Return to Transcripts main page

JOHN KING, USA

Surgically Implanted Bombs; Accused Terrorist Held in New York; High-Stakes Talks on Debt Crisis; Signs of an al Qaeda Comeback

Aired July 6, 2011 - 19:00   ET

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


JOHN KING, HOST: Thanks, Candy, and good evening, everyone. Up first tonight, your safety. Fresh concerns about a new al Qaeda threat to air safety, a possible al Qaeda resurgence as U.S. troops look for the exit in Afghanistan and outrage from some in Congress over the Obama administration's handling of a Somali terrorist with alleged al Qaeda ties.

The air security warning sounds ominous. Administration sources telling CNN the Department of Homeland Security is warning air carriers it has new intelligence suggesting terrorists are looking to board flights with surgically implanted explosive devices.

In an interview with CNN the Transportation Safety Administration Chief John Pistole declined to be that specific, but he acknowledged the new warning.

(BEGIN VIDEO CLIP)

JOHN PISTOLE, TSA ADMINISTRATOR: The information that we have shared concerns information that has been obtained by the U.S. government that describes a new technique that tries to circumvent our current screening protocols around the world or in the U.S. I'll just leave it at that.

(END VIDEO CLIP)

KING: U.S. officials are declining at least as of yet to tell us the exact origins of this new intelligence, though Pistole described it says proof that terrorist are again trying to adapt it to improved security screening efforts.

(BEGIN VIDEO CLIP)

PISTOLE: Well, we see this as the latest generation or evolution of what terrorist groups were trying to do to circumvent our security layers and to perhaps defeat our societal norms.

(END VIDEO CLIP)

KING: More on that story a bit later tonight.

But also tonight a highly unusual terrorism apprehension and investigation is drawing criticism from leading Republicans in Congress. Ahmed Abdulkadir Warsame is in federal custody tonight and charged with nine counts for alleged involvement with terrorists in Somalia and Yemen.

But the indictment came only after Warsame was held and interrogated for more than two months aboard a U.S. Navy ship. Our Pentagon correspondent Chris Lawrence is working his sources on this blossoming controversy. Chris, explain how this unfolded, why the decision to keep him on a ship for two months?

CHRIS LAWRENCE, CNN PENTAGON CORRESPONDENT: Well, basically, John, it really goes to a fundamental question of what will the Obama administration do with the terrorists that it captures. The president has closed the CIA secret prisons around the world.

He doesn't want to send more people to military tribunals in Guantanamo Bay. So basically now this case seems to illustrate the new forward for the administration. It involves interrogation on a U.S. Navy ship at sea.

Basically, he was picked up near the Gulf of Aden. He was brought on board a Navy ship back in April. Military interrogators questioned him with the help of intelligence officials and when they were done, the FBI then stepped in and started all over again trying to collect evidence that could be used in an actual court.

Now U.S. officials and military officials say he gave up valuable intelligence. Officials tell us that he fought with the militants in Somalia that he was helping to try to link those militants with al Qaeda in the Arabian Peninsula and that he was also looking for more operational. John.

KING: Chris, in the past it has been largely the CIA that gets caught up in this big debate about how to interrogate what to do. Is the military comfortable being in the middle of this controversy?

LAWRENCE: Well, they say it's tough. Anytime they're operating outside of Iraq and Afghanistan in battlefields it becomes murkier. How long they can keep somebody on this ship, they say they're faced with the question of can he go back to the U.S. and be tried?

That has to go through several agencies. If he can, is there a third-party country that will take him? These are the worst possible scenarios when neither of the first two are available and they would be forced to let someone go.

KING: Chris Lawrence live for us tonight at the Pentagon. Chris, thank you. The Obama administration's treatment of the Somali terrorist suspect including the decision to bring him to New York and indict him like a common criminal isn't sitting well with some lawmakers on Capitol Hill. Among the Republican Senator Lindsey Graham of South Carolina.

Senator Graham, we learned this morning that a gentleman by the name of Ahmed Abdulkadir Warsame was taken into custody more than two months ago, kept on a U.S. ship, questioned and he's now in custody in New York and indictment sealed against him. The administration handled this case right? SENATOR LINDSEY GRAHAM (R), SOUTH CAROLINA: No, I don't think so. The last thing I'm worried about is prosecuting enemy fighters. I want to find out what they know about the enemy, what intelligence value do they have to the United States?

Having people on ships has never been used in warfare before in terms of prisons. He should have been sent to Guantanamo Bay and held as an enemy combatant slowly, methodically, lawfully interrogated.

KING: Well, the administration would make the case it believes it has interrogated him sufficiently, believes that it has received information from him and now thinks he should move on to the next step to bring him to justice. What's wrong with that?

GRAHAM: Well, look at how long it took to put the puzzle together to catch Bin Laden. What if everybody at Guantamo Bay had been held for 60 days then given Miranda rights and provided a lawyer? Do you think we would have put the puzzle together?

You need to hold people off the battlefield and gather intelligence. That's what you do in war. When you capture an enemy prisoner the last thing you think of is prosecution.

You think of holding the people and gathering intelligence. This model of keeping them on a ship for 60 days and saying that's the best way to gather intelligence justifies common sense.

KING: As you know, some Democrats including the administration with some Democratic colleagues in the senate as well think that people like yourself who have this argument make too much of it. That you're minimizing the impact of the court system here in the United States. Listen to Senator Durbin of Illinois.

(BEGIN VIDEO CLIP)

SENATOR DICK DURBIN (D), ILLINOIS: The facts are that under President Bush after 9/11 and under President Obama, more than 400 suspected terrorists have been tried in the criminal courts of America, Article 3 constitutional courts, and convicted.

They've been tried in our courts and convicted. They're serving time in the prisons of the United States of America. That's right, convicted terrorists, convicted in criminal courts, now serving time in prisons across America.

(END VIDEO CLIP)

KING: You don't disagree with that, but you think philosophically that should not be the priority, am I right?

GRAHAM: One, I don't buy the idea that 400 enemy fighters, noncitizens captured on the battlefield have been tried in Article 3 courts. Having said that, I'm OK with using federal courts in some terrorist cases.

The point I'm trying to make with all due respect to Senator Durbin, he is fighting a crime. I am fighting a war, and in war you don't capture people for the purpose of prosecution.

You capture people to keep them off the battlefield and gather intelligence, and criminal prosecutions stop the intelligence gathering process.

KING: Let me ask you about another big terrorism case. As I do so, I want to remind people you are active in the military reserves and are a military lawyer. So you have an understanding of these issues.

The Army general has approved now the death penalty possibility for Major Nadal Hasan, the Fort Hood alleged shooter. Capital court marshals are very rare in this country, is that the right way to go?

GRAHAM: Under the uniform code of military justice, the death penalty is available penalty in limited cases, multiple murders like this case. I'm not going to second guess the military. I think it was a sound decision.

But let me tell you this. We have a number of foreign fighters in our prisons in Afghanistan under America jurisdiction. These people need to be taken out of Afghanistan, put in Guantanamo Bay because if we turn them over to the Afghan legal system they're going to be right back on the streets, and they're non-Afghans.

We need a rational policy to deal with foreign fighters. Don't put them on a ship or criminalize the war. Major Hasan is an American citizen being tried in a military court. The death penalty is being sought. That is a reasonable way for it. He'll be provided a robust defense.

KING: I want to shift your attention to domestic issues. Lindsey Graham is a big supporter of a balance budget amendment. You think it is necessary to bring what you call fiscal sanity here in Washington.

It is one thing that some Republicans are insisting on as part of any big deal with the president on deficit and debt reduction. Your good friend, Senator John McCain on the floor of the Senate just a earlier today said set it aside. Let's listen.

(BEGIN VIDEO CLIP)

SENATOR JOHN MCCAIN (R), ARIZONA: In order to avoid what would be disastrous consequences for our markets, our economy as a whole, and our standing in the world, I encourage my colleagues to lay aside at least temporarily their insistence that amending the constitution be a condition of their support for a solution to this terrible problem.

(END VIDEO CLIP)

KING: Is he wrong or right?

GRAHAM: Well, he certainly is entitled to his opinion, and I respect him greatly. Here's my view. Neither party will ever balance the budget in a sustained manner without a constitutional amendment.

In 1997 when the Republicans controlled the House and President Clinton was president, we had surpluses. The republican Congress along with the Democratic president spent all the money. We will do that again.

The only way I can honestly tell people in South Carolina we'll ever get out of debt is have a constitutional amendment to balance the budget and let the states have a say about what to do up here.

So with all due respect, I think insisting upon a balanced budget amendment of the constitution is the only sure way to get out of debt. That's sad but true in my view.

KING: Your friend Senator McCain also said today that Republicans need to drop their blanket opposition to any tax increases. He says if you get significant cuts, if you get other big changes to entitlement programs, he thinks Republicans should be open to at least some tax increases to strike a compromise with the president. Is he wrong there, too?

GRAHAM: I think what he's saying is that we should not raise tax rates, but close loopholes and deductions. There's $1.2 trillion given away in the tax code to special interest groups.

I am willing to take those deductions and exemptions off the table and recapture that revenue and buy down rates to create jobs and pay off the debt.

That is the best way I think to raise revenue is to grow the economy, but do deductions and exemptions, remove those and don't raise rates. I think that's what John is saying and that's what I agree with. I would be willing to do that.

I would be willing to flatten the tax code and take the money that we give out in deductions and exemptions to lower rates and pay off the debt.

KING: Lindsey Graham, you think there will be a deal with the president in the next two weeks?

GRAHAM: I don't think so. I just don't like the way it's shaping up. I'm really, really worried that we're going to play a game of chicken here. I don't have a good feeling about it. I hope I'm wrong.

KING: Senator Graham, we'll check back in as the next two weeks unfold. Thanks for your time tonight.

GRAHAM: Thank you.

KING: Still to come here, the White House's view as the president prepares for the high stake summit Senator Graham just talked about on the debt and the deficit.

But next an exclusive CNN look at a remote area in Afghanistan where U.S. troops see evidence of an attempted al Qaeda comeback.

(COMMERCIAL BREAK)

KING: That new intelligence about terrorists perhaps trying to board airplanes with surgically implanted explosives. A reminder of how much al Qaeda has changed since the 9/11 attacks of nearly a decade ago.

Those strikes were planned and orchestrated by an al Qaeda that had training operations and other camps in Afghanistan. Now after nearly a decade of U.S. military involvement there, President Obama's promising to begin drawing down U.S. troop levels.

But as CNN's Nick Paton Walsh discovered during a recent trip with U.S. forces to a remote area of Afghanistan, there are signs that the Taliban and al Qaeda see an opening.

(BEGIN VIDEO CLIP)

NICK PATON WALSH, CNN CORRESPONDENT (voice-over): We pushed down into the valley still an insurgent stronghold. High-tech American attack helicopters buzzed overhead until militants shot at them from up the valley.

UNIDENTIFIED MALE: It's uncharacteristic for the Taliban I know from around here. They're getting pretty gutsy. Right pass there, usually our patrols don't push up too far pass that because if you push up farther than that, you're going to take enemy contact. It's pretty certain.

(END VIDEO CLIP)

KING: Nick Paton Walsh joins us now from Kabul. Nick, the lieutenant you speak to thee in your piece says the Taliban, quote, "Getting pretty gutsy." Where does this confidence come from, and does it stem in part from the fact that they know the Americans are leaving?

WALSH: I think that's true to a certain extent. The gutsiness is perhaps a suggestion that some fighters there are foreign. U.S. officials identifying what they believe were safe havens there before they launched a large operation into that particular area.

Remember the focus had been on Pakistan's safe havens there that being where many believe in Washington al Qaeda was hiding. Big concerns are now perhaps that they may have found a breathing space back in Afghanistan, John.

KING: Well, if they have a breathing space back in Afghanistan, we are nearing the decade mark of this conflict and one of the questions all along has been, can you push al Qaeda out of Afghanistan permanently.

And the sub question in that scenario has been when will the Afghans be ready to do this themselves? When will they take the lead in the army and police? Where are we there? WALSH: Very difficult to answer that. The instinctive reaction many have to that question is the Afghans are nowhere near ready. There were some commandos who were good, but the bulk of the army, the guys we saw in that piece, that report back there, only 5 out of 15 willing to go on patrol one morning.

Many patrols turned back because the Afghans weren't ready to go down certain routes. Concerns there certainly if they are trying to hunt down the remnants of al Qaeda or perhaps returning al Qaeda elements within Pakistan, those are Afghan army soldiers we came across on the job.

Frankly, also the American presence there perhaps isn't strong or sophisticated or maybe well equipped enough to go after those elements as those al Qaeda fighters they seem to face in the large operation they conducted last month, John.

KING: When you spend time with these American troops and they're in these very risky, remote areas and putting their lives at risk, do they have the open worry that as they come home that maybe in six months, maybe in a year or two they will look at Afghanistan and see al Qaeda reborn?

WALSH: That's a very worrying question, I think, for everybody. It's going to be very hard, I think, to convince policymakers in Washington, many members of the American electorate that the withdrawal from Afghanistan is not overly precipitous if there are still al Qaeda elements there.

Al Qaeda returning to some of the areas America withdrawn from. Bear in mind the place where we were at to the north (inaudible) a place from which NATO withdrew entirely in the last couple of years or so.

So deep concerns that when America reduces its presence in Afghanistan, the Taliban flood back in, but also perhaps al Qaeda militants, Arabs they say linked to al Qaeda. That's the large concern with U.S. officials now at the moment, John.

KING: Excellent. Quite sober reporting. Nick Paton Walsh tonight from Kabul. Nick, thank you.

Still to come here. We know that debt deficit summit at the white house tomorrow. The president wants Republican to a degree to have higher taxes, but what is the president willing to give? We'll get the White House take just ahead.

Next, though, more details on that new intelligence, ominous intelligence suggesting terrorists have a new strategy to blow up airlines.

(COMMERCIAL BREAK)

KING: Welcome back. Here's the latest news you need to know right now. A U.S. security official tells CNN terrorists have shown interest in bombing planning using passengers who get past security with surgically implanted explosives. The warning based on fresh intelligence is being taken quite seriously. The head of the Transportation Security Administration says airline passengers may notice additional security.

(BEGIN VIDEO CLIP)

JOHN PISTOLE, TSA ADMINISTRATOR: We're doing other things here in the U.S. that people may or may not see in terms of random, unpredictable screening, whether that's behavior detection, canines, the explosive trace detection, the swabbing. All those things people may or may not see different types of security as they travel through U.S. airports.

(END VIDEO CLIP)

KING: Let's dig deeper on this with the "Los Angeles Times" national security correspondent, Brian Bennett. What is the intelligence?

Sometimes they have little sketches in which they say it's serious enough to give a warning and sometimes they are more intelligence that raises the alarm level. What are they hearing?

BRIAN BENNETT, L.A. TIMES NATIONAL SECURITY CORRESPONDENT: Let's be clear about the scope of this. The intelligence officials have not heard about a specific plot. They heard chatter that a terrorist group was planning to or thinking about surgically implanting bombs inside people. They didn't have specific information about a specific plan to target U.S. aircraft.

KING: But they take it seriously enough obviously to warn carriers in the United States but overseas. What are they asking them to do?

BENNETT: So what they're doing is they sent out a warning to U.S. aircraft, air carriers and also other governments. They're asking them to be vigilant, and you'll see in airports more dogs and more swabs and also you're going to probably be asked more questions as you go through. As TSA agents use behavioral detection to see if someone is nervous or jittery.

KING: Is this more of a risk for flights overseas or equal risk in the United States.

BENNETT: The intelligence is that it was probably being considered for flights into the U.S. for overseas. There's particular attention focused on U.S.-bound flights from overseas, and you can imagine someone might be quite nervous if they had a surgically implanted bomb coming to the gate. They'll look for unusual behaviors.

KING: Any sense this is one of the hardest things to crack in your line of work, where do they get the intelligence? That helps you understand if it's specifically linked to a group like al Qaeda? Is it specifically linked perhaps to the Bin Laden compound? Something that you might take more seriously than just chat.

BENNET: Yes, that's right. We don't know yet where the information came from. The experts say this type of plot would be consistent with al Qaeda and Yemen.

Al Qaeda and Yemen have shown the ability to creatively hide explosives like in the mail bomb packages last fall, and also in the Christmas Day bomber who hid explosives in his underwear.

So experts are looking and pointing towards al Qaeda and Yemen as a possibility for where this type of attack would be planned.

KING: If you listen with the interview with John Pistole, the TSA administrator, you get the sense that he used this as an evolution. After 9/11 you can't bring sharp objects on the plane and then the fluids and gels and the printer cartridges and the likes like this. This is perhaps the next evolution of how to hide?

BENNETT: They're looking at it. Certainly they've seen a number of chatter this year and the year before that al Qaeda was interested in trying to hide explosives inside a person.

We haven't seen an indication that that had gotten to the point of an actual plan or reality, and really a lot of x-ray experts say that plot is far-fetched. It would be very difficult to hide and very difficult to pull off.

KING: A lot of people watching at home say how do you hide explosives inside an individual? About detection capabilities, you get picked out randomly and run it through the device. What else they can do?

BENNETT: Bomb-sniffing dogs can detect whether you have explosive trace. If you've gone through a procedure like this to hide a bomb in your body, there's been some explosives in that room. Dogs pull it off the body. TSA agents are looking for people who might appear sick or appear like they've just had an unusual surgery like --

KING: Brian Bennett, I appreciate your reporting tonight. I appreciate your help here tonight. Thank you very much.

One of China's former leaders may or may not be dead, but nobody who lives in China can search for information about it on the internet in China. We talk about censorship at the highest levels.

(COMMERCIAL BREAK)

KING: The former Chinese president Jiang Zemin may or may not be dead. The Chinese government won't say. If you live in China internet searches using his name are being locked tonight. He was the leader from 1993 to 2003, an important era just as China was a major player in the international community and economy. If you forget about it, here's a little flashback. Those were the days, I was a CNN White House correspondent covering Bill Clinton. (BEGIN VIDEO CLIP)

KING (voice-over): President Jiang's informal evening trip to the White House set the stage for a dramatic and difficult U.S.-China summit. The White House Residence was the scene of a nearly two-hour warm-up meeting that began with a tour, and included discussions of Taiwan, Tibet and differences over human rights.

(on camera): Beyond any specific agreements, administration officials say this summit is essential to building closer ties between the two countries and their two leaders.

(END VIDEO CLIP)

KING: Kind of hard to look at. I was a little bit younger there.

Here's what happens -- here's the difference. You want to see the difference between the two countries.

Let's say you live here in the United States and you heard the rumor Jiang Zemin may have died. Well, you might do what many Americans would do. You could go -- you could go to Google and you could type in Jiang Zemin's name if you wanted to see that news. You touch down on the keyboard, then comes Jiang Zemin, you do your Google search,.

And you would find out right here -- the latest news would pop up, including China's sensors web searches. You see some background. You see some photos.

We do this every day. When something comes up we go to Google or another search engine. And we do it.

But here's how this would have happened if you are in China today and you are following a social media site maybe and you heard this rumor. You would go to your Internet connection. You would go on your keyboard.

You would type in Jiang Zemin, when you hit search, this is what would happen right here. A couple of things about biography, but here's the key point right here -- censorship, according to relevant laws, regulations and policies, some search results were not shown.

Let's get some insight on this developing fascinating development. Nicholas Kristof, the veteran columnist to "The New York Times."

Nick Kristof, let's start first with Jiang Zemin. Why would the Chinese leadership be so determined, maybe he passed, maybe he has not passed, but why would the leadership be so determined to keep its own people just from going on the Internet and trying to find out, trying to search his name?

NICHOLAS KRISTOF, COLUMNIST, NEW YORK TIMES: It's essentially reflex. I don't think it's really a formal policy, but whenever anything is considered sensitive and nothing is really more sensitive than the illness or death of a leader, then the instinct is to just go out and censor. And so, the people who are actually doing the censorship, they may well not know whether Jiang Zemin is alive or dead.

But once they start on that path, then they need to censor not only the characters for Jiang Zemin, but they also need to censor, for example, the word "for river" because Jiang's family name Jiang is the word for river. You can't search the Yellow River. You can't search the Yangtze River now in China. You can't do searches for the 301 army hospital, because that's where he would be treated.

So, they start on this path, and it becomes completely ridiculous. In a sense this is what really turns off and antagonizes so many young Chinese, that it just feels so patronizing to them.

KING: And when you go through all them, the symbol for his name is the symbol for river, 301, the army hospital where the leaders are taken if they're in dire straits. The fact that they can respond to so quickly, though, is -- we may think it's odd. We may question how long they can keep the genie in the bottle, but they're very good at this.

KRISTOF: They've become very good at censorship, but the problem is really that the public gets better. And Chinese is a language with a lot of homonyms. So, when one word is censored you immediately come up with another. So, you know, for example, June 4th is typically censored because that's the date of the 1989 killings of the democracy protestors. But then students figured out that they could write about May 34th, for example, and get around it that way.

And so, I don't think this is actually helping really keep Chinese in the dark. I think it's just making people become more ingenious about getting around the rules and irritating them in the process.

KING: And a reflex as you described in the beginning of our conversation anyway.

How much so is it a more important, a more aggressive -- perhaps reflex a better way to put it -- in the wake of the Arab Spring. We have watched Internet crackdowns in China accelerated because of news happening in the Arab world and in North Africa. CNN International has been knocked off the air several times, so it's not just the Internet censorship increasing.

Why -- I think the answer is pretty obvious -- but why does the Chinese government so sensitive to keeping news of pro-democracy demonstrations, perhaps pro-democracy progress around the world and some of the setbacks from its own people?

KRISTOF: You know, I think from our vantage point abroad, we look at China and we see it as this rising power and incredibly strong regime. I think from their point of view, the Chinese leadership sees themselves as just running along this hamster wheel trying desperately to stay on top. They're very worried about maintaining economic growth without having too much inflation that will annoy people.

They are seeing growing number of protests. They were terrified by Arab Spring but by the calls for a Jasmine Revolution in China that would echo it. And they, I think, really feel profoundly insecure. They worry that these electronic means will be one way that we'll get people to unite and network and organize demonstrations against the regime.

So, that has made them exceptionally sensitive to the whole, you know, web-based -- to the Chinese version of Twitter, Sina Weibo, which is what a lot of these -- where a lot of these terms have been blocked, for example. It's something that they, I think, really wake up in the middle night in cold sweat about.

KING: You mentioned Twitter. It's the perfect transition. We're talking about censorship in China, and I want to pivot to openness here in the United States.

But even with our open system, sometimes you don't get the answer you're looking for. The president of the United States had a Twitter town hall today, and one of the questions was this one.

(BEGIN VIDEO CLIP)

MODERATOR: This comes from Nick Kristof. Was it a mistake it to fail to get Republicans to raise the debt ceiling at the same time tax cuts were extended?

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Nicholas is a great columnist. But I have to tell you the assumption of the question is, is that I was going to be able to get them to commit to raising the debt ceiling.

(END VIDEO CLIP)

KING: It went on, Nick, for another three minutes, essentially saying that was the lame duck session, there was only so much he could get, the Republicans were empowered because they just won the election.

What did you think of the answer?

KRISTOF: Well, you know, the president may well be right on that, but it's not clear to me that we really tested -- that he really tested the Republicans at that time, and that this was really something that he tried hard to get at the time. I have the sense that it was something that the White House really didn't foresee that the Republicans were going to try to use this, the budget ceiling, as leverage and I know in retrospect, I think probably a lot of people would acknowledge that it was a mistake to not at lease try to get a Republican commitment at that time to allow the debt ceiling to be raised.

KING: I think in private, many in the White House would agree. In public, the president is saying he couldn't get that deal at that time. But, again, as we started on censorship, at least you got to ask the question.

Nick Kristof, of "The New York Times" -- thanks for your time tonight.

KRISTOF: My pleasure.

KING: And the debt ceiling -- just talking about there with Nick Kristof -- guess what? That's the big issue. The president has a huge summit tomorrow with the bipartisan congressional leadership. What does the president want? We'll talk to a top economic adviser. That's next.

(COMMERCIAL BREAK)

KING: The clock is ticking down to the August 2nd deadline of a possible U.S. default on its debt. Congressional leaders from both parties go to the White House tomorrow. We have to call them high- stakes discussion with President Obama.

During his Twitter town hall today, the president said he wants a deal in the next two weeks to raise the debt ceiling and making big cuts in the U.S. deficit.

Our chief White House correspondent Jessica Yellin is telling us tonight Democratic officials are telling her they want to do, quote, "a big deal" that cuts $3 trillion to $4 trillion in spending over the next decade.

Also, tonight, indications Republicans may be open to closing some tax loopholes to bring in more money.

A bit earlier, I spoke with Gene Sperling, the director of the National Economic Council.

(BEGIN VIDEOTAPE)

GENE SPERLING, DIRECTOR, NATIONAL ECONOMIC COUNCIL: Look, what the president wants is something very significant. You know, we're not just here to do the least we can to kick the can down the road.

KING: What is the president willing to give in an honorable compromise? We'll get to what he wants from the Republicans in a minute. But what is he willing to give? As you know, Democrats think on the Medicare issue, they've got a pretty good campaign weapon for 2012.

What is the president prepared to tell the Democrats, no, we're going to cut a deal here, and we're going to -- what -- how much will we save in the Medicare program under what the president is prepared to agree to?

SPERLING: Well, it's not going to shock you that I'm not going to conduct the negotiations here, but let me be pretty direct, which is there are people on both sides who have made ultimatums like not a penny on Medicare no matter what. Not a penny of revenue on high income Americans or on corporate tax breaks. What the president is saying is we just can't reach the kind of numbers we need to bring our deficit down, and we can't reach the type of shared sacrifice we need, we can't reach the political compromise we need if people take political ultimatums. And, of course, any bipartisan debt reduction deal means that everyone has got to sacrifice a little, put their sacred cows on the table.

So, of course, the president has said that we need to do -- take on the health programs, Medicare and Medicaid, in a way that protects them, strengthens them. But he's willing to do that as part of a package that includes, you know, not extending or giving as much tax relief to upper income Americans and not allowing the most egregious corporate tax breaks to be continued and then ask middle class Americans and seniors to bear the burden of getting the fiscal house in order.

KING: If you listen closely to the Republicans, it appears that some, and probably more and more if you start to have progress in the negotiations, are willing to give you those loopholes you're talking about, corporate tax loopholes and things like that. But they seem pretty adamant -- especially on the House side -- that you are not getting an increase it in rates right now, on higher income Americans.

Can you reach a compromise in the ballpark of the president's monetary goal, if you will, without getting the increase in rates?

SPERLING: If people want to come together and find a compromise, there are a lot of ways to get there. Once people decided to put the politics -- to check the politics and ultimatums at the door and work together.

So, for example, the bipartisan fiscal commission, the Bowles- Simpson commission, as an example, said that if you cut tax expenditures enough, you could both reduce tax rates for Americans and still have a significant amount going to reducing our deficit. That is certainly the type of idea that is on the table.

KING: If he gets a deal that he likes and it includes significant savings in the Medicare program -- and the Democrats run ads in the 2012 campaign accusing the Republicans of -- to borrow a phrase -- pushing grandma off a cliff, will the Democratic president said my party is wrong, and they're demagoguing this issue?

SPERLING: Look, I mean, I don't deal in hypotheticals a week from now. I'm not dealing in hypotheticals more than a year from now.

I think what's important is that the president is asking leaders from both parties to come to the White House, come talk about how we can get there. I think that there is in this town an understanding that when you have divided government and huge problems, you've got to compromise if you want to make hard choices and solve big things.

KING: As you know, some critics question what the president did to try to recover. And they, often, now, this past week, they're referring to a report by his own economist, the administration says the stimulus bill cost about $666 billion, and the White House now says it created or saved between 2.4 million and 3.6 million jobs. If you do the math, the critics would say, Gene Sperling, that's $277,000 or maybe $185,000, if you take the higher number, $185,000 job. Answer a critic who says that was not money well-spent.

SPERLING: That just could not be more wrong. I will tell you -- serious people, you ask the chairman of the Federal Reserve, you ask serious people around the world, they will tell you had it not been for the quick and significant and dramatic efforts taken by President Obama in those first six months, our country could have gone into a Great Depression and could have brought global growth down worldwide.

And I think that when the politics are put to the side, people recognize that that quick-acting measures by this president helped save us from something that would have been unthinkable.

KING: So, worth every penny?

SPERLING: Absolutely.

KING: Gene Sperling at the White House, thanks for your time tonight.

(END VIDEOTAPE)

KING: Joining us now to discuss the big meeting at the White House, David Walker, the former U.S. comptroller general who is the CEO of the Comeback America Initiative, and "Reuters'" global editor at large, Chrystia Freeland.

David, I want to start with you to try to see and see if you can crack the code. From what you're hearing from the White House, more diplomatic rhetoric in recent days, and what you're hearing from Republicans saying we're open on the loophole question, not on tax rates -- do you see the beginning of a move toward a deal, or do you see the beginning of getting two weeks from now where Lindsey Graham told me at the top of the program, he doesn't think there will be a deal?

DAVID WALKER, COMEBACK AMERICA INITIATIVE: Well, I'm cautiously optimistic there'd be a deal. But they have a short-term deal to do something through the end of this year and then comeback and do something near the election.

In my view, you have to have defense spending on the table, Medicare, Medicaid, and tax expenditures. Tax expenditures represent back door spending. Our revenues now are below 15 percent of GDP. And taking on some of those tax expenditures as part of a comprehensive deal is a reasonable approach.

But we also have to have some budget controls that will frankly get us to much more than $2 trillion to $4 trillion in spending cuts over the longer term.

KING: And, Chrystia, David just mentioned the tax expenditures or tax loopholes, whatever you want to call them -- I want to break them down, because are starting to talk about their willingness to go at them. But as you well know, this gets politically dicey because of the support in the business community and sometimes among the public at large.

Here are the top five right here. Forty-two percent of all tax breaks come from health care and insurance, retirement savings, mortgage interest, capital gains and dividends and the earned income tax credit. And if you click and you add them up -- mortgage interest, capital gains, this is -- as David just said -- you can find some serious money here when you're talking about trying to reduce the deficit, bring a little bit of fiscal sanity to Washington.

But each one has a pretty powerful political constituency.

Chrystia Freeland, do you actually see the politicians willing to take the tough votes?

CHRYSTIA FREELAND, GLOBAL EDITOR AT LARGE, REUTERS: I think that's an excellent question, John. I mean, I do think that the Democrats who had really been losing the public battle in this debate did something pretty smart in refocusing attention on tax loopholes. Everyone hates the loopholes that we think our neighbor is getting, and it sort of neatly sidesteps this issue of increasing taxation.

But I think where the rubber is going to hit the road is when you come to the specific loopholes because we love the loopholes we benefit from. I think the mortgage interest deduction is going to be the toughest one, particularly now when the housing market is still so weak. And I would be really surprised if they went after that.

Where I think there is a powerful lobby but also a very effective counter political argument is some of the business tax loopholes. For me, a bellwether one is going to be the way carried interest is treated. This benefits a very narrow group of people -- hedge funds and private equity -- and it's really unfair. It's why Warren Buffett pointed out that he pays lower taxes than his secretary.

If they can make that one stick, then I think that shows they're really able to get some traction on these loopholes overall.

KING: And if they do the loophole deal, David, with some revenue increases, what about Medicare? The Democrats -- especially the House Democrats -- they don't want the president to give up much at all. What's the number? We'll figure out, you know, maybe they -- you know, means test benefits, they can do other things to squeeze out savings. How much money do they need to get out of Medicare?

WALKER: Well, it's hard to say how much money. The fact is Medicare is underfunded to the tune of about $37 trillion in current dollar terms based on reasonable assumptions. And so, no matter what they do on Medicare, it's going to be a modest downpayment towards trying to make that program solvent, sustainable and secure over time.

KING: And, Chrystia, as you know, there are some who say, hit the deadline. It doesn't matter. Force the government to make tough decisions. There are others who say if you get within 24 to 48 hours of that, that we're going to see the financial markets go into deep turmoil again? Who's right?

FREELAND: Well, we won't know until it happens. But I think the risk of serious turmoil, if, you know, the politicians try to pull an all-nighter is sufficiently severe that a prudent legislature who really cared about the country more than anything else wouldn't try to risk it.

KING: Chrystia Freeland, David Walker -- appreciate your insights. We're going to keep in touch over the next two weeks. Again, high stakes negotiations.

Tomorrow, the president of the United States bringing the bipartisanship together. We will see if any progress can be made. David and Chrystia, thanks again.

Coming up here: New York prosecutors aren't ready, at least yet, to drop the sexual assault and attempted rape charges against the former head of the International Monetary Fund. So, how do the people of France, particularly women, perceive this story? We head to Paris, next.

(COMMERCIAL BREAK)

KING: Prosecutors and attorneys for the former International Monetary Fund head Dominique Strauss-Kahn held what they're calling, quote, "a constructive meeting" today. They aren't saying whether sexual assault case against Strauss-Kahn will be dropped as they would like because of serious questions now about the credibility of the hotel maid who accused him of trying to rape here.

Tonight, that woman's attorney is demanding the Manhattan's district attorney, Cyrus Vance, recuse himself from the case. She wants the special prosecutor appointed.

Now, this story is making waves both here in the United States and in France where Strauss-Kahn was, up until this controversy, considered a leading presidential candidate.

For some insight, I spoke with the veteran "The New York times" international correspondent Elaine Sciolino. She's based in Paris now. And among the book she's written, "Le Seduction: How the French Play the Game of Life."

(BEGIN VIDEOTAPE)

KNG: Elaine, so, we're not quite sure where this legal drama in the United States goes. The meeting with prosecutors today, at the moment, no resolution. But let's start first just with the political ramifications, the impact in France. How is this whole DSK scandal, as I will call it, playing out?

ELAINE SCIOLINO, PARIS CORRESPONDENT, NEW YORK TIMES: Well, it's playing out on a lot of different levels. And in terms of the socialist party, where Dominique Strauss-Kahn could have gotten the nomination, it seems clear that it is moving in another direction. And there's no way he will be the political candidate for president representing the socialists and he may not be an advantage for the socialists.

KING: But you see a broader cultural question here. Some of your colleagues use the term a DSK moment in "The New York Times" the other day. Tell us what you mean by that. What's culturally in France is being tested and challenged by this?

SCIOLINO: Well, I think there's a real gender gap and there's a generational gap in terms of the way the French are seeing this issue. In terms of gender, you have women who are feeling different from men. I call it the Anita Hill moment, where women in the United States started telling men you, just don't get it.

I go around and I ask every single woman I know, what do you think about this? You know, from the make up artist at a TV studio saying, you know, we are sick and tired of being called, you know, little moppet, little dolls. To women who work in the national assembly saying, well, we want to be feminine and we want to wear skirts but we're tired of getting these bad remarks about us in the elevators -- to much more serious issues such as the fact that an estimate estimated 75,000 women in France are raped every year and only 10 percent of them report it.

So, men are trying to deal with women's consciousness being raised and their own being raised as well.

KING: The statistic you cited is quite numbing and sobering. How much different is the situation, the culture, the openness, the fear in France than, say, for someone watching here and woman who might be watching here in the United States saying, how is that different from me?

SCIOLINO: It's very different in the sense that women in the United States for about the past 25 years have been less afraid to report rape. It's not at all perfect. And I wonder if the Dominique Strauss-Kahn is going to have a chilling effect even in the United States.

But in France, it is not unusual for women to report a rape years after. I was at a conference over the weekend out in a far suburb of Paris with 40 feminist groups and they are making rape their big issue this year and they are making the awareness of reporting rape a big issue.

But France doesn't have the same support system we have in the United States, either in terms of women support groups or legal aid and so, it's -- they are at a very different place.

KING: You wrote a book, "Le Seduction," I'm saying it in English, "The Seduction: How the French Play the Game of Life." In part, this whole romance, seduction, mystery, is critical to the culture. And yet, you see some of the lines being tested right now?

SCIOLINO: Absolutely. I think women are in a full-scale identity crisis, because they want to be feminine. They want to be seductive. They want to be whistled at on the street, but they also want to be treated with respect and they don't want to be sexually harassed.

So, this is open conversation that's messy, open-ended but necessary.

KING: And a national conversation you do not see ending regardless of what happens to Mr. Strauss-Kahn?

SCIOLINO: I think there's going to be a conversation that will continue regardless, because even if this was not a forcible rape, the fact that he had some sort of sexual encounter with a hotel maid is not romantic seduction for many French, for many French women, many French men, even. It was exposed that he was unfaithful to his wife in a way that doesn't comport, or doesn't sound like the French view of seduction. So, it has degraded him in a way.

KING: Elaine Sciolino of "The New York Times" -- appreciate your time tonight.

SCIOLINO: Thank you for having me.

KING: Thank you.

(END VIDEOTAPE)

KING: And that about wraps it up for us, a big news day tomorrow. We hope to see you right here.

Casey Anthony sentencing -- she could go free as early as tomorrow in a courtroom. And also, that big summit on deficit and debt at the White House, the president of the United States trying to cut a deal with Republicans. Among our guests, the conservative Senator Jim DeMint from South Carolina.

Hope to see you right here then. We'll see you tomorrow.

"IN THE ARENA" starts right now.