Interview with Defense Secretary Gates

Interview with Defense Secretary Gates

Fox News Sunday - March 29, 2009

WALLACE: I'm Chris Wallace, and this is "FOX News Sunday."

Now it's Obama's war. The president announces a new U.S. offensive in Afghanistan.


OBAMA: To the terrorists who oppose us, we will defeat you.


WALLACE: We'll talk about the new strategy and look at hot spots from Iran to North Korea when we sit down for an exclusive interview with the secretary of defense -- Robert Gates, only on "Fox News Sunday."

Then, world leaders prepare for an economic summit. What will they do to ease the global financial crisis? We'll find out from Stephen Harper, prime minister of Canada.

Plus, the treasury secretary unveils his plan for tough new regulations on the financial industry. We'll ask our Sunday panel whether Timothy Geithner goes too far.

And our Power Player of the Week says it's a great time to be a conservative, all right now on "FOX News Sunday."

And hello again from Fox News in Washington. This week, President Obama took ownership of the war in Afghanistan. Here for an exclusive interview on the new strategy as well as other tough challenges around the world is the Secretary of Defense Robert Gates.

And, Mr. Secretary, welcome back to "FOX News Sunday."

GATES: Thank you, Chris.

WALLACE: Let's start with President Obama's mission statement Friday on the new strategy in Afghanistan. Here it is.


OBAMA: ... that we have a clear and focused goal to disrupt, dismantle and defeat Al Qaida in Pakistan and Afghanistan.


WALLACE: President Bush used to talk about building a flourishing democracy. Has President Obama narrowed our mission and, if so, why? GATES: I think the -- the near-term objectives have been narrowed. I think our long-term objective still would be to see a flourishing democracy in Afghanistan.

But I think what we need to focus on and focus our efforts is making headway in reversing the Taliban's momentum and strengthening the Afghan army and police, and -- and really going after Al Qaida, as the president said.

WALLACE: Yeah, I'm going to pick up on that. The president said that Al Qaida is actively planning attacks against the U.S. homeland. Does Al Qaida still have that kind of operational capability to plan and pull off those kinds of attacks?

GATES: They certainly have the capability to plan, and in many ways they have metastasized, with elements in North Africa, in the Levant, in the Horn of Africa and elsewhere, and they aren't necessarily directly controlled from Al Qaida in western Pakistan, but they are trained there. They often get guidance from there and inspiration from there.

So I think they do have those capabilities. They clearly have been inhibited by all the things that have been done over the last six or seven years.

WALLACE: When you say they still have those capabilities to pull off an attack on the U.S. homeland, do you still regard them as a very serious threat?

GATES: I still regard them as a very serious threat, yes.

WALLACE: U.S. commanders in the field wanted more combat troops than the 17,000 that President Obama committed.

Why did he decide against committing all of those additional combat troops? And will there be enough for the kind of counterinsurgency, living among the population, protecting the population, that was so key to the success of the surge in Iraq?

GATES: Well, let me be very clear about this. The president has approved every single soldier that I have requested of him. I have not sent any requests for units or troops to the president so far that he has not approved.

Now, the reality is I've been at this a long time, and I don't think I've ever in several decades run into a ground commander who thought he had enough troops. That's probably true in all of history.

But we have fulfilled all of the requirements that General McKiernan has put down for 2009, and my view is there's no need to ask for more troops, ask the president to approve more troops, until we see how the troops we -- he already has approved are in there, how they are doing, what the Europeans have done. And we will be reviewing that come the end of the year.

WALLACE: And are there enough for the kind of counterinsurgency tactics -- living in the population, protecting the population -- that we saw so successful in Iraq?

GATES: Well, based on the requirements that have been levied by General McKiernan for 2009, that would be his view, I think.

And the reality is there already are a lot of troops there. This will bring us, when all is said and done, to about 68,000 troops, plus another 35,000 or so Europeans and other partners.

WALLACE: What kind of long-term commitment has the president given you? Has he promised you that he will stay in Afghanistan until the Taliban, in fact, are -- and Al Qaida are defeated?

GATES: He has clearly -- he clearly understands that this is a very tough fight and that we're in it until we're successful, that Al Qaida is no longer a threat to the United States, and that -- and that we are in no danger of either Afghanistan or the western part of Pakistan being a base for Al Qaida.

By the same token, I think he's been clear -- and frankly, it was my view in our discussions -- that we don't want to just pursue -- settle on this strategy and then pursue it blindly and open-endedly.

And that's why I felt very strongly that toward the end of the year or about a year from now we need to reevaluate this strategy and see if we're making progress.

WALLACE: But the strategy is subject to review. The commitment to defeat the Taliban and Al Qaida -- is that subject to review?

GATES: I don't think so.

WALLACE: That is the commitment.

GATES: Certainly, to defeat Al Qaida and -- and make sure that Afghanistan and western Pakistan are not safe havens for them.

WALLACE: There were reports this week that elements of Pakistani intelligence, the ISI, are providing the Taliban and other extremists with money, supplies, even tips on allied missions against them. One, is it true? And two, if so, can we stop it?

GATES: Well, the way I would answer is to say that we certainly have concerns about the contacts of -- between the Pakistani intelligence service and the -- and some of these groups in the past.

But the reality is the Pakistanis have had contacts with these groups since they were fighting the Soviets 20 or 25 years ago when I first was dealing with the Pakistanis on this, and I must say also helping make sure that some of those same groups got weapons from our safe haven in Pakistan.

But with people like Gulbuddin Hekmatyar and the Haghani network, the Pakistanis have had contacts with these people for a long time, I think partly as a hedge against what might happen in Afghanistan if we were to walk away or whatever. What we need to do is try and help the Pakistanis understand these groups are now an existential threat to them and that we will be there as a steadfast ally for Pakistan, that they can count on us and that they don't need that hedge.

WALLACE: There's a NATO summit coming up next week in Europe. Have we given up on the idea of getting our allies to send more combat troops to fight alongside the U.S. in Afghanistan?

GATES: No, we haven't. And in fact, I think some of our allies will send additional forces there to provide security before the August elections in Afghanistan.

But I think what we're really interested in for the longer term from our partners and the allies is helping us with this civilian surge in terms of experts in agriculture, and finance, and governance and so on, to help us improve the situation inside Afghanistan, give a sense of forward progress on the part of the Afghan people.

Also, police trainers -- you know, the Caribinieri, the Guardia Seville, these various groups in Europe are really very good paramilitary-type police, and I think they could do a good job in the police training, so those will be probably the principal focus of our requests.

WALLACE: New subject. North Korea says that it will launch a communications satellite sometime in the next few days. They have, in fact, even moved a missile out to the launch pad. Several questions. Why are we so troubled by an activity that the North Koreans say is civilian?

GATES: Well, I think that they're -- I don't know anyone at a senior level in the American government who does not believe this technology is intended as a mask for the development of an intercontinental ballistic missile.

WALLACE: Do we believe that they now have the ability to put a nuclear warhead on top of a missile, as the head of the Defense Intelligence Agency, General Maples, suggested?

GATES: I think that we believe that that's their long-term intent. I personally would be skeptical that they have the ability right now to do that.

WALLACE: The commander of U.S. forces in the Pacific, Admiral Keating, says that we are, quote, "fully prepared" to shoot down this missile. Are there any circumstances under which we will do that?

GATES: Well, I think if we had an aberrant missile, one that was headed for Hawaii, that looked like it was headed for Hawaii or something like that, we might consider it. But I don't think we have any plans to do anything like that at this point.

WALLACE: What if it were headed for the West Coast, for Alaska?

GATES: Well, we -- I don't think we believe this missile can do that.

WALLACE: And what about the Japanese? Obviously -- would -- they have some of our technology. Do we believe they're going to -- prepared to shoot this down?

GATES: Well, again, based on what I read in the newspapers, what the Japanese are saying is that the -- if that missile fails, and it looks like it's going to drop debris on Japan, that they might take some action.

WALLACE: You're basically discussing this, Mr. Secretary, as if it's going to happen.

GATES: The launch?


GATES: I think it probably will.

WALLACE: And there's nothing we can do about it?

GATES: Nope.

WALLACE: And what does that say to you?

GATES: Well, I would say we're not prepared to do anything about it.

WALLACE: There are reports -- well, let me -- I want to stay with that. What does that say to you about the North Korean regime, that -- that we and the rest of the world can all say that this is -- you know, a provocative act, an unlawful act, and they thumb our noses and we're not going to do anything about it?

GATES: Well, I think it's very troubling. The reality is that the six-party talks really have not made any headway any time recently.

There has certainly been no -- if this is Kim Jong-il's welcoming present to a new president, launching a missile like this and threatening to have a nuclear test, I think it says a lot about the imperviousness of this -- of this regime in North Korea to any kind of diplomatic overtures.

WALLACE: There are reports that the Obama White House has asked you to cut $2 billion from the next budget for missile defense, roughly 20 percent. Is this president less committed? Is he less convinced that this program will work than President Bush was?

GATES: Well, I don't know about the comparison. I would say -- I would tell you that I have not received any specific requests from the White House in terms of our budget. We'll be talking about that. We have the top line number.

We receive what we call a pass-back from the Office of Management and Budget, but I considered the suggestions that they made simply those, suggestions. I've taken some of them and some of them I haven't.

WALLACE: But do you regard there is a new skepticism in the part of the White House towards missile defense?

GATES: I think that -- I think one of the things that we need to do is sit down and go through the capabilities that we have, the tests that we've been through, and -- and focus on where -- where we need to sustain development, where we need to sustain a commitment to have a capability.

WALLACE: So it sounds like that's under review.

GATES: I think so.

WALLACE: There are so many trouble spots around the world, but I want to do a lightning round tour of the horizon. I know this is not your thing, Mr. Secretary, but let's try to do quick questions, quick answers.

Iraq -- do you see any developments so far that might cause you to have to slow down President Obama's time line to pull out of the major cities by this summer and to get our combat troops out by August of 2010?

GATES: I haven't seen anything at this point that would lead me to think that there will be a need to change the time lines.

WALLACE: Iran -- you said recently -- you said recently that they are not close to a nuclear weapon. Admiral Mullen, Chairman of the Joint Chiefs, says that they have enough material to make a bomb. Is there a contradiction there?

GATES: No. What they have is -- is probably enough low-enriched uranium from their centrifuges at Natanz to give them the capacity should they then enrich it more highly to proceed to make a weapon. They don't have the capability at this point to enrich. We were suspicious they may be building one clandestinely.

We do not believe they are doing enriching beyond a low level at Natanz, and the IAEA is in there, so we will know if they tried to do that. So I guess the point -- the bridge between what Admiral Mullen said and what I've said is they do have enough low-enriched uranium that if they should then proceed to enrich it more highly, they could build a weapon.

WALLACE: You expressed, I think it would be fair to say, extreme skepticism about the ability of diplomacy to alter the behavior of the North Koreans. Do you feel the same way about the Iranians?

GATES: Well, I think -- I think, frankly, from my perspective the opportunity for success is probably more in economic sanctions in both places than it is in diplomacy.

Diplomacy -- perhaps if there is enough economic pressure placed on Iran, diplomacy can provide them an open door through which they can walk if they choose to change their policies, and so I think the two go hand in hand, but I think what gets them to the table is economic sanctions.

WALLACE: A couple of more questions for the lightning round. Mexico -- the Pentagon issued a report in November on the growing drug violence there that said this, "An unstable Mexico could represent a homeland security problem of immense proportions to the United States."

Mr. Secretary, how likely is that scenario, that the Mexican government loses control of part of the country?

GATES: I don't think that's a likely scenario at this point. I think that a lot of the violence is -- is among or between the cartels as they strive for control of certain areas in Mexico.

I think President Calderon has acted with enormous courage and forcefully in sending troops in to try and get control of that situation.

And I think that -- as I think Admiral Blair testified just in the last couple of days, I think that the chances of the Mexican government losing control of some part of their country or becoming a failed state is -- are very low.

WALLACE: In January, White House Press Secretary Robert Gibbs gave a one-word answer, "yes," when asked if this president is going to end the policy of "don't ask, don't tell" for gays in the military.

Where does that stand? And why is there currently money in the 2010 budget to keep enforcing that policy?

GATES: Well, it continues to be the law. And any change in the policy would require a change in the law. We will follow the law, whatever it is.

That dialogue, though, has really not progressed very far at this point in the administration. I think the president and I feel like we've got a lot on our plates right now, and let's push that one down the road a little bit.

WALLACE: And finally, and we have just a minute left, President Bush used to talk about the global war on terror. This administration, this White House, seems to steer away from that.

In fact, in his speech on Friday, President Obama talked about a campaign against extremism. Beyond the words, is there a strategic difference between the way these two presidents see the fight?

GATES: I think that they -- they both see Al Qaida as a threat to the United States, Al Qaida and its extremist allies. And I think they both have made clear their determination to go after it.

We have the opportunity now that perhaps we did not have before to apply the kind of resources, both military and civilian, against it and a broader kind of strategy that we did not have before.

WALLACE: But a difference between saying war on terror or campaign against extremism...

GATES: I think that's people looking for differences where there are none.

WALLACE: Mr. Secretary, I want to thank you so much for coming in. We got through everything. Thank you. Please come back, sir.

GATES: My pleasure. Thank you.

WALLACE: With the global financial crisis as a backdrop, world leaders get ready to meet in London this week. We'll talk with Canada's prime minister, Stephen Harper, about the economy, the terror threat in Afghanistan and trade issues, when we come right back.


WALLACE: This week, world leaders gather in London for the G-20 summit, discussing how best to fight the global financial crisis.

Joining us now is one of those leaders, the prime minister of Canada, Stephen Harper. And, Prime Minister, welcome to "FOX News Sunday."

HARPER: Thanks for having me, Chris.

WALLACE: Before we get to the G-20, let's discuss Afghanistan. Canada, which has 2,800 troops there and has, unfortunately, lost more than 100, plans to wrap up its combat mission by the end of 2011.

Now, you said recently that if President Obama had a clear strategy for success and for departure, you might re-think that. You've heard the president's plan. Might you consider keeping Canadian troops in Afghanistan longer?

HARPER: Well, I don't think that's quite what I said. We're operating on a parliamentary resolution. We got consensus of the two major parties to pass that resolution. We're very clear in our objectives. We're in Kandahar, the most difficult province.

Our objective now is to train the Afghan forces so they can take over day-to-day responsibility for their security by the end of 2011. That's what we're working on.

We are -- as Secretary Gates said, we are in Canada ramping up our civilian presence and our civilian commitments in Afghanistan in preparation for the end of the military mission. But we're going to continue to be there and continue to assist with governance and development challenges.

WALLACE: But you did not hear anything from President Obama that would make you change your mind and say, "You know what? We should keep Canadian troops, combat troops, in Afghanistan longer."

HARPER: We're not planning to do that. In fairness, when I met with President Obama, he didn't make that request. President Obama did recognize the significant -- very large and significant and robust contribution that Canada has been making in Afghanistan, in Kandahar in particular.

WALLACE: You said recently that Afghanistan has had an insurgency for most of its history, and then you added this, "Quite frankly, we are not going to ever defeat the insurgency."

Prime Minister, does that mean that we're going to have to learn to live with Al Qaida and the Taliban in that part of the world?

HARPER: No, I wouldn't -- I wouldn't put it that way. I think what Secretary Gates said is correct, that first of all, we absolutely have to see the elimination of any kind of threat to the wider world, to North America.

Obviously, the Al Qaida insurgency and the Al Qaida element of this has to be -- has to be eliminated. I think we agree with that.

In terms of the rest of it, you know, I don't think it's a case that we -- we've got to see progress on the insurgency. We've got to see a state where the Afghan government can handle its own day-to-day security.

I just think it would be unrealistic to suggest we're going to eliminate every last domestic insurgent in Afghanistan. Certainly, the history of the country would indicate that's not a very realistic objective, and I think we have to have realistic objectives.

WALLACE: But -- but -- but forgive me, sir. Your statement was a little broader than that. You said we're not going to ever defeat the insurgency, not eliminate every single bad guy out there. That seems to indicate you think that we're not going to be able to defeat Al Qaida.

HARPER: Well, I think if you -- if you actually look at my comments in context, this is what I was saying. I do believe you'll see some kind of insurgency in Afghanistan for some time to come. It's been the nature of that country, unfortunately.

But we certainly want to see a situation where the Afghan government can handle that security situation on a day-to-day basis, where they can take care of their own responsibility, and obviously where the insurgency is of a nature that it doesn't threaten the wider global community.

WALLACE: Let's turn to the world's economic situation, starting with Canada.


WALLACE: You were the last industrial nation to go into recession, and one of the great joys of this job is you study up on things, and I learned that, in fact, in 2007, you started cutting taxes, and your corporate tax rate is 10 points lower than it is here in the U.S. Am I correct in that, sir? HARPER: I -- I forget what the relevant American rate is, but I can tell you that our goal is to have a combined federal-provincial corporate tax rate of no more than 25 percent. We're on target to do that by 2012.

We will have significantly -- by a significant margin the lowest corporate tax rates in the G-7, and that's our -- our government's objective.

WALLACE: Do you believe that's better for the economy than President Obama's plan to raise taxes on the wealthy and some businesses?

HARPER: Well, I'm not going to be drawn in, Chris, as you can imagine, to commenting on American domestic policy. Let me just say that the United States has a significantly different problem than Canada, which is even before this recession, the United States was running a significant budgetary deficit.

Canada is in budgetary deficit now only because of the recession, only because of stimulus measures, and we will come out of it. We will go back into surplus position when the economy recovers. So there is no need in Canada to raise taxes.

I'm -- as a conservative, I tend to oppose raising taxes at the best of times. But we have not got the structural budgetary deficit that exists in the United States. It obviously limits the administration's options.

WALLACE: Canada is also the only western nation that has had no bank bailouts. Your banks tend to hold on to mortgages. They don't then send them -- sell them to other investors. You have strong, activist regulation.

Is the Obama administration, do you think, right now to get more involved in policing the financial markets?

HARPER: Well, without getting into detail, I think that the -- what I've read of the Obama administration's moves certainly parallel the kind of recommendations we're making at the G-20.

Canada, along with India, is co-chairing the G-20's working group on reform of financial regulations. And broadly speaking, what we are suggesting certainly is in line with where the American administration is going.

This is a problem that absolutely has to be fixed. We have to fix the mess in the American and global financial sector. We cannot have recovery until we fix that.

And we've got to have good systems of national regulation with some kind of -- with some kind of international peer review in the long term. That's our judgment. I think it's moving in the right direction, but obviously that's a domestic debate.

WALLACE: Now, you're a conservative. A lot of conservatives in this country say if you get the government too involved, you squeeze out all the innovation, all of the risk-taking, that is so important to a free market system.

HARPER: Well, and that -- that's a risk. And you know, I think we have got a pretty decent balance in Canada where we have good macro prudential regulation but we don't try and micro manage financial systems.

But I -- I would say this as a conservative, if I -- if I can be frank. It's great to say, "Let's have less regulation in principle and less intervention in the marketplace," but where has that led us, Chris, in many countries?

It's led us to a situation where the government is, in fact, intervening massively as a consequence of under regulation, and where we now have, effectively, in many countries, nationalization of the financial system.

I know in Canada there have been some criticisms in the past that we were perhaps too activist, intervening too much, but we're emerging from this with probably the only truly free market financial system in the world.

So I think, you know, a happy medium of regulation is the way to go.

WALLACE: As you head to the G-20 summit this week, there has been quite a dispute with President Obama urging some of our European allies, and their disagreeing, especially France and Germany, to pass big stimulus packages of their own. Canada has passed a stimulus package.

HARPER: Right.

WALLACE: But for our European allies to pass those kinds of packages to help draw the entire world economy out of recession. What do you expect from the G-20 on that front?

HARPER: Well, look. I'm hoping very strongly that, first of all, the G-20 meetings will be focused on fixing today's financial problems. I think that's really important we don't get distracted by a whole lot of other issues. And I also hope there'll be some consensus.

Now, my negotiators, the people working on these various summit declarations, tell me there's a lot less difference of opinion than you would -- than you would understand in the media, that everybody understands that we have got to fix the financial system if we're going to turn the corner on the global economy.

And I do hope also that all countries will understand the necessity of doing at least what the IMF has said, which is 2 percent fiscal stimulus, and not just for our own economies. We have to remember we're in a global economy.

The purpose of fiscal stimulus is not simply to sustain activity in our national economies, but to help the global economy as well, and that's why it's so critical that measures in those packages avoid anything that smacks of protectionism.

WALLACE: I've got a couple of minutes left. I've got two questions I want to ask you. First of all, on autos, President Obama will announce plans tomorrow to give more money to G.M. and Chrysler but along with strict deadlines on concessions from both the auto workers and also the bond holders.

You've given bailouts to G.M. and Chrysler in Canada. How confident are you that these -- that, one, we can, and, two, we should keep these two companies out of bankruptcy?

HARPER: Well, let me be clear that we're engaged in this exercise because the United States is. If we're not -- it's an integrated industry. If we don't do our share north of the border, the industry will simply shift out of Canada, and it's too important an industry to have collapse in Canada as it is in the United States.

We're working very closely with the Obama administration on this. Everything I have seen indicates that the Obama administration is determined to impose the tough conditions necessary to make this bailout work -- in other words, to make sure that at the end of it we have viable companies.

The last thing we want to do in Canada, I'm sure the last thing the United States wants to do is do, is do a bailout that fails in any case. If we're going to put taxpayer money in this, we have to make sure it works. And I think given the scope of this -- size of this industry, we have no choice.

WALLACE: Finally, briefly, if I may, sir, candidate Obama talked a lot last year about reopening NAFTA, renegotiating our trade agreements. Now that he is President Obama, has there been any serious move in that direction?

HARPER: Well, what President Obama said to me is he's concerned about the labor and environmental aspects. Those were side agreements in the original NAFTA agreement. He'd like to see ways that those are more comprehensively incorporated into the main body of NAFTA.

We're not close (ph) to doing that, provided we don't open the whole package, because I think it would be hard to ever put -- ever get the cat back in the bag if we tried to renegotiate the thing.

WALLACE: Prime Minister Harper, thank you. Thank you for coming in and talking with us, and safe travels, sir, to the G-20 summit.

HARPER: Appreciate it.

WALLACE: Pleasure to talk to you.

HARPER: Thanks for having me, Chris.

WALLACE: Coming up, our Sunday group weighs in on a very busy week for embattled Treasury Secretary Timothy Geithner. Back in a moment.



REPRESENTATIVE DON MANZULLO: I mean, do you realize how radical your proposal is? You're talking about seizing private businesses...

GEITHNER: No, this is...

MANZULLO: ... and you don't consider that to be radical?

GEITHNER: No, this is a prudent, carefully designed proposal to protect -- protect our financial system.


WALLACE: That was Treasury Secretary Geithner getting grilled this week over his dramatic new plan to regulate the financial markets.

And it's time now for our Sunday group -- Bill Sammon, Washington managing editor of Fox News, and contributors Nina Easton of Fortune magazine, Bill Kristol of The Weekly Standard, and Juan Williams, from National Public Radio.

So, Bill Kristol, is the Geithner plan a radical power grab, as some critics would say, or is it a reasonable response to the train wreck we're in?

KRISTOL: It's a pretty radical and somewhat reasonable response to a pretty radical situation. I mean, I tried to talk to some people to figure out what to think about it, and I think parts of it are sensible, and parts of it perhaps not.

But the notion that you do need a new regulatory scheme to take care of the non-bank type banks that were not regulated adequately, clearly, in the late '90s and over the last decade -- that's not unreasonable.

So I think it would be foolish for conservatives to say, you know, "Everything was great. We just need to sort of somehow hope this crisis goes away and go back to the system we had in 1999 or 2004." That's not going to happen.

WALLACE: So what troubles you or those people that you talked to who tell you what you should think?

KRISTOL: The way he set up these public-private partnerships seems very (inaudible) -- you know, you need $10 billion (ph) to participate. It was basically -- they're going to channel all the federal money, the federal matching funds, through very few big firms, big firms like Goldman Sachs and BlackRock that were involved in designing this plan.

I think there are sort of freer market ways, ways that would allow an awful lot more people -- a lot more people to come in and manage the private money with the government matching money.

WALLACE: Well, Nina, let me ask you, though -- and we'll keep the whole public-private partnerships for later -- in terms of regulation, as Fortune Magazine's representative here, good or bad?

EASTON: Well, I think it's going to be the most dramatic entry by the government into the private sector since FDR. It goes so much farther than anybody was talking about say a year ago.

This idea of monitoring systemic risk has been around. It's a good idea. And part of it is -- part of the idea that's good is the -- raising capital requirements, for example, on behemoths that are involved in risky activities that might bring down the global financial system. That's fine. Monitoring things like credit default swaps -- that's fine.

But this goes so much farther. You're talking about regulating executive compensation. You're talking about monitoring firms to see if they're acting in the long-term interest, not the short-term interest.

You're talking about the government getting in and controlling and guiding decisions of private executives, and I think that that's -- I think that's why you saw even Democrats reacting to this plan the way they did this week.


WILLIAMS: Seems reasonable to me. You know, I think we've got the reasonable Bill Kristol with us this Sunday morning, because I think this is a rational response to what has been a lack of regulation on the part of the government, and it's led us into this economic calamity that we're suffering through at the moment.

So if you're saying -- as the president indicated in his news conference, if you're saying in the case of a bank, if the bank is having trouble, the FDI steps in and people trust the FDIC to do the right thing -- here, we're saying simply, "You have to have some necessary minimum capital assets and we want to know about your risk assessment early on so that we can make a judgment, because it's not just that you're too big to fail. It's that you would, if you fail, have a ripple effect across the American economy," which is what we've seen, and so we've got to stop that right now as a prudent, cautious American government whose interested in the best-case scenario for American taxpayers."

WALLACE: Bill, let me ask you about that. I mean, with all the craziness that we've had about derivatives and credit default swaps, isn't there a role for the government to play, to step in and say, "Here are the rules of the road. Here are some standards."

SAMMON: Well, that's it. There is a role. And I think Juan and Bill are making this into an all or nothing. In other words, you know, you're either going to have no regulation or all pervasive regulation as Nina has described.

I think conservatives are rightly concerned that Obama is using this as a pretext for a wide power grab. Never waste a good crisis seems to be the motto of this administration. And I think the fear is that, A, you can't -- I think conservatives feel they can't trust this administration to grab that much governmental authority, where you're regulating not just banks but insurance companies, and hedge funds and a whole host of financial institutions.

And B, and perhaps more importantly, can you trust future administrations to do this? Who knows who's going to be in power in the future? And you're going to give this broad authority that you'll never get back.

EASTON: And I would just add to that the politics over which financial firms are going to qualify as a systemic risk -- the politics over that are just going to be, you know, astonishing, given the draconian restrictions that are on this.

I mean, the lobbying to be -- make sure you're not part of this -- you know, it just -- it just -- it injects a level of politics into the private sector that I don't think is healthy.


Let me ask you about that, Juan, because one of the things people say, you know, particularly if you start bringing in hedge funds or private equity companies -- I'm not talking about Citibank or, you know, these companies that are so huge and so based in this country -- is that there will just be a flood of these companies and their money overseas to avoid regulation.

It will just be a big stimulus package for foreign investment.

WILLIAMS: You know, I find this incredible, because many of these companies -- not the hedge funds, but we know about AIG. We saw what happened with Lehman Brothers. AIG wouldn't exist unless the government had come in.

You're talking about Goldman Sachs, Bancorp, Bank of America -- all these people got dollars from U.S. taxpayers that assured their existence, and now that people are saying, "Well, wait a second. You have to live up to some standards." This is what happened in the meeting with the bankers that the president had this week. The bankers come in and say, "Cool the rhetoric. We don't want to be attacked. We're not the bad guys here and you want our help." But wait a second.

It seems to me that the U.S. government has also been there to help these banks and that the American taxpayer, the American small business looking for a loan, has not seen a reciprocal action taken by the banks to loosen up lending.

EASTON: But, Juan, you can set standards, and you can monitor risk, and you can monitor operations like credit default swaps without basically controlling decisions, strategic decisions, by these companies.

WALLACE: All right. That's fine. I want to pivot because we have limited time here.

Bill Kristol, let's talk about what you were discussing before, the other big Geithner plan that week, and that is -- I love it. It's -- the acronym here in Washington is PPIPs, which is public-private investment program.

And this is the idea that you get the government to partner up with big private investors to buy these toxic assets off the books of the banks. Basic question -- is it going to work?

KRISTOL: I think it can work and something like that has to work. I mean, they need to get the toxic assets off the books. There's not enough government money to do it. Even if the government were to nationalize the banks, at the end of the day they would be selling -- what would be the point? They would sell those assets to private parties. So the question is how to do it.

I think the two are related, the partnerships and the regulatory (inaudible) which means there are smart ways to regulate that are friendly to entrepreneurship and free markets, and foolish ways.

I mean, Juan mentioned the banks and the insurance companies. They're highly regulated and they're the ones that brought the system down. The much-maligned hedge funds don't actually seem to have brought the system down.

Hedge fund managers I've talked to would regulate -- would welcome some forms of disclosure and regulation. We have margin requirements for stocks. We've had that since the '30s. No one thinks that we didn't have a flourishing stock market in the United States for the last 70 years because you couldn't leverage yourself 100-1 when you bought stocks.

The same with other -- so the way in which you regulate is terribly important.

WALLACE: Nina, I want to end this discussion of this part with you, because you probably are the only one here who really knows what you're talking about, to put it simply. One of the big questions with these investment partnerships is are the investors and are the banks going to be able to agree on a price, and the big concern being that the investors obviously won't want to pay too much, and the banks won't want to take too much of a loss, because that will devalue all of their holdings.

How -- obviously, it's very important. What do you think is the likelihood they'll be able to agree on a price?

EASTON: But again, it injects politics into this, and that -- that does become a problem. If you -- if the price is such that these investors make too big of a profit, then lawmakers on Capitol Hill are going to go crazy. So it's really...

WALLACE: But why? We're part of the investors.

EASTON: And yet -- and yet it has to be...

WALLACE: We'll get part of the money.

EASTON: And yet it also has to be -- yes, it has to be structured so that the taxpayers who are saving these institutions come out whole at the end. So it's a really -- it's a very fine line to walk.

SAMMON: Well, that's exactly the problem that...

KRISTOL: This is why it has to be a clear and transparent auction. My biggest problem with what Geithner's done is that -- and I don't think he intends it this way, but it's going to look as if it was an insider deal which will then get second-guessed, and you will have a lot of outrage and some legitimate second-guessing.

If you have a clear and transparent auction of these assets, that's not -- then the price will be set by what people are willing to pay for them.

WALLACE: All right. We have to take a break here. I'm glad I gave you the last word, Nina.

But when we come back, violence rages in Mexico, and Secretary of State Hillary Clinton says the U.S. bears some of the responsibility. You'll want to stay tuned for this.


WALLACE: On this day in 1973, the United States withdrew all combat troops from Vietnam. The peace agreement included a cease- fire, the pullout of U.S. forces, and the release of prisoners of war.

Stay tuned for more from our panel and our Power Player of the Week.



HILLARY CLINTON: We've got to help out here. We can't stand by and say, "Well, you know, you guys just do the best you can," when we, unfortunately, are the market for drugs.


WALLACE: That was Secretary of State Clinton in Mexico telling Greta van Susteren the U.S. shares some of the blame for that country's exploding drug violence.

And we're back now with Bill, Nina, Bill and Juan.

Bill Sammon, clearly, as a matter of fact, Clinton was right, that the -- that the drug demand in this country does help fuel the violence in that country, so why did it spark such outrage here?

SAMMON: Well, certainly, the United States bears some culpability because without our demand for the drugs, we wouldn't have this problem.

However, I think it's a matter of degree. I think the left reflexively places a disproportionate share of the blame on America, as they do in many cases, and saying, "Well, you know, it's really our fault because we're not only consuming these drugs, but we're sending these -- we're manufacturing the weapons that are going across the border and are causing, you know, all of this violence."

The reality is that Mexican drug cartels are shooting each other, OK? Yes, the United States bears some responsibility for this overall problem, but when Hillary Clinton comes out and says, "Well, we're co- responsible," that sends the wrong message to some people.

And also, you know, you see people like Attorney General Eric holder saying, "Well, maybe we should go back to the ban on assault weapons." That gets the gun control issue riled up.

And even some "Blue Dog" Democrats are saying, "Don't go there." These are Democrats that have to face relatively moderate voters for re-election, and so they're already signaling -- in fact, there were 65 House Democrats that sent a letter to Eric Holder that said, "Don't put in new gun restrictions." If the -- if the current gun restrictions had been followed, this problem wouldn't exist. WALLACE: Juan?

WILLIAMS: Chill out, dude.


I mean, I don't think...

WALLACE: You wouldn't have dared to say that to Brit Hume.


WILLIAMS: I mean, come on. Wait a second. Of course -- why is there this nervousness about blame America? It's -- the reality is Mexico is our neighbor. Ninety percent of the guns going in there are coming from the U.S. We are the number one market for illegal drugs, narcotics, in the -- in the world.

And of course, we have a risk here in terms of the kind of violence that we're seeing from the cartels extending across our border. We've seen already kidnapings in places like Phoenix, murders up along the border.

So it seems to me natural that we would want to have a collaborative relationship. And what has happened recently is you had Dennis Blair, the director of national intelligence, saying, "You know what? We think Calderon's losing control of parts of Mexico." We've seen people say it's too much interference.

Here's Hillary Clinton coming out and saying, "Let's work together. We can solve this problem." I think that's very positive.

WALLACE: All right. Let me turn to another foreign policy subject this week.

Bill Kristol, the president's new policy on Afghanistan -- did he do enough?

KRISTOL: Yeah, I think so. I mean, I think he'll have to send some more troops at the end of the year, and I would have changed the rhetoric slightly, but he's basically all in to win the war in Afghanistan, as he should be.

I think he made the right decision. He overruled those in his administration who wanted to go with a very minimalist approach, which I don't think will work.

If you want to defeat Al Qaida and if you want to secure the U.S., it turns out you have to do more than just occasional air strikes -- that's what we tried in the late '90s -- and you do need to engage in a big -- in a counterinsurgency. It's what we did in Iraq, and it worked. And I think it will work in Afghanistan.

I was told that at the meeting with the Senate and House leadership on Thursday, Obama laid out the plan, and Harry Reid -- Nancy Pelosi did not like it at all. She's against, you know, the surge in Afghanistan. And Harry Reid -- someone -- I think a Republican member -- said, "So this is like in Iraq. It's a surge of troops," which, of course, it is, and a very similar strategy, actually. And Harry Reid , the Senate majority leader, apparently said, "Whatever you do, Mr. President, don't call it a surge."

God forbid you should retroactively legitimate -- legitimize what President Bush did. But -- but President Obama did the right thing.

WALLACE: And, Nina, what about what seems to be a new focus on this as one problem in Afghanistan and Pakistan, and perhaps the weakest part of the plan, if I may say so, the idea that somehow we are going to change the behavior of the Pakistani government and the Pakistani military in terms of their subterranean support for some of these extremist elements?

EASTON: Yeah, and it -- once again, that's another issue that points up the difficulty that this president's going to have. It's very -- to me, very similar to the difficulties you have in Iraq. I mean, all this -- this emphasis on differences -- this is not -- this is not George Bush in Iraq. But so much of it is similar.

You've got the non-surge surge. You've got the need both in Pakistan and Afghanistan for a population that needs to be secure. Security is a main issue. You've got the need to train troops there, local troops, to -- and that's going to be a long, time-consuming process.

And then you've got the political problem of is this country really -- isn't there war fatigue? Is this country really going to stand behind what it's really going to take to secure Afghanistan and, to a lesser extent, Pakistan?

So I think -- I think politically the president faces a lot of the same issues that George Bush did with Iraq.

WALLACE: Bill, go ahead.

SAMMON: That's -- that's because it is a surge. And Harry Reid doesn't want to call it a surge because he came out against Bush's surge, said it wouldn't work, said we'd lost the war, and we didn't.

And that's the difference between liberals and conservatives. Conservatives have the intellectual honesty like Bill Kristol here to support both surges, whereas a lot of Democrats reflexively opposed George Bush's surge because -- it wasn't so much because they were antiwar. It's because they wanted to destroy the Bush presidency. And that's why a lot of the lefty groups are now silent about Obama's surge in Afghanistan.

WALLACE: Let me ask you about that, Juan. Do you think -- and I agree it's going to be a key issue, because everybody says that this is not going to be something that's settled quickly. This is going to be a long, tough war.

How much trouble do you think that President Obama gets from his left in terms of -- as we get into the 2010 elections, the 2012, their continued support for a major U.S. combat involvement in Afghanistan?

WILLIAMS: I think he gets trouble. Now, if President Obama is trying to make the case that this is the real war, this is the good war, if you will, as opposed to what we've seen taking place in Iraq -- and I would say to my conservative friends, you're right.

I think there's a great deal of sensitivity about the use of the word surge, and I think there's a little bit of hypocrisy because the surge has been a success. So I mean, that's the fact.

But when you think about the roots of that war in terms of going after weapons of mass destruction and all the rest, you know, that there's a longer term story.

In Afghanistan, there clearly is -- and this is something that I picked up from your interview with Gates, and I thought he was terrific -- is saying you know what, there still is a real threat coming from Al Qaida, and we have to go after it because they still have, he said, the capability to attack the U.S.

I was surprised to hear him say it, but he said it this morning right here. So we have to deal with it, and I think that part of that is a responsible President Obama saying, "We're going to take aggressive action," even if it comes at a political cost to him from his left, and it will. You watch. You've already seen protests in this town.

WALLACE: We're going to have to leave it there. Thank you, panel. See you next week.

And don't forget to check out the latest edition of Panel Plus, where our group here keeps arguing on our Web site,, shortly after the show ends.

Up next, our Power Player of the Week.


WALLACE: A popular new Democratic president, big Democratic majorities in Congress -- you would think these would be tough times for conservatives. But not so, says our Power Player of the Week.


FEULNER: We're not just a bunch of eggheads sitting around smoking pipes and thinking deep thoughts. We're actually trying to change the way Washington operates.

WALLACE: Ed Feulner is president of the Heritage Foundation, known as the beast of conservative think tanks. From its base on Capitol Hill, Heritage looks for new ways to advance its principles.

FEULNER: Those basic principles are free enterprise, limited government, strong defense and traditional American values. And we try to promote those principles through the idea on Capitol Hill.

WALLACE: One of its biggest issues now, missile defense, the subject of a new documentary.


NARRATOR: And right now, we are not protected.


FEULNER: It's more than 25 years ago that Ronald Reagan first announced this, and we still don't have a fully deployed system. So we keep pushing and shoving the Washington establishment on it.

WALLACE: With a staff of 250 and a budget of $60 million, Heritage does plenty of pushing and shoving. Conservative stars who have worked there include Jack Kemp and Bill Bennett, Ed Meese and Bush Labor Secretary Elaine Chao.

Feulner believes you've not only got to come up with new ideas, you have to sell a strategy to make them law.

FEULNER: The notion that coming out with a nice 200- or 300-page book, that you send 50 copies around to every member of the House and Senate, and it just sits on their bookshelf -- well, why bother?

WALLACE: Ed Feulner helped found Heritage and took over as president in 1977.

What was it about the conservative point of view that attracted you as a young man?

FEULNER: It lets the individual flourish. It's equality of opportunity. It's not equality of results. And that really appealed to me.

WALLACE: Is it true that you carry a copy of the Constitution with you?

FEULNER: I've got it right here. There you go. The basics are all there. Our founding fathers had it two centuries-plus ago.

WALLACE: But Heritage really came into its own when it published this set of policy recommendations as Ronald Reagan became president.

FEULNER: At his very first cabinet meeting, he put a copy of "Mandates for Leadership" on the desk of every one of his cabinet members. It wasn't just a list of desirable basic principles. It was how you get from here to there.

WALLACE: During the Reagan years, Heritage offered practical advice on tax cuts, less regulation and, yes, missile defense. Now Feulner faces a Democratic Congress and President Obama.

FEULNER: His policies scare me. They really do, because what they're doing is they're centralizing more and more power here in Washington. And that isn't the way America grew.

WALLACE: But Heritage keeps churning out ideas and keeps pushing them on Capitol Hill, confident its time will come again.

FEULNER: If we can get more and more Americans thinking the way we do in terms of these basic conservative principles as alternatives to what's being put forth by the administration, it's a very, very exciting time, and we're going to be winning.


WALLACE: Feulner travels 150,000 miles a year selling his ideas. And he says membership in Heritage is now growing by 1,000 people a week.

Starting tonight, you can see our entire show, or just your favorite segments, on Please check it out.

And that's it for today. Have a great week, and we'll see you next "FOX News Sunday."

For more visit the FOX News Sunday web page.

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