many people think -- again, there's only a small pocket of undecided voters. Most people made up their mind. So undecided women voters could be impacted.

And then, again, moderate women, Republican women, who were probably going to vote for Arnold Schwarzenegger, will they have second thoughts after what they heard from this candidate? It's hard to say. Some of these allegations had been out there, had been reported before. Schwarzenegger, though, had come forward now in saying he did behave badly and that he did do some of the things that he's accused of doing.

So we just don't know the answer yet. If you look at the crowds, though, he is getting tremendous support here. And I can tell you, one woman, as he was shaking hands yesterday, she said, "Arnold, you can grope me if you want."

So lots of different perspectives out there. Just reporting what someone said.

ARENA: Well, you know there are only three days left here, and so every time you hear something new, it dredges up everything else, like the "Oui" magazine interview and so on. But let me ask you this, Kelly, how has the presence, the very consistent presence of Maria Shriver played with voters?

WALLACE: Well, it's very interesting. She is one of the strongest advocates, really, when it comes to women voters for her husband. Thursday, the start of the bus tour -- she's not on the bus tour; she's doing ore campaigning. But Thursday, you had the "L.A. Times" story, and then in the evening, ABC News, and then "The New York Times" reporting allegations he spoke admiringly of Adolph Hitler.

And then you had Maria Shriver standing by her husband, saying that he has the courage to come forward and apologize, the courage to be in this campaign. She supports him 100 percent. You had Maria Shriver again out yesterday; saying Arnold Schwarzenegger is an A+ human being. She wouldn't be backing him, wouldn't be taking a leave from work, if she didn't believe in him.

So she is trying to get a message to voters, in particular women, saying she knows this man better than anyone else, and she is backing him. And the Schwarzenegger aides believe that is a powerful message to get to California voter, especially women.

BASH: Kelly, there were rumors yesterday that I heard Cruz Bustamante may consider dropping out of the race. What do you think, any chance that's going to happen? And what's going on on the Democratic side?

WALLACE: Dana, you now this has been sort of a rumor that has been talked about all week long. And we have heard some indications, could Gray Davis and his team possibly try to encourage Cruz Bustamante, the Democratic lieutenant governor, to get out, to kind of sharpen the decision for California voters, saying, either choose Gray Davis, stick with him, or you're going to end up with Arnold Schwarzenegger.

The Bustamante camp is saying there is no consideration of this whatsoever, that Bustamante will get minority voters, will increase Democratic turnout, that he is in this until the end. But we have had so many surprises in this story, never say never. Right now, though, he says he's in it until Tuesday.

HAYS: I just have to make a quick comment with that comment, the woman to Arnold. I think that we all have to remember, we all laugh. But the difference between these allegations is, if you want to be groped, that's one thing. These are allegation that women -- the last thing they want to be grabbed by Arnold. But let's ask you a little bit about your experience on the bus.

WALLACE: Well, I haven't been on the bus with Arnold Schwarzenegger. He's in the first bus, called "The Running Man," and so far, reporters have had limited access to him on that bus. Some local crews got on that bus yesterday, some print reporters did. We're understanding that eventually, throughout this weekend, we might get a chance at it.

The press corps, we're all on these other buses, which are labeled "Predator One," after one of his movies, "Predator Two," "Predator Three," "Predator Four." But it's been interesting, because Schwarzenegger's aides are riding along with reporters.

So it is non-stop. Again, talking to these advisers about the campaign, about strategy, how they're feeling, what they're thinking. It's a great opportunity for reporters to get a sense of what's going on behind the scenes, but so far not a lot of access to the candidate himself.

STARR: Well, from last minute campaigning in California to the just beginning investigation of a possible spy ring at Guantanamo Bay, Cuba, where the U.S. has detained the people it says are the world's most dangerous terrorists. I'm back on that story in a moment.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

CAPT. JAMES YEE, MILITARY CHAPLAIN: I won't get into whether or not they are terrorists. That's not my job. My job is to look at each individual and assist them in any way that I can.

(END VIDEO CLIP)

STARR: U.S. military chaplain, Captain James Yee, saying it wasn't his job to identify terrorists detained at Guantanamo Bay. Yee is one of the people arrested for alleged security violations at the base.

Welcome back. We're ON THE STORY.

And this weeks, a third man arrested at Logan Airport, a man of Egyptian descent, a translator at the camp. Coming back to the United States from a trip to Egypt, caught allegedly classified information from Guantanamo Bay in his luggage. So now, three men under arrest, and we know that several others are under scrutiny. And the Pentagon trying to figure out what exactly is going on at Guantanamo Bay.

HAYS: Well, I think a lot of us are trying to figure out what's going on at Guantanamo Bay. And what is the reaction? If I were at the Pentagon, I think I'd be sweating bullets at this point.

STARR: Well, you would think so, but just like at the White House, everything's fine. They're cool, they're calm, they're above the fray.

Don Rumsfeld was asked about it this week. The chairman of the Joint Chiefs of Staff was asked about it. And they said, you know, no one should be surprised if this kind of thing does happen. That they are dealing with it, that they are investigating it.

But there's a couple of key questions here, sort of not too far under the table, which is, the first man was arrested back in July. The last -- the most recent arrest, now at the beginning of October. What has happened in between?

Is there real espionage going on, is there real conspiracy to assist America's enemies? Or the other theory, equally unpleasant, is there a lack of military discipline at this camp? Are these people developing sympathies with the al Qaeda detainees, trying to help them out? And if they are doing that, why have commanders not noticed it before? None of this is good news.

ARENA: You know, Barbara, we've obviously done a lot of talking on this story, and it is interesting to point out that the most sensitive, if you will, detainees are not held at Guantanamo Bay. And one wonders, you know, do these types of security concerns date back to the very beginning? I mean, was this part of the possible equation perhaps?

STARR: Well, that's a very interesting question, Kelli. What we found out this week is that the U.S. military has always had what they call counterintelligence experts at Guantanamo Bay. Those are the people that keep an eye on these high security situations to make sure that espionage doesn't develop.

We're not sure if they ever noticed this, or if this was all really something that was very secret and just never emerged. So there has been always a concern about this. But the question remains, what really went on here, and how concerned is the Pentagon?

We've talked to very high level officials, you know, off camera, in the hallways. And they say, at this point, even after all of this investigation, they honestly don't know, and they will not be surprised if more suspects emerge in the days ahead.

WALLACE: Barbara, tell us a little bit about -- go ahead, Barbara. I'm sorry.

STARR: No, I was just going to say that, you know, we probably won't know for some time. We'll look back on this several years from now and have a much better idea of whether there was actual espionage going on in the middle of all this.

WALLACE: Tell us a little bit about how Defense Secretary Donald Rumsfeld is handling all of this. And, you know, we've been reading it in the papers, seeing it trickle out here and there, various calls for him to step down over this matter, but more, the bigger matter, over the current situation going on in Iraq. What -- how is he handling it? What are your sources saying?

STARR: Well, you know it's really interesting, because the Don Rumsfeld all of us see on television is exactly the same Don Rumsfeld that is behind the scenes off camera. What you see is what you get with Don Rumsfeld. There isn't the secret off-camera personality.

And he really is just focused, committed, going forward, his aides say. And there's every indication that he is. He says he's not thinking about all these calls on the periphery for his resignation, that he serves at the pleasure of the president. But just like the White House, Dana, they've had a tough week at the Pentagon. The business about not finding WMD...

BASH: What is he saying about that? Because he's on record very specifically saying that he believes they're going to be found by Tikrit. STARR: Exactly. Where did the intelligence go wrong? And he finally said this week, quite interestingly, he said if it proves -- this was his theory -- if it proves that U.S. intelligence was widely off the mark and there is no actual weapons of mass destruction in Iraq, he said, well that would be unfortunate.

Reporters pounced on him and said, "Well, what does that mean?" And he said, "It would be unfortunate for the Iraqi people because it would mean that Saddam Hussein denied them years of international assistance." He didn't say it would be unfortunate for the White House.

HAYS: Barbara, what about terrorists, who they are, are they coming in from the outside? What's the -- I know you have some latest for us on that.

STARR: Absolutely, Kathleen. You know, while all if this goes on, there are some very serious issues in Iraq right now. U.S. military intelligence is noticing this week several hundred possibly foreign fighters assembling in southwestern Iraq. There is a lot of concern. They believe some of them may be Syrians, they believe they are using them as a base of operations to possibly launch attacks against U.S. forces. And we are told look for action against this pocket of foreign fighters in the days ahead.

ARENA: Barbara, you've got your plate full. Well, from the worries facing the Pentagon, to what some see as another setback this week in the war on terrorism, this time, inside a U.S. courtroom. I'm back ON THE STORY in a moment.

(COMMERCIAL BREAK)

ARENA: President Bush this week talking about the terrorism fight. But the U.S. government this week was penalized for denying Zacarias Moussaoui, the man that some call the 20th hijacker, a chance to question top al Qaeda suspects. The judge did not drop the charges, but she did back the government up against the wall.

Welcome back. We are ON THE STORY.

This case is incredibly complicated. It has been quite dramatic and emotional all throughout. This was supposed to be, don't forget, the government's showcase case against the only person charged in connection with the September 11 attacks, and it has just been beset by one challenge after another.

BASH: So, Kelli, the bottom line is, given all that, is there regret on the government's part that they didn't just put this in a military court to begin with, that they even tried to go down this route?

ARENA: You know, privately, I've had many discussions about that, Dana. And some people say that hindsight's 20-20, that maybe this was a case that should have started off in a military arena, rather than in the civil courts. Many ex attorney generals and government people willing to say that, obviously, very publicly. But, you know the government was very determined to show that our justice system could handle terrorism cases like this. They had done it before with the first World Trade Center bombing. They were very hopeful; they thought they had a slam dunk here.

But what has happened, just for those who haven't been following this as closely as I have, is that it all comes down to what a witness -- what a defendant's rights are. And this judge, Leonie Brinkema, is saying, look, he -- it wouldn't matter if he's an accused terrorist or not. If there is information that others have that can help him in his case, then we need to give him access to that information.

The government argues, well, those people happen to be self- proclaimed al Qaeda terrorists, and we're not going to let one terrorist talk to other terrorists. And, by the way, if we hadn't been in military combat, they would not be available to him anyway. So they're outside the jurisdiction of the U.S. courts.

So a lot of people say this may well go up to the Supreme Court. The government has not appealed yet, but we are waiting for that.

WALLACE: But, Kelli, this has to be a huge blow, just as you said, to the prosecution's ability to show that it can try these cases in the criminal justice system. So how big of a blow, but also, what kind of new strategies are prosecutors likely to use from here on out?

ARENA: Kelly, it does present a very interesting challenge. But Moussaoui's charged with conspiracy; he's not exactly charged in the act of -- don't forget, he was in custody on September 11th. So he is charged in the conspiracy.

And he has stood up in open court and said, "I am a member of al Qaeda. "I pledge allegiance to Osama bin Laden. Death to America." He also said that he was meant for a separate attack after September 11th outside the United States, but that he was awaiting orders.

It's going to be a difficult line for the government to walk here, because most of the public -- and I'm sure most of the jury pool -- sort of have in mind that Moussaoui was supposed to be, or that investigators thought he was meant for the September 11th attacks. But there is a way to still make a conspiracy argument before that court. Of course, we are expecting the Justice Department to appeal before an appeals court, which some say may be more sympathetic to the government's argument.

STARR: Kelli, on another legal matter, we're now coming up on two years since the anthrax attacks. Any news there, any closer?

ARENA: No. No. Short answer, no.

We had a meeting this week with the new head assistant director in charge of the Washington field office, which is the FBI office that's running this investigation, and they still have not -- the FBI has not completed what's called reverse engineering. It's just taking the science backwards to try to figure out exactly where this anthrax may have been manufactured and how. Some scientists say they'll never know that answer, and some are more hopeful. But, really, nothing new there. We're not hearing that they're any closer.

As a matter of fact, officials are sort of backing up a little bit. We used to hear very confident statements, we will get this case solved, we will bring the person or persons to justice. And now we are hearing statements like, well, whether we find the culprit or not, this has been a remarkable investigation, this has been a learning experience. You know, we have -- you know, we are so much more equipped now to deal with something like this as a result of this, then we were before.

And interestingly, I asked what the going theory was among investigators. And they still believe that this may have been done -- of course they'll never know for sure until they find the person or persons -- but they said this might have been done by somebody who really didn't mean to do harm, more to get a message out or prove a point. Because, of course, it's never happened again.

HAYS: Well, I guess until and unless it does happen again, I guess that will put a lot more heat under that investigation. You know terrorism, of course, remains on people's minds, but also the economy -- jobs and a recovery that comes in fits (ph) and starts.

I'm back on the story in two minutes.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BUSH: At home, we seek to lift up lives by spreading opportunity to every corner of America.

(END VIDEO CLIP)

HAYS: President Bush speaking in Chicago Tuesday, with some people in and out of Washington worrying that what's spreading to every corner of America is concern over the economy, jobs in particular. Welcome back. We're ON THE STORY.

And of course, the big news at the end of the week was a gain of 57,000 new jobs in the economy in September. Now, most any other time, we'd say, so what, 57,000 jobs? But, we had seven straight months of job losses this year, a total of 551,000 jobs disappear.

So people are saying, it's a nice ray of hope. The optimists say this is it, we're turning the corner, we've got one more sign. The skeptics say, well, you know what, we've got to see a lot more like this to believe that really have.

ARENA: Well, Kathleen, the stock market certainly seemed convinced. I was looking at stocks this week and thinking maybe it's time that I can actually open up my 401k and look at it.

HAYS: Well, actually, the stock market's been doing pretty well, as you mentioned, Kelli. And, in fact, September is often a really horrible month for the stock market. And actually, you know, some small declines, a few advances. So net-net, things are moving ahead.

And an interesting look, actually, I think, at what's happened in the economy in the third quarter, what's happening now in the second half, is all those tax checks, those tax credit checks, have been cashed. And people have spent that money. And firms didn't hire, so that means they made some nice, fat profits.

And the stock market is looking at that and they're looking at some tentative signs of business starting to invest again. But don't forget, the stock market sold off at the beginning of the week. And we saw a big report on consumer confidence. And it slid; it slid pretty substantially.

People's view of what's happening in the economy right now, sinking. People's view of how hard it is to get jobs, sinking. So right now, we have a tentative view from these statistics from the government on workforce that things are getting a little better, but people's view of the economy, if things are getting better, really not catching up yet.

STARR: Because those new jobs, that's the question. Where were those jobs in the economy? Did they say something about confidence in the...

HAYS: Here again, it depends on how you are looking at this glass, half full or half empty? One of the big increases was in temp workers. Temp workers are people you hire potentially, and you say, oh, business has picked up, I need to hire somebody. But I'm not sure my business is going to stay picked up.

I don't want to have to pay health care costs until I absolutely have to. I'll keep you on a temporary basis. Five months in a row of temp increases. The optimists say, again, things are picking up, gradually those will become permanent jobs.

The skeptics say, hey, if things were so good, we'd see permanent hires. And that's just another sign of something that's fragile. And, again, if the boom from the tax checks doesn't continue, what do you have to boost the economy next?

WALLACE: And, Kathleen, you're talking about confidence, as you said. We saw a dip in consumer confidence, I believe, this week. We're always putting you on the spot, but there's so many conflicting signals. Is it a sense that people's perceptions that things are getting better, it will just take a while for that to sink in before people truly believe that this economy can be on an upswing?

HAYS: You know even everybody -- and I think the president agrees. Until we see jobs growing more, people are going to be worried. If you have a job, you're looking over your shoulder because you're not sure if you're going to keep your job.

A guest on our show actually from the confidence board that produces that consumer confidence survey, who travels around the country and talks to a lot of big companies, said a major oil company told him they're going to add 50,000 to 75,000 new jobs over the next year. They're not going to add one of those jobs in the United States. That's hanging over people.

Health care costs -- we saw a report out this week showing that there is a large increase in the number of Americans who no longer have health care. There's something like almost 44 million people uninsured. It's another reason why people just don't feel great and they're still worried.

BASH: Meanwhile, Kathleen, there's new indications that the poverty level is actually higher than people thought, which is not a good sign at all obviously for this administration and for Americans in general. Pretty bad, right?

HAYS: Well, you know, actually, in fairness to the administration, the people who vetted that survey said -- the professionals -- said, look, at the end of a recession you expect to see some rise. At around 12 percent, that's still relatively low by historical standards. The White House is going to say we inherited that recession from the Clinton administration...

BASH: Heard that before.

HAYS: The Democrats say, but you know, this far in, you should have done more to turn it around. I think everybody agrees that poverty is a tough thing. There's more and more families.

The biggest single indicator for poverty, or one of the biggest, is of course being a single parent, particularly a single mom. And I think that there's a lot of -- I think it's going to be one of the issues that has got a little bit lost in the shuffle, as we look at these bigger picture of just trying to create jobs and not worry so much about poverty, again, because the experts say, as bad as it is, it's lower than it's been in the past.

ARENA: Kathleen, what about Washington policies, like the billions of dollars the president is talking about spending on Iraq? How is that playing here?

HAYS: Well, I think that's a very good question, because there's a concern now about -- what if the economy falters? And, again, everybody says, look, we're on a more solid footing. What if it falters? Are we going to cut taxes again?

One of the biggest criticisms of the last tax cuts was that dividend tax cuts are great over the long run, they help the stock market, they'll promote investment. But we need a quicker fix. Maybe we should have reduced payroll taxes for people.

The deficit is so big now, and the demands on military spending and reconstruction spending are so big, there doesn't seem to be too much wiggle room in this budget now. Over time, it's something that could push interest rates higher. That could hit mortgages, that's something that could slow a very solid part of the economy, which is housing. BASH: Kathleen, from an up and down economy to upheaval in the sports world this week, who better than CNN's Josie Burke to explain it all? She's waking up for us in Honolulu -- poor Josie -- way before dawn. And Josie's back on the story in a minute.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

RUSH LIMBAUGH, RADIO TALK SHOW HOST: The path of least resistance became for me to resign.

(END VIDEO CLIP)

STARR: Talk show host Rush Limbaugh, after he sidelined his football analyst career after his comments about race and Philadelphia Eagles' quarterback, Donovan McNabb. Joining us now is ON THE STORY early riser and CNN sports correspondent, Josie Burke, on the phone from Hawaii.

Josie, where did Rush Limbaugh go so wrong?

JOSIE BURKE, CNN SPORTS CORRESPONDENT: It was a terrible week for Rush Limbaugh, and it almost passed under the radar screen last Sunday, when he made those comments about Donovan McNabb, the quarterback of the Philadelphia Eagles. Partially because I think the men on television with him at the time, on the panel on ESPN's "Sunday NFL Countdown" were so shocked to hear what he was saying, they didn't necessarily take in the magnitude of what he was offering with his opinion about the way Donovan McNabb was being covered by the media.

But you know two days later, he hasn't -- he didn't come out and necessarily apologize when he resigned. He basically said he didn't want his co-workers to have to deal with the fear and the uproar. And the one thing that was sort of Rush Limbaughesque that he left with, was that maybe if someone else had said this, it wouldn't have been a problem, but because Rush Limbaugh said what he said, it was a problem.

And then it got worse from there, with what he spoke about this ongoing investigation, where he's not the focus, but his name has come up, according to sources, in this drug ring in south Florida, when they're investigating the sale of prescription drugs.

WALLACE: Josie, let me ask you, behind the scenes, how much pressure from the people in the National Football League, from sports commentators, how much pressure was building to force Rush Limbaugh to step down and resign?

BURKE: There had to have been a lot of pressure, Kelly, because he's certainly not somebody who would be prone to just stepping aside because he said something that ruffled a couple feathers. And I think it's interesting, because there was pressure. And you have to wonder, isn't this what ESPN, which is owned by Disney, asked for when they hired Rush Limbaugh, that he say controversial things, that he offer a different opinion, that he be so outrageous that more people watch television?

And you know what, that's exactly what happened. "Sunday NFL Countdown's" ratings were up, according to the ESPN spokesman, about 10 percent. So in a way, there has to be a question out there that says, didn't they get what they asked for? And then when they got it realized maybe they shouldn't have been asking for it?

ARENA: I'm going to turn the story here over to Kobe Bryant. And he didn't show up for the first day of training. Do you think this bodes well, or do you think it could be an isolated incident, Josie?

BURKE: You get the feeling from talking with players, and to Phil Jackson, the coach of the Lakers, that they had no idea what to expect from this season with Kobe. And now the reality of the situation is setting in, even more, and they feel like this is something that could happen more often. And they're going to have to be prepared for it, and they're going to have to sort of play it by ear, because they have never been in this situation before.

Nobody in the NBA has ever been in this situation before. And we can tell you the latest is that Kobe Bryant was expected to arrive in Honolulu late last night, and we're expecting to get a chance to talk to him today and see what his thinking is now, what it was when he didn't show up, and, again, talk to the players and the coaches.

And yesterday was the first full squad practice. And you could tell that the players had been well schooled in a team meeting by Phil Jackson, because the ones who would speak about Kobe -- and there were certain ones, like Shaquille O'Neil who would not -- but the ones who would all talked about wanting to be they're to support him. And that's what they said over and over again.

BASH: But here has to be, Josie, some sort of -- I don't know if resentment is the right word -- but, you know, questions about Kobe Bryant, he's supposed to be in Honolulu, he's not there. And of course all of the cloud this has all put over the Lakers' team.

BURKE: Well, here's a Lakers' team that's welcoming two new guys, two potential hall of famers in Karl Malone and Gary Payton, a team that last year, for the first time, after winning three straight, didn't win the NBA championship. And they have very high hopes.

And as much as they want to be there for their teammate, Kobe Bryant, they also have jobs to do and hopes and aspirations that this will be the year that they'll put it all together, that they'll field what's called an all-star team. But as a member of the Lakers, just one team, seems to have every single part, the best in every position, and they feel like they need to go out and win this championship.

So there is that potential. And very early on we're seeing some shards of it, that resentment will grow, not necessarily something they'll direct at Bryant, but something that could prove to be a distraction that they might, at some point, have to address. They've said all along they want Kobe there, but there's always been, from Phil Jackson anyway, we're going to see how it goes. HAYS: Josie, just got to ask you quickly, baseball, another sport. I talk to guys at the Chicago Mercantile Exchange every day. They're rooting for the Cubs. Where are you going next and how is it looking in the baseball world?

BURKE: Well, we're kind of playing it by ear ourselves. We've got so much going on in the sports world. Here in Honolulu, we've got the baseball playoffs, with the league championships starting up at the end of the week. And we also have the Women's World Cup. So we'll be bouncing around at CNN Sports trying to cover all of them.

HAYS: OK, Josie. And I don't think you have any time before you get to sleep before get back to work. Thanks for joining us. Thanks to all of my colleagues.

Thank you for watching ON THE STORY. We'll be back next week.

Still ahead, "People in the News," focusing this week on basketball superstar Kobe Bryant facing his sexual assault preliminary hearing next week. At 12:00 noon Eastern, 9:00 a.m. Pacific, "CNN LIVE SATURDAY. And at 1:00 p.m. Eastern, 10:00 a.m. Pacific, CNN's "IN THE MONEY WITH JACK CAFFERTY," looking at President Bush's drop in popularity and what it means on the long road to reelection.

Coming up at the top of the hour a check of the top stories. But first, the president's weekly radio address.

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




Leak; Will New Allegations Hurt Schwarznegger Days Before Recall?>


Aired October 4, 2003 - 10:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DANA BASH, CNN WHITE HOUSE CORRESPONDENT: Welcome to CNN's ON THE STORY, where our journalists have the inside word on the stories we covered this week. I'm Dana Bash, on the story of the investigation and political uproar this week over the leak of a CIA operative's identity.
BARBARA STARR, CNN PENTAGON CORRESPONDENT: I'm Barbara Starr, on the story of the widening espionage investigation inside the U.S. military, where the U.S. detained some of the most dangerous terror suspects.

KELLY WALLACE, CNN NATIONAL CORRESPONDENT: I'm Kelly Wallace in California, where Arnold Schwarzenegger hopes allegations he groped women and spoke admiringly of Adolph Hitler won't cost him the lead in the final days of the recall vote.

KELLY ARENA, CNN JUSTICE DEPARTMENT CORRESPONDENT: I'm Kelly Arena, in Atlanta, on the story of why a federal judge this week slapped down federal prosecutors in the case against a top terrorism suspect, saying no death penalty, no reference to 9/11, when the case moves to trial.

KATHLEEN HAYS, CNN CORRESPONDENT: And I'm Kathleen Hays, on the story of a whiplash stock market, those hard-to-shake doubts about this recovery. And we're going to wake up sports correspondent Josie Burke in Hawaii. She's been waiting for Kobe Bryant to arrive in training camp just before his preliminary hearing next week on a charge of sexual assault. She's also going to discuss how race and football sapped talk meister Rush Limbaugh.

We'll listen to the president's weekly radio address at the end of the hour. If you have any thoughts, email us at onthestory@cnn.com.

Now straight to Dana Bash, and spies, leaks and politics.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: If there's a leak out of my administration, I want to know who it is. And if the person has violated a law, that person will be taken care of.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

SEN. CHARLES SCHUMER (D), NEW YORK: What has gone on in this case is one of the most dastardly, despicable things that I have seen in my more than 20 years in Washington.

(END VIDEO CLIP)

BASH: "We'll take care of it," says President Bush, hammered in the headlines and roughed up by Democrats over the leak of the identity of a CIA operative whose husband, former Ambassador Joe Wilson, has criticized the administration and the intelligence it publicized before the war in Iraq. And Tuesday, I was at the White House at the crack of dawn, and I was called to White House spokesman Scott McClellan's office, where he told myself and other reporters who were crazy enough to be there at that hour that there was, in fact, a full blown investigation of this case, and that the White House was asked to hold on to any and all documents that could be related to it.

And as he was telling us the story, on his computer an e-mail popped up from the White House counsel that was sent to him, and everybody else at the White House, saying that they should hold on to those documents. And by yesterday, they were told, in another e-mail, by Tuesday at 5:00, everybody who has anything relating to Ambassador Wilson or his wife or any of the journalists involved, they need to give it over to the Justice Department.

WALLACE: Dana, we were watching those briefings this week with school Scott McClellan. He was getting pummeled by reporters, including yourself. What is going on behind the scenes? How worried are White House aides about this, and what is the strategy to deal with it?

BASH: That's a good question, Kelly. And, actually, I'll tell you the story to sort of illustrate it.

The day after the first briefing, where Scott McClellan got a lot of questions -- I actually counted 80 one day on this subject -- I got an e-mail from a Republican aide in Congress to somebody who is pretty close to the White House, soliciting me, telling me that his boss wanted to come on camera and talk about the subject, not only to defend the White House, and to defend the president, but also to criticize Ambassador Joe Wilson as somebody who was a Democrat, somebody who has contributed to Senator Kerry's campaign.

So the White House is letting their friends in Congress, the RNC, attack Joe Wilson, and Democrats in general, for politicizing this issue, while at the White House, they're being very careful to say, time and time again, that they're promising to cooperate. The president thinks this is an outrage. And they're going to do whatever they can to get to the bottom of it.

ARENA: Dana, the guessing game obviously in full swing. But a lot of attention being focused on the office of the vice president. Some heat being felt over there?

BASH: Well, it's interesting that you ask that question, because when you talk to anybody who works at the White House about trying to get a real sense of the mood, what is the mood -- I mean, this is the first time this White House, the Bush White House, has gotten these kinds of requests on this kind of story, with this kind of political magnitude. We certainly heard about it a lot during the Clinton years.

But they say, you know, we are a business -- the Bush White House, they say, is run like a business. And they're still very much a businesslike atmosphere. We're doing what we are told, but nobody is running through the hallways with their hair on fire.

As a matter of fact, somebody said to me that they were getting criticized for almost being in denial because they were focused on just doing their work. So it's hard to get a real sense that there's a real fear inside the White House.

ARENA: Well also, Dana, it's probably important to point out that this investigation goes way beyond the White House...

BASH: That's right.

ARENA: It includes the State and the Pentagon and the CIA. So this leak could have come from a variety of places. I'm sorry, I just cut somebody off.

STARR: But the question, I think, that really is going to emerge over the next few days is, what about the Republicans? Right now, appear to be supporting the White House, supporting President Bush on this. How worried is the White House that they can hold their Republican allies, and how do they justify not asking, not supporting an independent look at all of this, since John Ashcroft is one of the president's closest allies?

BASH: That's a very good question. So far, in general, there haven't been any Republican cracks, so to speak. I mean, they have been generally in lockstep. There was one indication from Senator Arlen Spector, another from Senator Olympia Snowe, both Republican, who suggest perhaps that John Ashcroft, the attorney general, should consider stepping aside and letting others take over because of his close ties to the White House. Obviously, he's a Bush appointee.

But in terms of the special prosecutor, they are saying that they believe -- and Kelly Arena can speak to this -- that they believe that this is going to be done by career professionals. The person in charge of the investigation's a 30-year career Justice Department investigator. He's been working on issues like this for a long time. And they say that these are professionals who can do this without worrying about conflicts of interest. And that's how they're deflecting this so far.

HAYS: Dana, what I want to ask you about is something that I know we actually talked about earlier in the week, and that was "The Washington Post" article that really stunned me and makes me think about what is going on at this White House? Because they talked supposedly about a senior administration official who basically kind of ratted on to other administration officials who were feeding this information to apparently six journalists before Robert Novak even picked it up.

It makes you wonder, what is going on? What kind of, you know, castle politics or whatever are going on over at the White House? It's supposed to be so well run, a tight ship. It's not looking so tight right now.

BASH: Well, those are certainly their allegations from Democrats, saying that -- I mean, this is sort of how the whole thing started, is that Ambassador Wilson said that somebody at the White House or in the administration was trying to sort of get back at him for criticizing the administration by going through his wife and, in the end, sort of outing his wife's identity as a CIA agent. But they are essentially making -- staying away from the whole political part of it, and they're trying to keep this whole question within the confines of the investigation and the legal question now.

HAYS: But Wilson says he'll give up the names of the people who talked to him if the FBI asks him, no?

BASH: Wilson is saying that. And that is probably going to be part of the Justice Department investigation, absolutely.

WALLACE: Dana, put this in perspective. Dana, I was going to ask you, you had David Kay coming out, looking into whether there are any weapons of mass destruction in Iraq. And obviously, he's come forward saying nothing just yet.

You had the president coming out trying to speak positively about this report. This, on top of this non-stop reporting about the CIA leak, dropping poll numbers. I mean, behind the scenes there has to be a lot of concern right now about all these stories together and the president's popularity in the country.

BASH: Kelly, it was really interesting to watch what happened yesterday. You mentioned the weapons of mass destruction issue. David Kay, who has been searching for a couple of months in Iraq for any weapons of mass destruction or programs, went to Congress on Thursday and said that there really weren't any weapons found so far. That was what all of the newspapers around the country said. That's what Americans woke up to yesterday morning, the headline saying "No Weapons Found."

Two times before 11:30 in the morning yesterday, the president came out, unsolicited, and actually read from David Kay's report the parts that he thought -- and the White House thought -- sort of bolstered their argument that perhaps it's not a lost cause, that perhaps there were weapons programs. Clearly indicating that there was a lot of sensitivity to this. There was a lot of sensitivity to Democrats who jumped on David Kay's report, saying this is proof that the whole claim that Saddam Hussein was a threat wasn't actually justified.

WALLACE: Well, Dana, from that political storm in Washington to another political storm here on the West Coast, in California -- we're talking about the recall -- allegations, apologies across the state, campaign blitzes. I'll have all of that when ON THE STORY continues after this break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GOV. GRAY DAVIS (D), CALIFORNIA: This race is coming down to Arnold Schwarzenegger and Gray Davis. And in the end, people will do the right thing.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

ARNOLD SCHWARZENEGGER (R), CALIFORNIA GUBERNATORIAL CANDIDATE: Yes, it is true that I was on rowdy movie sets and I have done things that were not right which I thought then was playful, but now I recognize that I have offended people.

(END VIDEO CLIP)

WALLACE: Gray Davis, a governor fighting to hold on; Arnold Schwarzenegger, a challenger trying to fight off allegations he groped women, and once said he admired Adolph Hitler. Welcome back to ON THE STORY. I'm Kelly Wallace.

We are in Clovis, California, just outside Fresno. This is day three of the Arnold Schwarzenegger bus tour. And I can tell you, the Schwarzenegger strategy right now is to try to stay on message, address these allegations, and move on. And then we are seeing some accusations from these Republicans that the Democrats are responsible for these stories to try to bring down Arnold Schwarzenegger.

The strategy for Governor Gray Davis and his aides, to try not to address these allegations, to say it's up to the voters to decide. Both men, Gray Davis, Arnold Schwarzenegger, crisscrossing the state today, Schwarzenegger by bus, Davis by plane. The goal is trying to increase turnout for that election on Tuesday.

STARR: Kelly, when you see Schwarzenegger on TV, and you see Maria Shriver, his wife, brimming with confidence, very optimistic, behind the scenes are they worried?

WALLACE: Well, Barbara, they're still confident. Thursday was probably the biggest and toughest day for Arnold Schwarzenegger. This was the day he woke up, the "L.A. Times" story, a well reported story. Six different women saying that Arnold Schwarzenegger at some time groped them over the past few decades.

Then later in the day, ABC News first to break the story that years ago, in a 1975 interview for a documentary about his life, Arnold Schwarzenegger said that he admired Hitler when he was growing up in Austria. So the candidate having to do a tremendous amount of damage control. And I can tell you, that damage control till will continue.

All day on the bus yesterday, Arnold Schwarzenegger's top advisors talking to reporters throughout the day, trying to dispute these allegations, saying Schwarzenegger has apologized for behaving badly, now they're trying to move on. They are getting some comfort, Barbara, in the fact that their overnight numbers, Thursday going into Friday, they say, showed a slight increase in support for Schwarzenegger, following the apology. But they also know they really won't know if there's any damage until Tuesday.

HAYS: Kelly, you know what's interesting to me? "The New York Post" -- I flew down to Washington this morning from New York City so I had "The New York Post." The cover picture is Arnold leaning into a crowd, shaking hands.

You know, there's half a dozen adoring women's faces staring back up at him. And I think that's really an interesting question now, because he already has better support among men than women. Will even some Republican women feel they have a little less enthusiasm for supporting him, if these allegation, some as recent as the year 2000, when he was a pretty mature man with a wife and four kids, if those kinds of things prove to be true?

WALLACE: Well, that is the key question, Kathleen, because it's interesting. Arnold Schwarzenegger's support on the part of women voters actually went up a bit after his appearance in the one and only debate he chose to participate in. And it was interesting. So he showed some gains with women voters.

Now, of course, will he see some of those gains taken away? Many people think -- again, there's only a small pocket of undecided voters. Most people made up their mind. So undecided women voters could be impacted.

And then, again, moderate women, Republican women, who were probably going to vote for Arnold Schwarzenegger, will they have second thoughts after what they heard from this candidate? It's hard to say. Some of these allegations had been out there, had been reported before. Schwarzenegger, though, had come forward now in saying he did behave badly and that he did do some of the things that he's accused of doing.

So we just don't know the answer yet. If you look at the crowds, though, he is getting tremendous support here. And I can tell you, one woman, as he was shaking hands yesterday, she said, "Arnold, you can grope me if you want."

So lots of different perspectives out there. Just reporting what someone said.

ARENA: Well, you know there are only three days left here, and so every time you hear something new, it dredges up everything else, like the "Oui" magazine interview and so on. But let me ask you this, Kelly, how has the presence, the very consistent presence of Maria Shriver played with voters?

WALLACE: Well, it's very interesting. She is one of the strongest advocates, really, when it comes to women voters for her husband. Thursday, the start of the bus tour -- she's not on the bus tour; she's doing ore campaigning. But Thursday, you had the "L.A. Times" story, and then in the evening, ABC News, and then "The New York Times" reporting allegations he spoke admiringly of Adolph Hitler.

And then you had Maria Shriver standing by her husband, saying that he has the courage to come forward and apologize, the courage to be in this campaign. She supports him 100 percent. You had Maria Shriver again out yesterday; saying Arnold Schwarzenegger is an A+ human being. She wouldn't be backing him, wouldn't be taking a leave from work, if she didn't believe in him.

So she is trying to get a message to voters, in particular women, saying she knows this man better than anyone else, and she is backing him. And the Schwarzenegger aides believe that is a powerful message to get to California voter, especially women.

BASH: Kelly, there were rumors yesterday that I heard Cruz Bustamante may consider dropping out of the race. What do you think, any chance that's going to happen? And what's going on on the Democratic side?

WALLACE: Dana, you now this has been sort of a rumor that has been talked about all week long. And we have heard some indications, could Gray Davis and his team possibly try to encourage Cruz Bustamante, the Democratic lieutenant governor, to get out, to kind of sharpen the decision for California voters, saying, either choose Gray Davis, stick with him, or you're going to end up with Arnold Schwarzenegger.

The Bustamante camp is saying there is no consideration of this whatsoever, that Bustamante will get minority voters, will increase Democratic turnout, that he is in this until the end. But we have had so many surprises in this story, never say never. Right now, though, he says he's in it until Tuesday.

HAYS: I just have to make a quick comment with that comment, the woman to Arnold. I think that we all have to remember, we all laugh. But the difference between these allegations is, if you want to be groped, that's one thing. These are allegation that women -- the last thing they want to be grabbed by Arnold. But let's ask you a little bit about your experience on the bus.

WALLACE: Well, I haven't been on the bus with Arnold Schwarzenegger. He's in the first bus, called "The Running Man," and so far, reporters have had limited access to him on that bus. Some local crews got on that bus yesterday, some print reporters did. We're understanding that eventually, throughout this weekend, we might get a chance at it.

The press corps, we're all on these other buses, which are labeled "Predator One," after one of his movies, "Predator Two," "Predator Three," "Predator Four." But it's been interesting, because Schwarzenegger's aides are riding along with reporters.

So it is non-stop. Again, talking to these advisers about the campaign, about strategy, how they're feeling, what they're thinking. It's a great opportunity for reporters to get a sense of what's going on behind the scenes, but so far not a lot of access to the candidate himself.

STARR: Well, from last minute campaigning in California to the just beginning investigation of a possible spy ring at Guantanamo Bay, Cuba, where the U.S. has detained the people it says are the world's most dangerous terrorists. I'm back on that story in a moment.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

CAPT. JAMES YEE, MILITARY CHAPLAIN: I won't get into whether or not they are terrorists. That's not my job. My job is to look at each individual and assist them in any way that I can.

(END VIDEO CLIP)

STARR: U.S. military chaplain, Captain James Yee, saying it wasn't his job to identify terrorists detained at Guantanamo Bay. Yee is one of the people arrested for alleged security violations at the base.

Welcome back. We're ON THE STORY.

And this weeks, a third man arrested at Logan Airport, a man of Egyptian descent, a translator at the camp. Coming back to the United States from a trip to Egypt, caught allegedly classified information from Guantanamo Bay in his luggage. So now, three men under arrest, and we know that several others are under scrutiny. And the Pentagon trying to figure out what exactly is going on at Guantanamo Bay.

HAYS: Well, I think a lot of us are trying to figure out what's going on at Guantanamo Bay. And what is the reaction? If I were at the Pentagon, I think I'd be sweating bullets at this point.

STARR: Well, you would think so, but just like at the White House, everything's fine. They're cool, they're calm, they're above the fray.

Don Rumsfeld was asked about it this week. The chairman of the Joint Chiefs of Staff was asked about it. And they said, you know, no one should be surprised if this kind of thing does happen. That they are dealing with it, that they are investigating it.

But there's a couple of key questions here, sort of not too far under the table, which is, the first man was arrested back in July. The last -- the most recent arrest, now at the beginning of October. What has happened in between?

Is there real espionage going on, is there real conspiracy to assist America's enemies? Or the other theory, equally unpleasant, is there a lack of military discipline at this camp? Are these people developing sympathies with the al Qaeda detainees, trying to help them out? And if they are doing that, why have commanders not noticed it before? None of this is good news.

ARENA: You know, Barbara, we've obviously done a lot of talking on this story, and it is interesting to point out that the most sensitive, if you will, detainees are not held at Guantanamo Bay. And one wonders, you know, do these types of security concerns date back to the very beginning? I mean, was this part of the possible equation perhaps?

STARR: Well, that's a very interesting question, Kelli. What we found out this week is that the U.S. military has always had what they call counterintelligence experts at Guantanamo Bay. Those are the people that keep an eye on these high security situations to make sure that espionage doesn't develop.

We're not sure if they ever noticed this, or if this was all really something that was very secret and just never emerged. So there has been always a concern about this. But the question remains, what really went on here, and how concerned is the Pentagon?

We've talked to very high level officials, you know, off camera, in the hallways. And they say, at this point, even after all of this investigation, they honestly don't know, and they will not be surprised if more suspects emerge in the days ahead.

WALLACE: Barbara, tell us a little bit about -- go ahead, Barbara. I'm sorry.

STARR: No, I was just going to say that, you know, we probably won't know for some time. We'll look back on this several years from now and have a much better idea of whether there was actual espionage going on in the middle of all this.

WALLACE: Tell us a little bit about how Defense Secretary Donald Rumsfeld is handling all of this. And, you know, we've been reading it in the papers, seeing it trickle out here and there, various calls for him to step down over this matter, but more, the bigger matter, over the current situation going on in Iraq. What -- how is he handling it? What are your sources saying?

STARR: Well, you know it's really interesting, because the Don Rumsfeld all of us see on television is exactly the same Don Rumsfeld that is behind the scenes off camera. What you see is what you get with Don Rumsfeld. There isn't the secret off-camera personality.

And he really is just focused, committed, going forward, his aides say. And there's every indication that he is. He says he's not thinking about all these calls on the periphery for his resignation, that he serves at the pleasure of the president. But just like the White House, Dana, they've had a tough week at the Pentagon. The business about not finding WMD...

BASH: What is he saying about that? Because he's on record very specifically saying that he believes they're going to be found by Tikrit. STARR: Exactly. Where did the intelligence go wrong? And he finally said this week, quite interestingly, he said if it proves -- this was his theory -- if it proves that U.S. intelligence was widely off the mark and there is no actual weapons of mass destruction in Iraq, he said, well that would be unfortunate.

Reporters pounced on him and said, "Well, what does that mean?" And he said, "It would be unfortunate for the Iraqi people because it would mean that Saddam Hussein denied them years of international assistance." He didn't say it would be unfortunate for the White House.

HAYS: Barbara, what about terrorists, who they are, are they coming in from the outside? What's the -- I know you have some latest for us on that.

STARR: Absolutely, Kathleen. You know, while all if this goes on, there are some very serious issues in Iraq right now. U.S. military intelligence is noticing this week several hundred possibly foreign fighters assembling in southwestern Iraq. There is a lot of concern. They believe some of them may be Syrians, they believe they are using them as a base of operations to possibly launch attacks against U.S. forces. And we are told look for action against this pocket of foreign fighters in the days ahead.

ARENA: Barbara, you've got your plate full. Well, from the worries facing the Pentagon, to what some see as another setback this week in the war on terrorism, this time, inside a U.S. courtroom. I'm back ON THE STORY in a moment.

(COMMERCIAL BREAK)

ARENA: President Bush this week talking about the terrorism fight. But the U.S. government this week was penalized for denying Zacarias Moussaoui, the man that some call the 20th hijacker, a chance to question top al Qaeda suspects. The judge did not drop the charges, but she did back the government up against the wall.

Welcome back. We are ON THE STORY.

This case is incredibly complicated. It has been quite dramatic and emotional all throughout. This was supposed to be, don't forget, the government's showcase case against the only person charged in connection with the September 11 attacks, and it has just been beset by one challenge after another.

BASH: So, Kelli, the bottom line is, given all that, is there regret on the government's part that they didn't just put this in a military court to begin with, that they even tried to go down this route?

ARENA: You know, privately, I've had many discussions about that, Dana. And some people say that hindsight's 20-20, that maybe this was a case that should have started off in a military arena, rather than in the civil courts. Many ex attorney generals and government people willing to say that, obviously, very publicly. But, you know the government was very determined to show that our justice system could handle terrorism cases like this. They had done it before with the first World Trade Center bombing. They were very hopeful; they thought they had a slam dunk here.

But what has happened, just for those who haven't been following this as closely as I have, is that it all comes down to what a witness -- what a defendant's rights are. And this judge, Leonie Brinkema, is saying, look, he -- it wouldn't matter if he's an accused terrorist or not. If there is information that others have that can help him in his case, then we need to give him access to that information.

The government argues, well, those people happen to be self- proclaimed al Qaeda terrorists, and we're not going to let one terrorist talk to other terrorists. And, by the way, if we hadn't been in military combat, they would not be available to him anyway. So they're outside the jurisdiction of the U.S. courts.

So a lot of people say this may well go up to the Supreme Court. The government has not appealed yet, but we are waiting for that.

WALLACE: But, Kelli, this has to be a huge blow, just as you said, to the prosecution's ability to show that it can try these cases in the criminal justice system. So how big of a blow, but also, what kind of new strategies are prosecutors likely to use from here on out?

ARENA: Kelly, it does present a very interesting challenge. But Moussaoui's charged with conspiracy; he's not exactly charged in the act of -- don't forget, he was in custody on September 11th. So he is charged in the conspiracy.

And he has stood up in open court and said, "I am a member of al Qaeda. "I pledge allegiance to Osama bin Laden. Death to America." He also said that he was meant for a separate attack after September 11th outside the United States, but that he was awaiting orders.

It's going to be a difficult line for the government to walk here, because most of the public -- and I'm sure most of the jury pool -- sort of have in mind that Moussaoui was supposed to be, or that investigators thought he was meant for the September 11th attacks. But there is a way to still make a conspiracy argument before that court. Of course, we are expecting the Justice Department to appeal before an appeals court, which some say may be more sympathetic to the government's argument.

STARR: Kelli, on another legal matter, we're now coming up on two years since the anthrax attacks. Any news there, any closer?

ARENA: No. No. Short answer, no.

We had a meeting this week with the new head assistant director in charge of the Washington field office, which is the FBI office that's running this investigation, and they still have not -- the FBI has not completed what's called reverse engineering. It's just taking the science backwards to try to figure out exactly where this anthrax may have been manufactured and how. Some scientists say they'll never know that answer, and some are more hopeful. But, really, nothing new there. We're not hearing that they're any closer.

As a matter of fact, officials are sort of backing up a little bit. We used to hear very confident statements, we will get this case solved, we will bring the person or persons to justice. And now we are hearing statements like, well, whether we find the culprit or not, this has been a remarkable investigation, this has been a learning experience. You know, we have -- you know, we are so much more equipped now to deal with something like this as a result of this, then we were before.

And interestingly, I asked what the going theory was among investigators. And they still believe that this may have been done -- of course they'll never know for sure until they find the person or persons -- but they said this might have been done by somebody who really didn't mean to do harm, more to get a message out or prove a point. Because, of course, it's never happened again.

HAYS: Well, I guess until and unless it does happen again, I guess that will put a lot more heat under that investigation. You know terrorism, of course, remains on people's minds, but also the economy -- jobs and a recovery that comes in fits (ph) and starts.

I'm back on the story in two minutes.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BUSH: At home, we seek to lift up lives by spreading opportunity to every corner of America.

(END VIDEO CLIP)

HAYS: President Bush speaking in Chicago Tuesday, with some people in and out of Washington worrying that what's spreading to every corner of America is concern over the economy, jobs in particular. Welcome back. We're ON THE STORY.

And of course, the big news at the end of the week was a gain of 57,000 new jobs in the economy in September. Now, most any other time, we'd say, so what, 57,000 jobs? But, we had seven straight months of job losses this year, a total of 551,000 jobs disappear.

So people are saying, it's a nice ray of hope. The optimists say this is it, we're turning the corner, we've got one more sign. The skeptics say, well, you know what, we've got to see a lot more like this to believe that really have.

ARENA: Well, Kathleen, the stock market certainly seemed convinced. I was looking at stocks this week and thinking maybe it's time that I can actually open up my 401k and look at it.

HAYS: Well, actually, the stock market's been doing pretty well, as you mentioned, Kelli. And, in fact, September is often a really horrible month for the stock market. And actually, you know, some small declines, a few advances. So net-net, things are moving ahead.

And an interesting look, actually, I think, at what's happened in the economy in the third quarter, what's happening now in the second half, is all those tax checks, those tax credit checks, have been cashed. And people have spent that money. And firms didn't hire, so that means they made some nice, fat profits.

And the stock market is looking at that and they're looking at some tentative signs of business starting to invest again. But don't forget, the stock market sold off at the beginning of the week. And we saw a big report on consumer confidence. And it slid; it slid pretty substantially.

People's view of what's happening in the economy right now, sinking. People's view of how hard it is to get jobs, sinking. So right now, we have a tentative view from these statistics from the government on workforce that things are getting a little better, but people's view of the economy, if things are getting better, really not catching up yet.

STARR: Because those new jobs, that's the question. Where were those jobs in the economy? Did they say something about confidence in the...

HAYS: Here again, it depends on how you are looking at this glass, half full or half empty? One of the big increases was in temp workers. Temp workers are people you hire potentially, and you say, oh, business has picked up, I need to hire somebody. But I'm not sure my business is going to stay picked up.

I don't want to have to pay health care costs until I absolutely have to. I'll keep you on a temporary basis. Five months in a row of temp increases. The optimists say, again, things are picking up, gradually those will become permanent jobs.

The skeptics say, hey, if things were so good, we'd see permanent hires. And that's just another sign of something that's fragile. And, again, if the boom from the tax checks doesn't continue, what do you have to boost the economy next?

WALLACE: And, Kathleen, you're talking about confidence, as you said. We saw a dip in consumer confidence, I believe, this week. We're always putting you on the spot, but there's so many conflicting signals. Is it a sense that people's perceptions that things are getting better, it will just take a while for that to sink in before people truly believe that this economy can be on an upswing?

HAYS: You know even everybody -- and I think the president agrees. Until we see jobs growing more, people are going to be worried. If you have a job, you're looking over your shoulder because you're not sure if you're going to keep your job.

A guest on our show actually from the confidence board that produces that consumer confidence survey, who travels around the country and talks to a lot of big companies, said a major oil company told him they're going to add 50,000 to 75,000 new jobs over the next year. They're not going to add one of those jobs in the United States. That's hanging over people.

Health care costs -- we saw a report out this week showing that there is a large increase in the number of Americans who no longer have health care. There's something like almost 44 million people uninsured. It's another reason why people just don't feel great and they're still worried.

BASH: Meanwhile, Kathleen, there's new indications that the poverty level is actually higher than people thought, which is not a good sign at all obviously for this administration and for Americans in general. Pretty bad, right?

HAYS: Well, you know, actually, in fairness to the administration, the people who vetted that survey said -- the professionals -- said, look, at the end of a recession you expect to see some rise. At around 12 percent, that's still relatively low by historical standards. The White House is going to say we inherited that recession from the Clinton administration...

BASH: Heard that before.

HAYS: The Democrats say, but you know, this far in, you should have done more to turn it around. I think everybody agrees that poverty is a tough thing. There's more and more families.

The biggest single indicator for poverty, or one of the biggest, is of course being a single parent, particularly a single mom. And I think that there's a lot of -- I think it's going to be one of the issues that has got a little bit lost in the shuffle, as we look at these bigger picture of just trying to create jobs and not worry so much about poverty, again, because the experts say, as bad as it is, it's lower than it's been in the past.

ARENA: Kathleen, what about Washington policies, like the billions of dollars the president is talking about spending on Iraq? How is that playing here?

HAYS: Well, I think that's a very good question, because there's a concern now about -- what if the economy falters? And, again, everybody says, look, we're on a more solid footing. What if it falters? Are we going to cut taxes again?

One of the biggest criticisms of the last tax cuts was that dividend tax cuts are great over the long run, they help the stock market, they'll promote investment. But we need a quicker fix. Maybe we should have reduced payroll taxes for people.

The deficit is so big now, and the demands on military spending and reconstruction spending are so big, there doesn't seem to be too much wiggle room in this budget now. Over time, it's something that could push interest rates higher. That could hit mortgages, that's something that could slow a very solid part of the economy, which is housing. BASH: Kathleen, from an up and down economy to upheaval in the sports world this week, who better than CNN's Josie Burke to explain it all? She's waking up for us in Honolulu -- poor Josie -- way before dawn. And Josie's back on the story in a minute.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

RUSH LIMBAUGH, RADIO TALK SHOW HOST: The path of least resistance became for me to resign.

(END VIDEO CLIP)

STARR: Talk show host Rush Limbaugh, after he sidelined his football analyst career after his comments about race and Philadelphia Eagles' quarterback, Donovan McNabb. Joining us now is ON THE STORY early riser and CNN sports correspondent, Josie Burke, on the phone from Hawaii.

Josie, where did Rush Limbaugh go so wrong?

JOSIE BURKE, CNN SPORTS CORRESPONDENT: It was a terrible week for Rush Limbaugh, and it almost passed under the radar screen last Sunday, when he made those comments about Donovan McNabb, the quarterback of the Philadelphia Eagles. Partially because I think the men on television with him at the time, on the panel on ESPN's "Sunday NFL Countdown" were so shocked to hear what he was saying, they didn't necessarily take in the magnitude of what he was offering with his opinion about the way Donovan McNabb was being covered by the media.

But you know two days later, he hasn't -- he didn't come out and necessarily apologize when he resigned. He basically said he didn't want his co-workers to have to deal with the fear and the uproar. And the one thing that was sort of Rush Limbaughesque that he left with, was that maybe if someone else had said this, it wouldn't have been a problem, but because Rush Limbaugh said what he said, it was a problem.

And then it got worse from there, with what he spoke about this ongoing investigation, where he's not the focus, but his name has come up, according to sources, in this drug ring in south Florida, when they're investigating the sale of prescription drugs.

WALLACE: Josie, let me ask you, behind the scenes, how much pressure from the people in the National Football League, from sports commentators, how much pressure was building to force Rush Limbaugh to step down and resign?

BURKE: There had to have been a lot of pressure, Kelly, because he's certainly not somebody who would be prone to just stepping aside because he said something that ruffled a couple feathers. And I think it's interesting, because there was pressure. And you have to wonder, isn't this what ESPN, which is owned by Disney, asked for when they hired Rush Limbaugh, that he say controversial things, that he offer a different opinion, that he be so outrageous that more people watch television?

And you know what, that's exactly what happened. "Sunday NFL Countdown's" ratings were up, according to the ESPN spokesman, about 10 percent. So in a way, there has to be a question out there that says, didn't they get what they asked for? And then when they got it realized maybe they shouldn't have been asking for it?

ARENA: I'm going to turn the story here over to Kobe Bryant. And he didn't show up for the first day of training. Do you think this bodes well, or do you think it could be an isolated incident, Josie?

BURKE: You get the feeling from talking with players, and to Phil Jackson, the coach of the Lakers, that they had no idea what to expect from this season with Kobe. And now the reality of the situation is setting in, even more, and they feel like this is something that could happen more often. And they're going to have to be prepared for it, and they're going to have to sort of play it by ear, because they have never been in this situation before.

Nobody in the NBA has ever been in this situation before. And we can tell you the latest is that Kobe Bryant was expected to arrive in Honolulu late last night, and we're expecting to get a chance to talk to him today and see what his thinking is now, what it was when he didn't show up, and, again, talk to the players and the coaches.

And yesterday was the first full squad practice. And you could tell that the players had been well schooled in a team meeting by Phil Jackson, because the ones who would speak about Kobe -- and there were certain ones, like Shaquille O'Neil who would not -- but the ones who would all talked about wanting to be they're to support him. And that's what they said over and over again.

BASH: But here has to be, Josie, some sort of -- I don't know if resentment is the right word -- but, you know, questions about Kobe Bryant, he's supposed to be in Honolulu, he's not there. And of course all of the cloud this has all put over the Lakers' team.

BURKE: Well, here's a Lakers' team that's welcoming two new guys, two potential hall of famers in Karl Malone and Gary Payton, a team that last year, for the first time, after winning three straight, didn't win the NBA championship. And they have very high hopes.

And as much as they want to be there for their teammate, Kobe Bryant, they also have jobs to do and hopes and aspirations that this will be the year that they'll put it all together, that they'll field what's called an all-star team. But as a member of the Lakers, just one team, seems to have every single part, the best in every position, and they feel like they need to go out and win this championship.

So there is that potential. And very early on we're seeing some shards of it, that resentment will grow, not necessarily something they'll direct at Bryant, but something that could prove to be a distraction that they might, at some point, have to address. They've said all along they want Kobe there, but there's always been, from Phil Jackson anyway, we're going to see how it goes. HAYS: Josie, just got to ask you quickly, baseball, another sport. I talk to guys at the Chicago Mercantile Exchange every day. They're rooting for the Cubs. Where are you going next and how is it looking in the baseball world?

BURKE: Well, we're kind of playing it by ear ourselves. We've got so much going on in the sports world. Here in Honolulu, we've got the baseball playoffs, with the league championships starting up at the end of the week. And we also have the Women's World Cup. So we'll be bouncing around at CNN Sports trying to cover all of them.

HAYS: OK, Josie. And I don't think you have any time before you get to sleep before get back to work. Thanks for joining us. Thanks to all of my colleagues.

Thank you for watching ON THE STORY. We'll be back next week.

Still ahead, "People in the News," focusing this week on basketball superstar Kobe Bryant facing his sexual assault preliminary hearing next week. At 12:00 noon Eastern, 9:00 a.m. Pacific, "CNN LIVE SATURDAY. And at 1:00 p.m. Eastern, 10:00 a.m. Pacific, CNN's "IN THE MONEY WITH JACK CAFFERTY," looking at President Bush's drop in popularity and what it means on the long road to reelection.

Coming up at the top of the hour a check of the top stories. But first, the president's weekly radio address.

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