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Is There an Improper Link Between White House, Enron?; Hagel Discusses War; Is Something Rotten in Texas Politics?

Aired January 12, 2002 - 19:00   ET


MARK SHIELDS, HOST: Welcome to CAPITAL GANG. I'm Mark Shields, with the full CAPITAL GANG: Al Hunt, Robert Novak, Kate O'Beirne and Margaret Carlson.

The Justice Departments launched a criminal investigation of Enron, the bankrupt energy giant. Because he was a recipient of past Enron contributions, Attorney General John Ashcroft recused himself from the case as the recipient (sic).

It was disclosed that Enron President Kenneth Lay had telephoned two Cabinet members: first Treasury Secretary Paul O'Neill, and then Commerce Secretary Don Evans.


PAUL O'NEILL, TREASURY SECRETARY: I must tell you, I thought it was business as usual. And so I was not surprised at all that I would get a call saying, hey, we've got a problem over here, and you should know about it.


SHIELDS: Secretary Evans told of his call from Kenneth Lay, describing Enron's problems, quote: "Subsequent to that, I talked to Secretary O'Neill and told him I had the call. I don't think that there was anything for us to do. Secretary O'Neill agreed with me there was not, so we didn't do anything," end quote.

Congressman Henry Waxman of California, the ranking Democrat on the top House Investigating Committee declared, quote: "It is now clear the White House had knowledge that Enron was likely to collapse, but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings," end quote.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I have never discussed with Mr. Lay the financial problems of the company. The last time that I saw Mr. Lay was at my mother's fund-raising event to -- for literacy in Houston. That would have been last spring.



ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: I'm not aware of anybody in the White House who discussed Enron's financial situation.


SHIELDS: What about the government protecting Enron employees and small shareholders?


LAWRENCE LINDSEY, DIRECTOR, NATIONAL ECONOMIC COUNCIL: That's why the president is instructing us to look at changes in the rules that might be needed.


SHIELDS: Kate O'Beirne, is the Bush administration politically vulnerable for the way it has handled the Enron collapse?

KATE O'BEIRNE, "NATIONAL REVIEW": Mark, I don't understand what it is the Bush administration is accused of doing. A major corporation that gave a lot of money to a lot of politicians -- including a bunch to candidate Bush -- apparently cooked its books, deceived everyone, and victimized thousands of innocent people out of their retirement funds.

The giving of money is allowed. Getting favors in return, of course, is not. And there's simply no evidence -- not even any allegations, really, that that's the case. So far we have phone calls received by people in the Bush administration who did nothing in response to those phone calls giving a heads-up that this company was in such trouble.

Now, Henry Waxman is pursuing the classic "Heads I win, tails you lose." He's now criticizing the Bush administration for not interfering to somehow prop up this corporation in the interests of helping innocent shareholders and investors. But can you imagine, had they done such a -- run interference, I doubt Henry Waxman would be crediting them with having taken care of these innocent people. He of course would have been screaming favors.

They have rapidly launched investigations, far more rapidly than anything Janet Reno ever did, under a career prosecutor in the criminal division, under a career -- a task force headed by a career prosecutor in San Francisco. John Ashcroft has recused himself. I don't know if Chuck Schumer's going to recuse himself -- big recipient of Enron's funds -- Tom Daschle going to recuse himself on Capitol Hill. Because so many Democrats, along with Republicans in Capitol Hill, received a lot of money from Enron, I am assuming they're going to try to keep the focus on the White House, but there sure doesn't seem to be much there at the moment.

SHIELDS: Just one point of information. I interviewed Henry Waxman's staff and Henry Waxman's people, and that was not Henry -- Henry Waxman didn't want them to interfere. Henry Waxman raised the question -- and it's a very legitimate question -- once they knew of this...

NOVAK: Oh, that's...

SHIELDS: ... and they -- and the executives of Enron had sold for a billion dollars of profit themselves on the stock, that -- and the employees were barred -- whether, in fact, that was unfair. He wasn't saying they should interfere in behalf of Enron. He was saying, once they had that information, weren't the employees and the -- and the shareholders vulnerable? And that's the question he...


NOVAK: That is -- that is the line. Now, they -- it took a long time to get -- you see, let -- let's put this in critical perspective. Democrats are not doing very well. They had a bad end of the session. President's flying high. They got this demarcation. They can't criticize him on the war. And they're just -- Democrats are dying for something, and they say, "Oh, my God! This is something we can get to!"

The problem is there is no allegation of any criminal activity by any of -- of the Republicans. They know the guy. A lot of Democrats know him, too. So they've been trying to develop what a -- what the situation was, what -- what can you criticize the Republicans for and the administration for?

And it came out just about yesterday that what -- as soon as they learned they were in trouble, they should have called the Labor Department, get the Labor Department to call the -- to get a hold of the Enron employees because of their pension plans and protect them. That -- that is absolutely not within the realm of the government action! If you had -- every time a -- a company was starting to go down that the government is supposed to call the stockholders and say, "Get rid of your stock," when the stockholders are too dumb to get rid of themselves -- that isn't going to wash!

MARGARET CARLSON, "TIME" MAGAZINE: Now, there are rules about this, and they -- they come from the SEC, and they're called "disclosure rules," and they're also against insider trading. When the 29 executives managed to get out, taking millions of dollars, and the employees lose everything, then you have a government problem because the oversight was not -- was not adequate and the disclosure, which they're required to do, and the insider trading, which is illegal, is not allowed.

This is what happens. We see what happens when government doesn't do its job. And we see what happens when these disclosure rules aren't followed. That's -- and this is what will resonate with people. People will -- it's a complicated situation. It's a large -- it's the largest bankruptcy ever. It's going to be hard to follow the scandal, in much the way it was hard to follow Whitewater. But what people will remember is who won and who lost so far, and the officials and the -- and the guys who gave all the money managed to save themselves and let the other people go.

NOVAK: Well, that's -- well that's... CARLSON: And by the way...


CARLSON: All of Washington and all of Houston, apparently, has to recuse itself because so many people -- does anybody here need to recuse themselves? Bob?


AL HUNT, "WALL STREET JOURNAL": There are two separate issues. One, this was clearly a very sleazy company with arrogant executives who lied. They may be criminally culpable, and there ought to be an investigation of that, and I'm sure there will be.

O'BEIRNE: Well, there is...

HUNT: The second -- if I -- if I may finish? The second issue is one of political influence. I happen to agree that I don't think the O'Neill or Evans phone calls, if they're been what we've been told they are...


HUNT: ... raise -- raise any kind of major issues. They seem to me to be quite commonplace.

There are a lot of other issues, however. There were widespread reports that Ken Lay, the head of Enron, got to pick the chairman of FERC. We'd like to find out of that's true or not true. Why won't Dick Cheney release all, every bit of information of his dealings with Enron back when they put an energy package -- that's relevant. If any Democrats did legislative favors for Enron, that's relevant.

But what I think is bothersome -- and (UNINTELLIGIBLE) there's nothing so far -- what's bothersome is when George Bush comes out and says, "Enron? Geez, I -- you know, I have -- I -- you know, I hadn't seen them for a while. I didn't have much to do with him. His aides say he supported Ann Richards in 1995."

NOVAK: He did!

HUNT: He did not. That's a lie. That's an absolute lie. Ken Lay said he supported George Bush. He gave three times as much money to George Bush. He has given more money...

SHIELDS: In 1994.

HUNT: ... to George Bush than any other candidate around. Bush writes intimate letters to him. Now, when politicians start lying, you start wondering why.

O'BEIRNE: Or mistaken. Look, Henry Waxman...

HUNT: Mistaken?


O'BEIRNE: ... for Henry Waxman.

SHIELDS: Whitewater, there were no mistakes.

O'BEIRNE: Henry Waxman has been -- has been torturing Dick Cheney over anybody his task force may have spoken with. I said months ago that the Cheney office ought to put all of that out. I think it's going to be a lot more boring than people think.


O'BEIRNE: I'm assuming the lawyers concerned about this issue in the executive branch at the moment are holding sway, and they shouldn't. All of it ought to be out, and I am predicting it will be a lot less interesting than people think. But why is Henry Waxman not firing off letters to Bob Rubin to find out what kind of contacts he had with Ken Lay and Enron when he was treasury secretary? Ken Lay and Enron executives traveled the world with Clinton administration officials, traveled the world with Ron Brown, with Mickey Kantor. Bob Rubin has inter -- called the Treasury Department on behalf of Enron. Let's see if Henry Waxman is as concerned with...

SHIELDS: This is wonderful.

O'BEIRNE: ... with contact between...

HUNT: What do you mean, "wonderful"?

O'BEIRNE: ... Enron officials and the Clinton White House.

HUNT: This is "Alice in Wonderland" stuff. They gave -- they gave more money to George Bush by a factor of about 20-fold...

O'BEIRNE: But what -- but what if they got more favors...

HUNT: ... than anyone else. They had more...

O'BEIRNE: ... from Bill Clinton?

HUNT: They didn't. There's no...

O'BEIRNE: We don't know that!

HUNT: All right, you tell me one suggestion of that? You're just making that up on the spot. We know...

O'BEIRNE: They got hundreds of millions...

HUNT: ... what they did with Dick Cheney.

O'BEIRNE: ... of government -- they got hundreds...

HUNT: We know!

NOVAK: Can I... O'BEIRNE: ... of millions of dollars of government...


NOVAK: Can I raise...

SHIELDS: Let me just make a point. Let me make a point, Bob, and that is, what Enron wanted -- they got an energy contract in India...


SHIELDS: ... during the Clinton years. But they...

O'BEIRNE: With the help of the Clinton administration!

SHIELDS: OK. That's fine. That's fine. I'm not -- I'm not questioning that, Kate. I'm -- I want to make two points. First of all, anybody who looks at this and doesn't see exactly why we passed campaign finance reform in the Senate was because of Marc Rich and the...

NOVAK: I was waiting for that!

SHIELDS: ... pardons -- Marc Rich and the pardons...

NOVAK: I was waiting for that.

SHIELDS: And now we see soft money at play. We see $2 million. We see the excess. Al says there's nothing wrong with -- with O'Neill and Evans -- I don't see anything wrong with O'Neill and Evans. But I'll tell you this. When you give $2 million, you get calls. You get through. And I'll tell you -- I'll make a prediction right now, and I'll be the farm on it, and that is this is not the only contact that Ken Lay -- he had contacts with the White House. He had contacts with the White House staff. And he had contacts up and down that list. And when George Bush -- when George Bush says...

NOVAK: Wait a minute!

SHIELDS: No, this -- let me finish.

NOVAK: Boy, this is a speech...


SHIELDS: When George Bush says -- when George Bush says -- I mean, there -- there's two rules of Washington. One is, it's never the act that gets a person in trouble, it's the cover-up. And when George Bush sits there and says, "I don't know Ken Lay, and he gave all the money"...

NOVAK: Wait a minute! Wait a minute!

SHIELDS: He basically did!

O'BEIRNE: He didn't say that! He said, "I last saw him in the spring."


NOVAK: He didn't say he didn't know him. He said...


NOVAK: Just a minute. He said he...

SHIELDS: Kenny boy.

NOVAK: I know you're very excited about this...

SHIELDS: Kenny boy!

NOVAK: I know you're excited about it, but if we can just be a little calm for a moment...

SHIELDS: Bob, I want to hear from you.

NOVAK: They -- the -- when he -- when you say that you know for a fact that the White House had contact with him, when the White House is saying they didn't have contact -- I don't know if they did or not, and you don't know, either. So you shouldn't go on television...

SHIELDS: I said I'll bet they did.

NOVAK: ... and say -- well, you'll bet! You don't know, and that's just irresponsible to say that! Now, I do -- I do know this. The treasury has said that Robert Rubin, who has been canonized by Al Hunt over here...

HUNT: Greatest treasury secretary ever.

NOVAK: ... greatest secretary of the treasury since Lloyd Bentsen -- I -- he -- he is -- he called the Treasury -- Treasury announced it -- and wanted them -- he wanted the Treasury Department to interfere with the -- the rating agencies on the Enron rating. That's real interference! Now, that -- that's very...


HUNT: No, no, no, no, no, because you just said something that's false. He talked to Mr. Fischer, and according to Mr. Fischer and the Treasury Department, he raised that issue. Mr. Fischer told him he didn't think it would be right, and Bob Rubin agreed. That's the accurate representation, according to Treasury.

NOVAK: No, no, no, no! The Treasury...

HUNT: No, that's -- that's their statement...

NOVAK: Well, wait a minute!


NOVAK: Wait a minute. Yelling's not going to...

HUNT: No, I'm not yelling...


HUNT: You can't misrepresent.

NOVAK: I'm not misrepresenting...

HUNT: Yes, you are.

NOVAK: ... Al. If you look at the statement, he said that Mr. Rubin did not agree with him! He thought -- he thought it would be OK. There was a disagreement there. You go back and watch the statement.

Now, let me just say one other...

HUNT: Please read that statement.

NOVAK: I did, and you're wrong, and I'm right.

HUNT: No, you're wrong.

NOVAK: Let me just say one other thing, that Brooks Jackson reporter for CNN, has a very good piece that's running on Late Edition tomorrow, in which he says that these poor employees of Enron had control of 89 percent of their stock, and they could have sold that at any time until the lockdown, which was long after...

O'BEIRNE: Well, they were...

NOVAK: ... the stock began...


O'BEIRNE: ... the company, as was everybody else.

NOVAK: Well, let me -- let me just say any -- they had a guy on with $2 million in stock. He probably paid about $30,000 for it because the stock went up. Anybody who has two -- their whole bankroll in one stock is an idiot and deserves anything that happens to them.

CARLSON: Many people in this country do...


SHIELDS: Let me just...

CARLSON: All the incentives are to put the money in your own company's stock...

SHIELDS: Let me correct -- let me correct Mr. Novak's -- I'm sorry.

CARLSON: ... and so many people do it. They're not stupid.

SHIELDS: Let me correct Mr. Novak's error. From October 29th forward, after -- and Kate's absolutely right. When Enron was saying, "Stick with it. We're doing well. We're coming back. The stock is coming" -- Ken Lay's giving pep talks to the -- to his own troops and all the rest of it, they switch administrators on their pension plan...

O'BEIRNE: To lock everybody.

SHIELDS: ... to lock everybody in, while your executives are selling for a billion dollars. And that's where you want to be. You want to be with the well-off...


SHIELDS: You want to be with the rich guys! You want to be with the powerful!


O'BEIRNE: The executives traveled the world with the Clinton administration. Let's just see if Henry Waxman...

SHIELDS: Kate, that's why we got to get money...

O'BEIRNE: ... is as interested in pursuing...

SHIELDS: ... big money out of politics!

O'BEIRNE: ... the Clinton administration.


NOVAK: Mr. Moderator, the -- the fact of the matter was, everybody knew that the stock was going down. And if these people were dumb enough to listen to the Enron executives -- caveat emptor! This is a capitalist society and you got to protect yourself!


SHIELDS: They were being lied to.

CARLSON: They were being lied to.

NOVAK: Gee, there were people being lied to?

CARLSON: There was no disclosure. And they weren't able to sell it!

NOVAK: They were able to sell it!

SHIELDS: They weren't!

NOVAK: Until the lockdown. Until the lockdown.

SHIELDS: You're right, Margaret, and Bob Novak is finished.

The gang of five will be back with al Qaeda terrorists sent to Cuba and the Bush-Kennedy love-in.


SHIELDS: Welcome back.

Twenty shackled and hooded al Qaeda and Taliban prisoners arrived at the U.S. naval base at Guantanamo Bay, Cuba, the first of 2,000 to come.


FLEISCHER: Many of them are being treated as either detainees that are unlawful combatants and they are in custody of the United States military, and appropriately, properly so.

DONALD RUMSFELD, DEFENSE SECRETARY: There was one person who was sedated during the course of the trip from Kandahar to Guantanamo Bay, Cuba, but that's all.


SHIELDS: Margaret Carlson, why bring these prisoners all the way to Cuba?

CARLSON: All the way to Cuba. Because there are no prisons adequate in Afghanistan, and I don't think you're going to build one out of the rubble, and because when the few were detained in Mazar-e- Sharif, there was an uprising and a CIA agent was killed. And these are the meanest, toughest ones, and they're going to be in a place surrounded by barbed wire, on the perimeter, Marines with huge guns, 3,000 to the -- what I think will end up being about 300 prisoners, which is needed.

And people are going to begin to complain, or the human -- Amnesty International, about the conditions. But as unlawful combatants, they're not protected by the Geneva convention, and the conditions will be -- well, not even the Ramada Inn conditions, with buckets and shackles and mats and cement, but I think all they're entitled to.

SHIELDS: Kate O'Beirne, you agree?

O'BEIRNE: Good for you, Margaret. Absolutely. Let Human Rights Watch...


SHIELDS: Yeah, I was going to say, get the humane...

O'BEIRNE: Let Human Rights Watch charter a plane, and they can bring these -- these dangerous characters down to -- down to Cuba. I think the idea of being sedated for a 27-hour flight ought to be an option the airlines might want to start offering, frankly. (LAUGHTER)


O'BEIRNE: I could do without the hood, but it sure would beat the movie and the food to be sedated for the whole trip!

SHIELDS: Kate, Al Hunt usually does that with the liquor cabinet!



O'BEIRNE: ... suffering in the Caribbean. They got out of the Afghan winter. They're being treated humanely. Now, what happens ultimately, I don't know. Presumably, there'll be trials for them. But they pose an enormous risk for anyone responsible for them. And this is just, I think, the beginning of the problem for the American military, who's going to have hundreds of these guys on their hands.


HUNT: Yeah, I agree. I'm not bothered by the treatment. I think that's -- that's the only way you can get them there. I'm sure that was one -- probably the best place to take them. The fact we could tweak Castro a little bit probably didn't exactly upset the administration, either. I think the only problem, Mark, is whether there are 300 or whether there are as many as 2,000, what do you do with them eventually?


HUNT: You're not going to put them all in military tribunals. I think what we'd like to do is have some of the countries they come from take them back and probably kill them, but that's going to be the big issue.


CARLSON: ... take them back.

NOVAK: That's the problem. If you give them to the -- to the -- to the -- to the Afghan warlords who are running the country now, they'll probably cut a deal with them! I don't think they'll kill them. I think they'll probably give them a ministry! But the whole idea that they were brought back to Guantanamo to be interrogated is ridiculous. They're not going to say anything. They were brought for safe-keeping.

The interesting thing is it doesn't end with 2,000. If this is, as I believe it is, a global war and we're going after them in Somalia and we're going after them in the Philippines and you can't trust the local people -- I mean, what are we going to -- what are we going to do with all these dudes? SHIELDS: I have a diplomatic question. We don't recognize Cuba, so how do we recognize the prisoners are in Cuba? How does that work, Bob?

NOVAK: Well, they're not in Cuba.

SHIELDS: I mean in Guantanamo.

NOVAK: Guantanamo Bay is U.S. territory.

SHIELDS: I see. And you -- Guantanamo Bay is in Cuba, though.

NOVAK: No, it's in the United States.

SHIELDS: Oh, it is?

CARLSON: The United States...

SHIELDS: Oh, I see.


SHIELDS: ... on the island of Cuba, but it's in the United States.

NOVAK: That's right.

CARLSON: The United States pays Fidel Castro $4,000 a month rent. However, he does not cash the check.

SHIELDS: Doesn't he, really?

NOVAK: That's correct.

SHIELDS: Margaret...

CARLSON: He is so anti-capitalist.

SHIELDS: You are so good, Margaret.

Also this week, President Bush signed the education bill in Hamilton, Ohio, praising Senator Edward M. Kennedy at his side.


BUSH: The folks at the Crawford coffee shop would be somewhat in shock when I told them I actually liked the fellow. He is a fabulous United States senator. When he's against you, it's tough. When he's with you, it is a great experience.


SHIELDS: Later, at the Boston Latin School in his home state, Senator Kennedy returned the compliment and President Bush reciprocated.


SEN. EDWARD M. KENNEDY (D), MASSACHUSETTS: President Bush was there every step of the way, making a difference.

BUSH: Mr. Senator, not only are you a good senator, you're a good man.


SHIELDS: Bob, isn't this new mood of civility in Washington exactly what this country is looking for?

NOVAK: Well, there's no new mood of civility in Washington. This is just a little kabuki play between Teddy and George W. A country doesn't like to have partisan conflict, but you have to have partisan conflict because there's disagreements. This whole thing really bothered me because, in the first place, the education bill was passed because of so many retreats by the president on school choice, on local control. He got the bill because he gave in to Teddy Kennedy and George Miller, and the Republicans in Congress will tell you that.

He can -- he can make these deals with Teddy all the time he wants if he -- if he surrenders. The Senator has announced, in case you were worried that he was really serious about this, that he's giving a speech to the Press Club this coming week in which he's going to attack the president on taxes. Teddy Kennedy is not Bob Bullock. Bob Bullock was the speaker of the House of Representatives in Texas...

SHIELDS: Lieutenant governor.

NOVAK: Lieutenant governor -- I'm sorry -- of -- in Texas, and he was a Democratic ally of Governor George W. Bush. Teddy is now doing that. Teddy has been fighting for all the things that this administration is against and the Republican Party is against, and all this is -- all this stuff is deceptive. All this -- this camaraderie is deceptive.

CARLSON: If it were real, you would have really hated it, right? I mean, genuine affection -- that would be just ghastly!

I mean, most relationships in Washington among -- between politicians are transactional. It's for this deal or that one, and they -- and they -- they're shifting alliances. But I do think that George Bush has been yearning for a Bob Bullock. I think he's been looking around. He wants one. And he would like it, actually. There's something quite lovable about George Bush because he does want that. He thinks that you can kind of work it all out if -- and he -- when he says this -- I think he says "He's a good man," and he actually means it. That probably shocks you, too, Bob. But Bush needed Kennedy more than Kennedy needed Bush on this. That education bill was important to Bush. Kennedy made it happen. And I don't think we'll be seeing them together that much longer. I think it's a short relationship.

NOVAK: Thank God. SHIELDS: Kate, I knew Bob Bullock. Bob Bullock was not a friend of mine, but I knew him. And Ted Kennedy is no Bob Bullock. But Bob Bullock -- I mean, issues were negotiable. He was a Democrat, but believe me, he was not any ideologue or any philosophical liberal.

O'BEIRNE: No. I agree with what's been said. This I think was more fling than friendship. It was a mutually beneficial fling, although I do think Teddy Kennedy got what he wanted. He got a lot more spending on education, which is what Democrats always want. He got a bigger federal role, which is what Democrats always want. He forced the president to abandon the more conservative pieces of this bill.

And the -- and the president told us during the campaign this is what he wanted to do on the education issue. He wanted to stop fighting. He wanted to reach an agreement. That's normally prevented because Democrats care more about iron-clad job security for bad teachers than what the unions may do about student achievement. I mean, he's probably got the public mood right on this one, frankly. I think it's a big, important fight, but they're tired of hearing it. It's an old fight.

The same week, Teddy Kennedy has been blocking Gene Scalia as solicitor of the Labor Department -- eminently qualified. A majority would support him on the floor of the Senate. But because John Sweeney doesn't want anybody enforcing the law at the Department of Labor, Teddy Kennedy blocked him. The friendship has not gotten Teddy Kennedy to permit a floor on -- a vote on Gene Scalia, so the president had to give him a recess appointment.

Although I do think next week Teddy Kennedy will do a big favor for George Bush when he recommends that we repeal the tax cuts. That will be a big favor for George Bush worth the education bill!


O'BEIRNE: ... more helpful than the education bill.

SHIELDS: Al, in Kate and Bob's conversations, I never heard a full explanation as to what happened, why national testing of students was obnoxious and unacceptable when Bill Clinton was president and now is a major achievement...

O'BEIRNE: Well, it remains obnoxious...

NOVAK: I don't like it!


SHIELDS: Oh, you don't?

NOVAK: Didn't you listen to me? I think it's a bad bill.

SHIELDS: You think it's a bad bill.


HUNT: I'm just glad to see Kate now is for recess appointments. That's growth, Kate. I'm glad to see that.

Look, I think -- I think it's a pretty good bill. I think both sides gave it...

NOVAK: That's the problem.

HUNT: Both sides gave in on some things I wish they wouldn't have. I wish there would have been experimental vouchers in big cities. I think that would have been helpful. I wish Bush would have won on that. I wish there would be more money for special education kids who don't give big fat contributions to anybody but really need help. But I think the bill does provide more money, which, Lord knows, anybody who looks at education says we need, and more accountability at the same time. So I think it was a pretty good deal for both of them.

I think Bush has played the Kennedy thing very well, and I think he's done it. He did it. He named the Justice Department after Robert Kennedy. He's had the Kennedys to the White House. He had a big dinner for the Special Olympics with the Shrivers and the Kennedys. And I think he's been quite successful in doing that. It is situational, though, as Margaret says. And when Teddy gives that speech, he's going to propose to scotch the tax cuts...

NOVAK: Let me -- let me...

HUNT: ... only -- if I may finish? -- only for the very rich.


HUNT: And so I know that would affect some people at this table, but...


O'BEIRNE: During a recession, let's raise taxes!

HUNT: No, no, no, no! Wait. It would be 2004, 2005, 2006. I don't think many of us expect a recession then. It's not during a recession.

SHIELDS: I want to say one other person who really acquitted himself very well. I mean, George Miller played a very key role in the House on the Democratic side. John Boehner of Ohio I thought was really statesmanlike in this whole thing.

NOVAK: He gave in! He surrendered everything!

SHIELDS: And he really -- he overcame, you know, what had been the inhibitions and impediments of the support of people like Novak and grew. Didn't you -- didn't you...

CARLSON: He grew throughout the process, and he was much more of a partisan than I thought would allow this...


O'BEIRNE: ... told him to get a bill, and as their chairman, he got them a bill.

NOVAK: As sickening as I thought the president's performance was in regard to Senator Kennedy, I commend him, really, for putting in those recess appointments on Scalia and for Otto Reich as assistant secretary of state. I think those were really -- it shows that there is some partisanship left in the president.

HUNT: Did you like the Bill Lan Lee appointments and the guy who was...

NOVAK: Oh, that's another story. We'll talk about...


HUNT: I thought it was a matter of principle, then, right?


SHIELDS: Bill Lan Lee wasn't -- wasn't tough enough on the Sandinistas.

We'll be back for the second half of THE CAPITAL GANG with our "Newsmaker of the Week," Senator Chuck Hagel of Nebraska, just back himself from Afghanistan. "Beyond the Beltway" looks at Texas politics with columnist Dave McNeely of Austin, and our "Outrage of the Week." That's all after the latest news, following these important messages. Listen.


SHIELDS: Welcome back to the second half of CAPITAL GANG. I'm Mark Shields with a group of other people, including Al Hunt, Robert Novak, Kate O'Beirne and Margaret Carlson.

Our "Newsmaker of the Week" is Republican Senator Chuck Hagel of Nebraska, just returned from Afghanistan.

Senator Chuck Hagel: Age, 55; residence, Omaha, Nebraska; religion, Episcopalian. Education degree, University of Nebraska; Army volunteer, combat veteran as a sergeant in the Vietnam War. Co- founder of the country's second-largest independent cell phone company. Elected to the United States Senate in 1996 in his first try for elective office.

Our Al Hunt sat down with Chuck Hagel yesterday the day after the Senator's return from the bipartisan Senate delegation to Afghanistan, Pakistan and four other Central Asian countries we will not name.


HUNT: Osama bin Laden: From what you learned on this trip, do you think he's still alive, and that we'll find him soon?

SEN. CHUCK HAGEL (R), NEBRASKA: I think we will find him soon, Al. Nobody really knows where he is. My guess is that he is still alive somewhere.

HUNT: You think it's more likely he's still somewhere in Afghanistan, or that he has fled to Pakistan or elsewhere?

HAGEL: A number of the people that we met with in Uzbekistan, Tajikistan, Turkey, Pakistan -- intelligence sources -- have said they believe he's probably out of Afghanistan, but no one is quite sure.

HUNT: No place on the planet is more delicate or tense than India and Pakistan; both nuclear powers. Your delegation met with Pakistani President Musharraf. Which side in this half-century-old conflict has to give more in order to avoid a tragic conflict?

HAGEL: Al, that area represents the great flashpoint of our time. The possibility of something unintentionally happening with the kind of build-up on both sides of the border. When we met with President Musharraf, his first point was both sides need to de- escalate that tension; and the way you do that, is you back those troops down.

HUNT: Senator, you have advocated a closer strategic alliance with Iran, yet there have been reports this week that the Iranians are escalating support for violence in the Middle East, and they're causing trouble for the U.S. policy in Afghanistan.

If Iran is the key to stability in the region, at least as you have suggested, that's not very encouraging, is it?

HAGEL: First, so far the Iranians have been very cooperative and very supportive of our efforts in Afghanistan. Second, we're not sure of all the intelligence reports yet that have come in, and are coming in regarding the Iranian government's role in that ship that was intercepted off the coast of Israel.

Iran is a major country in that area. We're going to have to deal with it.

They have sponsored terrorism. And they have played with some pretty bad players. But what I've said is I think we need to be realistic enough to find some ways here to open some dialogue.

There is something happening in Iran; the younger generation is pushing out against the mullahs. So I think we must be wise enough to seize some of the moment.

HUNT: Senator, several of your colleagues on this trip -- Joe Lieberman and John McCain have been saying that we now need to take out Saddam. Your view is that until we build international support for that that would be a dangerous undertaking?

HAGEL: I think it would be unwise and dangerous if the United States would move unilaterally against Iraq. My fundamental question is, "What happens next?"

So if you take Saddam Hussein out who governs? Do you let Iraq be fractured into many components?

It was very clear when we met with the Turkish Prime Minister and Foreign Minister they don't want any part of that.

You can have a far worse situation in Iraq than you currently have now. Is Saddam Hussein a very bad guy? Yes, he is. Is he eventually going to have to be replaced? I think so. But we should be careful and wise in how we do this.

HUNT: Your group went to six countries in seven days. Is there any different perspective or any different view or anything you learned that you didn't know before hand from that trip?

HAGEL: Always the value of these trips, Al, is to further understand the complexity -- the complications -- that are thread throughout these equations we're dealing with. We are not just involved in a nation to nation relationship with Afghanistan but bigger and broader, probably more importantly, we're involved in a regional relationship. Whatever is done in Afghanistan effects all of that area.

HUNT: No one would call this exotic globe trotting.

HAGEL: This was not a tropical vacation.


SHIELDS: Al Hunt, Chuck Hagel called unilateral invasion of -- approach against Iraq as "unwise," "dangerous," "shortsighted" and so forth. He sounds a lot less combative than does his traveling companions -- Joe Lieberman, the Democrat from Connecticut, and John McCain, the Republican from Arizona.

HUNT: He does, Mark. First, I think to get a spot on that delegation you have to be a presidential hopeful. And it used to be in the old days you went to Ireland, Italy or Israel if you wanted to run for present. Now you go to a country whose name ends in "stan." The world has changed.

Chuck Hagel demands respect on both sides of the aisle -- increasingly so in foreign policy. And I think his caution will be something that people -- both on Capitol Hill and maybe even in the administration will pay some attention to.

SHIELDS: Bob Novak?

NOVAK: I think the problem is that the president is so popular as a war president. And people are mad about the events of September 11 they wanted to really give it to these thugs in Afghanistan who are doing that.

The question of what next is what he's raising. And he's acting like a serious person. He's saying that Iran is important. We have to make dealings with it. He's saying that now is not the time to wage a unilateral attack on Iraq.

And right now I would say that's a minority view in the administration although no final decision has been made certainly.

SHIELDS: Margaret?

CARLSON: Well, actually we were talking about Somalia as the next place to go.

NOVAK: Maybe.

CARLSON: Maybe. At least in terms of al Qaeda makes a lot of sense. If we're going to keep on the al Qaeda track you go where you know they are. Iraq presents a whole different series of problems and, in fact, would fracture -- we know we wouldn't get the coalition that we need and that we've had. And whether we want to go on before we have all of al Qaeda into Iraq when we know we're going to lose some of our partners seems to me to be a question that is going -- will keep us from doing that until we get more of al Qaeda.

SHIELDS: Chuck Hagel said that Turkey is very much against our invading Iraq, for fear of the reprisals, and if it does, in fact, with the Kurds, it does split up in many different power centers.

But Iran -- that's still an unresolved.

O'BEIRNE: I was very surprised at Senator Hagel's view of Iran -- very surprised. It seems to me he's ignoring the lessons of the recent past. When the United States cozies up to and get friendly with corrupt, authoritative, abusive regimes like Saudi Arabia people hate us. Their people hate us because they see us in bed with these corrupt, abusive regimes.

Where we don't -- like in Iran -- and, he's right, they do lack popular support -- the people are increasingly pro-America because they see us as strange from their corruptive, abusive leaders. Now he wants to make excuses for Iran?

The ship carrying 50 tons of weapons to Israel was coming from Iran.

SHIELDS: To the Palestinians.

O'BEIRNE: Yes -- to the Palestinians -- including two tons of plastic explosives and anti-aircraft missiles. It's just not a time to be making excuses for Iran when there is something happening on the part of the public that is increasingly friendly to America until we start making excuses for their corrupt leaders and cozy up to them.

NOVAK: Well, in the first place, I think that our relationship Saudi Arabia has been a very important and helpful relationship.

O'BEIRNE: Helpful in what respect?

NOVAK: Well, it's been helpful -- a three-letter word called oil. O'BEIRNE: It's ain't the terrorists...

NOVAK: And also we could not have done the Gulf War getting the Iraqis out of Kuwait without Saudi Arabia's help.

But, Kate, I'm sure you realize that there are two governments in Iran. There is an elected government, which is trying to get -- getting around into the real world and then there is the mullahs, who are the more powerful elements right now. And certainly a diplomacy such as Secretary Powell is trying to wage is to try to work with the government that's friend to us and to just say as some people in the "Weekly Standard" and other places say, "Well, we've just got to attack all of these places," doesn't make any sense to me.

SHIELDS: Al Hunt, I just ask you to put on your own political hat. If Al Gore were president and Osama bin Laden had not been captured after all of this effort, energy and time would there be criticism of him do you think?

HUNT: That's a great column I may want to write some day.


SHIELDS: All right.

O'BEIRNE: It seems sort of glib, but if he were president I'd have even bigger things to worry about than Osama bin Laden.


SHIELDS: ... with an all-out, full-court press 24 hours a day ...


HUNT: If Al Gore were president Bob Novak and people of his wealth would not get that tax break we're going to get in three or four years.

SHIELDS: Good point.

Next on CAPITAL GANG, "Beyond the Beltway" looks at an unexpected development in Texas politics with political columnist Dave McNeely.


SHIELDS: Welcome back.

"Beyond the Beltway" looks at Texas politics. On the final filing date for candidates former State Attorney General Democrat Dan Morales was supposed to file to be a United States Senator. Instead he surprised everybody.


DAN MORALES (D), TEXAS GOV. CANDIDATE: My name is Dan Morales, and I'm running for Governor of Texas.


SHIELDS: His Democratic primary opponent is millionaire businessman Tony Sanchez, with the winner to face Republican Governor Rick Perry.

The withdrawal of Dan Morales raises hopes of other Democrats seeking the United States Senate seat left vacant by the retirement of Republican Senator Phil Graham including former Dallas mayor, Ron Kirk, Congressman Ken Bentsen of Houston and 1996 Senate nominee, Victor Morales.

Joining us now is Dave McNeely, political columnist for the "Austin American Statesman" who began reporting on Texas politics in 1962. Thank you for coming in, Dave.


SHIELDS: Dave, what does Dan Morales' running for governor against Tony Sanchez do to Texas politics -- particularly democratic politics right now?

MCNEELY: Well, it put a huge wrench in it to begin with because everyone was expecting Sanchez to sort of breeze through to the nomination and really get his campaign going during the general election. Now he's got to fast-forward it because Morales is actually better known at this point than Sanchez.

Sanchez is worth about $600 million I'm told and plans to spend a lot of it on his race but he's going to have to start spending some it soon because Dan Morales has more than a million bucks left over from when he was attorney general.

SHIELDS: Does this mean that -- remember those of us who covered George W. Bush's national campaign -- his people constantly trumpeted the fact that he got close to half the Latino vote in his 1998 re- election campaign against Gary Morrow (ph).

Is the Democrats now fighting to recapture the Latino vote in Texas politics?

MCNEELY: Yeah -- they certainly are. John Sharp, who's running again for lieutenant governor and who narrowly lost to Rick Perry who was elected on Bush's coattails to lieutenant governor and then became what the democrats called the "Accidental Governor."

Sharp more or less talked Sanchez into running for it because he thought if there's a Hispanic on the ballot in a major race with a lot of money then it will energize Hispanic turnout to the point that Sharp and others down the ballot can be elected.

SHIELDS: Bob Novak?

NOVAK: Dave, the Democrats have been losing races in what was once a solid democratic state for the U.S. Senate and for governor and have lost the several. Do you really think that the answer to the democratic -- democrats' problem is to elect -- is to nominate a Hispanic American for a statewide office?

Texas has not yet elected a Hispanic for a major office -- that is senator or governor. Do you think the time is now right that this actually could happen?

MCNEELY: Well, they did actually elect one for attorney general awhile back and that was Dan Morales. And he's running again.

NOVAK: I said for governor or senator.

MCNEELY: No -- I understand what you're saying. But the Hispanic vote is the growth industry in Texas. They're growing -- that growth is -- that segment of the population is growing very rapidly. And particularly the Democrats feel that if they can get an Hispanic on the ballot coupled with Ron Kirk, an African-American, for the U.S. Senate, that they will energize and already turnout to the point that really make people sit up and take notice. And they may have a chance to win.

SHIELDS: Margaret Carlson?

CARLSON: Dave, if you saw the show earlier we're very preoccupied with Enron here. I know that Tony Sanchez has some slight scandal problems of his own with savings and loan. Mr. Morales has tobacco settlement problems that have been dogging him.

Is Enron going to play down there? I have the feeling all of the -- all of the state is going to have to recuse itself in the matter. How do you think it will play in this election?

MCNEELY: Well, that's a very good question and I think people are going to watching that real closely. Rick Perry has gotten six figures from Enron -- so has John Cornyn, the attorney general, who's now running for the U.S. Senate and who yesterday recused himself from the investigation on Enron in Texas -- turned it over to one of his assistants as attorney general.

I think that it could -- partly by sullying the Bush administration -- if indeed it does that -- it will at least wound the Republicans. But, on the other hand, Ken Bentsen, who's running for the U.S. Senate and as a Congressman was the leading Texas Congressman in receipt from Enron. It's in his district.

And so I think it's going to be a problem. Which way it cuts remains to be seen.

SHIELDS: Kate O'Beirne?

O'BEIRNE: Dave, all of the excitement this is year is going to be on the Democratic side with the incumbent governor not facing any primary opposition and the candidate who hopes to come here to Washington having little. The crowded Democratic field indicates to me that these candidates dying to get into these races think maybe the days of the Republicans dominating statewide offices are over. Is there any evidence of that?

MCNEELY: Well, I think that they have that firm and fond hope. This will be the first election in three in which there is not a Bush on the ballot. George W. Bush was on three of the last four elections in election cycles and there's a real thought that he was the train that was sort of pulling the rest -- pardon me -- the engine that was pulling the rest of the train. Without him there the question may well be how well the Republicans can do.


HUNT: Dave, we talked about the governor's race here. Give me your early line on the Senate race. Certainly as Bob Novak pointed out earlier -- Texas is very much -- been a Republican state recently. What are the Democratic prospects there and which of the two major candidates -- Kirk and Bentsen -- look strongest right now?

MCNEELY: Well, the leadership likes Kirk but the Bentsen name -- even though it hasn't been on a statewide ballot for 13 years is one that's out there. Ken Bentsen's uncle Lloyd held that -- held a Senate seat for 22 years. And the thought is that there are Bentsen people all over the state who will kind of come out of the woodwork and help him.

Now, on the other hand, Ron Kirk went back to Dallas after having been secretary of state and without ever having run for office before beat seven other candidates to be elected mayor of Dallas -- a city that's only 25 percent black.

And he plays well. He has a great sense of humor. He has far more charisma than Ken Bentsen. And the question's going to be how well he's able to spread that message in the next several weeks.

SHIELDS: One other question, Dave, on that Senate race. Phil Graham surprised a lot of us here in Washington -- a man of enormous drive and ambition -- by announcing his retirement. Is that in any way -- especially in view of the fact that his wife is already a plaintiff in one of the -- a defendant in one of the plaintiff suits in Enron and is a board of directors member.

Is that any speculation that Enron played a factor in Senator Graham's decision not to seek re-election?

MCNEELY: Well, there hasn't been yet because he announced that decision, if I recall, back before September 11 -- either in late August or early September and none of this had really hit the fan. But I'm sure there will be speculation about that particularly since she is not only on the board but on the audit committee of Enron and he is one of the leading Senate recipients of Enron money. Kay Bailey Hutchison got a little more than he did.


NOVAK: Dave, we haven't mentioned anything about issues really. Do you think -- or ideology. Do you think that anybody in the State of Texas can run as a liberal today? Do you think that is possible and get elected to governor or senator?

MCNEELY: I don't know that they can run as a liberal per se but I think they can point to problems in education, not spending enough money there. There's a medical lobbyist who -- for the Doctors' Association -- who calls what's about to happen in Texas on the economic front "The Perfect Storm."

You've got a recession put together with a lot of neglected spending that went on while everyone was trying to get George Bush elected president. And now there have been tax cuts. And then question is whether there's going to be enough money to go around to fund the very vital things that Texas needs. In the meantime you've got Medicaid spending growing enormously in Texas as with a lot of other states.

So someone's going to have to point that out at some point. And they're increasingly -- on the Democratic side is a thought that we need to start rebuilding our infrastructure rather than just letting it deteriorate.

SHIELDS: Dave McNeely, thank you for being with us. You've been enormously helpful. And now for the "Outrage of the Week."

Major League baseball owners who have been granted a special exemption from the nation's anti-trust laws that all other businessmen and businesswomen must operate under have a rule which prohibits secret financial deals between the teams. This week we learned of a secret 1995 $3 million loan from Minnesota Twins' owner, Carl Pohlad, to Milwaukee Brewers' owner, Bud Selig.

Selig, now the commissioner of baseball, has been pushing to have baseball owners rob Minneapolis fans -- 1,700,000 supported the team last year -- of their team while handsomely paying off the Minnesota owner one Carl Pohlad.

Do the terms "conflict of interest" and "sweetheart deal" come to mind? That is an outrage. Bob Novak?

NOVAK: Mark, I love it when I can agree with you 100 percent.

SHIELDS: I'll revisit that later.

NOVAK: Liberal federal judges went on a terror this week. In Washington, D.C. District Judge Henry Kennedy overturned President Bush's executive order against unions pressuring their employee -- their members on political races.

In New York Appeals Judge Guido Calabresi over turned a conviction in the dreadful 1991 Crown Heights stabbing of a Hasidic Jew.

In Milwaukee District Judge Barbara Crabb ordered an end to a faith-based drug and alcohol addiction program.

Kennedy and Calabresi were appointed by Bill Clinton -- Crabb by Jimmy Carter. No wonder the liberals want to block George W. Bush's judges.

SHIELDS: Margaret Carlson?

CARLSON: Bob, that was a bad week last week for you.

NOVAK: It was.

CARLSON: When anyone said he was from New Jersey Woody Allen asked, "Which exit?" Now it's, "Which governor?" They're growing like weeds in the Garden State. Four -- count them, four -- in eight days prompting unfavorable comparisons with Argentina. Last week's governor, Bennett, raced around like a conquering hero giving speeches, cutting ribbons, even manning a backhoe before peacefully ceding power to Governor Cody today.

Neither troubled voters much with their vision for the future. Sadly, neither got to crown a Miss America -- New Jersey's major export. Happily for Bob, neither raised taxes. That might help your week.

Welcome, Governor McGreevy, who starts Tuesday. Governors DiFrancesco, Bennett, Cody -- we hardly got to know you.

SHIELDS: Kate O'Beirne?

O'BEIRNE: The famous photograph of the three New York firemen who raised the American flag over the site of the wreckage at ground zero became the symbol of national unity and resolve. The photo has now become a sculpture. And two of the White fireman have become Hispanic and Black because the inspirational spontaneous reality wasn't politically correct.

On September 11, without hyphens, courageous Americans gave their lives to save fellow Americans -- period. It's an outrage that the diversity police are now distorting their selfless sacrifice.


HUNT: Mark, I am a plagiarizer -- not in words but thoughts. Whenever "Washington Post" editorial Writer Peter Milius wrote about budget or tax policy, welfare or campaign finance reform he provided insights and ideas to many of us. He passed away yesterday. He was not the best known journalist in Washington but no one applied the craft more thoughtfully or caringly or with better values.

The outrage I suppose is that so few of us measure up to Peter's standards. He will be missed.

SHIELDS: Al, you're absolutely right -- Peter Milius will be sorely, sorely missed not only by his family but by the American public that didn't know him.

This is Mark Shields saying good night for the CAPITAL GANG. If you missed any part of this program Kate O'Beirne has your name and Margaret Carlson will come to your house. But you can catch the replay at 11:00 p.m. Eastern. Coming up next on CNN: CNN SATURDAY.




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