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U.S. Downgrade; Blame Game; Your Money; Famine in Somalia

Aired August 8, 2011 - 19:00   ET


JOHN KING, HOST: Good evening everyone.

Just a dismal day on Wall Street as the markets processed two bleak realities. Growing fears of another global recession and the embarrassing downgrade of the U.S. government's once stellar credit rating, first the raw numbers.

The Dow dropped 635 points or 5.5 percent and closed below 11,000 for the first time since November. The S&P 500 down nearly seven percent as was the Nasdaq. Add it up and on paper the market lost one trillion -- with a "t" -- $1 trillion in value in the massive sell-off just today and overall stocks now down 15 percent in the past two weeks.

A few more down beat numbers -- these not from the markets, but from our new CNN ORC poll -- 60 percent of Americans, 60 percent think the economy is still in a down turn and getting worse. That's way up from the 36 percent who felt that way back in April. Seventy-five percent of Americans believe things in the country are going badly. And just one in three Americans approve of how President Obama is handling the economy.

Now it's important to note the market slide began well before the Friday night decision before Standard and Poor's to downgrade the government's AAA credit rating, but that unprecedented demotion is now a part of the fear and the funk driving the trading and the downgrade center stage now as the deficit debate here in Washington enters a new chapter.


BARACK OBAMA (D-IL), PRESIDENT OF THE UNITED STATES: We knew from the outset that a prolonged debate over the debt ceiling, a debate where the threat of default was used a bargaining chip could do enormous damage to our economy and the world's. That threat coming after a string of economic disruptions in Europe, Japan and the Middle East has now roiled the markets and dampened consumer confidence and slowed the pace of recovery. So all of this is a legitimate source of concern, but here's the good news. Our problems are imminently solvable and we know what we have to do to solve them.


KING: A lot to digest tonight beginning with what is driving the markets down and how it impacts your bottom line. My colleague Erin Burnett here with us to get us started. And Erin, so on the basic question, what is driving this? A lot of people focus on the downgrade, but this started well before that.

ERIN BURNETT, CNN ANCHOR: It sure did. I mean the downgrade is part of the problem, but if you look at what we've seen over the past few days, actually over the -- 13 percent lower, make sure I get my numbers right here, John, in the past five trading sessions. So it's been a pretty incredible sell-off.

Yes, in large part due to concern that the U.S. government would not deal with the debt problem, due to the dysfunction in Washington. That's a big issue. S&P actually following through on its word, which had been advertised for months to go ahead with this downgrade certainly is part of the problem lending to concern, but we've got a lot of issues here. We have an economy that's weak, investors are focusing on that. Again, you add all of it together and you get panic selling days like this one.

KING: And you also have a cycle where there's no room for a time-out. When I say good-bye tonight the Asian markets will be opening. What should we be looking for there as this 10ds to be -- I'll call it a contagion -- it 10ds to go from market to market to market and around the world.

BURNETT: You're completely right about that. It sure does and actually I was just looking here, John, to try to figure it out because in the next hour or so we'll start to get those Asian markets opening. We are going to get some key information out of China. China really has become the focus.

I mean not just of what they're going to do with American debt, but obviously their economy being the second biggest in the world and the real driver right now. There's going to be a lot of data coming out of China's economy overnight and that can be really important for the market. Real negative surprises there could completely set the tone even more negative than it already is.

And then of course tomorrow, John, you have the Fed. And that really is going to be the most important thing in the next 24 hours for the markets.

KING: You say the most important thing. What options does the Fed, the American Central Bank, what options does Ben Bernanke have at his disposal right now?

BURNETT: Well it would seem, John, like not very many because as we all know interest rates are already pretty much at zero. But the Fed does have options. And there's a couple of things that Ben Bernanke obviously chief of the Fed needs to be thinking about.

First of all, he wants to calm the market so he needs to talk about economic growth, perhaps he could weigh in on the key statement tomorrow that the Fed always releases. He could weigh in there about the po10tial for a double dip recession.

And if he said he just doesn't see that sort of thing happening, despite the key slowing that we have seen in consumer spending that could go a long way to calming the markets. And he also could give a little bit more clarity to the fact that the Fed is open to doing more and as we all know there's been a lot of extraordinary measures by the Fed, so it's good for him to indicate that he could do more.

Although what I think is interesting, John, going ahead with that right now might not be the best idea. It would show that the Fed is also panicking after a day like today and that's not what the market wants.

KING: Excellent perspective, appreciate it Erin Burnett on this (INAUDIBLE) day. Glad you're with us tonight. Some perspective now from an economist who not too long ago was part of President Obama's White House team, former Council of Economic Advisers Chairwoman Christina Romer now back teaching at Berkeley.

Dr. Romer, as you watch what happened on Wall Street today, you see what is happening in global markets right now. On a scale of one to 10, one being no, 10 being definitely, how likely in your view is another global recession?

CHRISTINA ROMER, ECONOMIC PROFESSOR, UNIV. OF CALIFORNIA- BERKELEY: Oh, I'm not even going to give you a number. I think you know what is true is the risks of a recession have clearly gone up substantially. I think one of the things I keep saying is I think people are too much obsessed with the difference between really lousy anemic growth and literally you know a decline in the economy. Both those things are terrible and we should be just as worried about getting our economy and the world economy going with where we are now as if we were falling again.

KING: And so the president came out today tried to reassure the markets, trying to reassure the American people. And he called on Congress not only to get about the business of that super committee, to find additional deficit reduction, but he wants to ex10d the payroll tax, he wants to ex10d unemployment insurance. He wants to create an infrastructure bank.

I'm not going to criticize any of those proposals. I'll leave them to the political debate, but in terms of economics, trying to get an economy back into a much more thriving growth, is it fair to say that those are playing on the edges and on the margins and that you need something bigger and grander?

ROMER: I mean those are certainly -- those proposals are certainly good proposals, solid proposals. I do think you need something bolder and grander. I think were I advising the president now I'd say you know take the next couple of weeks and make the case for something even more substantial like a very large tax cut for businesses that actually hire people.

Or let's really do a serious amount of infrastructure investment and tie that with a very you know even more serious deficit reduction, gradually over time. I think that is the kind of a bold policy measure that we need and I think that is what the president needs to articulate is you know we're not going to tinker around the margins. We're going to do something really big, really substantial.

KING: The politics of Washington and certainly the politics of the S&P downgrade are get better, deeper, bolder, deficit reduction. There is this super committee. It's charged with coming up with another 1.5 trillion -- with a t -- over 10 years. Should that committee go for something more grand, as well -- forgive my repetitive use of the word -- should they go for three? Should they go for four?

ROMER: I think absolutely. We had on the table the grand bargain of trying to get $4 trillion of deficit reduction. You know even that doesn't really solve our long run deficit problem, but it makes a lot of headway. That is the kind of number that I think everybody was looking for, hoping for, and we came in at two or 2.5 trillion. So, yes, that super committee should do more.

I think right now of course the deficit plan that was passed mainly you know it puts goals for cutting discretionary spending. Any expert will tell you reforming entitlements, slowing the growth rate of Medicare spending, Social Security spending, that has got to be on the table and I think any expert will tell you that realistically more revenues have to be on the table and absolutely those two things ought to be added to the -- charged to that super committee.

KING: When something like this downgrade happens, it's unprecedented. A lot of Americans sit around their kitchen table and say what does this mean for me. They hear the government's borrowing costs might go up. Perhaps their borrowing costs might in time go up.

You were on the Bill Maher program Friday night when this was breaking and you used some language -- I'll say -- that he used at first. But you can't find it in any economics textbook. I want to lis10.


UNIDENTIFIED MALE: Excuse my language, but we used to do a segment on this show called (EXPLETIVE DELETED).


UNIDENTIFIED MALE: I didn't expect that there, but just before we went on the air, they said our rating got downgraded.



KING: It's a comedy moment there, but it's not a funny thing what happened. Explain what you mean by that, though, in family friendly English about how people are pretty darn what?

ROMER: Well, it certainly was more colorful than I would normally be. And it was a late night comedy show. But and actually what I was referring to is the much broader issues. So certainly the downgrade is sort of another shock to the economy, another bad thing to be happening to the economy. But it comes on top of just months of weakening economic statistics, comes on months of a realization of just how severe our long run deficit problem actually is, and it you know sort of all comes together with a political system that doesn't seem able to deal with those problems.

And I think it's the combination of all those things that does make me very worried about the future of the American economy. That if we don't solve our terrible, you know, anemic growth and our long run deficit problem, it is very hard to see how we provide for our people and how we remain our -- you know our stature in the world economy.

KING: Dr. Romer, appreciate your time tonight.

ROMER: Great to be with you.

KING: Thank you. Senior analyst David Gergen is with us. And David, this is a leadership moment, if you will. The president called a couple European leaders today. European markets are in turmoil. The U.S. market is clearly in turmoil. The American people wondering if and when this economy is going to get better. And yet Washington seemed over the weekend to go into the typical blame game. Whose downgrade is this? Well here's David Axelrod, the president's top political adviser.


DAVID AXELROD, SR. STRATEGIST, OBAMA 2012 RE-ELECTION CAMPAIGN: The fact of the matter is that this is essentially a Tea Party downgrade. The Tea Party brought us to the brink of a default.


KING: No, here is an e-mail from the Republican National Committee. David, it's the Obama downgrade. How are we going to get past this to get to the next step to get an agreement on deeper deficit reduction and God forbid maybe some sort of an adult conversation about jobs and growth if Washington immediately just starts pointing fingers?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: John, the blame game, the partisan wrangling, that's what helped to get us into this fix now. Everybody knows that. People are disgusted around the country with the politicians in Washington. Words don't matter very much anymore. The president came out today to reassure the country and the Dow Jones was down 409 when he started speaking.

It wound up the day after this talk about reassurance, it wound up with a loss of over 630 points, you know so clearly what people are looking for is something stronger. They're looking for action. And I think the president's question now, the congressional question is the president needs to get the congressional leaders back into Washington.

Not the whole Congress for now, but the congressional leaders back into Washington and reach and cut a deal about jobs to get this economy growing. Not on the debt right now. What we need immediately is some sense of hope about jobs and give reassurances that there are going to be more investments. Corporations are sitting on a ton of money in this country. There have to be ways to get them to invest in the future.

KING: David is going to be back with us later in the program as we discuss this, the darkest hours of the Obama presidency and just one night where the United States is losing its top credit rating and then word of the deadliest attack in the 10-year Afghan war. But next, what this downgrade does and doesn't mean for your personal finances.


KING: You know this when you go online sometimes there are several credit rating agencies that rate your credit. There are also several credit rating agencies that rate the United States credit agency. Fitch and Moody's kept the United States at AAA after the deficit reduction compromise last week.

Standard & Poor's late Friday night dropped the United States from AAA, which is the gold standard, the best, down to AA+. That drops right here. This has been the big controversy of the last 24 hours. So where does the United States now compare on the S&P scale anyway at AA+? Well the UK, Germany and Canada they have AAA. Belgium and New Zealand now with the United States at AA+ and you see Kuwait, Qatar, Spain down here, China a AA-, Japan as well and Saudi Arabia.

The big question you're asking what does this mean for you and your bottom line? Well our chief business correspondent Ali Velshi is with us tonight as is Joanne Lipman, business columnist for "Newsweek" and "The Daily Beast". Ali to you first -- for somebody sitting at home right now down at dinner who says is my mortgage going to go up? Is my credit card rate going to go up? We didn't see the impact in the markets today. We saw a lot of turmoil in the stock market, but the bond markets actually were pretty favorable, right?

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Yes. You would have expected that in fact your mortgage and other loans would be affected by this, but here's what happened. A mortgage in the United States, particularly a fixed mortgage, is tied to a 10-year note. The 10-year note actually costs the government less. It costs the government less money to borrow for 10 years today than it did on Friday.

The effect of the downgrade hasn't actually been negative. And part of that is because when you look at all the other options, there is so much U.S. debt that people who otherwise would buy it can't really take some of those other AAA options because those countries don't have enough debt. So the reality is that today the 10-year is lower than it was on Friday and your mortgage rates aren't actually going up as a result.

That's not to say what's going to happen in three weeks or three months. And frankly our mortgage rates are so historically low right now, John that the long term trend probably will be up, but for now, for all the effect that this had on the market, it didn't have it on interest rates.

KING: So Joanne, obviously people watch the volatility in the stock market they worry about their 401(k). When it comes to this downgrade, is there anything anybody out there should be doing, changing their own personal behavior? Should you put off a big purchase if you're about to buy a house or a car or should you just go ahead with your lives as is?

JOANNE LIPMAN, BUSINESS COLUMNIST, NEWSWEEK & DAILY BEAST: Yes, this has been so devastating for so many people. And I think even more so than the impact on interest rates, which has been nonexistent so far is the impact on people's 401(k), on their savings, on their portfolio. It's just been devastating.


LIPMAN: And so if people can afford to not make any moves right now that is the best possible thing they can do. You mentioned though -- one thing that's interesting -- you mentioned you know the housing market. Now the housing market, interest rates are still at historic lows. It's very possible interest rates won't go up. We have seen this before.

There is a precedent for this in Japan, Australia, Canada, other countries where they have been downgraded, their interest rates have not gone up. So if you're thinking about purchasing a house, so many areas have been so hit hard by a housing slump plus we have these interest rates at these historic lows and if you need to buy a House that's something that actually you know what, it's maybe not such a bad idea. That is OK.

KING: So Ali, how long does it take and what do you have to do now that you've been dumped down to AA+, what do you have to do to get back up to AAA?

VELSHI: Could take several years to get back. S&P specifically when asked this question told me that a couple of things could help. Their two reasons for downgrading U.S. credit limit were the fact that the deal to lower -- to you know get this deal done wasn't actually big enough. So if Congress and the super committee were actually to either cut more or raise more revenue before -- between now and Christmas, you may see an upgrade as early as next year.

And there has to be some sense that Congress can agree to do something together. The climate that caused this debt ceiling to be held hostage to the budget negotiations is something that was very, very worrisome to S&P. So the climate has to change. They have got to get a better deal. And I don't think those two things are likely to happen prior to 2012.

KING: Ali Velshi and Joanne Lipman, appreciate your help. We'll call on you again as we continue to watch this story unfold and still to come here tonight, Saudi Arabia and other Arab nations finally condemn the bloody crackdown in Syria. But will President Assad heed calls to stop the killing? And next live to Africa, Anderson Cooper who is getting a firsthand look at a devastating famine. (COMMERCIAL BREAK)

KING: Get you up-to-date on a big story you need to know about right now. The Obama White House tonight pledging an additional $105 million to the urgent humanitarian effort under way in the Horn of Africa, where more than 12 million people are said to be in desperate need of food and water. Our Anderson Cooper is there this week for a firsthand look.

Anderson is with us now live from a massive refugee camp at Kenya's border with Somalia. Anderson, you're getting a firsthand look at this devastating awful humanitarian crisis. But tell us what you're seeing.

ANDERSON COOPER, CNN ANCHOR: Well John, this has become the largest refugee camp in the entire world. You can actually see it from space. It's extraordinary. There's more than about 500,000 Somalis who are living here and in the surrounding areas around this camp desperate for food aid, many internally displaced people in Somalia, more than a million of them, more than 100,000 now have gone to Mogadishu desperately looking for food. According to the U.N., about 3.2 million Somalis are in immediate need of food assistance, immediate need of assistance.

And the fear is with the drought continuing for the next couple of months before the rains come and with Al Shabaab, this terrorist organization extremist group which is in control of the south where the famine really is, where the hardest hit area is that tens of thousands more people will die in the coming months as this drought continues, the worst drought in 60 years. And the famine continues to spread from small pockets in the south to the entire southern part of Somalia. So it is a desperate situation for many here.

Aid has been slow in coming. This was a predicted drought. This has been on the radar of a lot of folks in the aid community for many, many months. And yet there is still not enough in the pipeline, not enough food, not enough money being addressed to meet the immediate needs of so many people here -- John.

KING: And when you say the immediate needs, there's obvious frustration there that that this is taking so long for the world to react. Is there one thing that is most in demand that anybody watching could try to help?

COOPER: Well look -- you know aid organizations will say money is the bottom line. You know money that allows them to operate here, money that allows them to get supplies, that allows them to fly in food and water and help people long term develop agriculture that can prevent this kind of thing in the future. It is a -- it really is a desperate situation here, but mainly inside Somalia and that's where we're going to be reporting from for the next two nights -- John.

KING: Anderson Cooper for us on the Kenya-Somalia border. Anderson and his team there throughout the week to get a sense of this. And this reminder you'll want to watch this reporting anyway and this reminder beginning tonight "AC 360" moving to 8:00 p.m. in the East. That's immediately following this program.

You won't want to miss that coverage and Anderson Cooper's program in the days and weeks ahead. And still ahead here after months of silence, leading Arab nations are suddenly pressuring Syria to stop the deadly crackdown. Why the change and will President Assad listen?


KING: A major new development tonight in Syria's political crisis. After months of silence leading Arab nations are calling on the Syrian regime to end the bloody indiscriminate killings of its own people. Saudi Arabia, Bahrain and Kuwait announced they're pulling their ambassadors from Damascus and the Saudi King Abdullah spoke up publicly against what he labeled the Syrian regimes quote "killing machine". Let's take a closer look including here in Riyadh, Saudi Arabia. After the king's announcement, these are Syrians living in Saudi Arabia celebrating.


KING: Celebrating the denouncement of the killing machine. Unfortunately, the killing machine continues.

Look there here in Deir Ezzor. I'll play this out. Listen closely.


KING: Sounds of machine gunfire there. The regime is cracking down against demonstrators there. And here in the north, this -- a funeral procession.


KING: That is scrambling, is scrambling. The regime opening gunfire on a funeral procession.

CNN's Arwa Damon is tracking the crackdown from Beirut.


KING: Arwa, Saudi Arabia criticizing the, quote, "killing machine" in Syria. Saudi Arabia, Bahrain and Kuwait recalling their ambassadors. Any indication the shift now to Arab condemnation will get President Assad to back off?

ARWA DAMON, CNN CORRESPONDENT: Well, at this stage, there's been absolutely no such indication, but this most certainly is a significant move in that Arab leaders are finally breaking what was a deafening silence on their part.

But really, John, as long as Syria has in Iran the solid relationship that it does have, Iran being of course a regional powerhouse, it seems as if what we're going now is a shift in the battleground in Syria, and that it will no longer just be demonstrators calling for democracy versus this dictatorial regime, but one that analysts are saying is increasingly going to morph into an arena for this broader regional power struggle where on the one hand, you'll have Saudi Arabia and its allies, and Iran on the other.

KING: And what's your sense what's happening on the ground? Is the crackdown more isolated or is it spreading?

DAMON: Oh, no, John, it's most certainly spreading. The crackdown now not just confined to the intense military campaign that we saw taking place in Hama. It most certainly does continue there, but also moving to the east, up against the Iraqi border to Deir Ezzor where on Sunday morning, according to residents and eye witnesses, tanks stormed in again firing indiscriminately, snipers station on rooftops, families being absolutely terrorized, mass detentions taking place.

There are also reports of a similar military campaign in the north. And so, it increasingly seems as if this is a regime that appears to be fully turning its back on reforms and instead is resorting to brute force, to try to silence these voices of dissent.

KING: And if you tune into to Syrian state TV, it says the military is pulling out of Hama. What do your sources tell you about the reality on the ground?

DAMON: Yes, they have one simple thing to say about and is that it is a lie. Shortly after we heard that announcement on Syrian television, I spoke with a number of residents in Hama, all of whom said that the crackdown was still ongoing. In fact they were telling us how Syrian security forces were going house to house with a list of names of wanted activists. And if those individuals were not present, they were detaining their family members.

KING: Arwa Damon for us tonight in Beirut -- Arwa, thank you.


KING: So, what motivated Saudi Arabia and other Arab nation nations to finally speak out? And will it make a difference.

In New York, Fouad Ajami, senior fellow of Hoover Institution and Stanford University.

And here in Washington, Robin Wright, a veteran journalist and foreign policy analyst and author of this book, here, "Rock the Casbah." We got to show it. We go and we got that to work there, "Rage and Rebellion Across the Islamic World."

Fouad, I want to start with you, first, because we've spoken about this several times. Why the silence in the Arab world. Now, you have criticism. I assume King Abdullah, Kuwait, Bahrain, I assume they don't want regime change because that would reflect poorly on their own countries.

What do they want? FOUAD AJAMI, HOOVER INSTITUTION: Well, John, remember one thing, when you ask about King Abdullah of Saudi Arabia, you have to remember his title. He is custodian of the two holy mosques. That means custodian of Mecca and Medina.

This is becoming a religious question. Bashar al-Assad has violated the sanctity of the holy month of Ramadan. Bashar al-Assad is shelling mosques. Bashar al-Assad has banned people from Friday prayers.

And I think for King Abdullah of Saudi Arabia, being the senior statesman in the region, being the eldest, a man in his late eight 80s, and what he said -- he said, my conscience can no longer bear this. And I think, finally, silence has been broken and other people followed the leadership of the Saudi monarch.

KING: Silence has been broken. The monarch in Saudi Arabia finally speaks out. Not the most credible regime when it comes to the treatment of your own people and openness to speak publicly, but yet it is custodian, as Fouad noted, the custodian of two holy mosques.

Will it make a difference?

ROBIN WRIGHT, AUTHOR, "ROCK THE CASBAH": Probably not short term. But the fact is that you have four Gulf Arab countries that have now abandoned the Assad regime. And this is a very striking development because Saudis are normally very discreet in their policy. They like to work through the backdoor.

And King Abdullah also has a Syrian connection through his mother. He is the only son of one of the original founders of Saudi Arabia and that particular wife. And he has been the one they have used for over a generation. When there was tension with Syria, to go in and try to mediate between the two countries.

So, this plays out on a lot of different levels. It's a very striking development.

KING: And, Fouad, you talk about the religious implications here, the custodian of the two holy mosques speaking out. But when Saudi Arabia and the Arab nations pressure Syria, I guess my question is: might the result be almost counterproductive in that Assad would turn even more to Tehran?

AJAMI: Well, I think, John, anyway, Assad has become the satrap of Iran. And, in fact there's big difference between Assad father and Assad son. The old Assad, the old man, was an ally of Iran but on his terms.

Bashar al-Assad has no other ally, has no other support other than Iran. His relations with Turkey have deteriorated. Even the Russians are beginning to talk to him about his legacy, about reform. And so, I think the reliance on Iran is total for him.

And one thing that's interesting, the people have gone out chanting in the treats of Syria, (SPEAKING FOREIGN LANGUAGE), which means no Iran, no Hezbollah, we want Muslims who fear Allah.

So I think, in fact, that there you have a standoff in the region between this isolated Syrian regime with Iran backing it and the rest of the region.

KING: Professor Ajami makes an interesting generational point, the difference between father and son. You were in the region as a reporter back in the '80s, you were in Hama. You got to know the father's regime, and now, the son's regime, pretty well.

What's the difference?

WRIGHT: I think the father actually had a vision. We might not have agreed with it, but he had a kind of broader plan to make Syria a great nation again.

The son inherited power. He was not to be the heir apparent. His older brother was supposed to be the successor and he died in a car accident.

So, the younger son has not ever had the kind of ideas, the concept, the way to recreate Syria as an important player in the region. He just says no. He says no to the peace process. He tries to meddle in Lebanon. He's been a player and spoiler much more than his father had.

KING: And yet, schooled in London, gives speeches about reforms. You write this in your book, the administration also appeared to be betting on the Assad dynasty, which had ruled in Damascus for four decades.

"There's a different leader in Syria now," Secretary of State Hillary Clinton said on March 27th. "Many of the members of Congress in both parties who have gone to Syria in recent months have said they believe he's a reformer."

She's known as a pragmatist. She gets pretty good reviews as secretary of state, but was she snookered by this guy?

WRIGHT: I think snookered and I think the administration was in general. The fact is that the United States has been willing to push democracy all the way across North Africa, in a little bit into Syria. But not do anything beyond words. There's a kind of a joke among those of us who get this State Department release on Friday condemning whatever negative action the regime has taken against his people. And we all say, oh, it must Friday, another pronouncement from the administration.

And there hasn't been a lot of tangible action beyond some minimalist sanctions.

KING: So how do we get to that next step, Fouad, in the sense that the administration has said he's lost legitimacy? The president of the United States has not come out and flat out said he must go. But you now, you don't have an Arab League statement, but you at least have Arab leaders getting involved in this criticism. How do you build to the next level where you get what has happened to Mubarak? Or like he's having in the ongoing saga in Libya, at least you have the world community turn and say you must go.

AJAMI: And, in fact, there you have it. I think President Obama and Secretary Clinton must be betting the fact that the Arab League has come out against Bashar al-Assad, because, in fact, they may be forced to do something they haven't done before, which is to repudiate this regime, to consider it an outlaw regime, a criminal regime.

Bashar al-Assad, as his father before him, in that way they were similar, they've sold us on the idea that Syria is important for stability. And yet, if you look at Bashar al-Assad allowing Iran, giving Iran access all the way to the Mediterranean, in Lebanon and through the Palestinians, he has become the great destabilizer and I think the administration, our administration, has been a little too slow to understand the nature of this regime in Damascus.

KING: Fouad Ajami, Robin Wright, appreciate your insights tonight. We'll stay on top of the story. It is important and it is fascinating.

Up next, 30 Americans killed in the deadliest day of the nearly decade long war in Afghanistan. We'll map out just where it happened and discuss what it says about the plan to begin drawing down U.S. troop levels.


KING: Tonight, two military transport planes are flying the remains of 30 U.S. and eight Afghan personnel to the United States. They died Saturday when their helicopter was shot down in Afghanistan, the deadliest single loss of U.S. troops since the Afghan war began.

Because of the catastrophic nature of the crash, all 38 sets of remains are on the way to the United States for identification.

The Defense Department today officially told the news media we will not be allowed to cover the return of those remains.

Among the dead, 22 Navy SEALs including Aaron Vaughn whose wife Kimberly spoke with CNN's Brian Todd.


KIMBERLY VAUGHN, WIDOW OF NAVY SEAL: I want to tell the world that he was an amazing man, that he was a wonderful husband and a fabulous father to two wonderful children. He was a warrior for Christ and he was a warrior for our country. And he wouldn't want to leave this earth any other way than how he did.


KING: With us now, CNN national security contributor Fran Townsend who advised President Bush and is now on the external advisor boards of the CIA and the Department of Homeland Security. Also, Brad Thor, he's the author of "Full Black," went on several research missions in Afghanistan and Pakistan with Navy SEALs.

Fran, the largest -- most deadly attack in the history of this nearly 10-year war, I want to go over to the wall here just to show our viewers where it took place. And I just want to bring this up. You'll see as this plays out.

This is in some of the most treacherous. We often talk about the unimaginable, ungovernable. What does it say -- what does it says as we pay tribute to these heroes that this is still where a lot of the hardest parts of this war are being fought?

FRAN TOWNSEND, CNN HOMELAND SECURITY CONTRIBUTOR: Well, John, it tells a number of things. First of all, this is right on the outskirts, and not very far from Kabul, the capital. And that was always -- Kabul was the last perimeter, if you will. It was sort of the sacred ground that our troops protected, mostly to give the Karzai government the opportunity to extend their reign, their government.

This is very close to the capital. This is an area that has been handed over to Afghan troops. This was an immediate reaction force that was coming in because there was -- we had personnel on the ground in need of assistance and so you had U.S. soldiers, as well as Afghan commandos.

And it tells you that the gains that we make there are very fragile. And so, as we begin this drawdown, you realize that these gains that we have made at the loss of life and treasure are easily erased if we do this too quickly.

KING: Brad, I know you're familiar with these types of operations. I want to get some insights. But, first, it's important -- I want you to listen to how the president in paying tribute to these heroes today described the state of play in Afghanistan.

Oh, we don't have it.

The president said, "I know our troops will continue the hard work of transitioning to a stronger Afghan government."

Brad Thor, on that point, do we really have -- George W. Bush talked about this for years. Barack Obama has talked about it now. I'm not blaming either president. But 10 years later, do we have an Afghan government, an Afghan security force, that is ready for this challenge or is the answer, no, and that's why these tragedies keep happening?

BRAD THOR, AUTHOR, "FULL BLACK": No, the answer is absolutely no. The Afghans are in no position to defend themselves. The Afghan government is completely corrupt and it's riddled with Iranian spies.

There's a lot about the killing, the terrible tragedy of these SEALs being killed that is very, very disturbing, John.

KING: And when you look at this, Fran. Brad just mentioned Iranian spies. Should we be worried about Iran tonight or because of where this is up here, I'm not discounting the importance of any Iranian relationships, but this to me based on the history of the history, and based on some people you talk to, is a Pakistan issue, not necessarily an Iran issue, right?

TOWNSEND: Well, that's right. Except, I mean, to Brad's point, look, we have seen an increasing amount of Iranian involvement and support in Afghanistan. And, oh, by the way, this is -- they have been spoilers inserting themselves into Afghanistan and undermining U.S. efforts.

You know, the Iranians aren't -- don't always come in the front door and oftentimes, they work through proxies and insert themselves to cause Americans and American forces difficulty around the world. We saw it in Iraq and that makes sense to everybody, but that's a neighborhood. But we see it in places like Afghanistan as well.

KING: And Brad, I want to show --

THOR: John, if I may --

KING: Please. Go ahead. Go ahead.

THOR: I was going to say Fran's analysis is always spot on. It's why I enjoy watching her so much. I'd like to add that there's word out that what took down this helicopter might be what's known as an IRAM, an improvised rocket assisted mortar. We first saw these with Shiite extremists in Iraq with Iranian fingerprints all over them and that's why I'm so concerned.

They call these things in the military flying IEDs and we don't have confirmation of what brought the helicopter down, but that and the fact that the Iranians have so penetrated not only the Afghan government, but a lot of our indigenous support and our forward operating bases and around the country of Afghanistan -- you know, it makes me wonder, the Taliban, they're good, but, man, I don't think they're this good, John.

I really think this thing is the fingerprints of Iranian cooperation on it.

KING: I have to point out, that's a CNN animation we were just showing you. They are an important point.

As I show on the map here, the dark -- the reddish area, that's where the Taliban is strongest. Orange is where the Taliban has limited support. When you look at this, Fran Townsend, again, almost 10 years into this war, at the time the surge troops with still mostly there, the president wants to start bringing them, we're about 99,000 U.S. troops in Afghanistan right now -- does this tell you that we are at a point where we can actually have a security transition, or is bringing troops home more of a political transition?

TOWNSEND: Oh, look, let's call it what it is, John. It's a political transition. President Obama ran on drawing down in Afghanistan and he's trying to keep true to that promise before he faces re-election in 2012.

Now, that's not to say we have to look at this strategy and when you consider that we're 10 years out and that the Taliban, perhaps with the support and assistance of other proxy, other terrorism supporter, are able to launch this kind of attack, deadly attack against our nation's most elite forces, we have to ask ourselves really honestly about what progress has been made or not been made.

I think Brad's exactly right. Afghan troops are not up to this. That's patently obvious. And the level of corruption in the Afghan government is another issue that really bedevils us.

KING: I'll get e-mails, I want to make clear, a little bit of a misspeak there. He said he would bring home troops in Iraq, but the president actually promised in 2008 to fight the war in Afghanistan.

Brad, you think it's a mistake to acknowledge these Navy SEALs, they were not the same men involved in the bin Laden raid, but many of them from the same unit. You think it's a mistake to acknowledge that this was a SEAL unit. Why?

THOR: John, I'm a Chicago guy. I know Bill Daley. We don't always agree on politics, but I like the guy personally. Bill Daley ought to be enraged tonight. We went and we got Osama bin Laden with SEAL Team Six.

Every Taliban member, every al Qaeda, every enemy of this country should quake in their beds at night after of SEAL Team Six coming to get them. And what did we do? We handed a propaganda victory to the enemy, by saying it was SEAL Team Six members on this helo that went down.

Why couldn't we say it was American personnel? Why let the enemy know Allah or whomever is on their side, and helped them take down this helicopter? This -- whoever leaked this, whether it was done with permission or whatever, that head should roll. This is unforgivable to leak that to the media.

KING: Brad Thor, Fran Townsend, appreciate your insights tonight in the history.

When we come back, we'll stay on this story in a different way. President Obama receiving word of this deadly raid just hours after being told the United States government was having its credit rating downgraded. Being president would be a lonely job.


KING: Friday was the darkest day of the Obama presidency. In the evening, came word that Standard & Poor's was, for the first time in history, downgrading the United States' government credit rating. Then a devastating news from Afghanistan -- 30 Americans dead including 22 Navy SEALs in the deadliest attack of the nearly decade- long Afghan war.

It is the most powerful job in the world but it's also been said, it can be the loneliest.

David Gergen is back with us. He has served four American presidents at times of crisis. Also here, Mary Matalin, who served in the George W. Bush White House in the harrowing days around the 9/11 attacks and as America launched the wars in both Afghanistan and Iraq.

David Gergen, I want to start with you as someone who has been in the White House, often brought in to the White House in times of crisis. I am overstating that -- the darkest day of the presidency to hear about the downgrade and then hours later, this horrible tragedy in Afghanistan?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: I don't think you're overstating it, John. I mean, this past week, I think was one of the toughest, perhaps the worst weeks the president has had because the markets fell so sharply even as he announced the debt ceiling agreement and then he had the Friday, Saturday, and then this weekend. And, you know, so it's tough.

But I think the president discovered today that words alone are not enough. You know, he tried very hard to reassure investors, as you know, he came out this afternoon and when he spoke, the Dow was down around 400. By the end of the day, it was down 600.

He's got to go beyond words. He's got to find to find -- he's got to take some actions now, I think, to reassure Americans.

The real, one of the real problems with what happened today is it can spook consumers. It can really make people fearful and they're not going to spend and that can hasten a double dip.

Mary, take us inside the White House. I know you're a Republican, but just take us inside the White House when you have to go to the president of the United States and deliver the worst. The worst, I assume, is American military casualties overseas.

But it's the most powerful job, but it's also pretty isolating, isn't it?

MARY MATALIN, CNN POLITICAL CONTRIBUTOR: It is isolating, but I had the great good fortune to work with men with the breadth and depth of experience. Not just in the 9/11 George W. Bush White House but for Dick Cheney and with George Herbert Walker Bush.

So, this kind of experience can put these big shifts in context. That's really important. As David knows, so you don't react. You're not in a responsive mode. You're trying to convey leadership and confidence.

And particularly in this situation right now, it is -- I'm echoing David -- people have lost their greatest source of wealth, which is their home equity. They've had their savings, their investments, their retirements wiped out in one fell swoop. There is no confidence that Washington can function at any level and this president is not conveying, not just by the absence of talking about deeds. There's just something that not coming across with. And I'm not saying that as a partisan. I'm pretty spooked myself down here with two kids in high school and a retirement staring us in the face.

But it is isolating, but you have to keep your head about you and you can't be subjected to political posturing or aides that want to put you in a political situation.

Something David said earlier on your show tonight concerns me, too, about this. He is surrounded by more -- with political people more than economic people. There is nobody really inside the White House that is on an economic team now. That's got to be spooky to the investor class as well.

KING: And, David, what is it like to walk into the Oval Office at a moment like this? Maybe you have to tell the president horribly bad news or maybe as both you and Mary are saying, you need to shake the president a little bit. I don't mean physically, but say sort of the way you're doing it isn't working. We've got to reconsider.

GERGEN: Well, it's important for the president to maintain an outer confidence and a smile. And that helps a lot. Ronald Reagan and other presidents have shown that over the years. And I think the president has done a good job of that.

But it's really important inside to be taking a hard look at what's not working and what is working. And my judgment -- and by the way, the Republicans bear an awful lot of blame for where we are. It's not just the president.

But in my judgment, what the president needs to do now is to bring in the congressional leadership, Republicans and Democrats, and see if they can't cut a deal on jobs. It would be so helpful, not about the debt but concern about the jobs. The president has some things on his agenda.

The Republicans have things on their agenda for what would create growth, cut a deal, show people they can actually work together without all the finger-pointing and acrimony and give people confidence that people, that the politicians in Washington who were disgusted folks around the country, give them confidence. Hey, we're going to come together and put aside our petty politics in 2012 and try to get something done in the next few months.

KING: Mary, you mentioned George H.W. Bush, that's when I first met you, when you were working for him. He ran a reelection campaign in which he was trying to convince people the economy was getting better and people just didn't believe it. I see a lot of similarities right now.

How hard is that, heading into a reelection environment that you know is going to be very, very difficult?

MATALIN: That was a different paradigm. Growth that year was 5.7. We have his historically low growth. We have real jobs problem. One peculiarity of the presidency is no matter who's to blame and no one wants to be ascribing blame particularly in this segment, one and one man only is held to this, the buck stops here. So, that's one thing the president can do, whether he does it directly or indirectly or implicitly, the buck stops with him.

KING: Mary and David, I'm sorry. I got to end here.

That's all for us tonight. Sorry, guys, Mary and David. We'll be back.

We'll see you right here tomorrow night.

"ANDERSON COOPER" live from Africa tonight begins right now.