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ANDERSON COOPER 360 DEGREES

Senate Defeats Flag Burning Amendment By One Vote

Aired June 27, 2006 - 22:00   ET

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


JOHN ROBERTS, CNN ANCHOR: Good evening again, everyone.
Tonight, here in Washington, the country came as close as it has in years to changing the Constitution.

ANNOUNCER: Narrow margin, a single vote stops the flag protection amendment but the political fires still rage.

On the brink, air strikes on Gaza and tanks on the roll. Will Israel go to war over a single kidnapped soldier?

The cost of victory, or defeat. The price tag for Iraq, already a shocker, is the Pentagon hiding billions more of your tax dollars? We're keeping them honest.

And from Washington to the West, they've seen fire, and they've seen rain. Across the country and around the world, this is ANDERSON COOPER 360. Tonight, sitting in for Anderson and reporting from CNN's Washington bureau, here's John Roberts.

ROBERTS: And good evening again. It doesn't happen often in Washington. Lawmakers deciding with a single vote and by a single vote what kind of country this is.

In today's case, is it a country that alters the bedrock law of the land, the Constitution to protect a cherished symbol of it, the flag?

All the angles tonight on the amendment's narrow defeat in the Senate, a bill that if passed that legislators in all 50 states had voted to support.

Also, the election year backdrop from flags to same-sex marriage to pulling out of Iraq. Critics calling it a Republican ploy. Whatever it s a new poll out tonight saying it's working.

Plus new word on the dollar cost of the war in Iraq and Afghanistan. And there are charges that the Pentagon is low-balling you and me on the real bottom line, all that and more coming your way.

ROBERTS: First the flag amendment and CNN's Dana Bash.

(BEGIN VIDEOTAPE)

DANA BASH, CNN CORRESPONDENT (voice-over): Senators pushing the flag desecration amendment used the pre-Fourth of July election year debate to argue changing the Constitution is necessary and in this case the ultimate expression of patriotism.

SEN. JOHN CORNYN, (R) TX: The American flag is a monument, a symbol of our freedom, our country, and our way of life. Why in the world would we refuse to protect it against desecration?

BASH: Opponents were careful to pledge their allegiance to the flag, too, but said protecting the First Amendment is paramount.

SEN. ROBERT BYRD, (D) WV: I believe that amending the Constitution to prohibit the flag desecration flies in the face of every -- face of First Amendment right, like freedom of speech.

BASH: Supporters have been pushing to amend the Constitution since 1989, to overcome Supreme Court rulings that said laws banning flag desecration restricted freedom of expression.

SEN. ORRIN HATCH, (R) UT: It just says we're going to return this issue back to the congress where it should have been to begin with. And it says these exact words, "The Congress shall have power to prohibit the physical desecration of the flag of the United States." Does that mean the Congress has to? No. Will the Congress? I hope so.

BASH: Democrats called the debate about Old Glory four months before election day politics at its worst, and asked where would you draw the line?

SEN. FRANK LAUTENBERG, (D) NJ: There he is, Kid Rock with his head through the flag. Is that a desecration? It was such a desecration that he was invited to address the Republican convention. And they partied with him. And they loved him. What constitutes desecration?

(END VIDEOTAPE)

ROBERTS: And Dana Bash, what do Republicans say to Democratic accusations that their priorities are misplaced and this is just a crass political move in the middle of a heated and very tight election here?

BASH (on camera): Well, you know, Democrats are saying that especially even those who voted for this, say wait a minute, flag burning, flag desecration, this is not a big problem in this country. The answer according to Republicans is, you know what, they do believe this is something they see that needs to be addressed on the floor of the United States Senate.

The Republican leader was asked that question today, you know, the question, is this really a priority that needs the time of the U.S. Senate? He said it is the one symbol, talking about the flag, that represents our values, or history, enduring values so he said you bet, but I can tell you, John, talking to some rank and file Republicans they were relieved that this debate took just two days, not the whole week because they were getting worried about those acquisitions that they looked out of touch with what's going on out in the real world, shall we say. ROBERTS: Well, a majority of American voters support a flag burning amendment. However, we haven't asked them whether or not they think it's an urgent priority. Dana Bash on Capitol Hill, thanks.

BASH: Thank you.

ROBERTS: Expanding a bit now on the politics of this and the war, whether or not as Democrats allege it's all part of a Republican ploy, there is new evidence tonight the Republican message is gaining traction. With that angle, CNN's Candy Crowley.

(BEGIN VIDEOTAPE)

CANDY CROWLEY, CNN CORRESPONDENT (voice-over): New polling suggests House and Senate debates on a U.S. withdrawal from Iraq may have given Republicans a little bit of political juice.

SEN. BILL FRIST, (R) MAJORITY LEADER: Cut and running before Iraq can really defend itself, I believe threatens the American people.

SEN. HARRY REID, (D) MINORITY LEADER: These terms that my friends like to throw around, cut and run, tax and spend. The American people know what's going on here. They know what's going on.

CROWLEY: A "Washington Post"/ABC poll finds Republicans with a seven-point edge on the question of which party would best handle terrorism. Forty-six percent of Americans said Republicans, 39 percent said Democrats. That's a seven-point drop for Democrats in a month.

In between the May and June polls, U.S. troops killed al Qaeda leader Abu Musab al Zarqawi, the Iraqi government completed its Cabinet. President Bush flew to Baghdad and in House/Senate debates, Republicans poked at the Democratic fissure over whether and when to set a timetable for withdrawal.

CORNYN: It appears that they have no unifying position and they have no plan to lead to victory in Iraq.

SEN. DICK DURBIN, (D) IL: A hundred percent of the Democratic Caucus believes it's time for change and 100 percent of the Republican Caucus believes it's time to stay the course.

CROWLEY: The new poll shows democrats lost ground on Iraq. They still hold a six-point edge as a party that would do a better job in Iraq but Republicans gained five points.

DONNA BRAZILLE, DEMOCRATIC ANALYST: They stabilized, perhaps they've gotten a little political I.V. with all of the red meat being thrown at them. But the good news is that Democrats are still well- positioned.

CROWLEY: Democrats still enjoy a healthy double-digit lead when people are asked whether they prefer Democratic or Republican congressional candidate. Still, Democrats don't want to cede any ground on the signature issue of this campaign. They are continuing the debate long after the roll call, embracing as precisely what they proposed the words of the top commander in Iraq that some troops may come home by the end of the year.

SEN. CARL LEVIN, (D) MI: I don't put it beyond Republicans to call General Casey old cut and run General George Casey, totally inappropriate but that won't stop them.

CROWLEY: While the House/Senate debates may have budged the politics of '06, they did little to change minds on Iraq. The "Post" poll and another by Gallup show Americans remain just about evenly divided over whether to set a timetable for withdrawal.

(END VIDEOTAPE)

ROBERTS: Candy Crowley is with us now. And Candy, what do we make out of this shift in the poll numbers, leading away from the Democrats and a little more toward the Republicans?

CROWLEY (on camera): We make that it's a shift but I can tell you, if you ask Democrats, they can show you any number of poll numbers within both of these polls that we looked at today, that show that the landscape is still very much favorable to Democrats for this coming election. Republicans, it would seem, did a good job of putting out their side during this debate, I mean, that is the one thing that seemed to have changed from other polls we've looked at.

So the debate certainly worked well for Republicans, they looked together, cut and run clearly is a phrase that slices through public psyche, but it is just a snapshot, as you know, as all polls are. There will be other polls coming up.

ROBERTS: All right. Candy Crowley on the Capitol desk tonight. Candy, thanks and we'll see you a little bit later on for our political roundtable.

Two other pieces of information tonight came too late to play a part in the latest batch polls, they just might figure in the next round of polls. One of them a Pentagon assessment of the massive security operation launched two weeks ago in Baghdad, the report noted a slight decrease in violence but falling short of the kind of improvement that commanders on the ground would like to see.

As for the second item on how much the war in Afghanistan and Iraq is costing the numbers are sobering. Sobering, and critics say incomplete. CNN's Joe Johns is keeping them honest tonight.

(BEGIN VIDEOTAPE)

JOE JOHNS, CNN CORRESPONDENT (voice-over): It's been a costly war in lives and limbs and in dollars and cents. War-spending in the aftermath of 9/11 now at an estimated $437 billion, according to a report by the Congressional Research Service. Almost three-quarters of that, $319 billion, has been for Iraq.

If the new numbers are security, from year to year, funding for the war efforts has increased dramatically, from $31 billion for the first year to well over $100 billion for fiscal year 2006, but that's just an estimate, because the report says it's been hard to get a full accounting from the Pentagon. Congressional Democrats say that's no accident.

REP. DAVID OBEY, (D) HOUSE APPROPRIATIONS COMMITTEE: Oh, I think the White House and the Pentagon, the civilian leadership of the Pentagon have done every possible thing in order to conceal those numbers. Instead of bringing down regular budget requests, they bring it down on the installment plan, a little piece at a time in a supplemental, that means that the public is going to have a devil of a time figuring out what the actual cost of this war is.

JOHNS: What no one doubts is that the cost is on the rise. Why? The pace of the war, for one thing. Also, force protection, such as body armor, increasing oil prices, but there's also the issue of military gear.

War is hard on it, and much of it needs to be repaired, if not replaced when troops leave Iraq. In Pentagon jargon is called resetting, and apparently Congress never fully addressed those replacement or repair costs. And the generals now need the money to pay for all of those war-ravaged tanks, humvees and uniforms.

GEN. PETER SCHOOMAKER, ARMY CHIEF OF STAFF: By the end of this year, fiscal year 2006, which will end in three months, we will have placed approximately 290,000 major items of equipment into reset.

JOHNS: Army chief of staff Peter Schoomaker said his branch will need $17 billion for equipment that got run down or trashed in the war. Not to be outdone, the Marine Corps says it will need almost $12 billion.

GEN. MICHAEL HAGEE, MARINE CORPS COMMANDANT: We have aged it, as the chairman mentioned, five, six, seven times more than we thought that we thought that we would, and we have used it in a very harsh and unforgiving environment.

JOHNS: So you're a taxpayer, hold onto your wallet, because keeping them honest, even with all the talk of troop withdrawals and drawdowns, the Pentagon will still need more cash to fix up all of the stuff that got destroyed and run down in combat, and according to the generals, the repair bills will keep coming years after the war ends.

(END VIDEOTAPE)

ROBERTS: Joe Johns is joining us live now. Joe, some people might wonder that if the war is winding down, why do they need to refit all this equipment?

JOHNS (on camera): Well, it's not over yet and you never know when the next one is going to break out. The bottom line, future costs of course depend on the number of deployed troops, as well as the pace of operations. At the same time, John, the military needs to get geared back up and be ready for current threats as well as the next threat, whenever and wherever it happens. ROBERTS: Joe Johns live for us tonight Joe, we'll see you coming up next hour in the roundtable as well.

The cost of war is measured in more than money. Here's the raw data. So far this month the pentagon says 54 U.S. troops have been killed in Iraq, for the year, 347 have died in Operation Iraqi Freedom. And since the war began the death toll now stands at 2,527 American servicemen and women killed in Iraq and Afghanistan.

Iraq is not the only hot spot making headlines. After days of escalating tension Israeli troops have rolled into southern Gaza. A developing story tonight. Coming up, CNN's John Vause reports live from Gaza City.

Plus dozens of wildfires burning from Florida to California. In the Northeast, flooding is the problem. The latest on both of those coming up.

And the "New York Times" under fire from Republicans for reporting on a once secret program tracking bank records. How the paper is fighting back, coming up on 360.

(COMMERCIAL BREAK)

ROBERTS: Those fires you see are burning in Gaza. Evidence of a tense night where Israeli troops entered the Palestinian Territory they say to rescue a kidnapped Israeli soldier. Joining us live from Gaza City, CNN's John Vause. John, what's going on?

JOHN VAUSE, CNN CORRESPONDENT: Well, John, the Israelis had been warning that time is running out for the safe return of 19-year-old Gilad Shalit and tonight a the first stage of what could be a prolonged military offensive swung into action.

(BEGIN VIDEOTAPE)

VAUSE (voice-over): The warplanes struck in the early hours of the morning here. The fires from the bomb blast glowing in the dead of night. Israeli fighter jets bombed two bridges and a power station, knocking out electricity. Then came the troops and tanks moving into Gaza, a military operation is under way.

Inside Gaza armed Palestinians prepare for battle. Earlier dumping piles of sand to slow down the advance of Israeli tanks provide cover for gunmen.

AMIR PERETZ, ISRAELI DEFENSE MINISTER: There is no doubt we will have to carry out an operation which could cost many lives. But the Palestinian groups have to understand there is a price to pay for any attacks against Israel.

VAUSE: The Israelis are demanding the immediate release of Corporal Gilad Shalit, the 19-year-old soldier was kidnapped in the weekend in a deadly raid that began underground.

Early Sunday morning Shalit and several other Israeli soldiers were stationed near the Gaza border. According to reports, seven or eight Palestinian militants entered Israel through a secret tunnel. When they emerged the attackers were nearly 1,000 feet into Israel and close to the army out post.

The Palestinians opened fire on the soldiers, two Israelis and three militants were killed and Shalit was taken hostage. This is the latest in the recent surge in violence between both sides.

Earlier this month a shell killed eight Palestinian civilians on a Gaza beach. The Palestinians said Israel fired the missile. Israel denies it.

There is no denying Israel's actions today. The military wing of Hamas, the militant party that governs the Palestinians, claimed responsibility for kidnapping him. But Israel says it's holding Palestinian President Mahmoud Abbas accountable. Today secretary of state Condoleezza Rice called for calm urging Israel to give diplomacy a chance. But tonight, it is too late.

(END VIDEOTAPE)

ROBERTS: Now, I'm not sure for the peace process now. But John Vause, with the Hamas government under so much international pressure, and under pressure at home because of the withdrawal of international aid, why do they think it was a good idea at this point to kidnap an Israeli service member?

VAUSE (on camera): Well, in the past the Israelis have often paid dearly for the return of their servicemen, either dead or alive. In 2004 the Israelis swapped 400 prisoners for a colonel being held by Hezbollah and the bodies of three dead Israeli soldiers.

But there a distinction here between the political wing of Hamas and the military wing of Hamas. The political wing of Hamas currently in power in the Palestinian Legislative Council claims to have had no knowledge of this military attack on the Israeli base on Sunday. From what we are hearing it was by write the Hamas leadership in exile in the Syrian capital of Damascus, John.

ROBERTS: All right. John Vause for us tonight live from Gaza. John, thanks very much.

Here in the United States, wildfires causing havoc. The season has barely begun and it's already a record setter. At the Grand Canyon, hundreds of people cut off near the north rim. We'll catch you up on that.

Plus, Katrina fraud. We've been tracking it here at 360. Reportedly up to $2 billion of your tax money. Hotel owners charging for guests who didn't exist.

A mother claiming benefits for children she never had. We're keeping them honest when 360 continues.

(COMMERCIAL BREAK) ROBERTS: Gunshots tonight at the airport in Las Vegas. According to police it all began when a man grabbed a three your old boy, ran through a security checkpoint and then held the boy at knifepoint at Brookstone store. Police say they tazered the man who freed the child and then they shot him twice when he lunged at him. The boy was unhurt. The gun man is in the hospital. His condition is unknown.

Now, Thomas Roberts from Headline News with some of the other stories we're following tonight. Hi, Thomas.

THOMAS ROBERTS, CNN HN ANCHOR: Hi, John. Tomorrow structural engineers will arrive at the sight of an Elks Lodge collapse in Clinton, Missouri that killed the club's president.

Still unknown, what caused the top two floors to come crashing down last night. The club's president was the only person killed. Nine others trapped inside that lodge were rescued. And none appeared to have life threatening injuries.

In Houston, murder suspect Andrea Yates cried as prosecutors showed jurors crime scene videotape-her dead children. Yates had been convicted four years ago in her children's death but that ruling was overturned because of erroneous testimony. Yates has pleaded not guilty by reason of insanity.

In Washington, Surgeon General Richard Carmona says overwhelmingly scientific evidence proved that secondhand smoke causes heart disease, lung cancer and other illnesses. He warns that buildings that are not smoke free put nonsmokers at risk even if they have separate smoking sections.

Carmona says more than 126 million Americans regularly smoke involuntarily.

All right. Big news out of New York. Star Jones Reynolds leaving "The View." She made the announcement during today's show. Reynolds tells "People" magazine that she feels like she was fired. Since her contract was not renewed.

Reynolds had been the target of several caustic remarks by Rosie O'Donnell who is joining "The View" coming this fall. Rosie taking the place of Meredith Vieira and I think Barbara Walters now starting to speak out feeling like she was ambushed by the announcement by Star today. So, John, big news from the girls on "The View."

ROBERTS: They're going to have to rename that show the "Meow- Meow Room" or something like that.

T. ROBERTS: Milk in the corner.

ROBERTS: Thomas, this is going to pale in come spare son but here's the shot tonight.

Comes from the South Lawn of the White House. The young man jogging with President Bush is Staff Sergeant Christian Bagge, he lost part of both of his leg in a roadside bombing in Iraq. On New Year's Day he met the president at Brook Army Medical Center in San Antonio, Texas. Told him that he wanted to run with him one day. Today using a special set of prosthetic legs he did that. About a mile around the president's private jogging track there on the South Lawn of the White house. An amazing young man. What tenacity!

T. ROBERTS: Truly Christian is an amazing guy. Really inspirational. Definitely getting his stride back. That's for sure.

ROBERTS: I wish I would do an eighth of what he ran today. All right, Thomas, we'll see you later on in the hour.

T. ROBERTS: Thanks, John.

ROBERTS: People in the rain-soaked Northeast are coping with more of the same, much more. There are boats where's there should be cars. Children reported missing and fears that more rain will have nowhere to go.

Plus, the "New York Times" blasted by republican lawmakers. Did the paper go too far by exposing the federal government's access to financial transactions as part of its war on terror? We'll look at that when 360 continues.

(COMMERCIAL BREAK)

ROBERTS: Tonight, wildfires are burning in at least nine western states and Florida. The National Interagency Fire Center tells 360 us that fires are occurring at nearly three times the pace of an average season. Center stage today, sightseers stranded at the Grand Canyon's north rim, cut off by a wildfire. In fact, all over the Southwest folks are within driving distance of nature in flames.

(BEGIN VIDEOTAPE)

ROBERTS (voice-over): It was another day of fierce wildfires. More than 250 new blazes broke out from California to Florida. Most of them in the Southwest, 14 of them considered large and active.

TORY HENDERSON, NATIONAL INTERAGENCY FIRE CENTER: We're actually experiencing a little bit more of a critical weather pattern coming through at this time of year than we had last year.

ROBERTS: In northern Nevada fires have ravaged more than 79,000 acre in recent weeks, closing two major highways and forcing evacuations of at least 300 homes and businesses around Carson City.

The flames spread to an area 15 miles northeast of Reno but didn't immediately threaten any homes there.

More than 50,000 acres are still burning next door in Utah, one of the biggest fires, in (INAUDIBLE), it shut down parts of the Zion National Park. In many places bad weather isn't helping.

TORY HENDERSON, NATIONAL INTERAGENCY FIRE CENTER: We're getting a lot more dry lightning storms coming through in a variety of geographic areas at the same time.

ROBERTS: But rain is always welcome. In New Mexico it helped firefighter's battle six different blazes that have scorched the north. The biggest one has blackened 51,000 acres in the Helia National Forest. It is now mostly contained. There was high drama in Arizona, as a wildfire edged closer and closer to the Grand Canyon's north rim. The flames forced officials to close highway 67 on Sunday leaving about a thousand visitors and workers stranded on the Canyon's remote northern edge.

HENDERSON: The fire was approximately 20 miles from that edge of the park, so the threat wasn't there at this present time but they wanted to play it safe and get them out.

ROBERTS: National Park Service and firefighters today evacuated everybody from the area except for 30 workers who needed to stay. The firefighting is far from over.

SKYE SIEBER, NO. ARIZONA INCIDENT MANAGEMENT: We're at approximately 5 percent containment. Got 95 percent to go. We've got a large area now that we're trying to contain, over 50,000 acres. So a few more miles of containment line to build, none the less.

(END VIDEOTAPE)

ROBERTS: And fire season has just barely begun. On the east coast, it's the flip side. The northeast is saturated from one storm after another. State police in Maryland say parents in the city of Frederick are reporting that three children may be missing in a swollen creek. With more on the rain's impact up and down the east coast here's CNN's Jane King.

(BEGIN VIDEOTAPE)

JANE KING, CNN CORRESPONDENT: The flood gates here at the Howard Duckett Dam in Laurel, Maryland were opened to try to prevent more flooding like this. But dozens of people in this area south of Baltimore had to be evacuated.

TIM CLEVELAND, FLOOD VICTIM: I called the fire department to have them come get my kids out of the house so I knew they were safe. It was pretty much just fight for the house.

KING: In nearby Mount Aries, some people were stranded in their homes as firefighters struggled to get to them. And nearby Washington, D.C. declared a state of emergency after three straight days brought nearly a foot of rain and more flooding is expected. The mayor is considering calling in the National Guard. In upstate New York near Elmira the clean-up has begun after flash floods came roaring through. Boats, not cars were in the streets of Hancock, New York, rescuing residents.

JANE BARTOW, FLOOD VICTIM: I have family that's down there. I don't know if they're there or they got out. It's -- I don't even know what to say. This is just devastating. KING: Constant waves of heavy rain, also caused problems in Pennsylvania, sending creeks spilling into the street and leaving people without power.

UNIDENTIFIED FEMALE: It's a horrendous situation and it's become worse and worse with each storm.

KING: And it was slow going for Virginia Beach residents as flood waters took over some neighborhoods. Similar scenes were repeated from there all the way to New York.

UNIDENTIFIED MALE: This driveway just got flooded over. And then the roads, the river came up and everything was just flooded in.

KING: Officials in much of the eastern seaboard were calling on people to stay indoors because more rain and flooding is expected overnight and into tomorrow.

(END OF VIDEOTAPE)

ROBERTS: Jane King is live now in front of the Howard Duckett Dam up there in Laurel, Maryland, just off of interstate 95. Do emergency officials, Jane, think that opening the flood gates is going to take care of all of the flooding, are they hoping for the best? What's the story there tonight?

KING: Well, John, they are hoping. What they did was open six of the seven flood gates. They say this is a preventative measure to release some of the water. They say that would be better than having the dam overflow. That would cause even more damage. But this goes downstream into Laurel and dozens of families, at last count as of midday today, 60 families had evacuated the area. Just now they're voluntary evacuations. They may start demanding that if we continue to get rain. It is raining right now and we expect another five inches over night.

ROBERTS: The last thing they need is more rain. Jane King up there in Laurel, Maryland. Thanks very much.

"New York Times" is also getting flooded but with complaints from republican lawmakers. They say the paper helped terrorists by publishing classified information. The "Times" of course says otherwise. All the angles on that in just a moment.

Plus, what happened to the money that was supposed to help the victims of Katrina? Reports tonight of a shocking amount of fraud as FEMA allegedly wasted millions of your tax dollars. We're keeping them honest when 360 continues.

(COMMERCIAL BREAK)

ROBERTS: In the next hour of 360, a controversial form of aversion therapy that uses electric shocks to change the behavior of children and teens. Some parents say that it has saved their child's life, but the treatment has also sparked a lawsuit. CNN's Randi Kaye looked into the controversy. Take a look. (BEGIN VIDEO CLIP)

RANDI KAYE, CNN CORRESPONDENT: They call it the graduated electronic decelerator the GED. And half their students goes to school each day tethered to electrodes housed in a fanny pack. A student can wear up to five electrodes strapped to their arms and their legs. I strapped one here to my arm just to see how powerful the shock is. It's delivered with a remote control.

Ah! Oh, man! That hurts.

(END OF VIDEO CLIP)

ROBERTS: You can see Randi's full report on electric shock aversion therapy, that's coming up in our 11:00 hour here on 360.

Can words printed on the pages of an American newspaper threaten our national security? Many republicans are answering that question with an overwhelming yes. Today they blasted the "New York Times" again saying the paper may have jeopardized terrorism investigations by publishing classified information about them. The "Times" meanwhile is defending its actions. Here's CNN's Ed Henry.

(BEGIN VIDEOTAPE)

ED HENRY, CNN CORRESPONDENT: Republicans stepped up their barrage on the "New York Times" for publishing details of a once secret program tracking the banking transactions of terrorists.

SEN. PAT ROBERTS, (R) CHAIRMAN, SENATE INTELLIGENCE COMMITTEE: If another attack occurs because of this information going out and giving the terrorists at least a leg up in regards to what they know and not know and changing their method of operation. If that attack comes, the people who have written these stories and the people who made their decisions should look in the mirror.

HENRY: From the president on down, republicans have been reading from the same script.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The disclosure of this program is disgraceful.

DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: I think that is a disgrace.

Disgraceful and illegal.

HENRY: They're teeing off on news stories that reported questions about the legality of a Bush administration program that uses an international database to review the banking transactions of thousands of Americans. The story was also reported by the "Los Angeles Times" and "Wall Street Journal" but the attacks have focused on the "New York Times." The chance to beat up on a newspaper with a liberal reputation is too good to resist for an administration struggling to keep its conservative base happy. CHENEY: "New York Times" has now made it more difficult for us to prevent attacks in the future. Publishing this highly-classified information about our sources and methods for collecting intelligence will enable the terrorist to look for ways to defeat our efforts.

HENRY: But White House Press Secretary Tony Snow was less certain than the vice president when pressed Tuesday on what evidence there is the leak has compromised terror probes.

TONY SNOW, WHITE HOUSE PRESS SECRETARY: None of those things have had time to proceed so we really don't have any basis right now for knowing exactly how it's influenced things.

HENRY: Snow did charge the "New York Times" endangered lives by bucking a tradition of media organizations agreeing to keep government secrets at a time of war. But "Times'" executive editor Bill Keller defended the decision to publish writing, "I think it would be arrogant for us to preempt the work of congress and the courts by deciding these programs are perfectly legal and abuse-proof, based entirely on the word of the government.

But unlike the NSA domestic surveillance program, very few democrats have raised questions about the banking program. Republicans are confident they're on solid legal ground, which is why they're firing away at the "Times". If they score political points with conservatives along the way, so much the better. Ed Henry, CNN, the White House.

(END OF VIDEOTAPE)

ROBERTS: And we're going to take a quick break. When we come back, we're going to take a look at the legal and political implications of this whole thing. When AC 360 continues. Stay with us.

(COMMERCIAL BREAK)

ROBERTS: More now on the war of words and perhaps law between republican lawmakers and the "New York Times." Joining me now to discuss the legal and political elements from New York, CNN's senior legal analyst Jeffrey Toobin and in Boston former presidential adviser David Gergen. Jeffrey, Congressman Peter King says the "New York Times" may have violated the espionage act of 1917 and probably deserves to be prosecuted. From what you know of this, did the paper break any laws?

JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST: I think the answer to that is clearly no. The espionage act requires that a defendant intentionally intend -- intend to help a foreign power. Now, there is no way you could say the "New York Times" was trying to help a foreign power here. What they did may have been irresponsible, it may have been disgraceful, as the president and the vice president says, but it wasn't illegal.

ROBERTS: Alright well as Jeffrey just said and as the president said yesterday, David, and he was pretty heated about this whole thing, that it was disgraceful to disclose this program. What do you make of the situation, is the president just trying to get political points off the back of the "New York Times"?

DAVID GERGEN, FORMER PRESIDENTIAL ADVISER: Well, I think it's gotten a little over heated, hasn't it? It's not just the "New York Times," of course, it's several other newspapers, "Los Angeles Times," the "Washington Post", "Wall Street Journal," for goodness sakes.

I do think that this was a close and hard call. And it may be that these newspapers have gone over the line in this particular instance. But it ought to be seen in the context, and the context is one in which there have been some things going on by our government that many of us regret as citizens including Abu Ghraib and remember people were attacked for disclosing that and including things that are going on in Guantanamo. The NSA story that came out about the wiretapping, they were attacked, the "New York Times" was attacked on that by the right. That was certainly illegal. There was certainly an arguable claim. In this case there does not seem to be anything the government has done to break the law. And for that reason I do think it's a much tougher call for these newspapers to have done this.

I don't think that means they ought to be pilloried, I think that means we ought to have some deliberation and careful thought because they may have gone over the line in this instance. But I think it does have to be seen in the context in which there has been an awful lot of non-disclosure of things that are pretty sensitive and people, I think, Americans want to know.

ROBERTS: Well on one of those points let's get a legal opinion from the legal fellow. Jeffrey you heard in Ed Henry's piece that the executive editor of the "New York Times" is suggesting that what the government might be doing is not entirely legal. As far as you can tell, has the government done anything illegal?

TOOBIN: It's very hard to see any illegality here by the government. But just because it's not illegal doesn't mean it isn't newsworthy. What's a little peculiar about the administration's complaints here is that they've held press conferences, bragging about the fact that they are monitoring and intercepting the financial transactions of terrorists. They've bragged about that and all the "New York Times" and the other papers have done is supplied a little more detail. So the harm to the government and our war on terror is a little hard to see, especially when Tony Snow today couldn't come up with any -- any sort of harm specifically.

ROBERTS: Right. He said it's to early to tell, even though the vice president clearly said yesterday that he believed that it had done some harm. David Gergen, there's plenty of classified programs that are going on all the time around the world on a number of different fronts, whether it be in the war on terror, the war against organized crime, the drug war. Why do you think the "New York Times" felt compelled to put this one on the front page?

GERGEN: Well I think "Times" you know after all did win a Pulitzer Prize for disclosing the NSA eavesdropping. So the "New York Times" is a forward leaning, very aggressive position on a lot of this and it's -- I don't think there's any question the "New York Times" has generally been very negative about the president and about the handling of the war.

I do think on one thing about this, John, and I'm sure Jeffrey will probably agree with this, is whatever the -- whatever's proper here, I do think that the conservatives are using this in a way to whip up their base and they are gaining the upper hand politically in this fight. I think that their arguments right now are ones that are making gains for the conservatives and for the administration even though I think Jeffrey and I both believe this is over wrought.

ROBERTS: Certainly the White House and republicans on Capitol Hill have been going out of the way to try to fire up the base. The flag burning amendment, it narrowly failed today. The same-sex marriage amendment. Jeffrey do you think they're just trying to take advantage of an opportune political moment here to throw another bone to the right?

TOOBIN: I think that's part of the story, especially when you see that this was a story reported by the "New York Times", the "L.A. Times" and the "Wall Street Journal." And who do you hear the complaints about? It's always the "New York Times" because they are a symbol of the liberal establishment that many on the right don't like. You know, you wouldn't have the same resonance, it wouldn't be red meat, as David said, if the administration started attacking the "Wall Street Journal".

ROBERTS: Alright. Jeffrey Toobin in New York, David Gergen in Cambridge. Always good to see you. Got to say David, you're sounding a little like Tom Brokaw tonight, you got a cold?

GERGEN: Just a little bit of one -- too long on the runways.

ROBERTS: Thanks, folks.

GERGEN: Thank you.

ROBERTS: Now another storm, this one over hurricane relief. For months now 360 has been exposing Katrina related waste and fraud. We've done numerous reports on the half a billion dollars worth of mobile homes sitting unused in a Hope, Arkansas field. There's much more though. Today's "New York Times" reported that it has tallied $2 billion worth of Katrina waste, scams and mismanagement. So if true, who got away with what? CNN's Tom Foreman keeping them honest tonight.

(BEGIN VIDEOTAPE)

TOM FOREMAN, CNN CORRESPONDENT: Ten months after Katrina the biggest storm of modern times is still claiming victims. Among them, American taxpayers everywhere. Fraud and waste related to Katrina according to congressional investigators is now pushing $1.5 billion. It's enough to make even a senator shutter. Susan Collins is head of the Homeland Security and Government Affairs Committee.

SUSAN COLLINS, (R) MAINE: I have investigated a lot of examples of wasteful federal spending and I have never seen waste on this scale. The magnitude is just incredible. And it seems to be a bottomless pit.

FOREMAN: In the "New York Times'" latest tally of money lost or badly spent, nearly $8 million to renovate a military base in Alabama, which helped only a handful of evacuees. Nearly a quarter million paid to a hotel in Texas for storm victims who allegedly weren't there. About $400 million for trailers that are still empty.

UNIDENTIFIED FEMALE: Someone set it up and I'm stupid enough to go do it like a fool.

FOREMAN: You never lived in New Orleans, did you?

UNIDENTIFIED FEMALE: No.

FOREMAN: Other investigations have found thousands of cases of suspected fraud. People sending bills to the Federal Emergency Management Agency, FEMA, for work they did not do, for losses of homes, businesses, even children they apparently never had.

COLLINS: For example, FEMA did not verify the identity of all of those seeking assistance. So we had people in jail applying for FEMA aid for rental assistance, believe it or not.

FOREMAN: FEMA has been investigating many of these claims for months and the agency says all this is not as bad as it seems. Many surplus supplies they say can be used for future disasters. FEMA is now demanding better identification of victims, better control on who gets aid, and it's recovering money that was lost to fraud. It all takes time.

DAVID GARRATT, FEMA: But I would urge taxpayers to believe us when we say that we are making real and dramatic changes to how we do business. No one is more interested in and committed to improving how we do business than we are.

FOREMAN: Watchdog groups say they've heard such promises before.

SCOTT AMEY, PROJECT ON GOVERNMENT OVERSIGHT: I think as we're seeing from these reports that there are a lot of things that need to be corrected.

FOREMAN: Somebody better keep the bureaucrats honest, they say, because we're now in a new hurricane season. Tom Foreman, CNN, Washington.

(END OF VIDEOTAPE)

ROBERTS: Israeli tanks on the move tonight in Gaza. More on that coming up. But first, back to Thomas Roberts with the business headlines. Hi, Thomas.

T. ROBERTS: Hi, John. With the Fed expected to raise a key interest rate again this week. U.S. stocks tumbled today. The Dow lost nearly 121 points more than 1 percent. Its steepest decline in more than three weeks. The NASDAQ lost 33 points and the S&P 500 was down 11 points. Uncertainty over how aggressive the Fed will be on Thursday fueled the sell off.

Sales of existing homes fell 1.2 percent in May, the third decline in five months. This is according to the National Association of Realtors. The northeast saw the biggest decline in sales, 4.2 percent. Now the median price of homes sold in May rose to $230,000. That's 6 percent higher than a year ago but well under last year's huge double digit price gains at the peek of the housing boom.

Gasoline is about 65 cents higher than it was a year ago. Averaging now roughly $2.86 a gallon. But triple A says the high cost of gas isn't going to stop Fourth of July travelers this coming weekend. Triple A expects more than 34 million motorists to hit the highways. 1.3 percent more than last year. And of course, John, the summer driving season in full swing and gas prices at their highest.

ROBERTS: The other day Thomas I paid $3.13 a gallon for gas but somehow it felt like a bargain.

T. ROBERTS: Really. See my tactic is I only give 30 bucks. I don't care how much it gets me that's all I give.

ROBERTS: That's three times what it costs to fill my motorcycle.

T. ROBERTS: Right.

ROBERTS: Alright thanks, Thomas. See you next hour.

T. ROBERTS: Thanks John.

ROBERTS: Straight ahead, the latest from Gaza where Israeli troops are searched for a kidnapping comrade. Plus, the politics of Iraq, is the tide beginning to turn in republicans' favor? Some new poll numbers for you.

Also, spending half a billion dollars of your money on a visitor center so you can visit congress and see how they're spending your money. We're keeping them honest tonight.

And a school where hard to handle children are given electric shocks as punishment. Meet the parents who call it brutality and the doctor who says it's both effective and humane. All ahead, all tonight on 360.

(COMMERCIAL BREAK)

ROBERTS: Israeli troops rolling into Gaza tonight to retrieve a kidnapped soldier. The latest next on 360.

(COMMERCIAL BREAK)

ROBERTS: Good evening again from Washington, I'm John Roberts. Big developments tonight in the Middle East. Israeli forces inside Gaza, we're going to have a live report on that. We'll also have these stories.

ANNOUNCER: Down but not out. After months of bad poll numbers republicans might be now gaining momentum. We'll look at the new numbers out tonight.

Fires in the west, raging out of control. Homes threatened and tourists stranded at the Grand Canyon. Tonight, the fierce battle to put out the flames.

A massive underground visitor center at the capital. Behind schedule and sucking in your tax dollars. Nearly 600 million bucks.

I think it's a colossal misuse of space and dollars.

So how did this happen? Tonight, we're keeping them honest.

And life or death on the operating table with family members watching. Is it a good idea or bad medicine? We're covering all the angles. Across the country and around the world, this is ANDERSON COOPER 360." Tonight, sitting in for Anderson and reporting from CNN's Washington bureau, here's John Roberts.

ROBERTS: Good evening. We'll have all those stories for you in a moment. But we begin this hour with major developments out of the Middle East. Israeli troops have entered Palestinian territory, barging into southern Gaza with armored vehicles on a mission to rescue a soldier kidnapped last weekend by Palestinian militants. CNN's John Vause is in Gaza City and joins us now with the latest. John, what's going on there? Is this prolonged military offensive that the Israelis have promised here?

VAUSE: Well, not yet John. What we're seeing is a small gradual build up of the pressure on Hamas. The objective here is to take up positions around the southern part of Gaza, around the town of Raffah, increase the pressure on Hamas to release this Israeli corporal. But this of course would all escalate in the hours and the days ahead. So far diplomatic efforts by the Egyptians and the French to try and have the Israeli corporal set free have born no fruit in all of this.

Also Israeli intelligence believes that the hostage takers may have been trying to smuggle the 19-year-old out of the Gaza strip which is why we saw those air strikes earlier tonight taking out bridges in Gaza, essentially cutting the Gaza strip in two. So that restricts movement as well, John.

ROBERTS: John, what's the Palestinian response to the Israeli military operation been?

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