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FAREED ZAKARIA GPS

Interview With Charles Freeman; Examination of U.S. Support for Israel

Aired March 15, 2009 - 13:00   ET

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


FAREED ZAKARIA, HOST, GLOBAL PUBLIC SQUARE: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

This week, a man named Charles Freeman, a man with a long and distinguished career in the U.S. Foreign Service, withdrew his name from consideration to be the chairman of the National Intelligence Council, a key intelligence job. In doing so, he blamed -- and I quote here -- "the Israeli lobby," for his decision to pull his own nomination.

He accused the so-called Israel lobby of "character assassination," of "willful distortion of the record," and an "utter disregard of the truth." Strong charges.

His opponents, of course, had strong charges of their own, accusing him of anti-Israeli bias, even anti-Semitism.

To answer these charges and to discuss these issues, Charles Freeman is my guest today.

Now, in making these accusations, Freeman has pushed to the forefront a topic that previously had been discussed only among academics, policy wonks and bloggers. And even there it's been controversial.

The basic charge is that lobbyists supporting Israel wield too much power, which results in the U.S. blindly supporting Israel, even when it's wrong.

The counter is that there are many lobbies in Washington -- on guns, Cuba, entitlement programs -- and to single out pro-Israeli groups is unfair. There are many who argue that even the term "Israel lobby" conjures up an image of a Jewish conspiracy.

To discuss this issue and others, I will be talking to the man at the center of the controversy, Charles Freeman, in just a moment.

Also on GPS today, the former secretary of the Treasury, Paul O'Neill, with some very tough words about the Obama administration. And then a conversation about President Obama's first 50 days with some great thinkers. So, stay with us.

(BREAK)

ZAKARIA: And joining me now, Ambassador Charles Freeman.

CHARLES FREEMAN, FORMER U.S. AMBASSADOR TO SAUDI ARABIA: Thank you. Glad to be with you.

ZAKARIA: Let me first ask you, you don't feel that you were pushed out by the White House, or you were forced out? This was your decision?

FREEMAN: It was my decision with Admiral Blair. And I frankly find it very amusing that politicians are lining up to claim credit for having assassinated me.

ZAKARIA: Well, let's talk about the one politician who has publicly taken credit for your withdrawal, Senator Charles Schumer from New York.

Do you think that he was instrumental in any way?

FREEMAN: I have no reason to believe he was. I'm sure he did talk to Rahm Emanuel and others at the White House, as he said he did. But I have no reason to believe that that had any particular influence on the decision. It certainly didn't have any influence on my decision, and it was ultimately my decision.

ZAKARIA: The issue that he raised, that Charles Schumer raised, and the issue that you raised in your statement, was about Israel. There were a few surrounding issues that people raised, but the heart of the matter seemed to be that a number of people felt that you were overly critical of Israel.

And you described the forces that got you out as the "Israel lobby."

Describe what you mean by the Israel lobby, and describe what you think they did.

FREEMAN: Well, the "Israel lobby" is a term that's in general use. I think it isn't a terribly accurate name. It probably should be called the Likud lobby, or the Yisrael Beiteinu lobby. It's the far right wing of the Jewish community here in alliance with the far right wing in Israel.

And I don't think that I've been in any respect excessively or unreasonably critical of Israel. I think I have been critical of Israeli policy. And the atmosphere is such in this country now, that whereas Israelis in Israel routinely criticize policies they think may prove to be suicidal for their country, those who criticize the same policies here for the same reasons are subject to political reprisal.

ZAKARIA: But your feeling is that you could see the hand of supporters of Israel's -- supporters of the right wing in Israel, as you describe it -- in derailing your nomination or raising the controversy? You said -- in your statement you said the e-mails make it clear, the blogs make it clear.

FREEMAN: Oh, and this morning, indeed, there were various postings by the organizations that organize the campaign, the Zionist Organization of America, for example, detailing, or setting out in considerable detail, how they organized research to find material that they could use to agitate, first, congressmen who were sympathetic to them, and later, others, on various issues.

And, of course, they do not admit, but it is a fact, that they engaged in a truly libelous campaign of selective misquotation and distortion and fabrication of facts that are absolutely not real.

ZAKARIA: Let me just read the quote, because I think many people will want to hear more about how you think about this.

You said, "We have paid heavily and often in treasure in the past for our unflinching support and unstinting subsidies of Israel's approach to managing its relations with the Arabs. Five years ago we began to pay with the blood of our citizens here at home."

And the five years ago, of course, refers to 9/11.

So, you see our support for Israel as having produced a kind of -- a tidal wave of hostility that then, in some way, did cause 9/11, isn't it fair to say?

FREEMAN: I think we are paying a price, because our actions have catalyzed -- perhaps not caused, but catalyzed -- a radicalization of Arab and Muslim politics that facilitates the activities of terrorists with global reach like those who struck us on 9/11.

ZAKARIA: But you could see why people who support Israel, or perhaps American Jews, would be perturbed by that statement. Do you wish you hadn't written it in retrospect, or said it?

FREEMAN: No, no. I stand by what I said. And I think it's unfair to put American Jews all in one camp.

There's a very large number of American Jews who have written to me to express their gratitude for my raising the issues I have raised about Israeli policy. And there is a movement that insists that these actions not be carried out in the name of Judaism or the American Jewish community.

I think one of the great ironies in this situation is that, in my experience, the bravest and most outspoken people against these policies of the Israeli government, the establishment, are Jews.

Why? Because American Jews feel a deep commitment to the continued survival of Israel, and they see -- and they also identify with it. And they don't want to see that survival jeopardized or the moral standing of the Jewish state compromised in the way that it has been.

ZAKARIA: You know that when you say things like -- when you refer to the Israel lobby, for some Jews -- certainly not all -- it conjures up the idea that you are in some way insinuating a kind of Jewish conspiracy. And it has led people to loosely use the word anti-Semitic when describing you. How do you feel when you hear those charges?

FREEMAN: I feel deeply insulted. The last thing on earth I am is anti-Semitic. There are Jewish members of my family, although I am not Jewish. I have great respect for Judaism and its adherents.

I also, frankly, have a lot of respect for Israel. And I'm sorry to see it so badly corrupted by the occupation, and to see its values so badly damaged by the settlement process in the occupied territories.

The humane spirit that Israel used to evoke is now replaced by something else.

ZAKARIA: Do you feel that the lobbies, the groups that reflect American Jews' concerns about Israel, that may reflect Israeli policy, have too much influence in public policy in the United States today?

FREEMAN: Well, I think the right-wing elements that I referred to, which are loosely called the Israel lobby -- as I said, I'd prefer the term Likud lobby -- in fact have a hammerlock on both public discussion and policy.

And the objective of their campaign against me was to reinforce that hammerlock, to enforce the taboo against any critical discussion of Israeli policies and what they might mean for Israel's future or the future of the United States as affected by Israel's future; to ensure that this group -- which is a very well-organized group, as can be readily discerned from their messages crowing about how they organized this campaign -- to reinforce their veto power over appointments to the government; to ensure that analysis was not value- free, but pro-Israel in orientation and, to some extent, anti-Arab; and finally, to ensure that the policy process remains supportive of whatever it is that whoever is in power in Israel demands.

ZAKARIA: And we will be back with Ambassador Charles Freeman in a moment.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Charles Freeman.

Ambassador Freeman, had you taken on this job, people say you have such strong views on the Middle East, on Israel, on the Arabs, you wouldn't have been able to provide good, impartial intelligence.

What do you think you would have been able to do, had you had that job?

FREEMAN: I served my country in diplomatic positions, including analytical positions, over the course of 30 years. I know very well how to submerge my own opinion and to articulate the views of the collective, the organization, the government that I serve. I don't have any particular agenda with regard to Israel or any other issue.

What I do have is an iconoclastic mind. I don't like people who assert things because they've heard them, they are the conventional wisdom. And I would have challenged people to produce evidence that what they were saying had some grounding in evidence.

In other words, I think this business that, somehow or other, an analytical job cannot be done by somebody with a critical mind is an oxymoron.

ZAKARIA: What about China? One of the statements of yours that people bring up is a statement that you made about Tiananmen Square, in which it sounded like you were saying that the Beijing government was doing the right thing.

FREEMAN: The statement that was circulated omitted the first part of the sentence, which was the subject of the sentence, which was "the predominant view in China." Meaning that I was describing the dominant view of the Chinese leadership after they had conducted an after-action review of the whole event. And their...

ZAKARIA: Not -- in other words, not your own views, but the views of the Chinese government.

FREEMAN: Exactly.

And that, of course, I don't think very many in the China field would dispute that. That is, a weak and divided and indecisive Chinese government in 1989 allowed demonstrators to occupy the center of their government facilities and to disrupt the normal functioning of government for five or six weeks, while they dithered. And the result of this was, they believe, that it made a bloody outcome almost inevitable. And the setback to reform that that caused was also an inevitable consequence of this.

ZAKARIA: Let's talk about Saudi Arabia. You said something quite striking, that al Qaeda succeeded in its principal goal, which was to cause an estrangement between the United States and the Saudi Arabian monarchy.

Do you believe that that is reversible? Do you believe that that is now something that just has spun (ph) up? Because the popular sentiment, certainly in the United States, is that the Saudi Arabian government, and the regime, and the society, has in some sense spawned al Qaeda.

FREEMAN: Yes. No, I think that Saudi Arabia has definitely been successfully vilified in our politics. Any association with Saudi Arabia of any kind, as my own experience probably demonstrates, is a very large black mark.

Similarly, in Saudi Arabia, the United States is now amazingly unpopular and disliked. The American invasion of Iraq, a fellow Arab country, the American backing of Israeli actions in Lebanon and Gaza, and other activities that we've carried out in the region, are all deeply resented.

Here, obviously, Americans remain traumatized and very angry about 9/11, as we should be. ZAKARIA: But you wouldn't blame the -- you don't think Saudi religious organizations or the Wahhabi clerics, you know, created this kind of Frankenstein monster?

FREEMAN: I think the atmosphere created by a very narrow-minded, austere version of Islam certainly helped to spawn this.

And I note that, in fact, the king of Saudi Arabia has taken very significant actions over the succeeding period, now eight years, to reform education, to open an interfaith dialogue, both domestically and internationally, to push for tolerance.

ZAKARIA: So, you see the Saudi king, who you have called "Abdullah the Great," you see him as a modernizer and not somebody to be vilified?

FREEMAN: Very definitely. Just to consider, for example, what he did on Saudi Arabia's and the Arabs' policies toward Israel and the peace process would justify that epithet.

He reversed decades of Saudi policy, which was that Saudi Arabia would be the last country to recognize and normalize relations with Israel. Saudi policy since 2002 has been that it will be the first, if Israelis and Palestinians reach a mutually acceptable agreement, and that it will bring all other Arab countries with it in establishing normal relations with Israel.

ZAKARIA: And what will be the next move for Charles Freeman? Do you still support President Obama? Has this disillusioned you?

FREEMAN: It hasn't disillusioned me at all. I feel, first of all, we only have -- this is the only president we have. He happens to be a very bright and articulate man with a strategic mind. And what we need more than anything is a strategic review of the policies that have brought us to this sorry pass in which we now find ourselves -- not just in the Middle East, but in many other places, as well.

ZAKARIA: Ambassador Charles Freeman, thank you very much for joining us.

FREEMAN: A pleasure.

ZAKARIA: And we will be right back.

(BEGIN VIDEO CLIP)

SHASHI THAROOR: The attitude is, if God could make the world in seven days, why can't Obama remake the world in seven weeks?

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: President Obama has been in office for 50 days, and I've gathered some terrific thinkers for conversation and debate about it. Les Gelb has been a powerful voice on international policy for decades. He was, many years ago, the foreign affairs columnist for the "New York Times." He has a terrific new book out.

Rami Khoury is an influential political policy man in Lebanon, where he was the editor of its largest newspaper.

And Shashi Tharoor is a prolific writer, journalist, diplomat, who had a distinguished career at the United Nations.

Welcome, all.

So, Les, 50 days for Obama. He has done a series of things on foreign policy. What's the grade you give him so far?

LES GELB, AUTHOR, "POWER RULES": Well, I give him, I guess, a B, B-minus. But compared to the Bush administration, I'd give him an A- triple-plus.

(LAUGHTER)

ZAKARIA: But on an objective scale, B-minus. What has he done wrong?

GELB: Yes. I think it's not so much that I quarrel with the individual decisions he's made. In fact, I agree with most of them. For example, I think we ought to talk to the Taliban. I think we ought to talk to Syria. I think, in fact, we ought to be putting economic relations with China first, and not down -- and downplaying human rights issues.

But these aren't things that I would say in public or say without having a strategy. And my concern is that Obama, with his extremely high level of self-confidence about everything, his ability to grasp information so quickly, feels too comfortable making too many tactical decisions too quickly, without first deciding on strategy.

ZAKARIA: But it does sound like, as you're saying, he's making all of the right decisions. You just -- I mean, can you really do this all in secret in today's world? If he's going to talk to the Taliban, it's going to get out, and he might as well in some way be ahead of the curve.

GELB: Yes. I don't think he's going to talk to the Taliban before he figures out the other things he has to do. It would just be foolish to do that.

And I think almost everyone would agree that, before he talks to the Taliban, he ought to increase the pressure on them and give them a sense of the other carrots and sticks he can deploy.

That's what makes the talks with the Taliban possibly useful. But to just throw it out there by itself, I don't think is useful.

ZAKARIA: Shashi, what do you think? SHASHI THAROOR, FORMER U.N. UNDERSECRETARY-GENERAL: Well, I think the jury is still out on whether you can meaningfully separate the Taliban from al Qaeda on the Afghan-Pakistan border. And it's also not entirely clear that there is a useful distinction to be drawn between the irreconcilable elements and the ones you can actually do business with.

And frankly, from the point of view of the people in the territories they're in, I'm not sure there's a whole lot of difference. Right now, Taliban rule in the Swat Valley is not exactly agreeable or pleasant for those who happen to...

ZAKARIA: But it might -- but, yes -- but it might make a difference to U.S. foreign policy.

THAROOR: That's it.

ZAKARIA: If they don't want to kill Americans and they want to close down women's schools, it's a great tragedy. But it's not clear to me that America should go to war with every group that doesn't want to have women educated.

I mean, the Saudi Arabians have policies towards women that we would not admire.

THAROOR: And you were certainly out there defending them.

(LAUGHTER)

I mean, obviously, no one -- no one is going to suggest that war is the right answer to every problem. And certainly, the fact that Barack Obama is interested in engaging with the world as a whole -- and that means that he's not taking anyone off the table as people who are beyond the pale to talk to -- is actually a good thing.

It's simply how that's going to work in practice operationally.

ZAKARIA: But let me ask Rami this, because here is -- this is a perfect example. Here is Obama. He's meant to change the Bush foreign policy, get rid of all of the ideological rigidities, be more flexible.

And all of a sudden, it's not the conservatives who are getting mad, it's all you mainstream foreign policy elites. So, all of a sudden...

GELB (?): I'm not getting mad.

ZAKARIA: ... what he does -- when he starts doing something, it sort of changes. And everyone says, no, wait a minute, we didn't mean you should do that.

(LAUGHTER)

(CROSSTALK) THAROOR: You know, part of the problem -- certainly, in this country -- seems to be that the attitude is, if God could make the world in seven days, why can't Obama remake the world in seven weeks?

And that's clearly unfair. He needs time. A lot of these problems...

(CROSSTALK)

GELB: I don't understand what Shashi was saying. Because, of course we don't know what's going to happen until we do something, till we put things on the table. You're not against that, are you?

THAROOR: I'm in favor of trying.

ZAKARIA: But we have to try.

Now, let me ask you. In the Middle East it feels to me like, ironically, Obama has received a better reception than he is right now, at least from our American and Indian colleagues here.

Let me ask you about George Mitchell. Is this a P.R. gesture? I mean, is there any prospect that you will actually get peace in the Middle East with the Palestinians divided between Hamas and Hezbollah, with the Israelis having a weak government, with coalition partners who are going to be very unwilling to give up settlements? It doesn't feel like the conditions are right for any kind of serious peace.

RAMI KHOURY, EDITOR, "THE DAILY STAR": In the next couple of months, no, there's not going to be any serious progress. But if you get movement on the American- or Western-Iranian situation, which I think is likely, and if you get some movement on the Syrian-Israeli front, which is possible, the environment could change significantly.

And more importantly, if Mitchell, with the president's support, pushes hard and is an even-handed mediator, which the U.S. was not before, you might get a situation where you reveal who is actually not willing to make peace, who are the obstinate people, who are the troublemakers. And so, there can be something useful coming out of the Mitchell mission.

THAROOR: I want to underscore what Rami said, because you seemed a little more skeptical, Fareed, that something could come out of all this.

I mean, the problem we've had, really, is that a few years ago we actually had the light at the end of the tunnel. There was agreement on a two-state solution. The U.S. signed on to it for the first time. Then the tunnel disappeared.

So, what Mitchell and the Obama administration need to do is to rebuild that tunnel, because the light's there. We've just got to get to it.

ZAKARIA: So, light at the end of the tunnel, Middle East peace, George Mitchell is going to make it happen? GELB: Yes, but certainly not in two or three months, or half a year. This is a long process. Putting that tunnel back in place will take two or three years.

ZAKARIA: Should the president devote political capital to something like this that strikes me as -- I mean, it's a low probability event.

GELB: He should not devote a great deal of capital to forcing the two sides to come back to the negotiating table, and pretending he can compel them to make political compromises. They can't, and they won't.

ZAKARIA: We have to take a break. But I wonder whether the president should devote political capital to this. We'll be back right after this.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Les Gelb, Shashi Tharoor and Rami Khoury.

Shashi, Hillary Clinton made a trip to Asia -- first time a secretary of state has started off with a trip to Asia since 1962 -- but didn't go to India.

THAROOR: Yes.

ZAKARIA: Will the Indians feel snubbed?

THAROOR: Oh, I don't think so. I mean, we know Hillary. We like Hillary. She's always welcome.

I mean, the truth is there's a couple of things that she hasn't done. As an old U.N. hand, I'm disappointed she still hasn't made a speech about the U.N., which should be one of the linchpins of America's new engagement with the world. And as an Indian, I'm disappointed that that hasn't so far loomed large enough in her public consciousness or on her itinerary, because I think that it is extremely important to the U.S.

I was at an event with Henry Kissinger the other day in which he said that there is no more important strategic partner for the United States between Singapore and Cairo than India. Now that's Henry Kissinger speaking, and I think he is right.

GELB (?): He says that about every country he goes to.

(LAUGHTER)

ZAKARIA: She went to China. And you alluded to this earlier. She made a point of saying the economic relationship, the relationship on the environment, on energy, is not going to be derailed because of human rights.

It strikes me as a perfectly sensible thing, in the sense -- in fact, it isn't going to be derailed. And Robert Zoellick, the Republican head of the World Bank, says, what we need is not a G-20, but a G-2 that is just the United States and China, have to sort this world economic crisis out.

So then, she's doing the right thing, right?

GELB: Well, I think that is the right policy. It's not the right thing to say. In fact, she had to take it back yesterday. The State Department issued a statement saying, of course we still love human rights, and we're not subordinating it to economics.

You can't say things like that, because it diminishes the value of your position on human rights. It also...

ZAKARIA: But you're promoting a kind of Kabuki theater. If you're saying, well, we don't -- you know, we don't believe it, but we should just say it.

GELB: I'm promoting serious foreign policy, which is not always saying exactly what you're doing. Foreign policy isn't conducted for the benefit of the press knowing all the truth that's going on.

Some of the people we admire most, some of the people you praise regularly, like Henry Kissinger, who is always doing with one hand what he was denying with the other. Sometimes that's how you have to do business.

ZAKARIA: In praise of duplicity.

Rami, what do you think?

KHOURY: Well, I think when you look at the U.S. relationship with the world, one of the critical relationships is with Iran. Iran has positioned itself as a really important player.

And you like it, you don't like it, it doesn't matter. You've got to deal with it.

And the idea now that people are talking about is, can we do a grand bargain? Can you look at Arab-Israeli issues, Syria, Lebanon, Iraq, Afghanistan, nuclear energy, et cetera, et cetera, and can you find agreement between the U.S. and the Western powers, and the IAEA and the U.N., and Iran, and all the people who are supporting Iran, who are quite a few in the region?

And I think it's really doable. And the Americans say, well, it's hard to do a grand bargain. It's not hard at all. Americans do it all of the time.

In American culture, it's known as a three-way trade in basketball, where you get three different teams, and you study it very carefully -- their weaknesses, the strengths, the needs, the aspirations, the power, the weaknesses of each team. And you put together a deal that satisfies the core demands of each party.

And this is what the United States needs to do, I think, looking at the Middle East. And it started, I think, Middle East and the wider Asia, because this applies to Afghanistan, Pakistan. It's got links all over the place.

The critical new element, which I think is very positive, is that the United States is being more humble, and more open and more direct. And this is a combination of attributes which has long been missing from American foreign policy.

ZAKARIA: Shashi, a three-way trade is not going to make any sense to you. I don't think there is a cricketing analogy.

THAROOR: There isn't.

ZAKARIA: But do you buy the basic argument?

THAROOR: I buy the argument very, very strongly. And I would only add one thing to what Rami just said, is that I was very encouraged by President Obama's statement during that interview to Al Arabiya, that America would listen.

This is so important. And if America -- for the first time, frankly, in the perception in many parts of the world -- is prepared to listen, that's already a huge win. I think that many of these countries and players have felt that America hasn't been listening.

Maybe America had reasons not to listen. But you're not going to get even to have them listen to you unless you listen to them first.

GELB: Do you think we're the only country that doesn't listen to other countries? Do you think India is a great listener, that Syria is a great listener too?

KHOURY: Yes, but you're the only country that sends hundreds of thousands of troops around the world, and threatens...

GELB: Yes, but you make the point about listening.

KHOURY: ... and sanctions and does regime change. That's the difference.

GELB: I think what you want is the United States to be open to what you're suggesting, and we should. But at the same time what you really want, and what we should be providing, is American leadership. That's really what you're looking for.

But you don't want it to be stupid leadership. You want it to be intelligent, and in accordance with the realities in your area.

ZAKARIA: And on Iran, your feeling is we actually pay too much attention to them.

GELB: To who?

ZAKARIA: To Iran.

GELB: Well, I think we... ZAKARIA: You think we pay too much attention.

GELB: ... we give away too much power to Iran, not that we pay too much attention. I'm in favor of engaging them across the board. They can discuss whatever they want, we can discuss whatever we want. Put everything on the table.

But we shouldn't go around saying Iran is the great power in that part of the world, because we're giving them free power that they don't deserve. They're really a second-, third-tier country. And we've made them into the wave of the future. That hurts us. It hurts our friends.

ZAKARIA: On that note, we have to go. Rami Khoury, Shashi Tharoor, Les Gelb, thank you so much.

And we will be back.

(BEGIN VIDEO CLIP)

PAUL O'NEILL: And I don't want my representative to buy assets with my money that I wouldn't buy. Why would I want to do that, Fareed?

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: The role of the secretary of treasury has rarely been as high profile as it is now in the midst of our current economic crisis. Tim Geithner has held the job for a couple of weeks, and you see him or read about him pretty much every day, just as we did with the last person to hold that job, Hank Paulson.

But there is one treasury secretary we have not heard from that much lately, and he has some strong things to say about the crisis.

Paul O'Neill was the first treasury secretary in the Bush administration. He also served as an extremely successful CEO of one of America's great companies, Alcoa. He is my guest today.

Welcome, Paul O'Neill.

PAUL O'NEILL, FORMER U.S. TREASURY SECRETARY: Thank you. I'm glad to be with you.

ZAKARIA: Looking at the current economic crisis, do you think there is any prospect of what people call a "V-shaped recession," that is, a quick recovery? Or are we in for a long, perhaps years of sluggish growth, what economists call an "L-shaped recession"?

O'NEILL: You know, I've got to tell you, I'm praying for a V- shape. But I'm one who doesn't believe we're going to start moving back up until there is a credible fix for our financial system. And I think, in spite of all of the things that have been done now by the federal government, we're not quite there.

If I were secretary, I would do this. I would order the 19 major financial institutions to put on the Internet the classifications of their assets by investment grade rating, beginning with AAAs down through BBB-minuses, which is the final level of investment grade ratings.

And for those parts of their asset holdings that can't be rated investment grade -- or, in fact, as they say, can't be valued or can't be fairly valued -- I would create a new device which I call a "quarantine account."

And for those parts of their asset holdings that can't be rated investment grade -- or, in fact, as they say, can't be valued or can't be fairly valued -- I would create a new device which I call a "quarantine account."

One could make a judgment about the value of these institutions, and the institutions could make a self-judgment, about how much more lending capacity they had, if the quarantined assets are set aside.

But I think...

ZAKARIA: The basic idea -- the basic proposal you're making is transparency. Let everyone understand what's on the banks' books.

O'NEILL: Right.

ZAKARIA: Isn't that a lot like Tim Geithner's stress test?

O'NEILL: Well, I don't think so.

Let me ask you a question. How do you think it's possible to do a so-called "stress test," if 30 or 40 percent of the assets in the institution can't be valued?

Here's another plea I have. If you can't value the assets, please don't buy them with my money.

ZAKARIA: You mean the government shouldn't be buying...

O'NEILL: At the end of the...

ZAKARIA: You mean the government shouldn't be buying these toxic -- these assets. So you think the Treasury...

O'NEILL: Excuse me. Excuse me...

ZAKARIA: ... Department's proposals so far are all wrong. I mean, it sounds like you think they're doing all of the wrong things.

O'NEILL: Well, you know, excuse me, but I'm not one who cares much for the notion of separating the idea of the government as some disembodied entity that has a life independent of me.

The money that they're committing and spending is at least in part mine. I'm a substantial taxpayer, and I don't want my representative to buy assets with my money that I wouldn't buy.

Why would I want to do that, Fareed?

ZAKARIA: But...

O'NEILL: Why should we want them to do that?

ZAKARIA: But this is a pretty frontal assault then on the Treasury's bank plan so far.

O'NEILL: Well, you know, I don't mean to be offensive to this administration or the last one, but it seems to me, if you're an intelligent investor, you invest in things where there is truth and transparency. And you have a shot, if you're a good leader, at earning the cost of capital and maybe even something more.

And I think that basic principle ought to apply to how our government thinks about what it's doing in the name of "we, the people."

You know, I really don't like this idea that somehow the government can do things that intelligent people wouldn't do, and we don't notice.

ZAKARIA: Now...

O'NEILL: Right? So I really...

ZAKARIA: One of the other things the government is doing is running up large deficits. There's this large fiscal expansion.

Now, you were opposed to the Bush tax cuts, because of your concern about what they would do to the deficit. At that time, the deficit projection was $500 billion, and to you that seemed just too much. The deficit projections now are going to be in the $1.75 trillion range.

There are many people who say, you know what, this is that once- in-a-75-year moment where the government has to spend money because nobody else is spending money. Do you buy that?

O'NEILL: I think, honestly, I'm not so much worried about the stimulus and its components as I am about what I consider to be an essential job to get a floor under the financial system, so that we can go back to economic growth in this country and around the world, because there is no hope until we do that.

There is not enough -- there's not enough ink in the printing presses at the Federal Reserve to print enough money to fill the void created by the absence of real economic growth in our society and around the world.

ZAKARIA: When you were treasury secretary, you were famously suspicious of the financial sector. I mean, you thought there was a little too much attention being paid to it. You looked around at all those Bloomberg screens in the Treasury Department and said, you know, what do these guys make? In a way, reflecting your background in Alcoa.

Do you look at this unraveling and feel like the financial sector and the financial system got overweight and fat? I mean, what happened here?

O'NEILL: We had a whole lot of people who were the public face of all of this financial activity that got ever more exotic. And I think, in truth, very few of them understood the detailed business activity that was going on underneath them. They were all kind of floating up here in the ether.

And I think it's true, if you listen to the commentary, even today, what some of these people are saying, they had no idea what was going on. It just felt really good, and it seemed like they were making a lot of money.

ZAKARIA: And do you think that, on the bank issue, are you hopeful that Geithner may, when he unveils the plan, have some of the components that you're suggesting? Or is it your sense they're just headed in the wrong direction?

O'NEILL: You know, show us the money. Let us see for ourselves.

If I was buying a company, I would not put up with someone else giving me a certification that the assets were worth something. I'd go and look in the boiler room and find out if there's rust on the valves.

You know, we're talking about providing the wherewithal for intelligent investors to make decisions that they can rely on the facts. And I think the administration hasn't gotten to the point yet of insisting that the big 19 financial institutions put their facts on the table, and for that matter, a place like General Electric put all of its facts on the table, so investors can make an informed decision.

I've said this to some people, and they've said -- some of them have said, we'd be happy to do that, and we would be OK with that. Some other major financial institutions have said, oh, my God, if we did that, people would see how bad it really is.

I think knowing how bad it really is, is the only way we're going to create a foundation for going forward, Fareed.

ZAKARIA: Paul O'Neill, thank you very much.

O'NEILL: My pleasure. Good luck.

ZAKARIA: And we will be back.

(COMMERCIAL BREAK)

ZAKARIA: We're inaugurating a new feature at GPS, which we will call "What In The World?" It's the week's biggest outrage, gaff or amazing act of statesmanship or smarts -- anything that catches my eye, really. This week, like most Americans, I've been reading the pages and pages of legislation that make up the federal government's stimulus package. In it lies an amendment that strikes me as stupid and un- American. It says that no company getting government money, TARP funding, may hire any foreigners, anyone on an H1B visa.

As a result, Bank of America is rescinding its job offers to foreign-born students graduating from school this summer.

This sounds great. Give the jobs to the Americans. But it is, in fact, a terrible idea for the long-term future of the country.

Think about it. We train thousands of the best and brightest from all over the world. They go on to start new companies, invent products and create jobs. The Patent Office says a quarter of all U.S. patents are filed by foreign-born Americans.

But now, thanks to this law, these students will take their American education and go on and innovate, create jobs and pay taxes in some other country. And make no mistake, other countries are happy to have them.

Listen to the Canadian prime minister, Stephen Harper, when he was here a few weeks ago. Listen to what he had to say.

(BEGIN VIDEO CLIP)

STEPHEN HARPER, PRIME MINISTER OF CANADA: The fact of the matter is, if Canada is to deal with the demographic challenges that we have coming, that all Western countries have coming -- the United States a little bit less -- and that is going to be a shortage of workers, we're going to have to go out and actively recruit immigrants as a policy, not just accept applications.

So, this shift towards a greater emphasis on skills, on getting skilled people here and recruiting them, is only the beginning of the transformation our government wants to make.

(END VIDEO CLIP)

ZAKARIA: So, our loss will be Canada's gain. And not just Canada -- Britain and Australia and many, many other countries.

Now, to the question of the week.

Last week I asked you, what do you think is the single most undervalued stock on the market today? The responses were varied. Many of you wrote in to say small businesses, many which we'd never heard of. Some thought the likes of AIG and Citibank were the places to put your money.

The runner-up was variations on the U.S. of A., the American worker, our national infrastructure.

But the big winner was General Electric. Now, my question for this week. Listening to the show and all the rest that you have read, do you believe that the lobbying groups that lobby on behalf of Israel have too much influence? Or do you think that this is a bogus, even scurrilous, charge?

Write and tell me.

Also, I'd like to recommend a book. David Kilcullen is a frequent guest on the program. He's one of the main architects of the successful surge in Iraq, and a former adviser to both General David Petraeus and Secretary Condoleezza Rice.

He's written a fascinating new book called "The Accidental Guerrilla: Fighting Small Wars in the Midst of a Big One." It has everything from fascinating tales from the battlefield to important prescriptions for U.S. policy going forward. It's an important book, and it hits bookstores tomorrow.

And as always, don't forget to check out our Web site, cnn.com/gps, for more book recommendations, highlights from the program and our weekly podcast. You can also e-mail me at fareedzakariagps@cnn.com.

Thanks for watching. Have a great week.

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