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Inside Politics

Fed Cuts Interest Rates a Half Point, but Markets Respond Negatively; Officials Order More Rolling Blackouts in California

Aired March 20, 2001 - 5:00 p.m. ET


ANNOUNCER: Live from Washington, this is INSIDE POLITICS with Judy Woodruff.

New action on the economic front from the commander in chief of interest rates. Did Alan Greenspan's Fed go far enough?

Many Californians are in the dark, again. Are the blackouts lighting a fire under officials in Washington?


REP. JAY INSLEE (D), WASHINGTON: What is going on in the Western Coast right now is an economic hoof-and-mouth disease.


ANNOUNCER: And 20 years after Ronald Reagan was shot, the inside story of the confusion within the White House that day.


ALEXANDER HAIG, SECRETARY OF STATE: As of now, I'm in control here in the White House.


ANNOUNCER: Now, Judy Woodruff takes you INSIDE POLITICS.

JUDY WOODRUFF, CNN ANCHOR: Thank you for joining us.

The Bush White House has learned to stay mum when the Federal Reserve cuts interest rates, but the financial markets have, as usual, weighed in pretty loud and clear. An hour ago, the Dow Jones industrial average closed down 238 points, at 9,720. The Nasdaq index ended the day 93 points lower, at 1,857.

The losses came after the Fed cut short-term interest rates by a 1/2 percentage point. That is the third rate cut this year. Many traders apparently had been hoping for a more aggressive 3/4 point reduction to stimulate the sluggish economy.

Over at the White House, any mention of the economic downturn tends to be followed by two words: tax cuts. That was true again today, as our John King explains.


JOHN KING, CNN WHITE HOUSE CORRESPONDENT (voice-over): "No comment" is the official White House line on any action by the Federal Reserve. But the president is making clear he thinks lowering interest rates is only part of the cure for a slowing economy.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We've got some problems, some short-term problems, and if Congress were to act quickly on my tax stimulus package, it would make our recovery quicker.

KING: Mr. Bush wants $1.6 trillion in tax cuts over 10 years. But as it now stands, only $5.5 billion would be returned to the taxpayers this year, that's just $180 for the average individual, or $360 for a married couple. So critics say it's a stretch to call the Bush tax cuts a stimulus plan. The White House says the knowledge tax cuts are coming is more important than the amount.

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The president thinks the most powerful stimulus is certainty that people will have more money in their pockets, each and every paycheck.

KING: The economy is often the leading indicator of presidential popularity. Former President Bush was punished in 1992 by voters who thought he did little or nothing during a short but painful recession. And the boom times kept President Clinton's approval rating at near record levels despite the Monica Lewinsky scandal. Mr. Bush has been in office just 60 days.

WHIT AYRES, REPUBLICAN POLLSTER: His popularity has been going up into the 60s on the approval right now, as the economy's been going down. So at least at this point, the American people are not holding him at fault for the slowing economy.

KING: Democrats say the president adds to consumer doubts about the economy when he uses terms like "weak" and "sputtering," and warns of a looming energy crisis.

SEN. TOM DASCHLE (D-SD), SENATE MINORITY LEADER: Those bad news bearers keep talking about crises and problems that may or may not be as severe as they describe them.

KING: Mr. Bush has been careful of late to add a note of long- term optimism, and the White House view is that the politics of the economy favor the president, at least in the short term.


KING: That calculation is based more on the political calendar than any economic indicator. Most members of Congress face the voters in the 2002 midterm elections, and it is the view of top White House aides that lawmakers will want to be on the record supporting big tax cuts, so they can't be blamed if the economy is still struggling, and so they try to take a little credit if there is a rebound under way -- Judy.

WOODRUFF: John, I know you talk to so many people at White House. Privately, are they as pessimistic about the economy as they are talking publicly?

KING: Well, no, they say there's a short-term and a long-term political calculus here, as well as economic calculus. They believe in the long term, the fundamentals are just fine. They've been ordered by the president and top aides to say nothing, although many advisers are grumbling that they thought the Fed could have done a little bit more here, the markets obviously, reflecting that view as well.

But they believe, in the long-term, the economy will be OK. They believe in the short term -- and they've said this repeatedly to counter those Democratic criticisms -- that the president has every right to say he thinks the economy is weak if he believes that, but they certainly acknowledge that saying so might indeed help the political calculus for tax cuts.

WOODRUFF: All right, John King, the White House.

Now, let's put today's numbers from Wall Street and the Federal Reserve in more context. CNN Financial News correspondent Allan Chernoff joins us from New York.

Allan, first of all, talk about why the markets were disappointed that the rate cut was 1/2 point.

ALLAN CHERNOFF, CNN FINANCIAL NEWS CORRESPONDENT: Well, Judy, as you did here, the stock market had been hoping for 3/4 percentage point, and a really big expectation. The fact is the Federal Reserve has never done that in one step, move by 3/4 point. Nonetheless, a lot of economists had began to predict it. In a survey that we did for "MONEYLINE" yesterday, 30 percent of the economists we contacted, in fact, were expecting 3/4 point.

But as you know, we did get that 1/2 point move, and the stock market eventually did show disappointment. The first few minutes right afterwards, there was a lot of indecision, as you can see, at the Dow Jones Industrial Average, but only about a half-hour after the decision, did we begin plummeting, and you see that right at the right side of that chart you are showing right now.

WOODRUFF: And so, Allan, what are your sources telling you, what it is they're speculating about why the Fed did what it did?

CHERNOFF: The Federal Reserve does not want to appear to be supporting the stock market. That's really not what the Fed is in the business of doing. The Fed is here to support the economy and to prevent inflation from really heating up very much.

And the fact is, if you ask any economist, the Fed really has been quite aggressive, moving three times since the beginning of the year, 1/2 point each time. That is historically a very aggressive move by the Federal Reserve. But Alan Greenspan certainly does not want to be seen as panicking, and certainly not in a position of supporting the stock market.

WOODRUFF: All right, Allan Chernoff in New York.

And we're joined now by former Clinton budget director Alice Rivlin, and former Reagan budget director Jim Miller. Thank you both, we appreciate your being with us.

Alice Rivlin, to you first. Did the Fed do the right thing?

ALICE RIVLIN, FORMER CLINTON BUDGET DIRECTOR: I think it did. And it did what I expected it do. I would have been very surprised if they had done more than 1/2 percent, and I couldn't believe that the markets expected that. It meant they didn't know very much about the Fed thinking.

WOODRUFF: Jim Miller?

JIM MILLER, FORMER REAGAN BUDGET DIRECTOR: I think it did the right thing, and one reason is if they had gone further, 3/4 point, probably would have been pushing on the string. I think the 1/2 point helps, but the 3/4 would not have helped very much.

WOODRUFF: Would a 3/4 point have made that drop, have made that much of a difference? You are saying no?

MILLER: I don't think it would have made much difference, probably. Alice, would you agree with that?

RIVLIN: Oh, yes, I think that the 1/2 point was a rather aggressive move, actually, because it's the third one, and they may well do it again. They certainly signaled in their statement that they were prepared to move again. So what the Fed is doing is an orderly trending down of interest rates in response to a very slow economy, and it seems to me that's the right thing to do.

WOODRUFF: I introduced you, of course, as a former budget director, you are also, of course, the vice chair -- former vice chair of the Federal Reserve...

RIVLIN: That too.

WOODRUFF: ... itself. Was the -- is the Fed -- we heard Allan Chernoff's analysis here-- is part of what's going on that they don't want to appear to be panicking?

RIVLIN: Well, that could be part of it, but I think it also is that they think they are on the right course, and that this progressive lowering of interest rates by 1/2 point at a time is probably the right thing to do, and that the economy will eventually turn up, and that's what they are focused on.

MILLER: You know, they might have gotten started a little bit sooner, but they've also -- and the markets need to keep in mind that inflation is a problem. Inflation has increased over the past several years, and one thing that keeps those stock prices very high is -- high-price earnings ratios -- is a very low rate of inflation. So, the Fed is really on a nice edge. If they move too aggressively on interest rates, it could encourage inflation, and that would hurt the stock market or people who are concerned about the stock market.

WOODRUFF: What is -- Alice Rivlin, what do you think the stock market activity of last week, yesterday, today, says about the health of the economy?

RIVLIN: I think it says mainly that we had a big run-up in the stock prices, as everybody knew, and they got way out of line -- particularly the tech stock, but not just the tech stocks -- got way out of line with the earnings, even a year ago, when our earnings prospects were better. Now we're seeing a slowing economy, slowing earnings, and that means the stock market's got to reflect that prospect.

WOODRUFF: You see it the same way?

MILLER: Somewhat. But it seems to me that if we go into something I suspect that Alice and I will disagree on, I think we really need to have fiscal policy action right now. A substantial tax cut, and we need to have it front-loaded, not back-loaded, and we need to make it certain. That provides higher incentives for people to go out and save and invest and to increase economic activity. So, I'm very much in support of the president's tax cut initiative.

WOODRUFF: But front-loaded doesn't describe his tax cut, does it?

MILLER: No, it isn't. That's the reason he has talked about -- and Secretary O'Neill has talked about -- accelerating it. And I think that's important.

The important thing, though, is not how much is right immediately available, but the certainty that those tax rates will be going down. I think that is very important, and that's one reason I'm against the so-called trigger idea.

RIVLIN: I don't think it's the right kind of tax cut for this moment. If you wanted to stimulate the economy, you'd have quicker- acting tax cuts that benefited people in the low and middle incomes particularly, because they're the ones who need the money and will spend it.

This tax cut doesn't. It's back-loaded, and it's -- because it's a rate cut, it benefits the people who pay at highest rate, they're the upper-income people and they aren't the big spenders.

WOODRUFF: So, you're saying it's not going to stimulate the economy as it's currently constructed?

RIVLIN: I think it's worse than that. It's not going to stimulate the economy as currently constructed. I expect the economy will recover partly as a result of the Federal Reserve action, and then you'll have a big tax cut coming in at exactly the wrong moment. When the economy is recovering, you'll have a big tax stimulus and you'll be pushing the Federal Reserve to raise interest rates again, which isn't particularly attractive prospect.

WOODRUFF: Why isn't that a concern?

MILLER: Look, I think Alice and I differ who should get the tax cut, perhaps. But also I think we are favoring a tax cut for two different reasons. I think Alice is interested in increasing aggregate demand by putting more money in people's pocket.

I'm more of a supply-sider, I guess, and thinking in terms of the lower incidence of the tax and what effect that will have on economic activity going forward, and the decisions of people to invest in human capital as well as in fiscal capital.

And I think it's important the tax cut be substantial, and it be certain, and that going forward, we know that there's not going to be a trigger where politicians can increase spending and pull the trigger and put the tax cut in abeyance.

WOODRUFF: We're going to have to leave it there. Jim Miller, Alice Rivlin, it's great to see you both again. We appreciate it.

RIVLIN: Thank you.

WOODRUFF: And for more on the markets and the economy, stay tuned tonight for CNN's "LARRY KING LIVE." His guests for the full hour, some of the people who bring you your financial news. That's at 9:00 p.m. Eastern.

Still ahead on INSIDE POLITICS, an energy problem with economic impact. Do the blackouts in California warrant changes in administration policy? The latest from California, plus perspective from the Senate's Energy Committee chairman.


WOODRUFF: Vice President Dick Cheney was on Capitol Hill today to discuss the California power crisis with members of the Northwest Energy Caucus. The congressmen expressed their concern and frustration regarding the economic effects of the energy situation as California imposed a second day of rolling power blackouts.

Joining us now from Santa Ana, California, CNN's Frank Buckley -- Frank.

FRANK BUCKLEY, CNN CORRESPONDENT: Judy, we are in a distribution operation center at Southern California Edison. This is one of the locations where decisions have been made about which areas in which the power should be turned off, the electricity should be turned off or not.

They've been making those kinds of decisions at this location, and we've been just told by the independent system operator, a spokesman for the ISO, that at this moment in California, all of the rolling blackouts have ended for the moment, and that a Stage Two declaration is imminent. That means that the rolling blackouts will not be taking place for the moment.

But we can tell you throughout the that day these folks have been very busy as they have been monitoring the situation. These are dispatchers who have been able to monitor the outages as they've been ordered and they've been able to see exactly which streets have been turned off and they've also been receiving calls at this location from people who have been reporting that their energy has been turned off; that their electricity has been turned off.

As you say this was the second day of rolling blackouts that took place in California. They began at about 9:30 in the morning. As a result of this second day, people have throughout the last 24 hours had to rely on candles. They've seen their stores closed because of the temporary blackouts. Elevators have been stuck in some buildings. Hundreds of thousands of people have been affected across the state.

Officials say the blackouts are necessary because the increased demand from the hotter-than-usual days we've been experiencing in Southern California. Also, many power plants are off-line because of repairs. Alternative resources are also off-line because they can't pay their bills right now because the major utilities have not been paying them because they are cash-strapped.

Also, California is not receiving as much electricity in terms of imports from the Pacific Northwest because they are in drought conditions. Now, one plant in Laughlin, Nevada, we are told, will be fully back online by tomorrow. Also we are expecting temperatures to drop somewhat tomorrow, which means that demand will go down somewhat in California.

So, tomorrow may be a better day. Today, however, they are continuing to be cautious. They are expecting that there could be rolling blackouts later in the day. But as we said just a moment ago, the independent system operator says for the moment, the rolling blackouts in California have ended -- Judy.

WOODRUFF: All right, Frank Buckley, thanks very much.

And joining us now to talk more about the power crisis and energy policy, Senator Frank Murkowski of Alaska. He is chairman of the Senate Energy Committee.

Senator, thank you for being with us. Would you agree with Energy Secretary Spence Abraham who said yesterday that the United States is facing a major energy supply crisis, in his words, akin to the oil embargoes of the 1970s?

SEN. FRANK MURKOWSKI (R), ALASKA: I don't think there's any question about it and the problem is the public hasn't been inconvenienced to the extent that, well, you remember in 1973 when we had gas lines around the block? That was during the Arab oil embargo. We were 37 percent dependent on imported oil. We were outraged. We had gas lines. People were inconvenienced.

That situation is very likely to reoccur in one form or another. I mean, we're seeing what's happened in California today. We're seeing OPEC reduce supply. We're seeing New York State faced with a mandate that they either increase production of energy 25 percent in the next five years or they're going to face certain blackouts. How do we get the attention of the American public?

WOODRUFF: Well, senator, as you know, the vice president is heading up a task force to look at energy policy in a comprehensive way, come up with a -- presumably a new overall energy policy. What should be the components of that?

MURKOWSKI: Well, first of all, I think it should be technology. It should be conservation, alternative energies, renewables, and then go back to the basic sources of our energy, our hydro, our nuclear, and try and address how we can increase the production.

You know, we can't address what to do with the nuclear waste from our reactors, so we haven't built a new reactor for 20, 25 years. Coal, we haven't built a plant since the mid-1995 time frame because you can't get a permit. We're becoming more and more dependent on natural gas which is a clean fuel, but nevertheless it's in shorter supply, and the prices has gone up from, what, $2.16 a year ago to $5.50, $8.40 or thereabouts.

And oil. We've become more dependent on imported oil, 56 to 59 percent. We're importing, what, 750,000 barrels a day from Saddam Hussein. We fought a war over there in 1991, and you know, we're taking his oil, putting it in our airplanes, and going and enforcing the no-fly zone. We've flown 234,000 sorties over Iraq, and he takes our money, develops a missile capability -- delivery capability and aims it at our ally, Israel. We got to do something about the supply problem, too.

WOODRUFF: And Senator, you are one of those advocating drilling in the Arctic National Wildlife Refuge; you've said that would produce as much oil as U.S. would buy from Saudi Arabia in the next 30 years, but I'm sure you know the Sierra Club, among others, say that at most, ANWR would yield a six month supply of oil. Who is right there?

MURKOWSKI: I'm sure that the American people can see through that argument. If they say that it's a six month supply, that would be assuming that there would be no other oil produced and brought into the United States for a six month period. That's absolutely idiotic. Prudhoe Bay has contributed nearly 20 percent of the total crude oil produced in this country for the last 27 years.

If there is a mean of 10 to 16 billion barrels in ANWR, which is the estimate, it would be the largest field found in the world in 40 years. And the question here is whether we can open it up safely. And with our experience in the Arctic, we can do that. There is no scientific evidence that suggests otherwise. We have simply got to concentrate on a balanced energy effort, but recognize first that we have a crisis.

WOODRUFF: Senator, in that speech yesterday that the energy secretary -- Secretary Abraham -- gave, among other things, he talked about looking to alter environmental laws to achieve a better balance between energy and the environment. Today, the administrator of the EPA Christie Whitman announced that she is withdrawing the arsenic standards for drinking water that her predecessor put in place. Is this something that you agree with?

MURKOWSKI: First of all, everybody is concerned about arsenic. But arsenic flows naturally in many water supplies in many areas in my state of Alaska. It's the question of percentage that's in the water and the potential level that would be harmful to the health of the public, and I think that's what we have to ascertain that we make these decisions on the basis of sound science, not emotions.

And when you and I say arsenic, we say oh, we can't have that, but it's natural; the question is, how much? And I think that is the determination as it should be, as to what level is reasonable in the interest of the public health. Now, experts in health are going to make that decision, as they should.

WOODRUFF: All right, Senator Frank Murkowski, thank you very much. We appreciate you joining us.

There is much more to come on this edition of INSIDE POLITICS. Straight ahead: the Senate votes to raise certain campaign spending limits. Is this the way to reform? We will have the latest on the larger debate over McCain-Feingold. Also ahead:


UNIDENTIFIED MALE: The last time the Mexico City policy was in effect, there was no reduction. I repeat, there was no reduction in the number of abortions.


WOODRUFF: Senate Democrats try to overturn a White House policy on abortion. And later:

Israel's prime minister talks Middle East policy at the White House in his first face-to-face meeting with President Bush.


WOODRUFF: We will have more of the day's political news coming up, but now a look at some other top stories.

Heavy fighting erupted today in the Balkans between Macedonian troops and ethnic Albanian rebels. Artillery and machine guns pounded rebel positions in the hills around Macedonia's second largest city of Tetovo. The government stopped the shelling after several hours and issued an ultimatum, giving the rebels 24 hours to stop fighting or face an all-out assault. The Bush administration says NATO will do more to try to stop those rebels who are crossing the border from Kosovo.


RICHARD BOUCHER, STATE DEPARTMENT SPOKESMAN: NATO-led forces have continued on their side of the border to man checkpoints, to increase the number in the visibility of patrols and observations and NATO has been sharing information with the Macedonian government. NATO has also moved an operational reserve of the Kosovo forces to the border area in the American sector, so there have been 300 more troops repositioned for better border security in that area.


WOODRUFF: The rebels say they are a home grown force seeking greater rights. Macedonia says the rebels want to create an independent ethnic Albanian state.

An unexpected witness testified today in the Navy's inquiry into the sinking of a Japanese ship by the USS Greeneville. The commander of the submarine, Scott Waddle, assumed full responsibility for last month's accident, which left nine Japanese dead. Waddle's testimony, without immunity, caught the Navy inquiry off-guard. The Navy earlier had turned down Waddle's request for testimonial immunity.

The world's biggest floating oil rig sank in heavy seas off the coast of Brazil today. The state oil company warns that more than 300,000 gallons of diesel fuel was likely to spill in the South Atlantic. The sinking was triggered last week when an explosion rocked the 40-story rig.

Authorities in New York say they have caught a high school dropout who hatched an elaborate scheme to steal from the rich. It almost worked. The suspect is a 32-year-old busboy named Abraham Abdallah. And his list of prey is a who's who of millionaires and billionaires, led by the likes of Steven Spielberg, Oprah Winfrey and Ross Perot. Authorities say Abdallah gleaned personal information from the Internet and also used conventional means of theft.


COMM. BENJAMIN KERIK, NEW YORK CITY POLICE: He obtained credit cards by stealing certain mail, and also stealing credit cards at his place of employment. He established numerous mail-drop locations by using the stolen credit cards; used the stolen credit card numbers to make fraudulent telephone and Internet orders; and also used runners in a pickup service to pick up merchandise he was receiving as a result of these orders.


WOODRUFF: A second man is charged in the case: Michael Puglisi. The alleged scheme is said to have fallen apart when a $10 million transfer order raised eyebrows at a brokerage firm.

An early vote in the campaign finance debate. When we return: The Senate approves an amendment relating to campaign spending, but the larger debate is just getting started.


WOODRUFF: The Senate today approved an amendment to the McCain- Feingold campaign finance reform bill. But the proposal has divided some senators, who claim the amendment process threatens the overall success of campaign reform.

CNN's congressional correspondent Jonathan Karl has the story.


UNIDENTIFIED MALE: The amendment is agreed to.

JONATHAN KARL, CNN CORRESPONDENT: The first amendment to the McCain-Feingold bill to pass would actually inject more money into the political process, not less, prompting a harsh rebuke from some of McCain's strongest allies.

SEN. CHRIS DODD (D), CONNECTICUT: I think it takes us in exactly the wrong direction. I think it makes a mockery of McCain-Feingold. I think we're beginning to just shred that piece of legislation.

KARL: The so-called millionaires amendment, which passed by a 70 to 30 margin, would allow those running against self-financing candidates to raise more money, making it easier for them to be competitive. The move comes after a recent influx of multimillionaire candidates funding their campaigns out of their own pockets.

Witness the last election: Maria Cantwell, Democrat of Washington, spent $10 million of her own money. Mark Dayton, Democrat of Minnesota, 11 million. And New Jersey Democrat John Corzine smashed all records by spending $60 million of his own money to win his Senate seat.

The amendment would not limit the right of wealthy candidates to spend millions of their own money, it would just make it easier for their challengers to bypass some of the limits on political fund raising.

As in America, we won't let you buy an election. If you're going to come in and try to do that, then you're going to at least give the other candidate a chance to compete.

KARL: But 29 supporters of McCain-Feingold voted against the so- called millionaires amendment. As the Democratic leader warned that further changes to the bill could make it impossible to pass:

SEN. TOM DASCHLE (D), SOUTH DAKOTA, MINORITY LEADER: And with each change, I think you lessen the opportunity for us to keep Democrats together and in support of a bill that they no longer can identify as McCain-Feingold.

KARL: Another potential problem for McCain-Feingold is big labor, which doesn't like the limits the bill would put on independent groups, including unions. AFL-CIO head John Sweeney brought those concerns directly to John McCain.

JOHN SWEENEY, PRESIDENT, AFL-CIO: He was listening very carefully to what we were saying, told us some of the things that have been developing in terms of different amendments that will be under consideration, and saying that he would take a look at our position. KARL: But on the Senate floor, Democrats said their support for campaign finance reform remains strong. As the party's senior Senator recalled when he first ran in 1958, the total amount spent on two Senate races was a mere $50,000.

SEN. ROBERT BYRD (D), WEST VIRGINIA: And our hands were not manacled by the shackles of money.


KARL: Meanwhile, Senator Chuck Hagel, who has the prime alternative to the McCain-Feingold bill, seemed to build momentum for his alternative. Hagel brought -- added four Republican cosponsors to his effort, which would cap soft money contributions, not eliminate them. Those four Republican cosponsors -- conservatives -- some conservatives who had in the past opposed any limits on soft money contributions, now signing on to the McCain alternative -- Judy?

WOODRUFF: All right. Jonathan Karl at the Capitol. And we're sorry about those color bars in Jonathan's report. Obviously a technical glitch.

Also on Capitol Hill today: Abortion politics returned to the forefront. A bipartisan group of Senators said they plan to invoke a rarely-used law to try to overturn an executive order President Bush issued soon after taking office. The order bans international groups that receive federal funding from taking part in any abortion-related activities. By law, any Senator can bring up legislation to overturn an order, provided there are 30 signatures of support.


SEN. HARRY REID (D), NEVADA: We're taking this step because the global gag rule which denies funding to any organization that uses its own funds to provide or promote abortion service overseas is an ill- conceived, anti-women, anti-American policy.

The president's rationale for reopposing the gag rule was he wanted to make abortions rare. Yet the last time that the Mexico City policy was in effect, there was no reduction, I repeat, there was no reduction in the number of abortions -- only reduced access to quality health care services, more unintended pregnancies, and more abortions.

WOODRUFF: This maneuver faces an uphill battle. Assuming it passes Congress, President Bush could block it with a veto.

When INSIDE POLITICS returns, President Bush and Israel's prime minister hold a power lunch at the White House. The two leaders discuss U.S. Policy in the Middle East. Details on what they had to say next, on INSIDE POLITICS.


WOODRUFF: New Israeli Prime Minister Ariel Sharon met with President Bush at the White House today, the first face-to-face meeting for the two men since they were both elected to office. CNN White House correspondent Major Garrett has more on the issues that dominated their first meeting.


MAJOR GARRETT, CNN CORRESPONDENT (voice-over): President Bush told the new Israeli leader the U.S. will encourage, but not force a return to the peace process.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We'll do everything we can to help calm nerves, to encourage there to be dialogue in a peaceful way.

GARRETT: Senior officials said the president urged Mr. Sharon to relieve some Palestinian hardships, specifically: reopening checkpoints and allowing freer movement in the occupied territories.

JONATHAN ALTERMAN, U.S. INSTITUTE FOR PEACE: The administration's very concerned that there may be an eruption in the Palestinian areas; an eruption because the economy's bad, because there's a siege under way, people can't move back and forth.

GARRETT: Mr. Sharon promised to follow through, but vowed he would do nothing to compromise Israeli security.

ARIEL SHARON, ISRAELI PRIME MINISTER: I'm a great supporter of the president's policies of keeping stability in the Middle East. The main danger to stability is terror.

GARRETT: The new Israeli leader made the rounds in Washington, meeting with key members of Congress and traveling to the Pentagon to review the troops, and sounded a hard line with key Israeli activists.

SHARON: Arafat is willing to destabilize the entire Middle East, including moderate Arab regimes, in order to achieve his goals.

GARRETT: The Palestinians accused Mr. Sharon of abandoning peace.

HASSAN ADBEL RAHMAN, PLO REPRESENTATIVE: We believe that Sharon's plan is a prescription for war and not for peace because what he is offering are current arrangements, which translates into permanent Israeli occupation of the Palestinians.

GARRETT: Senior officials said Mr. Bush understands Palestinian grievances, but can see no way of addressing them until Mr. Arafat renounces violence. Significantly, the president has yet to invite the Palestinian leader to the White House.

(on camera): With the peace process at a standstill, Mr. Bush will focus on upcoming meetings with the leaders of Egypt and Jordan, moderate Arab nations the president believes can help contain violence now and support a peace deal in the future.

Major Garrett, CNN, the White House.


WOODRUFF: And joining us now, our senior political analyst, Bill Schneider. Bill, you heard Mr. Sharon speak at a large dinner here in Washington last night. He is seeing the president, but he has other interests while he's in Washington.

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Certainly, the dinner that he spoke to last night, the AIPAC dinner, is the largest pro-Israel lobby in this country, the dinner was billed as a salute to the 107th Congress, and it drew more than 40 senators and more than 100 members of Congress.

Now, Congress is the bedrock of the U.S. relationship with Israel, and Sharon is very attentive to that relationship. Every Israeli prime minister is. It's because while most Americans certainly are sympathetic to Israel, that's not why Congress is so attentive to Israel's needs.

It's because the pro-Israel community is intensely mobilized. Members of Congress know that if they vote against Israel, they're going to pay a price. It's something like organized labor or the gun lobby or the religious right. But in the case of Israel, there's really nobody on the other side. Members of Congress don't take any risk by voting pro-Israel.

WOODRUFF: Every -- this administration right now, this president, Bill. A lot of focus on the difficulty he is going to have with Mr. Sharon, with Israeli policy, but in fact, every American president has had difficulties with the relationship with Israel.

SCHNEIDER: Judy, it's part of the job. Every American president has problems with Israel, but it's especially serious if there is a Likud government of the right in Israel. There were problems with Menachem Begin and Jimmy Carter, with Yitzhak Shamir and George Bush, Benjamin Netanyahu and Bill Clinton.

They all had problems with American presidents. President Bush withheld loan guarantees because he didn't agree with Shamir's settlement policy and, in fact, James Baker, who was secretary of state, wrote in his memoirs that Ariel Sharon, who was then housing minister, he called him a quote, "obstacle to peace."

And Clinton famously favored Peres over Netanyahu in the 1996 Israeli election. If every Likud prime minister drives every U.S. president crazy, every Congress is ready to bail Israel out, which is why every Israeli prime minister cultivates a close relationship with Congress.

WOODRUFF: Bill, if you look at the peace process, as it's called, although the administration isn't so much calling it a peace process anymore, what are the interests at this point of the Bush administration and of Mr. Sharon, and are there parallels at all there?

SCHNEIDER: Well, look. Ehud Barak, the former prime minister and Bill Clinton, were a close match because they were both eager to have a comprehensive peace deal. I think Bush and Sharon are also a close match because they both agree on a go-slow approach to peace in the Middle East.

If Clinton couldn't do it, what could George Bush accomplish? You know, Powell in his remarks to AIPAC yesterday, never mention the words peace process. I think Sharon's argument that he made last night at dinner really feed into Bush's argument. Namely, we have to put the peace process on the back burner for the time being. Colin Powell said, the secretary of state, he said the U.S. will assist but we will we will not any longer insist.

WOODRUFF: So Israel actually does fit into what the administration foreign policy, international policy?

SCHNEIDER: The currently policies of Israel and the U.S. fit together, but there is one concern that's there. Until now, the focal point of Middle East policy -- or right now, the focal point of Middle East policy is the Persian Gulf, not so much Arab-Israeli relations.

Sharon said, and I have his speech right here, that for two decades, people have believed that the rest of the Middle East would fall into place if the peace process proceeded. What Sharon was saying is that's backwards. Security should come first, then the peace process, and he is saying to the administration, first we need regional security.

The administration needs to keep the Israel-Palestinian relationship from exploding into a war because that would make any possible resurrection of the Gulf War coalition against Iraq impossible if there's an open war between Israel and the Arabs.

So, the U.S. goal right now is not a permanent peace, but avoiding any kind of all-out war.

WOODRUFF: All right, Bill Schneider, thank you very much. I appreciate it.

And up next, more on President Bush and international policy with Lawrence Eagleburger and Lee Hamilton.


WOODRUFF: For more on international policy, I sat down today with former Secretary of State Lawrence Eagleburger, and former Congressman Lee Hamilton. I began by asking them whether the Bush approach to the Middle East is more likely to reach results than the Clinton approach?


LAWRENCE EAGLEBURGER, FORMER SECRETARY OF STATE: I think the first question is, will it last? I can remember when we were leaving office and Secretary Christopher came in to have a lunch with me. As he left, he said I can tell you one thing: I won't be dealing with the Middle East as much as you and Jim Baker. Well, you saw what happened. It demands attention, and I suspect over time that this administration, which starts out a little bit more hands-off, I suspect it will be drawn into it just as much as any previous administration.

WOODRUFF: Do you expect the same thing?

LEE HAMILTON (D), FORMER U.S. REPRESENTATIVE: Oh, I very much agree. I cannot recall an administration that came into office without saying we're going to back off on the Middle East, and there's reason for that. You've got to take time to get a perspective on a very, very tough problem. But over time, the facts on the ground drive it, and the Bush administration will find they are heavily involved in the Middle East.

WOODRUFF: But they can also point to the Clinton administration and say they were very hands-on and where did it get them.

HAMILTON: That's correct. You do see here articulated a very different policy from the Clinton administration. It's not just a question of hands-off. It's also the aid.

The Clinton administration was driving in the final weeks for a final settlement, to wrap up all the problems: refugees, Jerusalem and all the rest. Very clearly now, the Bush administration and Prime Minister Sharon are saying: interim, step-by-step, be very careful here. A final settlement is not possible. We'll manage the conflict, but we will not have a final settlement.

WOODRUFF: So Secretary Eagleburger, are you both saying that even if they wanted to move to something more comprehensive they couldn't do it right now?

EAGLEBURGER: Well, they can't do it right now. I think, first of all, that the chairman is correct: It's going to take them some time to get their feet on the ground, to figure out what they want to do in the Middle East.

I think it is also true that given the failure of the Clinton administration with this overall approach that they're almost driven inevitably to the step-by-step process. So I think it's going to be some time before they become deeply involved. But I still argue that over the course of the next several years, they are going to be drawn into it in ways that right now I don't think they expect.

WOODRUFF: Lee Hamilton, we're also seeing a less hands-on approach, if you will, with regard to North Korea, saying we're not going to move there, we're not going to pick up where the Clinton administration left off. With regard to Northern Ireland. Is this reflective of something going on across the board with the new administration?

HAMILTON: Oh, I think so. President Bush signaled this in the campaign. We were going to be less interventionist. We were going to be less involved. We were going to play a lesser role. He's carried that out, and now in the Irish question, likewise North Korea. In some ways, though, it's the same question that Secretary Eagleburger was raising. You can't stay out of the Irish question as an American president. There are too many Irish-Americans who want you in it. Korea, I suspect, is going to be very much the same.

So it's OK as you come into a new administration to stand back, take a look, be careful as you move into these difficult areas, but you're probably not going to be able to stay out of them.

EAGLEBURGER: But don't you think that there is a philosophical difference in the sense that...


EAGLEBURGER: ... I think this administration philosophically is less ready to become involved than was the Clinton administration.

So to some degree I think that will carry over.

WOODRUFF: Another part of the world, the former Yugoslavia, Macedonia -- we're seeing NATO calling for reinforcements, if you will. They want more support in there to hold off the Albanian rebels moving into Macedonia.

What do we expect to see here, Lee Hamilton?

HAMILTON: Well, I think we had better see NATO taking very tough and firm action. This is a test, not just for Macedonia, of course, but it's a test for NATO, whether or not they're prepared to act vigorously to stop the intrusion of the Albanians into Macedonia, and whether or not they're going to be able to maintain stability.

This is crunch time in the Balkans again, and this time it's on the Macedonian border.

WOODRUFF: And what will the Bush administration do?

EAGLEBURGER: Oh, boy, now you've asked -- I was about to agree with the chairman...


... and to say, by the way, that this was predictable several years ago. There's a now -- it is not going to be just Macedonia. We're going to see the Serb -- we're going to have to protect Serbs, too, before this is all over, I think.

What does the Bush administration do? I think they are going to be very cautious about moving in.

I must say, though, that I think the chairman is absolutely correct. This is a case where I think right now and soon NATO and the U.S. better make it clear to the Albanians, whether they're in Macedonia or Serbia or in Kosovo or in Albania, that they better knock this off, because I think that there is a greater Albania attitude here, which, if not now nipped in the bud, could become a very serious problem.

WOODRUFF: All right. Well, this is a conversation we'll want to pick up on very soon. Former Secretary of State Larry Eagleburger, thank you. Lee Hamilton, former congressman, we thank you very much. We appreciate you being with us.

HAMILTON: Nice to be with you. Thank you.

WOODRUFF: Thank you.

Even more INSIDE POLITICS ahead in the next half-hour: the latest on the economy. Plus, is America facing a power crisis? We'll discuss energy policy, OPEC and the situation in California with guests from the Cato institute and the Consumer Federation of America. All that and more when INSIDE POLITICS continues.


WOODRUFF: The markets and the economy are down, and energy shortages are an issue. What is a president to do?

Who really was in charge just after President Reagan was shot? Tapes help tell the story 20 years later.



... rock'n'roll legends and a commentary on Al Gore.

ANNOUNCER: From Washington, this is INSIDE POLITICS, with Judy Woodruff.

WOODRUFF: Welcome back to INSIDE POLITICS. On days like this one, President Bush may feel just a little bit like a second fiddle, when so much attention is focused on Federal Reserve Chairman Alan Greenspan. Today, Greenspan's Fed cut short-term interest rates a half percentage point, less than the three-quarter point reduction that many Wall Street traders had hoped for.

In response, the Dow Jones industrials fell 238 points to close below 9,800. The Nasdaq index ended the day 93 points lower, below 1,900.

Before the markets closed or the Fed acted, President Bush was asked for his take again on the economy.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: ... fiscal policy and good monetary policy, good trade policy will help our economy. And we need an energy policy, too.

And I hope the Congress acts quickly on a stimulus package that will improve our economy. People have got to know that I have got great faith in the American economy.


WOODRUFF: We are joined by our senior White House correspondent John King.

John, the president used the word "stimulus" for the first time today, and yet some people are complaining that he's only calling for $5 1/2 billion tax cut this year. At least, that is in his tax proposal as it stands now.

KING: Well, given the growth of the U.S. economy, the size of the U.S. economy, excuse me, everyone concedes 5.5, $5.6 billion in not much of a stimulus package, but the president is in a bit of a box here. Remember, he's been adamant about the $1.6 trillion, 10-year figure -- also concerned that if he begins negotiating any part of the tax cut package now, then people would want to negotiate the other side of the package.

The White House privately sending signals it's open to the Senate, perhaps adding a bit more to the stimulus, the first part of the tax cut. But if they do that, and Mr. Bush wants to stick to the $1.6 trillion figure, he's got to give somewhere else, and the president is not prepared to give just yet, because of the 50/50 environment in the Senate, because of the delicate political environment in the House as well, which would have to reconsider anything passed by the Senate, so the president is in a tough spot.

He wants to call this a stimulus plan, he's willing to front-load it a little bit more, but if he does that, he's going to have to make compromises on the back end, say, like accepting a smaller rate cut for those at the top of the income scale. Mr. Bush is not ready to make those concessions just yet.

WOODRUFF: John, separately today, the president signed a repeal of regulations, a deal with so-called ergonomics, repetitive motion injury, tell us about that.

KING: Well, the president signed this after Congress repealed it. In the last days the of the Clinton administration, President Clinton signed that executive order, setting new ergonomics workplace safety rules in place, essentially designed to combat carpal tunnel syndrome and things like that.

If you reported an injury on the job, under these new rules, something would have to be done about it. The president signing that law today, saying that those regulation were quote, "unduly burdensome" and "overly broad." This is something that has organized labor and many Democrats upset, but the White House saying this is a conservative president, and he's not one in favor of regulations, the president taking pains to note in his statement, though, that he will have his Labor department see if there's perhaps some middle ground to deal with this problem. But this -- yet another action, repealing last-minute Clinton administration regulatory actions.

WOODRUFF: All right, John King, thanks. And now, we turn to the nation's energy problems and their economic impact. At last word, California officials said they had enough power to end more than four hours of rotating blackouts, at least for now.

The blackouts and a power alert resumed in California yesterday. Here in Washington, lawmakers from the Pacific Northwest discussed the region's energy problems with vice president Cheney today. They were unable to resolve their differences over how to address short-term power shortages and dramatic spikes in electric bills. But they said they did seem to agree about the severity of the problem.


REP. JENNIFER DUNN (R), WASHINGTON: We agree that California rate payers ought to be paying their price. It's not fair to us in the Northwest when somebody wanting to turn on a hot tub in California, does it without any fear of paying increased cost for the natural gas or the electricity that runs that hot tub.



INSLEE: What is going on in the Western Coast right now is an economic hoof-and-mouth disease. It's an emergency of national dimensions.


WOODRUFF: Well, this is the situation that people are asking, can it truly be called an energy crisis? For some answers, let's talk now with Jerry Taylor of the Cato Institute and Mark Cooper of the Consumer Federation. We thank you both for being with us.

Jerry Taylor, let me begin with you. Is this a California problem, a West Coast problem or, as the Energy secretary said yesterday, are we looking for at an energy supply crisis for the whole country?

JERRY TAYLOR, CATO INSTITUTE: Well, the California electricity problem is driven by high natural gas prices. The reason that prices are skyrocketing in California and nowhere else is because California and the West Coast are about the only places where natural gas is used to make electricity in the wintertime.

Natural gas prices, as most people have known, have skyrocketed 400 percent nationally, 800 percent in California, and they've driven high prices. They haven't shown up anywhere else because we don't use natural gas to make electricity anywhere else during the wintertime.

The problem with the blackouts of course is that it costs 30 cents a kilowatt hour to make this stuff, you can always sell it for 7 cents, and if you are going to have price controls, you don't need a Ph.D. in economics to understand the blackouts are a natural and inevitable results of policies like that. WOODRUFF: So, are we looking at just a California problem, Mark Cooper, or a nationwide problem?

MARK COOPER, CONSUMER FEDERATION OF AMERICA: Well, we think this is a nationwide problem, and if you look at California in January, for example, 63 cents of every dollar paid in the market was price- gouging, above the cost of gas, above the cost of emissions permits. It was pure gouging, people withholding supplies -- that's from -- by the Federal Energy Regulatory Commission's own methodology. And that is abuse, and that's why people don't want to pay those prices, because they're not fair.

They ask for refunds, and the Federal Energy Regulatory Commission said, well, maybe we'll give you back a dime on the dollar at some point in the future. So, a big part of the problem is a lot of withholding of supplies that people don't believe there is a real shortage in California.

WOODRUFF: Jerry Taylor, you are shaking your head?

TAYLOR: People don't believe there is a real shortage in California because of demagogues like Mark Cooper. I mean, 95 percent of the cost of making electricity from a gas fire plant is the fuel cost, the natural gas cost itself.

Gas costs in California have gone from $2 per million BTU to $24 per million BTU upon occasion. That is going to drive electricity prices right through the roof. Now, how much of that is excessive profiteering is kind of an open question, but it's by no means responsible for most of the price spike, and it's East German economics to suggest that any time something goes up in price, some greedy capitalist is making off with a big pot of money.

WOODRUFF: Jerry Taylor, I'm just going to ask you -- I want to have this interview, but no need to call names here. We don't need to...

COOPER: Those are the numbers from the California system operated by the Federal Energy Regulatory Commission methodology.

TAYLOR: And they don't add up. They don't add up.

WOODRUFF: All right. Mark Cooper, when Secretary Abraham talked yesterday about the need for a national energy policy, he's talking about increasing supply. What is it that the administration should do? We've got the vice president looking into this, what is the right course for this administration?

COOPER: The place where you can find the immediate impact is on the demand side. In California, you need to back down demand, and in the Midwest, and in the Northeast, where the problem really exists -- in New York -- the reason the secretary declared a national energy emergency, because prices have doubled and tripled in New York and Pennsylvania for capacity, not natural gas.

So, you need to look on the demand side to get large industrial customers to back down their load, and they're willing to do that if they are fairly paid for that. You need consumers to understand that there are ways that they can conserve energy, but in the near-term, the big users who can control their supply are on the demand side.

We need to also have them deploy distributed generation, this is small generation, which has been added in California, which can be used when there's a price spike to back down demand.

WOODRUFF: You're using some terms that I think the general audience might not understand.

COOPER: We need a balance of supply and demand. If you look at the federal budget, $25 is spent on supply for every $1 on energy efficiency. We need a better balance.

TAYLOR: The only way to get people to consume less energy is to charge them fairly for that energy. Right now in California, rate payers have been subsidized to a tremendous extent, they're not paying the full cost of electricity. If you want people to conserve electricity, you've got to remove the price caps.

Begging and pleading with people to please use less electricity, or handing out some subsidies to encourage them to buy energy- efficient technologies has never resulted in anything substantial. The only way to do it is to go ahead and remove price caps and let people face the market price for power. Then, I guarantee you, they will consume less of it. Anything short of that is not going to work.

COOPER: If there's a real market, they're willing to pay. But this is a market that has been clearly manipulated, and even the Federal Energy Regulatory Commission is beginning to recognize that there is abuse in that market, and something needs to be done.

WOODRUFF: The administration is focused on supply, we heard Senator Murkowski saying earlier that drilling in the Alaska wildlife refuge is exactly the right policy, we assume that's what the administration is going to propose. Is that one thing the administration should be following here, Mark Cooper?

COOPER: That has nothing to do with electricity or natural gas. That is an oil problem, which is a liquid fuel problem, which is essentially an automobile's problem. So, that has nothing to do with domestic natural gas or domestic electricity.

And so, in the big picture of what was declared the energy crisis yesterday, that's really a sideshow. That's just a bit of a thing that the oil producers have always wanted. Incoming from Texas, this administration would like to deliver. It has nothing to do with solving electricity or natural gas problems.

WOODRUFF: Jerry Taylor?

TAYLOR: I hate to agree with Mark, but he's right about that. And as far as the Federal Energy Regulatory Commission, what they've discovered is that if you count up the cost of natural gas to generators and environmental permits and whatnot, they cost about 27 cents to make a kilowatt hour of electricity. But in January and February of this year, going prices were around 32 cents a kilowatt hour. They considered this the price gouging margins, the difference between the cost of making the electricity and the sales price.

Of course, just because someone sells a product for more than it cost to produce doesn't mean gouging is going on, but even if you grant the argument that the difference between 27 cents and 32 cents is price gouging, that still leaves you with a huge run-off in prices, and gouging doesn't explain that. It just simply doesn't.

WOODRUFF: Well, we are going to have to leave it there, gentlemen. Clearly, we can go on at some length. We appreciate it. Jerry Taylor, Mark Cooper, thank you both. We appreciate it. Thank you.

Two decades after the assassination attempt on President Ronald Reagan, new insight today into how White House aides reacted to the crisis. Coming up, we'll talk with former National Security Adviser Richard Allen about the hours after the shooting, and listen in on a tense meeting held inside the White House situation room.


WOODRUFF: Twenty years ago this month, John Hinckley Jr. shot and wounded President Ronald Reagan outside a Washington hotel. In the hours after the shooting, top Reagan aides gathered at the White House to assess what had happened and to await word on the president's condition. At the time, Vice President George Bush was flying back to Washington from Texas, and Secretary of State Alexander Haig had a memorable exchange with reporters.


ALEXANDER HAIG, SECRETARY OF STATE: As of now, I am in control here in the White House pending return of the vice president, and in close touch with him.


WOODRUFF: President Reagan's national security adviser, Richard Allen, who we saw standing there to the left of Secretary Haig, was in the White House during those tense hours. And he recorded a meeting in the White House situation room.

Now, two decades later, Allen has decided to make those recordings public. Earlier today, he spoke with CNN's Wolf Blitzer and played some of the recordings from that White House meeting.


WOLF BLITZER, HOST, CNN'S "WOLF BLITZER REPORTS": Richard Allen, thanks for joining us. Let's talk about that fateful day, almost exactly 20 years ago, March 30th, 1981.

You were the national security adviser to President Reagan. Briefly walk us through what initially happened. RICHARD ALLEN, REAGAN NATIONAL SECURITY ADVISER: Well, as far as I'm concerned, when I come into the picture, I had decided to go for a swim instead of taking lunch or going with the president to his speech. And I was in the swimming pool when my driver pulled me out by my hair and we went immediately to the White House, within about five minutes: down East Executive Avenue when it was still open, around the Ellipse and up into the southwest gate.

I went to my office very briefly and then immediately up to Jim Baker's office, which had a crowd of staffers milling around, and Al Haig talking to the vice president on the telephone.

BLITZER: Now a lot of discussion over these years about what then-Secretary of State Al Haig told the world when he went into the briefing room. But there was some discussion that you had privately, and you were recording this with your own private tape recorder at the time. There was one excerpt in particular that stood out. Let me -- let me point that out.


DAVID GERGEN, WHITE HOUSE AIDE: Al, a quick question. We need some sense, more better sense of where the president is. Is he under sedation now?

HAIG: He's not on the operating table.

GERGEN: He is on the operating table?

HAIG: So the ... helm is right here, and that means right in this chair for now, constitutionally, until the vice president gets here.

GERGEN: I understand that. I understand that.

HAIG: Yeah.


BLITZER: Did Al Haig think that constitutionally he was really next in line?

ALLEN: Well, take the statements at face value, and you would come to that conclusion. However, the rest of us knew that he was not constitutionally in line. Fred Fielding, the counsel to the president, was sitting next to me. We exchanged a glance, and Cap Weinberger was on the other side, the attorney general was there, the secretary of the treasury. We all knew that that was not the case.

But in the event that a quarrel would break out, we thought that was the inappropriate place for a quarrel and we just decided to ignore it, because it simply wasn't so.

BLITZER: But did -- do you really believe that someone at this point with hindsight should have pointed out to the secretary of state, Al Haig, that he really wasn't constitutionally next in line? ALLEN: Well, I don't think so. It would have just taken us down a sideline. The issue was the life of the president: how badly was the president wounded, what were the status of our forces. There were strange goings-on in Poland. We weren't certain what was going to happen there, because we had no really good photography from our satellites. We didn't know who had shot the president, whether it was a conspiracy, whether he was a loner, all of these things.

These are things that needed to be addressed first. Our task, we're hired to do the job, not to argue about who may or may not be in control at any particular moment. The idea was that a team had meshed, and the team was functioning smoothly. So why go down a sideline?

BLITZER: There was one exchange also that you recorded involving the then-defense secretary, Casper Weinberger, and the secretary of state, Al Haig, on the issue of status, military status, alert status, because there were some Soviet submarines off the Atlantic Coast that you were monitoring.

Let me point out that one excerpt that raises some additional questions.


WEINBERGER: ... the Strategic Air Command, they are always on the alert, certain numbers, and those that are on the alert now are moving from alert in their quarters and on the post to their planes -- simply stated. That's all...

HAIG: And that's based on the Soviet situation and not on anything here?

WEINBERGER: Well, it's based on the idea that until we know a little bit more about it, it is better to be in the plane which saves 3 1/2 to 4 minutes than it is to stay in their quarters.

HAIG: I said up there -- Cap, I'm not a liar -- I said there had been no increased alert.

WEINBERGER: Well, I didn't know you were going up there, Al. I think if...

HAIG: I had to because we had the question already started and we were going to be in a big flap.


BLITZER: The question, obviously, that this begs is Weinberger placed the forces in effect on a little higher state of alert. Alexander Haig didn't know about it and he said, I told reporters that there's no change in alert status.

ALLEN: No and no. Secretary Weinberger, Cap Weinberger simply moved the crews from the shacks in which they were normally resting to the airplanes. That was not an increase in the defensive condition. It was merely a change of degree within what we called DefCon 4, which is the status, defensive condition 4, which is the status that the Strategic Air Command and our forces in Korea always are on. Otherwise, all are on DefCon 5.

So there was no increase in the DefCon, but this issue had already been discussed. And Cap Weinberger had already said that the crews were going to be moved into the airplanes.

BLITZER: There was one other exchange involving the football, the nuclear football, the codes that a military aide always carries whenever the president is going in case there is some sort of emergency.

Here's one example, and you pointed out in the article you wrote in "The Atlantic Monthly."


HAIG: And the football is near the vice president. So, that's fine.

ALLEN: We should get one over here. We have a duplicate one here.

HAIG: Get the football over here.

ALLEN: There is one at the military aide's office. The football is in the closet...


BLITZER: That sounds like, you know, that one of the most sensitive sources of nuclear information -- the football is in the closet?

ALLEN: Well, the closet in the situation room is not a closet in your entry foyer, in your home, Wolf. It's another kind of closet, under lock and key, and obviously one had to be there. It was only there for the convenience of the president. It wasn't there for anyone to use, and besides, not anyone could authenticate himself.

The football is really just a series of codes. It came to accumulate that name over many years.

It's a very sensitive document, and it was treated with proper respect and care.

In fact, when it was given to me, I held it in my hands for the remainder of the afternoon. It never left my possession. And when we more and less stood down from the crisis and understood everything that was involved at that time, working with Jim Baker and Ed Meese, I returned the football to its proper secure position.

BLITZER: Why now? Why did you wait 20 years to release these valuable tape recordings that you made personally while you were the national security adviser? ALLEN: I recalled the other day that Bill Sapphire mentioned that President Madison retained, for many years, his transcripts of the debates from the Constitutional Convention. I believe that 20 years is a proper interval and I wanted to avoid anyone writing on the 20th anniversary of this very important incident that we were somehow in a state of confusion or didn't know what we were doing.

As a matter of fact, the entire team functioned beautifully from the hospital with Baker and Meese, in the situation room, with a possible exception of a few moments of introduced tension.

BLITZER: And that was Alexander Haig?

ALLEN: Well, these things are understandable. He obviously had goodwill in his heart, trying to do the right thing, but it was inaccurate. And we shouldn't focus on the inaccuracies or what Al Haig said. The need is to focus on a team that meshed together 60 days into its administration. We were there just 60 days before this incident occurred.

BLITZER: Richard Allen, thank you for joining us.

ALLEN: It's a pleasure.


WOODRUFF: Former Secretary of State Alexander Haig was not available for comment today. But in the past, Haig has said he misspoke on the constitutional order of succession. And that he should have said he was in charge, "administratively." Haig has also said that he was concerned at the time about the Soviet reaction to any announcement that U.S. forces had gone on alert.

When we return, is there a link between the Rock and Roll Hall of Fame and the presidential election? Depends on which musician you ask. INSIDE POLITICS will be right back.


WOODRUFF: Finally, some thoughts on comebacks of the musical and political kind. You could call Steely Dan the comeback kids of the rock 'n' roll world after first album in 20 years won a Grammy Award last month. The group earn another honor last night, an induction into the Rock and Roll Hall of Fame. Band members Walter Becker and Donald Fagan wondered about their election and whether they had anything in common with a certain former vice president.


WALTER BECKER, STEELY DAN: We're a little worried that the induction tonight is sort of a kissoff.


And you know, so we're redoubling our efforts to extend our careers a little further. DONALD FAGEN, STEELY DAN: Also, you know, Gore won the election, and look where he is. Right?



WOODRUFF: Couldn't resist.

That's all for this edition of INSIDE POLITICS, but, of course, you can go on-line all the time at CNN's AOL keyword, cnn.

These programming notes: Senators Chuck Hagel and Paul Wellstone will be discussing campaign finance reform legislation tonight on WOLF BLITZER REPORTS.

And the reporters who bring you much of your financial news will be the guests tonight on LARRY KING LIVE. It will be a full-hour discussion on the economy and the stock markets at 9:00 Eastern. I'm Judy Woodruff. "MONEYLINE" is next.



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