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U.S. Forces Continue To Build Up Outside Najaf; President Faces Growing Doubt About Iraq War on Anniversary of "Mission Accomplished" Speech; Google Set for IPO; Investors Cautious Ahead of Tuesday's Fed Meeting; 21-Year-Old Female Trainer Eyes Historic Kentucky Derby Win

Aired May 01, 2004 - 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.

RENAY SAN MIGUEL, CNN ANCHOR: Two Americans and an Australian are dead following an attack by militants in a compound in northwestern Saudi Arabia. Another American was injured in the attack. Saudis believe the attacks are linked to al Qaeda. Two militants were killed when they detonated a car bomb and another was killed during a shoot-out with Saudi police. A fourth militant was captured.
In Iraq, families who fled the fighting in Fallujah are starting to go back home. The return comes as U.S. officials strike a deal for an Iraqi force to take control of the city in an attempt to end the bloodshed. Fighting between U.S. forces and insurgents has consumed the city for about a month now.

And intense images that have sparked international outrage. Pictures like these, showing apparent abuse of Iraqi prisoners are causing international outrage and raising questions about human rights. Six U.S. soldiers are charged in the incident. The British military is investigating similar allegation of prisoner abuse.

Heavy rain and traffic jams hamper rescue efforts in the wake of a strong earthquake in Taiwan. The 5.8 magnitude quake was centered on the island's east coast. At least two people are dead from landslides on a mountain road.

Those are the top stories at this hour. I'm Renay San Miguel. ON THE STORY begins right now.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Welcome to CNN's ON THE STORY, where our journalists have the inside word on the stories we cover this week.

I'm Suzanne Malveaux, ON THE STORY of President Bush one year to the day after declaring an end to the major combat in Iraq, facing the highest death toll so far.

JANE ARRAF, CNN BAGHDAD BUREAU CHIEF: I'm Jane Arraf at a U.S. Army base in Najaf, ON THE STORY of U.S. forces building up, but hoping they don't have to use them to unseat a radical Shia leader who has seized control of the holy city.

KELLY WALLACE, CNN NATIONAL CORRESPONDENT: I'm Kelly Wallace in New York ON THE STORY of how the John Kerry campaign got a bit stuck, not in the Iraqi war but the Vietnam war, covering up some of his message on Iraq, jobs and homeland security.

KELLI ARENA, CNN JUSTICE CORRESPONDENT: I'm Kelli Arena ON THE STORY of the legal arguments this week over whether terrorism suspects can be held indefinitely without a trial.

JOSIE BURKE, CNN SPORTS CORRESPONDENT: I'm Josie Burke in Louisville and I'll be back later ON THE STORY of the Kentucky Derby and a young woman trying to make history.

KATHLEEN HAYS: And I'm Kathleen Hays on the story of administration cheers about new economic numbers this week.

We'll also talk about how consumers may find themselves pay more for necessities at the pump and the supermarket. We'll talk about how the government took on the spammers, people clogging our computers with ads. And the latest in the Kobe Bryant case, and another step closer to trial in the sexual assault case.

E-mail us at onthestory@cnn.com.

Now straight ahead to Jane Arraf on "Mission Accomplished."

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Take cover! Get down! Get down! (UNINTELLIGIBLE)

(END VIDEO CLIP)

ARRAF: Now that was just an indication that it still feels a lot like war here. We're here at a U.S. Army base in Najaf, sandbags behind us. And what those sandbags are for, it's a bunker. And you're supposed to dive in it when there's rocket-propelled grenade or mortar attacks, as there are almost every night and almost every morning here.

Now this place is full of U.S. troops who believed that they would be home by now. They all have vacation plans, they all had sweethearts, or wives or husbands waiting for them. Instead, they have been redeployed from Baghdad and they are here. And they're here to show a presence and diffuse a threat from a radical Shia leader -- a young radical Shia leader, who has seized control of the holy city. His militia is in charge of Najaf and Kufa.

The soldiers are here, frustrated. There's not a lot they can do when they go out and get shot at, because this is a very sensitive place and they're very aware of that.

MALVEAUX: Jane, please tell us what it's like there. I know it must be an extraordinary experience, but we know from the month of April that this has been really the bloodiest month since the very beginning. More than 130 Americans killed in Iraq, but 10 times the number of Iraqis who have killed in that past month.

What are you seeing? ARRAF: Well, certainly this all changed dramatically about three weeks ago. Now up until then, things seemed to be getting steadily better, steadily improving, for Iraqis, for the U.S. troops.

And now it's like a different Iraq, in places like Fallujah and in places -- here in Najaf, they are suddenly facing something that really does look very much like war all over again.

The trigger for this in this part of the country, in the Shia south, was the Shia leader seizing control of these holy cities as well as part of Baghdad. And that was triggered by the arrest of one of his deputies.

It's an immensely complicated situation here, which is by the U.S. is treading so carefully.

WALLACE: And Jane, talk to us a little bit about the frustration you're encountering from some of the U.S. Soldiers. They are in a standoff, as you say, there in Najaf and also in Fallujah. How frustrating for them to sort of be in this situation right now.

ARRAF: Intensely and particularly frustrating for the soldiers here. They're from the 1st Armored Division, most of them. And they had done their year of service, some of them more than a year. Some of them were actually on their way back to the states or Germany when they were told they had to stay.

Now they seem to all realize why they have to stay, they have a clear enemy they're fighting. But doesn't make it a whole lot easier. In some cases they went from places they knew in Baghdad, staying in palaces, to here basically in the middle of the desert.

And I don't know if you can hear the salsa music behind me. This used to be a Spanish camp. The Spanish pulled out, left some of their music. But U.S. troops are filling in the gaps here left by the Spanish and other coalition members. It is a whole different ball game.

HAYS: Jane, this week on "THE FLIP SIDE" CNNfn, I interviewed a man, Michael Percio (ph), who traveled...

ARRAF: I'm afraid that whishing noise means that we may have lost audio on the satellite link.

HAYS: Well shall we -- let's see if -- we'll give Jane a second to see if she regains her audio or not. We hope she does, because we always love hearing from Jane Arraf. I think maybe we have lost audio, so we will -- OK. Yes.

You know, I was going to actually ask Jane Arraf about a poll that was out this week, mirrored in this interview we did this man who said he found in Iraq when he was there in December visiting his son in Fallujah, how the Iraqis were so frustrated -- a poll this week showing that the Iraqis themselves are very frustrated.

I think we've got Jane back. ARRAF: ...go into Najaf, for it -- to take care of security that. That would mean that the militia would have to disband, a tall order there. Unclear whether that will happen, but everyone is working towards a political solution and working at getting people back to work, one of the reasons why Muqtada al-Sadr is believed to have such a following of unemployed young men.

HAYS: Jane, can I repeat this question? The poll out from Iraqis this week, a poll done where Iraqis are showing their mistrust of the United States, considering the troops occupiers. Glad that the U.S. ousted Saddam Hussein, but showing in this survey that they really want to see the power handed over and the United States going home as soon as possible, it seems.

And of course, we're showing the results of that poll on our screen, the opinion of Iraqis of U.S. Troops in their countries.

So, Suzanne, what do you -- what do you think in terms of the polls in the United States? Because it does seem that that's one big place where the president has lost ground, people less approving of his handling of the war in Iraq.

MALVEAUX: And the one thing that's certain is that they want, as soon as possible, to transfer power. You talk about this plan, June 30. Well, Brahimi's plan, the U.N. special envoy -- his plan is even calling for escalating, even sooner than that. He's talking about by the end of May, let's have these members, whoever is going govern Iraq at the time, let's get them together and let's make sure they know and understand the relationship with U.S. military because that, of course, really is the big question here: what is going to happen afterwards?

We know there's going to be a very strong U.S. military presence, but what is going to be to be their relationship with the Iraqi people?

HAYS: That's a very important question. And, of course, thank Jane Arraf. We apologize for the technical difficulties. It's just like that when someone is in a war zone, I guess.

We're going to continue talking about the war when ON THE STORY continues after this break.

(BEGIN VIDEOTAPE)

ANNOUNCER: Suzanne Malveaux is a CNN White House correspondent. Earlier, she reported for NBC for six years, covering the Pentagon and the Clinton administration. She has degrees from Harvard and Columbia.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP) GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: A year ago, I did give the speech from the carrier, saying that we had achieved an important objective, that we accomplished a mission, which was the removal of Saddam Hussein. And as a result, there are no longer torture chambers or rape rooms or mass graves in Iraq.

(END VIDEO CLIP)

MALVEAUX: President Bush, of course, taking a different approach than he did one year ago today, when standing on the air aircraft carrier under the "Mission Accomplished" banner saying major combat had ended.

Welcome back, we are on that story.

HAYS: Boy, is the White House wishing that banner had never been up? "Mission Accomplished," when now April, the worst month...

(CROSSTALK)

MALVEAUX: It is something the White House regrets. And we have heard from the president's top political adviser, Karl Rove, who has said publicly in an interview that they do regret that that "Mission Accomplished" banner was up in the background because, of course, when you look at the images that were created one year ago today, it was really extraordinary. It took a lot of planning, it was really kind of an extraordinary photo op for the president, for the administration. But they -- but they say, Look, you know, this is something that has been -- it's come as a symbol and it has been blown out of proportion because what the president did say is that Yes, it was this mission that was accomplished, Saddam Hussein had been removed.

(CROSSTALK)

HAYS: Do we really think they did think the mission was accomplished though? Is that it too? Do we think they really believed it?

MALVEAUX: It was specifically regarding that unit that had come home. They felt that Saddam Hussein -- you know, the regime, essentially, had been destroyed. And they felt that that was the mission that had been accomplished.

The president also says, however, in that speech -- and this was something that they debated about before he actually made that speech -- is that yes, there are still going to be tough times ahead. And that is something that in some ways has gotten lost in the debate and the discussion.

(CROSSTALK)

ARENA: and images, though, Suzanne. I mean, I want to move over to the pictures of soldiers allegedly abusing Iraqi prisoners.

I mean, that is a real punch in the eye to this Bush administration. MALVEAUX: And this administration, the White House, there are advisers, there are people who truly believe that they are losing the public relations war.

We are seeing these pictures, "60 Minutes II", extraordinary pictures of -- allegedly the U.S. soldiers abusing these Iraqi prisoners. And this is something that the whole world is seeing now, including those in the Arab region. And it is unbelievable, because you have the president, the Pentagon, the coalition, all of these people saying, Look, we're disgusted. This is not acceptable. It does not represent Americans.

But on the other hand, they all know that the job they have now is extraordinarily difficult and no matter what they say, it is going to take a lot of campaigning and information network to get out the message that this is not what America is about. This is not what the Americans are doing as a whole.

WALLACE: Pick up on that, Suzanne, what is the strategy? Because as you said, the administration already had a huge task when it came -- comes to winning over the hearts and minds. Is there any talk behind the scenes of sort a new strategy, a more aggressive approach, more aggressive outrage in light of these photographs? Anything you're picking up?

MALVEAUX: Well, there certainly is this idea about outreach. And they want -- you know, they've got a media campaign. They've got -- they already have in place various outlets throughout the region, in the country to try to convey the American message, the coalition message.

The other thing that quite frankly they're doing, is while that is happening, their PR campaign, there is a huge push, essentially, to get out of the country. I mean, as you had mentioned before, the polls show the Iraqis do not want the Americans there. They're tired of the Americans being there.

And this is creating a huge problem. The American soldiers don't want to be there either. And so they are sticking with that June 30 deadline; there is no way that they're going to change that. If anything, they're escalating that process in the hopes that with outreach, through the leaders and through people on the ground, they can convince the Iraqis that it is worth it to work with the Americans, that it is worth it...

(CROSSTALK)

ARENA: Suzanne -- I'm sorry, I'm cutting you off, but I want to -- I want to also get into -- because I know we have limited time -- to get into the issue of the 9/11 commission. You had the president, the vice president in a closed session.

What did you hear?

MALVEAUX: We didn't hear a lot of new information, actually. I mean, it was an extraordinary situation to have the two of them together, behind closed doors.

What we do know is that overall it was a very good meeting. Everybody explained that things went very well. We know that the president was critical of Richard Clarke, his former counterterrorism chief. We know that he answered questions about what did the administration do, you now, hour by hour on September 11, reacting to the attacks. We also know that he defended himself when it came to that presidential daily brief, whether or not there was any information that he got six weeks prior to the September 11 attacks that might have predicted something like this was going to happen. He said there was no new information in that brief. Those are just some of the highlights.

We expect that you are going to see quotes and some things that are lifted out of that session in the report that is released over the summer.

WALLACE: Suzanne, I want to quickly go back to the "Mission Accomplished" for a second. You talked about the advisers expressing regret. Behind the scenes, privately, Suzanne, how concerned, how worried are they that this could be what some Kerry advisers believe, what they call the -- quote -- "greatest political failure of all time."

Again, that's coming from Kerry's advisers. But how worried do the Bush teams believe this could be worrisome for the president in the campaign.

MALVEAUX: You know what's really interesting is the fact that this one moment and this one image, it was something that they thought essentially that the Republicans were going to use, that the president was going to use for his own campaign, with the "Mission Accomplished" in the background. He was in the flight suit, the whole bit. And what's ironic here, is that -- Kelly, as you know, is that Kerry is using the ad now to his advantage. But he didn't actually mention -- his Westminster speech, he didn't directly go after the president.

I'm just wondering if that's something where he's kind of holding back a little bit because it is so controversial.

HAYS: Right. So before we -- but, I just have to -- speaking of image, though, so much ridicule -- political cartoons across the country of President Bush and Vice President Cheney testifying together. One of the funniest ones -- I think even if you're a Republican, you have to chuckle with Dr. -- president -- Vice President Cheney as Dr. Evil and President Bush as Mini Me.

How do they respond to that? I mean...

MALVEAUX: And there was another that was one going around too. They say, you know, Cheney is drinking water, how does Bush speak?

(CROSSTALK)

(LAUGHTER)

(CROSSTALK)

MALVEAUX: One of the things they realize is that in some ways, some of these Republican strategists, say, Hey, look, they created more problems than they had to here.

Ultimately, the administration cooperated on all counts. But before they did, there was a lot of fodder here for ridicule and questions because of some of the resistance in the beginning and then some of the conditions at the end: the fact that the two of them were testifying -- were answering questions together.

Ultimately, the commissioners said, the White House said that it was useful that the two of them were sitting side by side in telling their story.

HAYS: So they got the pat on the back of the commission, so maybe it's all well and good for now.

Well, from the White House to the big sports story, Kentucky Derby day. What to watch, who to watch and Josie Burke is back ON THE STORY in a moment.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

KRISTEN MULHALL, TRAINER: I'm just going to take it like it's another race right now and try not to let it get to me. But everyone goes on and on and I guess it is pretty amazing.

(END VIDEO CLIP)

BURKE: Twenty-one-year-old trainer Kristen Mulhall has a difficult task ahead of her today, as she tries to keep her nerves in check. She's trying to become the first female trainer and the youngest trainer period to win the Kentucky Derby.

Welcome back. I'm Josie Burke in Louisville at Churchill Downs, and we're ON THE STORY.

ARENA: Josie, how does a 21-year-old end up training a horse at the Kentucky Derby? That's amazing.

BURKE: Yes, she used that word, too, amazing. I mean, she's been the story for the past couple of weeks.

Well, number one, she was born to it. Her father was a trainer for a number of decades. He then moved into the thoroughbred management. So she had it in her blood. And it's interesting, a lot of people who talk about her now, who have known her for a long time, use the same phrase. They say she's part horse. She just really has always had an affinity for these animals. And that's why, even she's only 21, somebody said, you know, in horse training year, she's closer to her mid 30s and that's about where you should be if you want to have a Kentucky Derby winner.

WALLACE: I don't know, Josie. I was kind of surprised that a woman trainer had not won before.

How close -- have women come close in the past and are -- is she the only woman out there? Are there other women also competing?

BURKE: Well, the number of women entrants now in the history of the Kentucky Derby -- and this is the 130th run for the roses -- is now at 12 because she's not the only one this year. There's Kristen Mulhall, but there's another woman, Jennifer Pederson. She trained Song of the Sword. I think the reason that Mulhall is getting so much more attention is because she's got that added factor that she is so young, and just the fact that she would be the youngest trainer ever. If there was a 21-year-old guy out there, too, he would certainly be getting a lot of attention.

And the fact that her horse has a little bit better odds. Imperialism started out at 15 to 1. Song of the Sword 30 to 1.

HAYS: And there was a horse she really got in a claims race. It's such an amazing story around her the horse.

But there's another amazing story for some people who are almost unsung heroes, certainly unpaid heroes in the Derby, and that's the jockeys. And just a landmark accomplishment for the jockeys this week potentially.

BURKE: Yes, they have to go to court. They wanted -- the jockeys, a number of them,. sued because they wanted to be able to wear advertisements during the race, little patches, things like that. And there was a state law that prohibited them from doing that. They went to court and a judge this week blocked that state regulation. And then Churchill Downs went ahead and they said, OK, not just the jockeys who sued, but any jockey who wants to can wear an advertising patch. But the catch is the advertisement can't compete with any of the official sponsors of the Kentucky Derby.

MALVEAUX: So Josie, tell us who's the favorite, and also explain to us a little bit about what it's like to be there. I understand they have some renovations going on, and perhaps the ones wearing the fancy hats and the drinks are now mixing with the locals.

(CROSSTALK)

BURKE: I'll start with the favorite.

The interesting thing about this Kentucky Derby is that there is no clear-cut favorite. Obviously, one horse, when they go off, is eventually going to be the one who has the best odds. It started out as The Cliff's Edge, and that's a horse that's trained by a trainer who has won the Kentucky Derby before.

A couple of other horse names to look out for -- Smarty Jones. This is an undefeated horse who has a little bit of Seabiscuit story, because he doesn't have the greatest pedigree and he was actually hurt last year.

And then there's another horse, Tap It, that's getting a lot of attention and a lot of money put down on him.

As far as the social scene, it's always an important part of the Kentucky Derby. But it is a little bit different this year because they're doing a huge $100 million renovation -- I don't know if you can see it behind me a little bit. But part of the grandstand where the seats normally are is being renovated, and they call that Millionaire's Row. And they actually had to move part of Millionaire's Row to the infield. And the infield is normally where, you know, the younger crowd, the crowd that's not as well-heeled, the crowd that's not wearing hats and fancy suits, hangs out.

But there's actually a big fence that they put up -- they've tried to make the infield portion that's also Millionaire's Row seem a lot more refined and separate.

(CROSSTALK)

HAYS: So you're in Louisville, Kentucky, running for the roses. Mint juleps in the afternoon, we know that.

But I know your mind also has to be a little bit keeping tabs on events in Colorado because there's some latest on Kobe Bryant.

BURKE: Yes, this week again, Kobe Bryant was back in Eagle for three days of hearing. He was also back on the basketball court helping the Los Angeles Lakers advance to the second round of the NBA playoffs.

But there was some news that came out this week from Eagle. The judge saying that the next time that Kobe Bryant is back for a hearing starting May 10 -- there are a couple of days of hearings -- that he will be arraigned, and at that point he will have to enter a plea. That's important because then the clock starts ticking. It will be six months from that point they have to get the trial started.

Just one last thing. Kobe Bryant, through a statement released by his agent, told USA Basketball, he's probably not -- because of this new schedule -- going to be able to participate in the Olympics this summer.

HAYS: Oh, that's really a loss for the Olympic basketball team.

But Josie, after you get the mint juleps and, you know, collect your bets after the race tonight, what's ON THE STORY for you in coming days?

BURKE: Well, in the coming days, I'll obviously be keeping track of the NBA playoffs, getting some Olympic stories in order, because before you know it, that will be there.

And today will just be a really fun day, because there isn't just the Kentucky Derby, there's a whole day of racing. So we have that to look forward to here in Louisville.

HAYS: Well, next year I want to come along and be your production assistant. I've never been to the Derby and I'm dying to go. And Kelli Arena will come with..

BURKE: You're more than welcome. I can't wait.

HAYS: OK, good.

(CROSSTALK)

HAYS: Kelli will come with her hat.

From sports and hats to what the president's economic team sees as winning numbers this week. I'm back on that story after this, and a check on what's making headlines at this hour.

(COMMERCIAL BREAK)

LINDA STOUFFER, CNN ANCHOR: Good morning, I'm Linda Stouffer. In the headlines at this hour:

A compound where Westerners work came under attack today in Yanbu, Saudi Arabia. The U.S. embassy in Riyadh confirms at least two Americans were among the dead. Gunmen had opened fire there. An Australian was confirmed killed. British authorities are checking reports that a Briton died in the attack as well. Saudi officials suspect an al Qaeda link.

In Iraq, a U.S. soldier was killed, two were wounded today by a roadside bomb near Mosul. Also near Mosul, a large fuel convoy came under attack. Two private security guards were killed, five wounded.

And on the anniversary of saying that major combat had ended in Iraq, President Bush defended that declaration. In today's weekly radio address, he said life continues to get better for many Iraqis while conceding that difficulties do remain.

(BEGIN AUDIO CLIP)

BUSH: At the most basic level of justice, people are no longer disappearing into political prisons, torture chambers and mass graves because the former dictator is in prison himself.

(END AUDIO CLIP)

STOUFFER: The Iraqi insurgency has killed hundreds of U.S. troops since the president's declaration of "Mission Accomplished" a year ago.

The first leg of the Triple Crown is -- well, let's see -- than eight hours away. Right now, 18 horses are set to run on a very muddy track at the 130th Kentucky Derby. Post time, 6:04 p.m. Eastern tonight.

Well, those are the top stories at this hour. I'm Linda Stouffer. Now back to ON THE STORY.

(BEGIN VIDEO CLIP) JOHN SNOW, TREASURY SECRETARY: I'm delighted to report -- delighted to report that we've had the best nine months in America's economic performance in the last 20 years.

(END VIDEO CLIP)

HAYS: Treasury Secretary John Snow loving the applause, smiling over those latest numbers showing the U.S. economy grew at more than a 4 percent annual rate for the first three months of this year.

But Wall Street, like always, wanted more and consumers seeing price hikes for gas and milk still aren't convinced.

Welcome back. We're ON THE STORY.

WALLACE: Kathleen, we always come to you with these questions, the political questions about the economy. But can you give us a sense of how things are going in some of these key battleground state, some 17 battleground states that could decide the election? Are things getting better there, too? Or still not keeping up really with the national economic growth?

HAYS: Well, you know, Kelly, let's take a look at manufacturing, because we know that's one area where the Bush team feels vulnerable because they didn't win Ohio (sic). Pennsylvania is an important state.

So you remember the road trip last summer when they were out trying to drum things up. Well, one of the good things we got at the end of the week, a little-watched report from Chicago about business activity -- that's picking up. There are more signs that manufacturing has turned around.

In that GDP report that we got this week, we saw that business investment was still pretty strong, including in software. So at the margin, yes, the ship is turning. Is it turning fast enough? Because I think another theme here is that we see the price is rising and we see wages not growing very fast, and that's something that I think for some families, kind of creates uneasiness, it makes them insecure. And how does that sort out? Because that's not just one key region. I think that's kind of dispersed across the country.

MALVEAUX: But Kathleen, what about interest rates? Are we going to see the Federal Reserve drop those interest rates? What does that look like?

HAYS: Oh, well, dropping them? I'm afraid not. The whole question now, of course, is will we hike them? And I'm sure the administration wouldn't mind to see them being cut.

The Federal Reserve meets on Tuesday, and that's one of the reasons why everybody kept puzzling all week -- why isn't the stock market doing better? Earnings are beating expectation. We got the good GDP. Home sales for -- new home sales at a new record. Existing home sales near the record. But they're saying, Hey, the fed's meeting next week. They're not going to raise rates yet, but they're going to signal that we're not so patient now. And it's not that we want to slow the economy down, but the language -- the idea will be, we have the key short-term rate at a 45-year low and economy is picking up. So we're not really tightening if we move that rate up, we're just taking our foot off the gas. That's the story.

But the stock market doesn't know, you know? If the growth is good, but rates are rising, you got to balance out which one adds, and which one takes away?

ARENA: Well, what I want to know is, from all this stuff we've covered, how do I get Google stock?

HAYS: Well, you know, you have shot this time. Unlike the tech boom of the late 90's and the whole bubble economy and dot-com bubble, this time these genius guys -- you know, the former Stanford computer science professors, young men, 30 and 31, who six year ago started a company that's now worth -- what? -- something like, they figure, 20 to 30 billion dollars. When this IPO, initial public offering is sold, these guys are set for life, because they're probably both going to walk away with at least $4 billion. That's the guessing right now.

But here's the deal. They are doing a Dutch auction. And what it means is any of us can bid. We sign up at the brokerage, either Morgan Stanley or Credit Suisse First Boston, I believe. You make -- do the appropriate -- you know, give them the information, you send in your order. And how a Dutch auction works is you have to bid high enough to be at the bid that sells all the shares. In other words, if we all bid -- if somebody people bid $100 and only a few people bid $50, then the $100 is going to clear it. The $50 bid probably doesn't -- doesn't get in.

ARENA: So it still sort of keeps out your smaller investors in a way.

HAYS: Well, but -- no, no, a smaller investor can get in.

(CROSSTALK)

ARENA: Well, but you could just bid for a few shares. It's the price, it's not the number of shares you bid for.

But the problem is, if we all want it and you say to yourself, Well, if I want this, I shouldn't bid $10 a share, I better bid $20 a share. And everyone else keeps doing that, we could inadvertently bid it up so high that when it comes to market, it's going to be overbid and the price is going to fall.

WALLACE: Kathleen, does this say anything about sort of the state of the economy? Because we heard about IPOs -- not at the level of this one, but, you know, in years past, when we had the big tech boom. Is this a sign of things to come or is this a sort of one-time only deal here?

HAYS: I think somewhere in the middle. That I think people figure this is good for Silicon Valley, things are coming back.

But remember, number one, this is a company that is making money. In 1999, they had sales of $220,000. Last year, their sales were nearly $1 billion. They are the leader right now in this whole search- engine area which is one of the most important areas, one of the most lucrative of the Internet.

However, having said that, there aren't a lot more Googles out there right now. And plus, I think the other thing is, remember, when the IPOs were bubbling, we were in a bubble. And I think now things are much more subdued and I think people are maybe hoping on Wall Street we're in a bubble. But I think a lot of people figure probably not just yet.

ARENA: Too bad.

HAYS: Well, get those shares (UNINTELLIGIBLE)

ARENA: I'm calling. I'm calling now that I know how.

Well, from the marketplace to the courthouse, in arguments this week about how terror suspects can have a different kind of justice than other criminal suspects.

I'm back ON THE STORY after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

JENNY MARTINEZ, JOSE PADILLA'S ATTORNEY: I think the important thing that whatever Mr. Padilla did, this is till America. He's entitled to be charged with a crime and to have his day in court.

(END VIDEO CLIP)

ARENA: That was Jenny Martinez, attorney for terror suspect Jose Padilla, standing outside the U.S. Supreme Court this week. This followed the legal arguments over whether a terrorism suspect, however dangerous, should get his day in court.

Welcome back. We're ON THE STORY.

MALVEAUX: Now explain to me how it is that a U.S. citizen -- right? -- who is arrested on American soil at O'Hare becomes an enemy combatant.

ARENA: Because the president says so, and that's the government's argument.

The government's argument is that he was allegedly involved -- you remember, Jose Padilla, the alleged dirty bomber, who was going to come to the United States, but, you know, get materials and blow us all up with a radioactive dirty bomb, according to the government -- was a fighter in the war on terror, had trained overseas, came at the behest of the enemy to do harm here in the United States. And the government has always contended, Look, we didn't make the United States a battlefield. Al Qaeda made the United States a battlefield when they blew up 3,000 people on September 11th.

And so that is the government's argument. And they said we can hold him without a lawyer for as long as we want, for as long as the war goes on. Of course, his counsel says, No way. He's a U.S. citizen. He deserves to be represented. He has rights. I mean, you can't just pluck people off the street and throw them in jail forever. So -- or in a military brig.

WALLACE: Kelli, you're been reporting, the stakes are so huge on this case, of course. But you're also talking to outside experts. When you talk to the outside experts, who do they think has a stronger case, the government or the defense lawyers for these so-called enemy combatants?

ARENA: Well, Kel, the interesting thing is that there were -- you know, there were two cases that were argued this week, the case of Yasser Hamdi and Jose Padilla.

Yasser Hamdi was caught on the battlefield. And most legal experts seem to think that that's a clearer win for the government, in their estimation, because this was somebody engaged in battle, even though there were some squeakings about how he says he wasn't exactly fighting the U.S. That seems to be more clear-cut.

The Jose Padilla issue is very interesting, and when this ruling will be the most significant ruling on the president's war powers since World War II. And there was a lot of discussion about this congressional resolution that was signed on September 18, right after the September 11 attacks, basically, what the government argued gave the president broad powers to fight war on terror. The critics say, Wait a minute. It doesn't say anything about detaining U.S. citizens.

HAYS: Right.

ARENA: So they're really way across -- interestingly, Kelly, way across the board in their representation.

But I can tell you that both of those lawyers, Jenny Martinez and Paul Clement, for the government, deputy solicitor general, were brilliant before the justices. They were brilliant.

HAYS: Paint -- paint the rest of the picture in the courtroom. Because, you know, we hear at, you know, celebrity trials, Martha Stewart, the day that Rosie O'Donnell came. You know, all the stars that came.

What about this courtroom? Who is there? What's it like?

ARENA: This is -- first of all, there were students. This case is already being studied in law schools. So you had law students that had come the night before to wait on line to try to get a seat in public sitting. I mean, it was really jam-packed. I mean, you had people in the seats like this. You had the senator, Ted Kennedy came, Justice O'Connor's husband was there, in the Justice guest seats. Everybody was really wanting to come. I mean, this was a landmark case. It was sort of very celebrity-like.

But it was -- really, it was just awe-inspiring to sit there and watch it. It was really brilliant.

MALVEAUX: And tell us about the spam case. They're really cracking down on spam.

ARENA: Federal government, first criminal charges ever against spammers. We all love them.

HAYS: Oh, yes.

WALLACE: Get rid of the e-mail.

ARENA: Yes. And, you know, lots and lots of charges that they had misrepresented who they were, that they used different names to try to sell products, misrepresent what the products did and they also didn't allow consumers an opportunity to say Look, I don't want to receive this, and to report the spam, because you're supposed to have a technical gizmo there to say, Hey, you know, don't want this anymore.

So -- and very difficult. Internet crime, very difficult to prosecute. But they went for it, for the first time ever.

WALLACE: I have a tough segue there. From the crackdown on spam -- I'm trying to think of something clever -- too early in the morning. Not coming up with anything.

To presidential politics and some challenges for John Kerry as he tries to get his message out. I'm on that story when we return. Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. JOHN KERRY (D-MA), PRESIDENTIAL CANDIDATE: America is safer and stronger when it is respected around the world, not just feared.

(END VIDEO CLIP)

WALLACE: That was Democratic presidential candidate John Kerry, who was yesterday trying to flesh out his idea for what he would do in Iraq, what he would do differently from President Bush. But this was a week where, when John Kerry was talking about Iraq, homeland security, economy, jobs, his message seemed to be getting drowned out a little bit by another war, and that is Vietnam.

Welcome back. We are ON THE STORY.

HAYS: So many moving parts for John Kerry right now. But when I step back, what strikes me is with president bush's handling of the war in Iraq going down, that John Kerry doesn't seem to be rising; he doesn't seem to be gaining some big jump or traction.

Are they getting kind of frustrated?

WALLACE: Kathleen, I'm having a little difficulty hearing you. I'm hearing our director as well. I think you were talking about the economy, is that right?

HAYS: Actually, we could talk about the economy.

WALLACE: No, no. Now I can hear you, Kathleen. Go ahead.

HAYS: OK. Good.

What I was just saying is this: President Bush handing of the war in Iraq, he's dropped in the polls. Why isn't John Kerry getting a big lift on this, and are his people frustrated?

WALLACE: That is a key and very good question. He is not. If you look at the poll, as you said, Americans are having more and more concerns about President Bush's handling of the war, but it's not necessarily translating to John Kerry.

What they will say, Kathleen, is they feel very good. They say that this is a neck and neck race, and that is not very good for the incumbent. But privately, Democrats are expression concern. They just don't believe that John Kerry has really broken out. He should be gaining more ground on issues like Iraq, the war on terrorism, the economy. They want to see him do more, take control of the message. So there's some frustration you're hearing within the Democratic Party about that.

ARENA: Kel, maybe he'll get re-energized when they finally decide upon a vice president. What are you hearing on that front?

WALLACE: That is the story everyone loves to talk about.

We did hear this week that -- confirmed with some sources -- that the so-called vetting process -- that is the very long and exhaustive checking of backgrounds of possible candidates -- is under way and has been under way for some time, for a couple of people, including North Carolina Senator John Edwards, Missouri Congressman Richard Gephardt. We know both former presidential candidates. Also we understand it's happening now or will happen at some point for Iowa Governor Tom Vilsack.

We should say, though, the sense is that other people will be checked out. Lots of other names out there. It's still unclear, Kelli, when a decision will be made. Not clear if we can get one in May or if they'll let the mystery build until closer to the Democratic convention.

MALVEAUX: Kelly, I want to go back to the story about the war record for both candidates, because it's so interesting and it's so controversial.

The Bush administration has done something that is really very clever. Because on the one hand his top adviser, Karen Hughes, came out and criticized Kerry about whether or not he threw away the medals, the ribbons or pretended to, that kind of thing, whereas the president and his spokesperson refused to get into that kind of debate, to kind of sling that -- sling that mud. But they do -- because they say his service is honorable.

But they do talk about how they don't believe she strong enough in national security. Do you think that the administration's position here has had an impact on how people see Kerry or how he's handling this debate?

WALLACE: Well, it's interesting, Suzanne, because many people believe, Democrats, maybe even Republicans believe John Kerry was actually put on the defensive over an issue that should be really one of his strongest issues, and that is his Vietnam war record. He is a war hero, a decorated war hero and it is something that he can sort of hold out there.

And he spent the beginning of the week answering questions whether he threw medals, threw ribbons, and finding himself on the defensive. And then he was turning the tables a bit, raising questions about President Bush, what he says are still unanswered questions about his National Guard service during Vietnam, questions about draft deferrals for Vice President Cheney. So you saw him kind of turn the tables, get a little frustrated.

The end of the day, Suzanne, Democrats believe they win any time there is a discussion about this, because more and more people this week who might not have learned much about John Kerry learned that he did serve in Vietnam. So they think that's a win. But again, many people think he was a bit on the defensive and that he needs to take a charge a bit more and not get in that situation in the first place.

HAYS: I'm assuming there's no chance of this. The convention is really just a couple of months away no. If John Kerry isn't seeming stronger, if he isn't making more progress, is there any chance the Democrats might decide, you know, we picked the wrong guy, we picked too early, he's not making (UNINTELLIGIBLE). I mean, could -- or is it just so locked up that they are stuck now with John Kerry regardless?

WALLACE: Well, you know, I think you hear sort of privately some opinion pieces are being written saying, Do we have the wrong guy? Is this the best we can do? You have some talk of a third-party alternative, of John McCain, the Republican senator of Arizona and Wesley Clark. But no one expects really that to take on any weight.

But what does it does point out again -- you're hearing more talk about it -- is that Democrats want to see John Kerry do more. And I think, we look at the comedy channels and we look at the late-night comedians, and they're often on to something.

I want you to listen to something from Jay Leno from just this week. Take a listen.

(BEGIN VIDEO CLIP) JAY LENO, TONIGHT SHOW HOST: Today is my birthday. I got a lovely gift. Did I mention this?

(CHEERS AND APPLAUSE)

LENO:. Somebody gave me the new John Kerry answering machine. The only problem: doesn't have a message. Yes.

(END VIDEO CLIP)

WALLACE: Oops. Well, that is what you are hearing some Democrats say.

But to that, I must say Kerry's advisers are defining him and that ads, biographical ads about his life, where he comes from, his Vietnam experience, are coming in days, not weeks, maybe as early as this coming week.

ARENA: Kelly, there was also some big tiff over his hair, his hair, where he got his hair cut?

WALLACE: I don't even want to touch this.

(CROSSTALK)

WALLACE: Questions of the, you know, the cost of the haircut. You remember that name Kristoff (ph), someone that was legendary for cutting former President Bill Clinton's hair. And you know what? Aides were sort of not wanting to touch this one with a 10-foot pole. They're saying, Look, you know, onward, upward. We're moving. We're focusing on issues.

But it does show you how some of these other things can get a lot of attention. Obviously, he's a presidential candidate. Everything he does is going to be scrutinized very closely. But again, aides are saying -- we're trying to be more disciplined and focus on the issues.

MALVEAUX: And Kelli, we always hear comments about our hair anyway, you know?

(CROSSTALK)

WALLACE: Right. Exactly. Good to talk about their hair. I agree.

ARENA: I'm all for it.

MALVEAUX: Do you think -- I have a quick question. Do you think -- I mean, the Bush camp is spending millions of dollars trying to define Kerry. Do you think it's really had an impact?

WALLACE: It -- very quickly, Suzanne, it seems to. Look at the polls. A majority of Americans believe that John Kerry is someone who says what he thinks people want to hear, says what he think is the political answer. So it appears it's having a little bit of an impact right now. ARENA: All right. Thanks, Kel.

We are back ON THE STORY right after this.

(COMMERCIAL BREAK)

HAYS: Thanks to my colleagues and thank you for watching ON THE STORY. We'll be back next week.

Still ahead, "PEOPLE IN THE NEWS," focusing this week on the smash hit, soon-to-be-ended, TV series "Friends."

Coming up right now, a check of the top stories.

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

Aired May 1, 2004 - 10:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RENAY SAN MIGUEL, CNN ANCHOR: Two Americans and an Australian are dead following an attack by militants in a compound in northwestern Saudi Arabia. Another American was injured in the attack. Saudis believe the attacks are linked to al Qaeda. Two militants were killed when they detonated a car bomb and another was killed during a shoot-out with Saudi police. A fourth militant was captured.
In Iraq, families who fled the fighting in Fallujah are starting to go back home. The return comes as U.S. officials strike a deal for an Iraqi force to take control of the city in an attempt to end the bloodshed. Fighting between U.S. forces and insurgents has consumed the city for about a month now.

And intense images that have sparked international outrage. Pictures like these, showing apparent abuse of Iraqi prisoners are causing international outrage and raising questions about human rights. Six U.S. soldiers are charged in the incident. The British military is investigating similar allegation of prisoner abuse.

Heavy rain and traffic jams hamper rescue efforts in the wake of a strong earthquake in Taiwan. The 5.8 magnitude quake was centered on the island's east coast. At least two people are dead from landslides on a mountain road.

Those are the top stories at this hour. I'm Renay San Miguel. ON THE STORY begins right now.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Welcome to CNN's ON THE STORY, where our journalists have the inside word on the stories we cover this week.

I'm Suzanne Malveaux, ON THE STORY of President Bush one year to the day after declaring an end to the major combat in Iraq, facing the highest death toll so far.

JANE ARRAF, CNN BAGHDAD BUREAU CHIEF: I'm Jane Arraf at a U.S. Army base in Najaf, ON THE STORY of U.S. forces building up, but hoping they don't have to use them to unseat a radical Shia leader who has seized control of the holy city.

KELLY WALLACE, CNN NATIONAL CORRESPONDENT: I'm Kelly Wallace in New York ON THE STORY of how the John Kerry campaign got a bit stuck, not in the Iraqi war but the Vietnam war, covering up some of his message on Iraq, jobs and homeland security.

KELLI ARENA, CNN JUSTICE CORRESPONDENT: I'm Kelli Arena ON THE STORY of the legal arguments this week over whether terrorism suspects can be held indefinitely without a trial.

JOSIE BURKE, CNN SPORTS CORRESPONDENT: I'm Josie Burke in Louisville and I'll be back later ON THE STORY of the Kentucky Derby and a young woman trying to make history.

KATHLEEN HAYS: And I'm Kathleen Hays on the story of administration cheers about new economic numbers this week.

We'll also talk about how consumers may find themselves pay more for necessities at the pump and the supermarket. We'll talk about how the government took on the spammers, people clogging our computers with ads. And the latest in the Kobe Bryant case, and another step closer to trial in the sexual assault case.

E-mail us at onthestory@cnn.com.

Now straight ahead to Jane Arraf on "Mission Accomplished."

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Take cover! Get down! Get down! (UNINTELLIGIBLE)

(END VIDEO CLIP)

ARRAF: Now that was just an indication that it still feels a lot like war here. We're here at a U.S. Army base in Najaf, sandbags behind us. And what those sandbags are for, it's a bunker. And you're supposed to dive in it when there's rocket-propelled grenade or mortar attacks, as there are almost every night and almost every morning here.

Now this place is full of U.S. troops who believed that they would be home by now. They all have vacation plans, they all had sweethearts, or wives or husbands waiting for them. Instead, they have been redeployed from Baghdad and they are here. And they're here to show a presence and diffuse a threat from a radical Shia leader -- a young radical Shia leader, who has seized control of the holy city. His militia is in charge of Najaf and Kufa.

The soldiers are here, frustrated. There's not a lot they can do when they go out and get shot at, because this is a very sensitive place and they're very aware of that.

MALVEAUX: Jane, please tell us what it's like there. I know it must be an extraordinary experience, but we know from the month of April that this has been really the bloodiest month since the very beginning. More than 130 Americans killed in Iraq, but 10 times the number of Iraqis who have killed in that past month.

What are you seeing? ARRAF: Well, certainly this all changed dramatically about three weeks ago. Now up until then, things seemed to be getting steadily better, steadily improving, for Iraqis, for the U.S. troops.

And now it's like a different Iraq, in places like Fallujah and in places -- here in Najaf, they are suddenly facing something that really does look very much like war all over again.

The trigger for this in this part of the country, in the Shia south, was the Shia leader seizing control of these holy cities as well as part of Baghdad. And that was triggered by the arrest of one of his deputies.

It's an immensely complicated situation here, which is by the U.S. is treading so carefully.

WALLACE: And Jane, talk to us a little bit about the frustration you're encountering from some of the U.S. Soldiers. They are in a standoff, as you say, there in Najaf and also in Fallujah. How frustrating for them to sort of be in this situation right now.

ARRAF: Intensely and particularly frustrating for the soldiers here. They're from the 1st Armored Division, most of them. And they had done their year of service, some of them more than a year. Some of them were actually on their way back to the states or Germany when they were told they had to stay.

Now they seem to all realize why they have to stay, they have a clear enemy they're fighting. But doesn't make it a whole lot easier. In some cases they went from places they knew in Baghdad, staying in palaces, to here basically in the middle of the desert.

And I don't know if you can hear the salsa music behind me. This used to be a Spanish camp. The Spanish pulled out, left some of their music. But U.S. troops are filling in the gaps here left by the Spanish and other coalition members. It is a whole different ball game.

HAYS: Jane, this week on "THE FLIP SIDE" CNNfn, I interviewed a man, Michael Percio (ph), who traveled...

ARRAF: I'm afraid that whishing noise means that we may have lost audio on the satellite link.

HAYS: Well shall we -- let's see if -- we'll give Jane a second to see if she regains her audio or not. We hope she does, because we always love hearing from Jane Arraf. I think maybe we have lost audio, so we will -- OK. Yes.

You know, I was going to actually ask Jane Arraf about a poll that was out this week, mirrored in this interview we did this man who said he found in Iraq when he was there in December visiting his son in Fallujah, how the Iraqis were so frustrated -- a poll this week showing that the Iraqis themselves are very frustrated.

I think we've got Jane back. ARRAF: ...go into Najaf, for it -- to take care of security that. That would mean that the militia would have to disband, a tall order there. Unclear whether that will happen, but everyone is working towards a political solution and working at getting people back to work, one of the reasons why Muqtada al-Sadr is believed to have such a following of unemployed young men.

HAYS: Jane, can I repeat this question? The poll out from Iraqis this week, a poll done where Iraqis are showing their mistrust of the United States, considering the troops occupiers. Glad that the U.S. ousted Saddam Hussein, but showing in this survey that they really want to see the power handed over and the United States going home as soon as possible, it seems.

And of course, we're showing the results of that poll on our screen, the opinion of Iraqis of U.S. Troops in their countries.

So, Suzanne, what do you -- what do you think in terms of the polls in the United States? Because it does seem that that's one big place where the president has lost ground, people less approving of his handling of the war in Iraq.

MALVEAUX: And the one thing that's certain is that they want, as soon as possible, to transfer power. You talk about this plan, June 30. Well, Brahimi's plan, the U.N. special envoy -- his plan is even calling for escalating, even sooner than that. He's talking about by the end of May, let's have these members, whoever is going govern Iraq at the time, let's get them together and let's make sure they know and understand the relationship with U.S. military because that, of course, really is the big question here: what is going to happen afterwards?

We know there's going to be a very strong U.S. military presence, but what is going to be to be their relationship with the Iraqi people?

HAYS: That's a very important question. And, of course, thank Jane Arraf. We apologize for the technical difficulties. It's just like that when someone is in a war zone, I guess.

We're going to continue talking about the war when ON THE STORY continues after this break.

(BEGIN VIDEOTAPE)

ANNOUNCER: Suzanne Malveaux is a CNN White House correspondent. Earlier, she reported for NBC for six years, covering the Pentagon and the Clinton administration. She has degrees from Harvard and Columbia.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP) GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: A year ago, I did give the speech from the carrier, saying that we had achieved an important objective, that we accomplished a mission, which was the removal of Saddam Hussein. And as a result, there are no longer torture chambers or rape rooms or mass graves in Iraq.

(END VIDEO CLIP)

MALVEAUX: President Bush, of course, taking a different approach than he did one year ago today, when standing on the air aircraft carrier under the "Mission Accomplished" banner saying major combat had ended.

Welcome back, we are on that story.

HAYS: Boy, is the White House wishing that banner had never been up? "Mission Accomplished," when now April, the worst month...

(CROSSTALK)

MALVEAUX: It is something the White House regrets. And we have heard from the president's top political adviser, Karl Rove, who has said publicly in an interview that they do regret that that "Mission Accomplished" banner was up in the background because, of course, when you look at the images that were created one year ago today, it was really extraordinary. It took a lot of planning, it was really kind of an extraordinary photo op for the president, for the administration. But they -- but they say, Look, you know, this is something that has been -- it's come as a symbol and it has been blown out of proportion because what the president did say is that Yes, it was this mission that was accomplished, Saddam Hussein had been removed.

(CROSSTALK)

HAYS: Do we really think they did think the mission was accomplished though? Is that it too? Do we think they really believed it?

MALVEAUX: It was specifically regarding that unit that had come home. They felt that Saddam Hussein -- you know, the regime, essentially, had been destroyed. And they felt that that was the mission that had been accomplished.

The president also says, however, in that speech -- and this was something that they debated about before he actually made that speech -- is that yes, there are still going to be tough times ahead. And that is something that in some ways has gotten lost in the debate and the discussion.

(CROSSTALK)

ARENA: and images, though, Suzanne. I mean, I want to move over to the pictures of soldiers allegedly abusing Iraqi prisoners.

I mean, that is a real punch in the eye to this Bush administration. MALVEAUX: And this administration, the White House, there are advisers, there are people who truly believe that they are losing the public relations war.

We are seeing these pictures, "60 Minutes II", extraordinary pictures of -- allegedly the U.S. soldiers abusing these Iraqi prisoners. And this is something that the whole world is seeing now, including those in the Arab region. And it is unbelievable, because you have the president, the Pentagon, the coalition, all of these people saying, Look, we're disgusted. This is not acceptable. It does not represent Americans.

But on the other hand, they all know that the job they have now is extraordinarily difficult and no matter what they say, it is going to take a lot of campaigning and information network to get out the message that this is not what America is about. This is not what the Americans are doing as a whole.

WALLACE: Pick up on that, Suzanne, what is the strategy? Because as you said, the administration already had a huge task when it came -- comes to winning over the hearts and minds. Is there any talk behind the scenes of sort a new strategy, a more aggressive approach, more aggressive outrage in light of these photographs? Anything you're picking up?

MALVEAUX: Well, there certainly is this idea about outreach. And they want -- you know, they've got a media campaign. They've got -- they already have in place various outlets throughout the region, in the country to try to convey the American message, the coalition message.

The other thing that quite frankly they're doing, is while that is happening, their PR campaign, there is a huge push, essentially, to get out of the country. I mean, as you had mentioned before, the polls show the Iraqis do not want the Americans there. They're tired of the Americans being there.

And this is creating a huge problem. The American soldiers don't want to be there either. And so they are sticking with that June 30 deadline; there is no way that they're going to change that. If anything, they're escalating that process in the hopes that with outreach, through the leaders and through people on the ground, they can convince the Iraqis that it is worth it to work with the Americans, that it is worth it...

(CROSSTALK)

ARENA: Suzanne -- I'm sorry, I'm cutting you off, but I want to -- I want to also get into -- because I know we have limited time -- to get into the issue of the 9/11 commission. You had the president, the vice president in a closed session.

What did you hear?

MALVEAUX: We didn't hear a lot of new information, actually. I mean, it was an extraordinary situation to have the two of them together, behind closed doors.

What we do know is that overall it was a very good meeting. Everybody explained that things went very well. We know that the president was critical of Richard Clarke, his former counterterrorism chief. We know that he answered questions about what did the administration do, you now, hour by hour on September 11, reacting to the attacks. We also know that he defended himself when it came to that presidential daily brief, whether or not there was any information that he got six weeks prior to the September 11 attacks that might have predicted something like this was going to happen. He said there was no new information in that brief. Those are just some of the highlights.

We expect that you are going to see quotes and some things that are lifted out of that session in the report that is released over the summer.

WALLACE: Suzanne, I want to quickly go back to the "Mission Accomplished" for a second. You talked about the advisers expressing regret. Behind the scenes, privately, Suzanne, how concerned, how worried are they that this could be what some Kerry advisers believe, what they call the -- quote -- "greatest political failure of all time."

Again, that's coming from Kerry's advisers. But how worried do the Bush teams believe this could be worrisome for the president in the campaign.

MALVEAUX: You know what's really interesting is the fact that this one moment and this one image, it was something that they thought essentially that the Republicans were going to use, that the president was going to use for his own campaign, with the "Mission Accomplished" in the background. He was in the flight suit, the whole bit. And what's ironic here, is that -- Kelly, as you know, is that Kerry is using the ad now to his advantage. But he didn't actually mention -- his Westminster speech, he didn't directly go after the president.

I'm just wondering if that's something where he's kind of holding back a little bit because it is so controversial.

HAYS: Right. So before we -- but, I just have to -- speaking of image, though, so much ridicule -- political cartoons across the country of President Bush and Vice President Cheney testifying together. One of the funniest ones -- I think even if you're a Republican, you have to chuckle with Dr. -- president -- Vice President Cheney as Dr. Evil and President Bush as Mini Me.

How do they respond to that? I mean...

MALVEAUX: And there was another that was one going around too. They say, you know, Cheney is drinking water, how does Bush speak?

(CROSSTALK)

(LAUGHTER)

(CROSSTALK)

MALVEAUX: One of the things they realize is that in some ways, some of these Republican strategists, say, Hey, look, they created more problems than they had to here.

Ultimately, the administration cooperated on all counts. But before they did, there was a lot of fodder here for ridicule and questions because of some of the resistance in the beginning and then some of the conditions at the end: the fact that the two of them were testifying -- were answering questions together.

Ultimately, the commissioners said, the White House said that it was useful that the two of them were sitting side by side in telling their story.

HAYS: So they got the pat on the back of the commission, so maybe it's all well and good for now.

Well, from the White House to the big sports story, Kentucky Derby day. What to watch, who to watch and Josie Burke is back ON THE STORY in a moment.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

KRISTEN MULHALL, TRAINER: I'm just going to take it like it's another race right now and try not to let it get to me. But everyone goes on and on and I guess it is pretty amazing.

(END VIDEO CLIP)

BURKE: Twenty-one-year-old trainer Kristen Mulhall has a difficult task ahead of her today, as she tries to keep her nerves in check. She's trying to become the first female trainer and the youngest trainer period to win the Kentucky Derby.

Welcome back. I'm Josie Burke in Louisville at Churchill Downs, and we're ON THE STORY.

ARENA: Josie, how does a 21-year-old end up training a horse at the Kentucky Derby? That's amazing.

BURKE: Yes, she used that word, too, amazing. I mean, she's been the story for the past couple of weeks.

Well, number one, she was born to it. Her father was a trainer for a number of decades. He then moved into the thoroughbred management. So she had it in her blood. And it's interesting, a lot of people who talk about her now, who have known her for a long time, use the same phrase. They say she's part horse. She just really has always had an affinity for these animals. And that's why, even she's only 21, somebody said, you know, in horse training year, she's closer to her mid 30s and that's about where you should be if you want to have a Kentucky Derby winner.

WALLACE: I don't know, Josie. I was kind of surprised that a woman trainer had not won before.

How close -- have women come close in the past and are -- is she the only woman out there? Are there other women also competing?

BURKE: Well, the number of women entrants now in the history of the Kentucky Derby -- and this is the 130th run for the roses -- is now at 12 because she's not the only one this year. There's Kristen Mulhall, but there's another woman, Jennifer Pederson. She trained Song of the Sword. I think the reason that Mulhall is getting so much more attention is because she's got that added factor that she is so young, and just the fact that she would be the youngest trainer ever. If there was a 21-year-old guy out there, too, he would certainly be getting a lot of attention.

And the fact that her horse has a little bit better odds. Imperialism started out at 15 to 1. Song of the Sword 30 to 1.

HAYS: And there was a horse she really got in a claims race. It's such an amazing story around her the horse.

But there's another amazing story for some people who are almost unsung heroes, certainly unpaid heroes in the Derby, and that's the jockeys. And just a landmark accomplishment for the jockeys this week potentially.

BURKE: Yes, they have to go to court. They wanted -- the jockeys, a number of them,. sued because they wanted to be able to wear advertisements during the race, little patches, things like that. And there was a state law that prohibited them from doing that. They went to court and a judge this week blocked that state regulation. And then Churchill Downs went ahead and they said, OK, not just the jockeys who sued, but any jockey who wants to can wear an advertising patch. But the catch is the advertisement can't compete with any of the official sponsors of the Kentucky Derby.

MALVEAUX: So Josie, tell us who's the favorite, and also explain to us a little bit about what it's like to be there. I understand they have some renovations going on, and perhaps the ones wearing the fancy hats and the drinks are now mixing with the locals.

(CROSSTALK)

BURKE: I'll start with the favorite.

The interesting thing about this Kentucky Derby is that there is no clear-cut favorite. Obviously, one horse, when they go off, is eventually going to be the one who has the best odds. It started out as The Cliff's Edge, and that's a horse that's trained by a trainer who has won the Kentucky Derby before.

A couple of other horse names to look out for -- Smarty Jones. This is an undefeated horse who has a little bit of Seabiscuit story, because he doesn't have the greatest pedigree and he was actually hurt last year.

And then there's another horse, Tap It, that's getting a lot of attention and a lot of money put down on him.

As far as the social scene, it's always an important part of the Kentucky Derby. But it is a little bit different this year because they're doing a huge $100 million renovation -- I don't know if you can see it behind me a little bit. But part of the grandstand where the seats normally are is being renovated, and they call that Millionaire's Row. And they actually had to move part of Millionaire's Row to the infield. And the infield is normally where, you know, the younger crowd, the crowd that's not as well-heeled, the crowd that's not wearing hats and fancy suits, hangs out.

But there's actually a big fence that they put up -- they've tried to make the infield portion that's also Millionaire's Row seem a lot more refined and separate.

(CROSSTALK)

HAYS: So you're in Louisville, Kentucky, running for the roses. Mint juleps in the afternoon, we know that.

But I know your mind also has to be a little bit keeping tabs on events in Colorado because there's some latest on Kobe Bryant.

BURKE: Yes, this week again, Kobe Bryant was back in Eagle for three days of hearing. He was also back on the basketball court helping the Los Angeles Lakers advance to the second round of the NBA playoffs.

But there was some news that came out this week from Eagle. The judge saying that the next time that Kobe Bryant is back for a hearing starting May 10 -- there are a couple of days of hearings -- that he will be arraigned, and at that point he will have to enter a plea. That's important because then the clock starts ticking. It will be six months from that point they have to get the trial started.

Just one last thing. Kobe Bryant, through a statement released by his agent, told USA Basketball, he's probably not -- because of this new schedule -- going to be able to participate in the Olympics this summer.

HAYS: Oh, that's really a loss for the Olympic basketball team.

But Josie, after you get the mint juleps and, you know, collect your bets after the race tonight, what's ON THE STORY for you in coming days?

BURKE: Well, in the coming days, I'll obviously be keeping track of the NBA playoffs, getting some Olympic stories in order, because before you know it, that will be there.

And today will just be a really fun day, because there isn't just the Kentucky Derby, there's a whole day of racing. So we have that to look forward to here in Louisville.

HAYS: Well, next year I want to come along and be your production assistant. I've never been to the Derby and I'm dying to go. And Kelli Arena will come with..

BURKE: You're more than welcome. I can't wait.

HAYS: OK, good.

(CROSSTALK)

HAYS: Kelli will come with her hat.

From sports and hats to what the president's economic team sees as winning numbers this week. I'm back on that story after this, and a check on what's making headlines at this hour.

(COMMERCIAL BREAK)

LINDA STOUFFER, CNN ANCHOR: Good morning, I'm Linda Stouffer. In the headlines at this hour:

A compound where Westerners work came under attack today in Yanbu, Saudi Arabia. The U.S. embassy in Riyadh confirms at least two Americans were among the dead. Gunmen had opened fire there. An Australian was confirmed killed. British authorities are checking reports that a Briton died in the attack as well. Saudi officials suspect an al Qaeda link.

In Iraq, a U.S. soldier was killed, two were wounded today by a roadside bomb near Mosul. Also near Mosul, a large fuel convoy came under attack. Two private security guards were killed, five wounded.

And on the anniversary of saying that major combat had ended in Iraq, President Bush defended that declaration. In today's weekly radio address, he said life continues to get better for many Iraqis while conceding that difficulties do remain.

(BEGIN AUDIO CLIP)

BUSH: At the most basic level of justice, people are no longer disappearing into political prisons, torture chambers and mass graves because the former dictator is in prison himself.

(END AUDIO CLIP)

STOUFFER: The Iraqi insurgency has killed hundreds of U.S. troops since the president's declaration of "Mission Accomplished" a year ago.

The first leg of the Triple Crown is -- well, let's see -- than eight hours away. Right now, 18 horses are set to run on a very muddy track at the 130th Kentucky Derby. Post time, 6:04 p.m. Eastern tonight.

Well, those are the top stories at this hour. I'm Linda Stouffer. Now back to ON THE STORY.

(BEGIN VIDEO CLIP) JOHN SNOW, TREASURY SECRETARY: I'm delighted to report -- delighted to report that we've had the best nine months in America's economic performance in the last 20 years.

(END VIDEO CLIP)

HAYS: Treasury Secretary John Snow loving the applause, smiling over those latest numbers showing the U.S. economy grew at more than a 4 percent annual rate for the first three months of this year.

But Wall Street, like always, wanted more and consumers seeing price hikes for gas and milk still aren't convinced.

Welcome back. We're ON THE STORY.

WALLACE: Kathleen, we always come to you with these questions, the political questions about the economy. But can you give us a sense of how things are going in some of these key battleground state, some 17 battleground states that could decide the election? Are things getting better there, too? Or still not keeping up really with the national economic growth?

HAYS: Well, you know, Kelly, let's take a look at manufacturing, because we know that's one area where the Bush team feels vulnerable because they didn't win Ohio (sic). Pennsylvania is an important state.

So you remember the road trip last summer when they were out trying to drum things up. Well, one of the good things we got at the end of the week, a little-watched report from Chicago about business activity -- that's picking up. There are more signs that manufacturing has turned around.

In that GDP report that we got this week, we saw that business investment was still pretty strong, including in software. So at the margin, yes, the ship is turning. Is it turning fast enough? Because I think another theme here is that we see the price is rising and we see wages not growing very fast, and that's something that I think for some families, kind of creates uneasiness, it makes them insecure. And how does that sort out? Because that's not just one key region. I think that's kind of dispersed across the country.

MALVEAUX: But Kathleen, what about interest rates? Are we going to see the Federal Reserve drop those interest rates? What does that look like?

HAYS: Oh, well, dropping them? I'm afraid not. The whole question now, of course, is will we hike them? And I'm sure the administration wouldn't mind to see them being cut.

The Federal Reserve meets on Tuesday, and that's one of the reasons why everybody kept puzzling all week -- why isn't the stock market doing better? Earnings are beating expectation. We got the good GDP. Home sales for -- new home sales at a new record. Existing home sales near the record. But they're saying, Hey, the fed's meeting next week. They're not going to raise rates yet, but they're going to signal that we're not so patient now. And it's not that we want to slow the economy down, but the language -- the idea will be, we have the key short-term rate at a 45-year low and economy is picking up. So we're not really tightening if we move that rate up, we're just taking our foot off the gas. That's the story.

But the stock market doesn't know, you know? If the growth is good, but rates are rising, you got to balance out which one adds, and which one takes away?

ARENA: Well, what I want to know is, from all this stuff we've covered, how do I get Google stock?

HAYS: Well, you know, you have shot this time. Unlike the tech boom of the late 90's and the whole bubble economy and dot-com bubble, this time these genius guys -- you know, the former Stanford computer science professors, young men, 30 and 31, who six year ago started a company that's now worth -- what? -- something like, they figure, 20 to 30 billion dollars. When this IPO, initial public offering is sold, these guys are set for life, because they're probably both going to walk away with at least $4 billion. That's the guessing right now.

But here's the deal. They are doing a Dutch auction. And what it means is any of us can bid. We sign up at the brokerage, either Morgan Stanley or Credit Suisse First Boston, I believe. You make -- do the appropriate -- you know, give them the information, you send in your order. And how a Dutch auction works is you have to bid high enough to be at the bid that sells all the shares. In other words, if we all bid -- if somebody people bid $100 and only a few people bid $50, then the $100 is going to clear it. The $50 bid probably doesn't -- doesn't get in.

ARENA: So it still sort of keeps out your smaller investors in a way.

HAYS: Well, but -- no, no, a smaller investor can get in.

(CROSSTALK)

ARENA: Well, but you could just bid for a few shares. It's the price, it's not the number of shares you bid for.

But the problem is, if we all want it and you say to yourself, Well, if I want this, I shouldn't bid $10 a share, I better bid $20 a share. And everyone else keeps doing that, we could inadvertently bid it up so high that when it comes to market, it's going to be overbid and the price is going to fall.

WALLACE: Kathleen, does this say anything about sort of the state of the economy? Because we heard about IPOs -- not at the level of this one, but, you know, in years past, when we had the big tech boom. Is this a sign of things to come or is this a sort of one-time only deal here?

HAYS: I think somewhere in the middle. That I think people figure this is good for Silicon Valley, things are coming back.

But remember, number one, this is a company that is making money. In 1999, they had sales of $220,000. Last year, their sales were nearly $1 billion. They are the leader right now in this whole search- engine area which is one of the most important areas, one of the most lucrative of the Internet.

However, having said that, there aren't a lot more Googles out there right now. And plus, I think the other thing is, remember, when the IPOs were bubbling, we were in a bubble. And I think now things are much more subdued and I think people are maybe hoping on Wall Street we're in a bubble. But I think a lot of people figure probably not just yet.

ARENA: Too bad.

HAYS: Well, get those shares (UNINTELLIGIBLE)

ARENA: I'm calling. I'm calling now that I know how.

Well, from the marketplace to the courthouse, in arguments this week about how terror suspects can have a different kind of justice than other criminal suspects.

I'm back ON THE STORY after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

JENNY MARTINEZ, JOSE PADILLA'S ATTORNEY: I think the important thing that whatever Mr. Padilla did, this is till America. He's entitled to be charged with a crime and to have his day in court.

(END VIDEO CLIP)

ARENA: That was Jenny Martinez, attorney for terror suspect Jose Padilla, standing outside the U.S. Supreme Court this week. This followed the legal arguments over whether a terrorism suspect, however dangerous, should get his day in court.

Welcome back. We're ON THE STORY.

MALVEAUX: Now explain to me how it is that a U.S. citizen -- right? -- who is arrested on American soil at O'Hare becomes an enemy combatant.

ARENA: Because the president says so, and that's the government's argument.

The government's argument is that he was allegedly involved -- you remember, Jose Padilla, the alleged dirty bomber, who was going to come to the United States, but, you know, get materials and blow us all up with a radioactive dirty bomb, according to the government -- was a fighter in the war on terror, had trained overseas, came at the behest of the enemy to do harm here in the United States. And the government has always contended, Look, we didn't make the United States a battlefield. Al Qaeda made the United States a battlefield when they blew up 3,000 people on September 11th.

And so that is the government's argument. And they said we can hold him without a lawyer for as long as we want, for as long as the war goes on. Of course, his counsel says, No way. He's a U.S. citizen. He deserves to be represented. He has rights. I mean, you can't just pluck people off the street and throw them in jail forever. So -- or in a military brig.

WALLACE: Kelli, you're been reporting, the stakes are so huge on this case, of course. But you're also talking to outside experts. When you talk to the outside experts, who do they think has a stronger case, the government or the defense lawyers for these so-called enemy combatants?

ARENA: Well, Kel, the interesting thing is that there were -- you know, there were two cases that were argued this week, the case of Yasser Hamdi and Jose Padilla.

Yasser Hamdi was caught on the battlefield. And most legal experts seem to think that that's a clearer win for the government, in their estimation, because this was somebody engaged in battle, even though there were some squeakings about how he says he wasn't exactly fighting the U.S. That seems to be more clear-cut.

The Jose Padilla issue is very interesting, and when this ruling will be the most significant ruling on the president's war powers since World War II. And there was a lot of discussion about this congressional resolution that was signed on September 18, right after the September 11 attacks, basically, what the government argued gave the president broad powers to fight war on terror. The critics say, Wait a minute. It doesn't say anything about detaining U.S. citizens.

HAYS: Right.

ARENA: So they're really way across -- interestingly, Kelly, way across the board in their representation.

But I can tell you that both of those lawyers, Jenny Martinez and Paul Clement, for the government, deputy solicitor general, were brilliant before the justices. They were brilliant.

HAYS: Paint -- paint the rest of the picture in the courtroom. Because, you know, we hear at, you know, celebrity trials, Martha Stewart, the day that Rosie O'Donnell came. You know, all the stars that came.

What about this courtroom? Who is there? What's it like?

ARENA: This is -- first of all, there were students. This case is already being studied in law schools. So you had law students that had come the night before to wait on line to try to get a seat in public sitting. I mean, it was really jam-packed. I mean, you had people in the seats like this. You had the senator, Ted Kennedy came, Justice O'Connor's husband was there, in the Justice guest seats. Everybody was really wanting to come. I mean, this was a landmark case. It was sort of very celebrity-like.

But it was -- really, it was just awe-inspiring to sit there and watch it. It was really brilliant.

MALVEAUX: And tell us about the spam case. They're really cracking down on spam.

ARENA: Federal government, first criminal charges ever against spammers. We all love them.

HAYS: Oh, yes.

WALLACE: Get rid of the e-mail.

ARENA: Yes. And, you know, lots and lots of charges that they had misrepresented who they were, that they used different names to try to sell products, misrepresent what the products did and they also didn't allow consumers an opportunity to say Look, I don't want to receive this, and to report the spam, because you're supposed to have a technical gizmo there to say, Hey, you know, don't want this anymore.

So -- and very difficult. Internet crime, very difficult to prosecute. But they went for it, for the first time ever.

WALLACE: I have a tough segue there. From the crackdown on spam -- I'm trying to think of something clever -- too early in the morning. Not coming up with anything.

To presidential politics and some challenges for John Kerry as he tries to get his message out. I'm on that story when we return. Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. JOHN KERRY (D-MA), PRESIDENTIAL CANDIDATE: America is safer and stronger when it is respected around the world, not just feared.

(END VIDEO CLIP)

WALLACE: That was Democratic presidential candidate John Kerry, who was yesterday trying to flesh out his idea for what he would do in Iraq, what he would do differently from President Bush. But this was a week where, when John Kerry was talking about Iraq, homeland security, economy, jobs, his message seemed to be getting drowned out a little bit by another war, and that is Vietnam.

Welcome back. We are ON THE STORY.

HAYS: So many moving parts for John Kerry right now. But when I step back, what strikes me is with president bush's handling of the war in Iraq going down, that John Kerry doesn't seem to be rising; he doesn't seem to be gaining some big jump or traction.

Are they getting kind of frustrated?

WALLACE: Kathleen, I'm having a little difficulty hearing you. I'm hearing our director as well. I think you were talking about the economy, is that right?

HAYS: Actually, we could talk about the economy.

WALLACE: No, no. Now I can hear you, Kathleen. Go ahead.

HAYS: OK. Good.

What I was just saying is this: President Bush handing of the war in Iraq, he's dropped in the polls. Why isn't John Kerry getting a big lift on this, and are his people frustrated?

WALLACE: That is a key and very good question. He is not. If you look at the poll, as you said, Americans are having more and more concerns about President Bush's handling of the war, but it's not necessarily translating to John Kerry.

What they will say, Kathleen, is they feel very good. They say that this is a neck and neck race, and that is not very good for the incumbent. But privately, Democrats are expression concern. They just don't believe that John Kerry has really broken out. He should be gaining more ground on issues like Iraq, the war on terrorism, the economy. They want to see him do more, take control of the message. So there's some frustration you're hearing within the Democratic Party about that.

ARENA: Kel, maybe he'll get re-energized when they finally decide upon a vice president. What are you hearing on that front?

WALLACE: That is the story everyone loves to talk about.

We did hear this week that -- confirmed with some sources -- that the so-called vetting process -- that is the very long and exhaustive checking of backgrounds of possible candidates -- is under way and has been under way for some time, for a couple of people, including North Carolina Senator John Edwards, Missouri Congressman Richard Gephardt. We know both former presidential candidates. Also we understand it's happening now or will happen at some point for Iowa Governor Tom Vilsack.

We should say, though, the sense is that other people will be checked out. Lots of other names out there. It's still unclear, Kelli, when a decision will be made. Not clear if we can get one in May or if they'll let the mystery build until closer to the Democratic convention.

MALVEAUX: Kelly, I want to go back to the story about the war record for both candidates, because it's so interesting and it's so controversial.

The Bush administration has done something that is really very clever. Because on the one hand his top adviser, Karen Hughes, came out and criticized Kerry about whether or not he threw away the medals, the ribbons or pretended to, that kind of thing, whereas the president and his spokesperson refused to get into that kind of debate, to kind of sling that -- sling that mud. But they do -- because they say his service is honorable.

But they do talk about how they don't believe she strong enough in national security. Do you think that the administration's position here has had an impact on how people see Kerry or how he's handling this debate?

WALLACE: Well, it's interesting, Suzanne, because many people believe, Democrats, maybe even Republicans believe John Kerry was actually put on the defensive over an issue that should be really one of his strongest issues, and that is his Vietnam war record. He is a war hero, a decorated war hero and it is something that he can sort of hold out there.

And he spent the beginning of the week answering questions whether he threw medals, threw ribbons, and finding himself on the defensive. And then he was turning the tables a bit, raising questions about President Bush, what he says are still unanswered questions about his National Guard service during Vietnam, questions about draft deferrals for Vice President Cheney. So you saw him kind of turn the tables, get a little frustrated.

The end of the day, Suzanne, Democrats believe they win any time there is a discussion about this, because more and more people this week who might not have learned much about John Kerry learned that he did serve in Vietnam. So they think that's a win. But again, many people think he was a bit on the defensive and that he needs to take a charge a bit more and not get in that situation in the first place.

HAYS: I'm assuming there's no chance of this. The convention is really just a couple of months away no. If John Kerry isn't seeming stronger, if he isn't making more progress, is there any chance the Democrats might decide, you know, we picked the wrong guy, we picked too early, he's not making (UNINTELLIGIBLE). I mean, could -- or is it just so locked up that they are stuck now with John Kerry regardless?

WALLACE: Well, you know, I think you hear sort of privately some opinion pieces are being written saying, Do we have the wrong guy? Is this the best we can do? You have some talk of a third-party alternative, of John McCain, the Republican senator of Arizona and Wesley Clark. But no one expects really that to take on any weight.

But what does it does point out again -- you're hearing more talk about it -- is that Democrats want to see John Kerry do more. And I think, we look at the comedy channels and we look at the late-night comedians, and they're often on to something.

I want you to listen to something from Jay Leno from just this week. Take a listen.

(BEGIN VIDEO CLIP) JAY LENO, TONIGHT SHOW HOST: Today is my birthday. I got a lovely gift. Did I mention this?

(CHEERS AND APPLAUSE)

LENO:. Somebody gave me the new John Kerry answering machine. The only problem: doesn't have a message. Yes.

(END VIDEO CLIP)

WALLACE: Oops. Well, that is what you are hearing some Democrats say.

But to that, I must say Kerry's advisers are defining him and that ads, biographical ads about his life, where he comes from, his Vietnam experience, are coming in days, not weeks, maybe as early as this coming week.

ARENA: Kelly, there was also some big tiff over his hair, his hair, where he got his hair cut?

WALLACE: I don't even want to touch this.

(CROSSTALK)

WALLACE: Questions of the, you know, the cost of the haircut. You remember that name Kristoff (ph), someone that was legendary for cutting former President Bill Clinton's hair. And you know what? Aides were sort of not wanting to touch this one with a 10-foot pole. They're saying, Look, you know, onward, upward. We're moving. We're focusing on issues.

But it does show you how some of these other things can get a lot of attention. Obviously, he's a presidential candidate. Everything he does is going to be scrutinized very closely. But again, aides are saying -- we're trying to be more disciplined and focus on the issues.

MALVEAUX: And Kelli, we always hear comments about our hair anyway, you know?

(CROSSTALK)

WALLACE: Right. Exactly. Good to talk about their hair. I agree.

ARENA: I'm all for it.

MALVEAUX: Do you think -- I have a quick question. Do you think -- I mean, the Bush camp is spending millions of dollars trying to define Kerry. Do you think it's really had an impact?

WALLACE: It -- very quickly, Suzanne, it seems to. Look at the polls. A majority of Americans believe that John Kerry is someone who says what he thinks people want to hear, says what he think is the political answer. So it appears it's having a little bit of an impact right now. ARENA: All right. Thanks, Kel.

We are back ON THE STORY right after this.

(COMMERCIAL BREAK)

HAYS: Thanks to my colleagues and thank you for watching ON THE STORY. We'll be back next week.

Still ahead, "PEOPLE IN THE NEWS," focusing this week on the smash hit, soon-to-be-ended, TV series "Friends."

Coming up right now, a check of the top stories.

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