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Fighting in Aleppo; Examining the US Banking Industry

Aired August 8, 2012 - 15:00:00   ET


ALI VELSHI, CNN HOST: Good evening and welcome to the program. I'm Ali Velshi, filling in for Christiane Amanpour. Well, it may be the decisive battle of the war in Syria, the fight for Aleppo. And some reports indicate that Bashar al-Assad's men are gaining the upper hand.

Some of the thousands of citizens who've stayed in the ravaged city report that they got the following text message today, apparently from government forces, quote, "Dear Brothers, informing about terrorists means you are saving yourselves and your family," end quote.

In other words, if you want to live, tell us where the rebels are. The Syrian army is said to be pounding rebel units with new intensity, and the rebels have reportedly been forced to retreat from at least one area of Aleppo with their ammunition supplies running low. But at the same time, the rebels report driving Assad's men out of another part of the city.

Meanwhile, in Damascus, the rebels have taken 48 Iranian hostages. They claim the men were on a military mission to help Assad's forces. Iran admits that some of the hostages are retired members of its feared Republican Guard unit, but they insist that the men were in Syria on a pilgrimage.

Now Iran is Syria's best friend in the region, perhaps in the whole world. So it's a volatile situation that some say could turn Syria's internal struggle into a regional war, and that is a scary possibility. I'll have more on that in a moment. And I'll speak with CNN senior international correspondent Ben Wedeman live from inside Syria.

But first, here's a look at what's coming up a little later in the program.



VELSHI (voice-over): Remember too big to fail? The banks are even bigger now. If they fail this time, they'll take everyone with them.

Then as the last U.S. soldier left the country, some Iraqis began turning weapons of war into wedding night memories.


VELSHI: All right. We'll get to that in a moment, but first we go straight to Ben Wedeman, who's reporting live tonight from northern Syria.

Ben, tell us what the situation is.

BEN WEDEMAN, CNN CORRESPONDENT: Well, we've gotten some conflicting reports, Ali, the government, of course, claiming that regular Syrian troops have entered into Salaheddine, the neighborhood there, the (inaudible) intense fighting in Aleppo is going on and we, in fact, were eyewitnesses to some of that fighting.

And we have the other side, the Free Syrian Army saying that, indeed, a group of about 200 Syrian troops tried to enter Salaheddine, backed up by tanks but were driven back (inaudible) intense battle (ph).

Now we do know that throughout the last few days, (inaudible) has been concentrating explosives (ph) in preparation for an attempt (ph) by the Syrian government to regain control of the areas that have (inaudible) within Aleppo, and therefore the rebels have been preparing for this.

We spoke to one commander, who said that they've been preparing improvised explosive devices, much along the lines of those of that were used against Americans in Iraq to stop those Syrian tanks from entering the Salaheddine neighborhood, which, of course, is extremely strategic because, on the one hand, it lies at the edge of the rebel-held area of Aleppo, and the other, it's very close to the main highway between Damascus and Aleppo, Ali.

VELSHI: Ben, Damascus is the capital; Aleppo is not, but it's the economic heart, the economic center of Syria, an important center that the Syrian military is not going to let go, as you say, without a fight. What are the chances, given their ammunition, given their training, what are the chances of the Free Syrian Army, the rebels being able to retain control of a place like Aleppo?

WEDEMAN: Well, it's going to be a hard fight, whichever way it goes. I think you have to keep in mind, though, that the (inaudible) the rebels realize that their backs are to the wall. There's no real escape from this fight.

My impression is that they are literally going to fight to the death. At the same time, the Syrian army, which is one of the biggest armies in the Middle East, (inaudible) spread out throughout the country. They have to deal with the uprising, not only in Aleppo, but in Homs, in Hama, in Damascus and other Syrian cities.

And we were speaking to a Syrian soldier that was captured by the Free Syrian Army recently. And he described an army which is very divided, that the ordinary soldiers, many of whom are Sunni Muslims, are not at all convinced in the justice of the cause of the central government. Many of them would like to defect to the other side if they could.

They're worried about the repercussions for their relatives. So you have an army, on the one hand, where the rank and file isn't necessarily convinced that they're on the right side. And the other side, the rebels who really do know that (inaudible) battle in Aleppo, not only would they die, many of their relatives, their families will also pay the price for their fights against this regime.

VELSHI: In a nation of such tight government control for so long, this is always the issue, that it's not just what you're doing, it's that text message that they feel that they got, that said, your family's in trouble if you don't give up these rebels.

Ben, despite a tough audio connection, thanks very much for your reporting there.

Ben, by the way, got out of Aleppo. He snuck out on a vegetable truck, now reporting from northern Syria. We'll continue to get on-the- ground updates from Ben Wedeman in Syria.

With Iran's pledge of support for Syria and this revelation I was telling you about, that Iranian hostages are being held by rebels, the threat of the Syrian conflict spreading is becoming more and more real.

Here with me now is Ali Soufan. He is a former FBI counterterrorism agent, who was one of the first to sound the alarm on the connection between Al Qaeda and 9/11. He's the author of "Black Banners," as well as the founder of the Soufan Group, which consults on security issues around the globe.

Ali, good to see you again.


VELSHI: You heard what Ben is talking about here, that there are just remarkable inherent conflicts with those people in the battle in Syria. And I just want to show our viewers, OK, we've got Syria here. And we've got perhaps their biggest supporter in the region.

Well, we know Russia is a supporter. We've got Iran, who's the biggest supporter; Syria's biggest supporter in the region. They are not connected. But to Iran, Syria is a foothold into the Arab world.

SOUFAN: Syria is considered a Trojan horse for the Iranians, for their policy in the Middle East. Not only that, Syria is considered by Iran to be the cornerstone of what the Iranians call the axis of resistance.

VELSHI: Axis of resistance, and Iranians say axis of resistance to terrorism.

SOUFAN: To -- they consider it terrorism. They this it's Israel, the United States, the West and so forth. So Syria is extremely important. It's important because of its support for the non-state actors, like Hezbollah, Hamas, Palestinian Islamic Jihad and many of these groups. Now Hamas recently left the Syrian camp.

It's important because of its support of Hezbollah, which is extremely important for the Iranians.

So Saeed Jalili, who's a national security adviser, the head of the national security council for Iran, after meeting Assad, he made it clear that the conflict in Syria is not an internal conflict, is not a domestic Syrian conflict. It is a conflict between what he referred to the axis of resistance and the rest of the world.

VELSHI: So let's draw another picture here. You've got Syria -- and we've already seen a great deal of involvement between Syria and Turkey. Turkey, at least, is offering some soft degree of support to the Free Syrian Army and Syrian rebels and a number of refugees have been flowing from Syria into Turkey.

So we already see that involvement, and Turkey is a member of NATO. So any attack or any involvement between Syria and Turkey involves the West. Where does Iraq fit into this picture? Iraq is a neighbor of both Turkey's and Syria's.

SOUFAN: Well, if you see Iraq as a bridge between Iran and Syria, and there's a big discussion in the Middle East after our invasion of Iraq in 2003, that the United States, in fact, gave Iraq to Iran on a silver platter.

And if you look into the history of Iraq, it is the fault line between Sunni and Shia. All battles between Sunni and Shia, the main two divisions of Islam, were fought basically on the land of Iraq. Today, there is --

VELSHI: Historically and in the present.

SOUFAN: -- historically and in the present. And today, we have the Maliki government. There's a lot of internal political divisions, internal sectarian division. Many Sunnis feel very alienated and -- by the Maliki government. Maliki have the tendency to be more standing in the camp of the Iran and the Syrian camps, because unfortunately, the battle in the region became a sectarian battle.

VELSHI: Now we've got an added -- so you've got Turkey that still represents largely Western interests in that part of the world. And you've got these camps. Now you've got this one, Saudi Arabia. This is interesting, because Saudi Arabia has -- likes to think of itself as the big, dominant international presence in the region.

SOUFAN: Sure. Saudi Arabia is extremely important. Number one, Saudi Arabia fears from the growing influence of Iran in the region, and also they hear the growing influence of Iran in Iraq.

So basically the Saudis are sending off to support the Syrian people, because they believe that the Syrian regime is a Trojan horse for Iran policies in the Middle East. So anything that can weaken Iran in the region will be positive for the whole entire region.

VELSHI: So Iran may or may not have sent these pilgrims into Syria, who have been detained by the -- by the rebels, who say that they might, I don't know, spies, operatives. These are -- some of them are retired members of the Revolutionary Guard, retired military men. What's your thought? Do you think Iran has people in Syria who are fomenting unrest?

SOUFAN: Well, I think after we hear Jalili and after we hear the escalation rhetoric by many members in the Iranian government, against Turkey, against Saudi Arabia, against Qatar, against the oppositions in Syria, I think it is very fair to assume that these individuals might be helping the Syrian government.

I mean, if they are pilgrimage, well, it's interesting as you see from the picture. There's no woman among them. Most of them are basically young, relatively. So I think, you know, it won't be shocking to anyone that Iran is providing Syria with some technical and operational capabilities.

VELSHI: Let's take a look at the map again. So we've got Syria and you've got Iran now providing more than tacit support. They're saying that they will back Syria --


VELSHI: -- in doing what they're doing.

What's the danger now? How does this become a regional war, as you concern yourself with?

SOUFAN: Well, the escalation can be from any sides. Iran already said that they are part of this battle. Jalili was very clear, sorry, to say that it's not a domestic issue, it's a regional issue. Also at the same time, you have Turkey.

Turkey has been providing some, you know, support to the Syrian people. They opened a lot of refugee camps on the borders. Iran is claiming Turkey to be responsible for all the bloodshed, what they called, in Syria. So I think you start seeing an escalation, at least in rhetoric, between Turkey and between --


VELSHI: But does it become a war of Saudi Arabia, which is a great military power, involve itself in -- ?

SOUFAN: It's -- already it's some of a war, but it's a war of shadows. It's a war of pawns. It's not a direct war. Like for example, yesterday, Erdogan, one year out of -- Turkish prime minister, when he responded to the Iranian rhetoric regarding the role of Turkey in Syria, he said that there are regional powers who are empowering today the PKK to conduct terrorists attacks inside Turkey.

The PKK is a Turkish terrorist group. So we start seeing people using shadows, pawns, and Iran and Syria are excellent in using those. I mean, Iran and Syria used Hezbollah for how many years? They used Israelis. They used Hamas. They used PIJ, Palestinian Islamic Jihad and other groups.

So we start seeing an escalation. At least at this point it's escalation in the rhetoric. And it's escalation in where the Iranians are saying what happened to Assad is a red line for us. We will not allow them to (inaudible).

VELSHI: It would be bad enough if you -- if this were a regional war, and these countries, Iran, Iraq, Saudi Arabia, Syria, Turkey were all involved. But you warned that this could actually have much larger implications.

SOUFAN: Well, it has larger implications because, you know, we're forgetting the role of Russia and China. Russia already sent their fleet to the Syrian coast. Russia and China have been supporter for the Syria regimes and the crimes of the Syrian regimes at the United Nations. So we have to put that in context.

Everybody has interests. This conflict today in Syria is not about Assad. Even if Assad is killed today, the regime will still fight. It's a regime that, based on a lot of alliances between different minority groups, the Alawis, they have a lot of support of international countries.

They have support from regional countries. And this is what makes the situation very, very dangerous. And we need to keep monitoring the situation to be sure that it's not escalating to a point where a war can take place.

You know, to go back to history, we were talking about history, at one point, Iran was trying to control the Middle East. And the only people who were able to stop Iranian in the 1800s (ph) were the Ottomans. And the battle between Sunni and Shia were viewed as a battle between Persian and Ottoman. And it took place over Iraq. So hopefully history is not repeating itself.

VELSHI: Doesn't repeat itself.

Ali, good to see you again. Thanks so much for being with us.

SOUFAN: Good to see you, Ali.

VELSHI: All right. We've seen the dangers in Syria and throughout the region. But after a break, we'll turn toward home and a different kind of danger. What if too big to fail was just the prelude to an even bigger nightmare? But first, take a look at this video.

With all the bad news in the world, U.S. Secretary of State Hillary Clinton is entitled to take a short break from international diplomacy. Look at those moves. She cut loose at a dinner held by South Africa's foreign minister. Maybe she's onto something. Or to paraphrase Clausewitz, "Dancing is diplomacy by other means." We'll be right back.


VELSHI: Welcome back to the program. I'm Ali Velshi, filling in for Christiane Amanpour. When the U.S. banking system crashed in 2008, much of the blame fell on banks that were too big to fail, financial institutions that are so big and so embedded in the economy that taxpayers have no choice but to prop them up.

U.S. President Obama promised to eliminate too-big-to-fail banks, but look at this. Five years ago, before the financial crash, the biggest banks held 43 percent of the assets of the U.S. economy. In 2011, just five banks hold 56 percent. Too big to fail has gotten bigger, and the world economy is more vulnerable than it was then.

Neil Barofsky was the special inspector general of TARP. That, you recall, was the $700 billion bailout of American financial institutions. He's recently written a book about it, called "Bailout: An Inside Account of How Washington Abandoned Main Street while Rescuing Wall Street."

For Barofsky, this is deja-vu all over again.

Neil, good to see you again. Thank you for being with us.

NEIL BAROFSKY, AUTHOR: Thanks for having me.

VELSHI: Abandon Main Street to rescue Wall Street? Those are tough words. It's that clear to you that this -- we did not act in the interests of the people? We acted in the interests of Wall Street?

BAROFSKY: There was decision point after decision point.

And in every critical juncture, the decision was made to rescue and preserve this broken status quo that made these banks, as you said, even bigger and bigger, while abandoning the other goals of the program, which were to help the broader economy by restoring lending and to help struggling homeowners deal with the massive foreclosure crisis we've now been dealing with for five years in this (inaudible).

VELSHI: Was it -- what was behind that? Was it the idea that people were protecting their cronies? Or was the idea that that is the system by which you distributed money? If you needed to get money out there, you had to give it to the banks, because at the time, people were saying, why didn't you just give it to Americans? And that's wasn't going to really work.

BAROFSKY: Right, no. I mean, it's the ideology. It's this notion that what's good for Wall Street is good for Main Street. And that permeates every decision that they made.

So when it came time to rescue homeowners, they'd built a program, in Secretary Geithner's words, as I describe in the book, was more about foaming the runway for the banks by extending out the foreclosure crisis rather than assisting homeowners.

When they gave the money to the banks, again, without any conditions, without any incentives to accomplish the goal, which was to put the money back into the system, and then not surprisingly, it didn't happen. This deference that is built into our system is just -- helped create the problem.

VELSHI: The reason this is important is twofold, one is that America is still the world's biggest economy. And if it failed again or we had another credit crisis -- and we could, because of Europe, we could get into another credit crisis, will we be better off or worse off? And the second part is Europe needs to look at the examples of what happened in America and not make the same mistakes.

BAROFSKY: Exactly. And it's sort of very disheartening to see our government go over to Europe and tell them over and over again, you need to do what we did over here in the United States, as if that has been the magic elixir that has cured all of our problems. And exactly right. It's more dangerous today.

I mean, if you just look at the math, and the fact that the banks are 20-25 percent bigger than they were before the crisis, and that we haven't changed the incentives.

I mean, the way the incentives of too big to fail, because of the presumption of bailout, is it drives these institutions into taking more and more, bigger and bigger risks, again with the presumption that they'll keep the profits. And the taxpayers will eat the losses.


VELSHI: (Inaudible) the risk, because they have no choice but not to. Now everything we look at now, the LIBOR scandal, we look at what's going on with Standard Chartered. All of these things are things that the Federal Reserve and the Treasury knew about back then. And the one person central to all of this is still Tim Geithner. What is history going to look at him and say?

BAROFSKY: Look, I think it's going to be a very dark picture for him, looking back on his legacy. I mean, LIBOR example, apparently his institution had full knowledge that there was active manipulation of this rate going on. And he called a meeting and made a -- and sent an email, but didn't raise the alarm to the markets or to the Department of Justice.

We're still learning a lot of the facts on Standard Chartered. But it's also -- it's all part of this pattern of activity, this sort of scandal after scandal, because the other side of too big to fail, not only do we have to rescue them, but they get to operate above the law, because they know and we know that if we took dramatic action against them, we could bring them down and then bring down (inaudible) --


VELSHI: And there are no real penalties. The only people -- the only way to go to jail for committing financial malfeasance is if you really are caught with your hand in some old lady's pocketbook.

BAROFSKY: Even then, it doesn't seem like they'll go to jail. I mean, in the LIBOR stuff, there's tape-recorded phone calls of Barclays executives confessing that they're manipulating the rate. And that didn't trigger a criminal investigation for more than two years.

So we just have to hope that at some point, because, look, if we don't start holding individuals accountable, why would be possibly think they're going to change their behavior? They're just going to take advantage --

VELSHI: What will change it, Neil? What will change it? Because people are outraged the world over, that they think governments are in the pockets of the banks. And you're basically writing that, whatever the motivations are, it's kind of true.

BAROFSKY: You have to get rid of the corrupting influence, and that means break up the banks. And if that means bringing back a version of Glass-Steagall, the Depression-era law that protected us for decades, I mean, that might be one avenue.

Size caps are another avenue. You have to deal with that on one side of the ledger. And then you have to deal with the regulators and change their incentives so there are more incentives for them to regulate --


VELSHI: How do you -- that is the current question right now. In Europe, that's what they're looking at. We've got regulators in Europe being mad at regulators in the United States, regulators in Washington mad at regulators in New York.

All these regulators are pointing fingers at each other. What is the incentive to be a better regulator, because what you're telling me is everyone doesn't have that incentive to say this is absolutely wrong, we're going to stop it.

BAROFSKY: You know, we've got to get rid of these parochial interests, these turf wars that are fought between different regulators, the pettiness.

You know, as you were saying, the New York State banking regulator, you know, puts out an order with tremendous revelations on the ones in Washington are -- and I've seen jealously (ph) of the attention that they're getting, then seem to undercut that effort.

I mean, it's kind of disgraceful. What we have to do is incentivize and reward regulators for doing their jobs, not punish them, you know --


VELSHI: You almost have to make it competitive. It almost needs to - - it needs to be this idea that who can -- who can round up the most criminals. But we have got to look at a regulatory system that actually punishes wrongdoing rather than just foams the runways.

BAROFSKY: Absolutely. There needs to be an entire change of attitude of what regulation is supposed to do. It's supposed to protect the taxpayer, not enable the banks and for them to continue under this ridiculous banner of systemic stability, which seems to be used to just shovel in all sorts of misconduct.

VELSHI: Do you think we could have done more when handing money out to those banks? And I ask you this in the current context, because Europe is faced with these types of decisions and will be faced with more of them. Do there have to be better rules?

BAROFSKY: Absolutely. If you're going to have a policy goals that go beyond we're just going to save the banks and saving -- for the sake of saving the banks, which we supposedly had in this country, there must be conditions, there must be incentives, there must be requirements.

Otherwise, it really is a fool's errand to think that the banks are magically going to put the public interests over their profit interests.

VELSHI: But at the time, it seemed desperate, it seemed urgent, people needed decisions made and in the heat of the moment, we probably didn't do as much thinking on it as we should have.

It's a great read. Neil Barofsky, thanks for joining me.

BAROFSKY: Thank you for having me.

VELSHI: We'll be right back.



VELSHI: A final thought for you: imagine a world where weapons of war might become wedding night limousines. In Iraq, car bombings and corruption are still facts of life, but believe it or not, there are signs of renewal.

Take that Humvee, the armored vehicle of choice of the U.S. military. That symbol of war has -- got this -- become a stretch limo, rented out for $400 a day for weddings by Iraqis who can afford it.

And then there's a place called The Burger Joint, where waiters take orders on iPads to the music of Motown and Frank Sinatra. American culture remains, even if U.S. troops are gone. And the numbers suggest an economic rebound.

According to the IMF, Iraq's gross domestic product, the largest measure of the economy, grew almost 10 percent last year and could reach 11 percent this year. Compare that to the struggling U.S., where we might get to 2 percent.

Of course, that's because Iraq is producing about 3 million barrels of oil per day, levels it hasn't seen since Saddam Hussein was in charge. Ordinary Iraqis are still waiting to share in those profits and to live in safety. But Iraqis are finally on their own. The choices in the future are theirs. That's it for tonight. Thank you and goodbye from New York.