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Report: $2,200 Tax Increase Per Family; Clashes and Crisis Talks; Keeping the Troops in Afghanistan; Does Egypt Have A New Dictator?

Aired November 26, 2012 - 17:00   ET

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


WOLF BLITZER, HOST: And you're in THE SITUATION ROOM.

Happening now, protests, strikes and bloodshed -- Egyptians fear their new president is becoming a new dictator. Urgent talks and an urgent new warning from the United States.

Air travel nightmare -- how the looming financial crisis could close airports in the United States, gut the ranks of controllers and security screeners, and ground millions of passengers.

And how did the confetti drifting over New York's Thanksgiving Day parade come to include Social Security numbers, license plate numbers and details from police reports?

We want to welcome our viewers in the United States and around the world.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Tensions heading toward a tipping point in Egypt, where thousands of mourners today marched through Cairo's Tahrir Square for the funeral of a man killed in protests against the president, Mohamed Morsi. He's accused of a massive power grab -- slashing the authority of judges, barring courts from overturning his rulings.

The secretary of State, Hillary Clinton, today told her Egyptian counterpart that the United States does not want to see power concentrated in one set of hands, even as President Morsi meets with Egypt's highest judicial body, which has blasted his actions.

Let's go live to CNN's, Reza Sayah in Cairo watching what's going on.

Lots of people in Tahrir Square. We have live pictures of that, Reza, as well.

I understand that Morsi actually met today with some of these top judges?

REZA SAYAH, CNN CORRESPONDENT: He did, Wolf. And a lot of people eager to see how President Morsi responds to this political crisis, if he would back down under mounting pressure, if he'd make some concessions. And it seems for now, the answer is no.

A couple of hours ago, President Morsi got out of a meeting with Egypt's top judges, representing the Supreme Judicial Council. Remember, many viewed one of his decrees as essentially disabling the judiciary by banning anyone -- any authority, even the judiciary, from questioning, appealing any decisions he made since June.

The question was, going into this meeting, would he scale back on some of those decrees?

Would he make concessions to the judiciary?

(INTERFERENCE)

SAYAH: He did not.

In a statement by the president's office, he said, look, the position that we're in is that these decrees are designed to move forward the democratic process and to avoid any remnants of the Mubarak regime -- in other words, the judges -- from undermining the process.

So for now, Wolf, the position of the president remains clear, that he's not backing down to the pressure and he's sticking with those controversial decrees that he announced last week.

BLITZER: As you know, Reza, the Muslim Brotherhood just said they were canceling the pro-Morsi demonstrations on the streets of Cairo.

So what does that actually mean?

Are they backing away from him?

What's going on?

SAYAH: I -- I think we need to be careful not to read too much into that particular decision, the canceling of the one million man demonstration they had on Tuesday. Remember, the Muslim Brotherhood is an extremely powerful organization, maybe the most powerful political movement in Egypt right now. And I think many are looking at this decision for -- to cancel this demonstration at face value. I think a lot of people were concerned about possible violence. The opposition factions also have their demonstrations scheduled for tomorrow. So they didn't want any clashes.

If anything, the Muslim Brotherhood and Mr. Morsi appear to be more confident than ever.

Earlier today, we spoke to a top adviser.

And he talked to us about the conflict.

(BEGIN VIDEOTAPE)

SAYAH: I get the impression that you're not too bothered by these protests, that you don't feel that there's a problem in Egypt right now.

ESSAM EL ERIAN, EGYPTIAN PRESIDENT'S SENIOR AIDE: We have many problems in Egypt. (INAUDIBLE) this is one of them, we have economical problems...

SAYAH: Do you see

This as a crisis, what's happening?

EL ERIAN: It's a problem.

SAYAH: Not a crisis?

EL ERIAN: I think it is a problem.

SAYAH: So how do you solve this?

EL ERIAN: Dialogue.

SAYAH: You want dialogue, they want concessions. They want Mr. Morsi to rescind his decrees.

What kind of concessions are you...

EL ERIAN: This is...

SAYAH: -- willing to make?

EL ERIAN: -- this -- this decision is up to the president, not for us.

SAYAH: Is it possible...

EL ERIAN: We -- we are ready...

SAYAH: -- is it possible...

EL ERIAN: -- we are ready...

SAYAH: -- that you will rescind your decrees?

EL ERIAN: -- for dialogue with our commitatants (ph).

SAYAH: Are you prepared to consider rescinding adjusting some of these decrees?

EL ERIAN: Decree is up to the president. We are accepting it. We may have some reservations, but as a whole, we must take a step to forward, not to backward.

(END VIDEO TAPE)

SAYAH: So two big headlines coming out of Egypt today. First off, President Morsi not scaling back his decrees, sticking with them, and The Muslim Brotherhood calling off their one million man demonstration scheduled for tomorrow -- Wolf. BLITZER: Yes, we're going to have a lot more on this story coming up later this hour.

Thanks very much, Reza Sayah, from Cairo.

Other news we're following, including news from Afghanistan. As the United States looks to wind down its troop strength in Afghanistan, plans are already being made for a U.S. military force that will stay on there even after the 2014 handover to Afghan authorities.

Our Pentagon correspondent, Chris Lawrence, has been looking into this -- Chris, what's being considered for a U.S. military role in Afghanistan after the scheduled pull out?

CHRIS LAWRENCE, CNN CORRESPONDENT: Well, Wolf, if you thought 2014 was going to be the end of U.S. troops' involvement, that does not look to be the case. Although publicly, Pentagon officials say that it's too early to speculate on troop numbers and nothing has been formally presented to the White House, our source -- a U.S. official is telling us that there are several options being discussed inside the Pentagon, one of which is to keep about 10,000 U.S. troops in Afghanistan past 2014.

A small number of those troops are these Special Operations Forces that would be dedicated to counterterrorism missions. The rest of the forces would either be training or advising Afghan troops or providing some logistical support with medical evacuations, air support and things like that.

The officials said there are other options, with fewer troops, some with more troops, but this one fits sort of right in the middle of that spectrum.

He also told me that one of the deal breakers, when it came to Iraq, immunity for U.S. troop. In other words, that they wouldn't be prosecuted under local laws, like Afghan laws. He doesn't feel that's going to be as big of a hurdle in Afghanistan as it was in Iraq. He says President Hamid Karzai is much stronger in his ability to say, we want U.S. troops here.

He says one of the things that's going to be key is the Afghans' demand for a lot of money in the later years, say, five, six, seven years out, how much money the Afghans would want in return -- Wolf.

BLITZER: Because the president kept saying during the campaign, as you know, Chris, that all U.S. troops would be out of Afghanistan by the end of 2014. It's still -- there's still about 70,000 U.S. troop there right now and most of them are presumably going to be there for the next year or two, until the end of 2014, costing U.S. taxpayers roughly $2 billion a week, or 100 billion a year to keep those troops there.

Would this be seen as a -- a violation of the president's commitment to the American people to get all troops out of Afghanistan by the end of 2014? LAWRENCE: Well, it depends how you read the president's previous statements, Wolf. And it also depends on how things change in Afghanistan.

You know, we know that the U.S. wanted to keep some troops in Iraq, but ultimately, that deal fell apart because of, among other things, the immunity clause in -- in trying to come up with an agreement.

But you're going to see these troops doing something very different, Wolf. Already, there are changes going on that will radically change how the mission in Afghanistan is conducted. Up to eight army brigade combat teams are going to be replaced by the middle of next year with these new security force assistance teams. They've got a completely different mission. It's much more geared toward training and advising, not combat and counter-insurgency.

One of those units has already deployed this month and you're going to see up to eight of those units replace those combat units.

So a big change, Wolf. They're not only going in with a different mission, but they're about half the size of the combat brigades that they're replacing.

So you're already going to start seeing some of those changes in 2013.

BLITZER: We'll see what happens.

Thanks very much for that.

Chris Lawrence at the Pentagon.

The nation may be just 36 days away from hurtling over the so- called fiscal cliff, a financial crisis that would be triggered by automatic spending cuts and tax increases. A deal to head off this nightmare scenario would take a lot of compromise here in Washington over the next few weeks.

And lately, some top Republicans are softening their tone when it comes to taxes.

Even the House majority leader, Eric Cantor, today seemed to back away from the no new taxes pledge orchestrated by the activist, Grover Norquist.

Listen to this.

(BEGIN VIDEO CLIP)

REP. ERIC CANTOR (R-VA), MAJORITY LEADER: I will tell you, when I go to the constituents, uh, that have elected and reelected me, it is not about that pledge. It really is about trying to solve problems.

We're going to do that in the name of trying to fix the problem, to respond to the electorate that reelected this president. But at the same time, we say we weren't elected to raise taxes, we -- we want to go and help people get back to work.

(END VIDEO CLIP)

BLITZER: Joining us now, the CNN contributor, Ryan Lizza.

He's the Washington correspondent for the "New Yorker" magazine -- Ryan, thanks very much for coming in.

RYAN LIZZA, WASHINGTON CORRESPONDENT, "THE NEW YORKER": Hey, thank you.

BLITZER: You listened carefully to what Eric Cantor had to say.

Does that appear to be a softening from his position?

LIZZA: It does appear to be. I think of all the Republicans in the last couple of weeks who have come out and moderated their position a little bit on taxes, Cantor's is the most interesting and the most revealing. Remember, in 2011, it was folks to Boehner's right, people like Cantor and Paul Ryan, who put a lot of pressure on Boehner not to cut a deal with Obama, who basically said, let's try and win the election instead and we'll be in a better bargaining position if Romney is president after the election.

That was the...

BLITZER: It didn't actually work out that well for the Republicans.

LIZZA: It didn't work out.

BLITZER: Yes.

LIZZA: That was the conservative approach.

And Boehner seems to be positioning himself as, at least according to the -- his latest comments, as much more of a conciliator, much more in the mood for negotiations.

BLITZER: So if there is a softening on the part of the Republicans...

LIZZA: Yes.

BLITZER: -- especially House Republicans, is it because of the election?

LIZZA: I think it has to be. Look, there were two lessons. The two big policy decisions Republicans in -- in Congress have to make after the election is on taxes and immigration. Those are the two -- those are the two issues that are coming down the pike for them. The taxes is first. Immigration will be second.

And the two issues where, if you look at the exit polls, they lost on those -- on both those issues, to President Obama.

And you hear a lot of conservatives in the more intellectual class of conservatives saying get off this idea of tax rates being the end all/be all of conservative economic policy. And it does seem that some conservative leaders are -- are listening in Congress.

BLITZER: Because Bill Kristol, a couple of weeks ago, the editor of "The Weekly Standard," he's an intellectual leader of that conservative wing, if you will. He said you know what, that a lot of Democrats in Hollywood get a benefit millionaires...

LIZZA: Absolutely.

BLITZER: -- if you will, and Republicans shouldn't necessarily go to war on raising the tax rates for the wealthy.

LIZZA: Absolutely. You have Bill Kristol. You have Ramesh Ponnuru in "The National Review," who, this week, said that that is a major problem for the Republican Party, that it's too obsessed with tax rates, it needs a broader economic agenda.

You have people like CNN contributor, David Frum, who said -- he's saying a similar message. And it's starting to penetrate.

Now, at the same time, you're going to -- you're going to -- you're going to see a -- a backlash from the Grover Norquists and the still very, very strong anti-tax wing of the party.

BLITZER: Because you could see a little civil war going on in the House, among the House Republican Caucus...

LIZZA: Yes.

BLITZER: -- those who are going to betray that pledge...

LIZZA: Absolutely.

BLITZER: -- those who are going to stick by it.

LIZZA: Absolutely. And Boehner is going to have to make a decision. Look, he's not going to get 100 percent of his caucus to sign onto whatever deal he negotiates with the president. That's just not going to happen.

And at the end of the day, he's going to have to make a decision -- does he allow a huge chunk of his caucus, does he allow a deal to go through that -- where he loses a big chunk of his caucus?

BLITZER: Does the president lose Democrats if he makes significant cuts in entitlement spending?

LIZZA: I think the conventional wisdom is that Obama has more control over the House Democrats than Boehner has over the House Republicans...

BLITZER: Still? LIZZA: That, in a sense that...

BLITZER: -- even though -- despite the election?

LIZZA: Despite the election, because most people believe that Obama can go to the liberals and say, you've got to vote for this.

BLITZER: Because a lot of liberals are not going to vote for any significant cuts in Medicare, for example.

LIZZA: Well, the -- what -- remember, in 2011, what -- when it was revealed what Obama was negotiating with Boehner, a lot of liberals were not very happy with it.

BLITZER: Yes.

LIZZA: But the White House was -- was pretty confident that they could have pushed that deal through.

You're right, though, after the election, a lot of liberals think that Obama owes them a little bit more. And on entitlements, they're going to be in a much tougher -- uh -- there's going to be a much stronger bargaining position.

BLITZER: The question is, can Boehner get a majority of his Republicans on board, can the president get a majority of the Democrats on board?

If they do that, they'll have a deal.

LIZZA: Yes. And it -- look, if Boehner -- it strengthens -- it's ironic because it strengthens Boehner's position if he goes to Obanna -- Obama and says, look, I've got a lot of these really crazy conservatives. They're pressuring me. So it -- it makes Boehner's position a little bit stronger in the negotiating table if he can say I've got these people on my right, uh, pushing me and I -- you know, I need a little -- I mean I need to deliver something for them.

BLITZER: Do you predict a deal or no deal?

LIZZA: Oh, I predict a deal, absolutely.

BLITZER: Yes. OK.

LIZZA: I mean the consequences of no deal are too dire.

BLITZER: I hope you're right.

LIZZA: There will be some deal.

BLITZER: A lot of us hope you're right.

LIZZA: It will be a little...

BLITZER: Thank you...

LIZZA: -- messy and ugly to get there, but there will be some deal.

BLITZER: Ryan, thanks very much.

LIZZA: Thanks, Wolf.

BLITZER: A warning from the White House that middle class families could pay thousands more in taxes next year. I'll speak with the top White House economist, Alan Krueger. He's here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: A stark warning from the White House today. A new report suggests the average family in the United States will pay $2,200 more in taxes next year if Congress doesn't freeze tax rates for middle class families. It's all part of the president's push to extend tax rates for the middle class.

And joining us now, Alan Krueger, he's the chairman of the White House Council of Economic Advisers. Alan, thanks very much for coming in.

ALAN KRUEGER, CHAIRMAN, W.H. COUNCIL OF ECONOMIC ADVISERS: Thanks for having me.

BLITZER: I was intrigued by something I heard from Senator Lindsey Graham yesterday on the Sunday talk show circuit. He was talking about, perhaps, an alternative to raising tax rates. Listen to this.

(BEGIN VIDEO CLIP)

SEN. LINDSEY GRAHAM, (R) SOUTH CAROLINA: I will cap deductions. If you cap deductions around the $30,000, $40,000 range, you can raise a trillion dollars in revenue. And the people who lose their deductions are the upper income Americans.

(END VIDEO CLIP)

BLITZER: Does that sound like a reasonable compromise to you, instead of raising the upper income tax rate, let's say, from 35 to 39 percent, cap deductions at 30, or 40, or $50,000? Does that raise a trillion dollars?

KRUEGER: No. It's hard to see how you can do it. We certainly are willing to look at proposals. The president put forward in his budget a proposal that limits deductions and raises the top rates, all together raises about $1.6 trillion.

BLITZER: But if there's a way to keep the top rate at 35 percent, cap deductions, eliminate loopholes, tax credits, all sorts of areas that really benefit the wealthy instead of raising the tax rate, do you think that the White House would be open to that?

KRUEGER: You know, we're certainly willing to look at such proposals, but we haven't seen a realistic proposal that raises enough revenue. And you also have to bear in mind that there are certain purposes for some of these deductions such as charitable contributions where one has to be concerned about greatly reducing the amount of money that's going to worthy charities.

BLITZER: As far as the other part of the coin, cutting spending, especially entitlement spending, I want to pick your brain on how far you're willing to go in that area as far as Medicare cuts, Social Security, raising the retirement age, along those lines, all of that is on the table, right?

KRUEGER: You know, the president put forward a balanced approach, one that has a balance between raising revenues on the highest income earners and cutting spending. We're in a situation where we need to consider all kinds of options.

BLITZER: So, that's on the table right now, everything is on the table -- do you think you can get this done in the next three weeks or so?

KRUEGER: No, Wolf, these are solvable problems. I think the most important step Congress can do right now is extend the middle class tax cuts. That's why we put out a report today looking out what would happen if the middle class tax cuts are not extended. Starting next year, middle class families would face around a $2,000 tax increase. That will have negative consequences for the economy.

BLITZER: And I just want to get back to that capping deductions. Is there any flexibility on the White House standpoint about capping deductions, whether with home mortgage, interest rates or with charitable contributions? Would either of those or both of those be on the table?

KRUEGER: You know, if you go back to the president's very first budget, he had a proposal which limits deductions for upper income people to 28 percent rate. I think that's an economically very sensible way to approach this problem, and he still has included that in his budget.

BLITZER: And so, you're concerned about charitable contributions suffering as a result -- how do you deal with that?

KRUEGER: Well, at a 28 percent rate, there's still an advantage to making those charitable contributions still a tax advantage, a considerable tax advantage.

BLITZER: Is Timothy Geithner now leading the negotiations with Congress on these issues?

KRUEGER: Secretary Geithner is playing a lead role, but certainly, others are very much involved, including the chief of staff and the legislative director, Rob Nabors.

BLITZER: Because you notice, I don't know if you saw that story in "The Wall Street Journal" today saying there were some Republicans on the Hill irritated with Jack Lew, the White House chief of staff, really want to deal with Geithner as opposed to Jack Lew. Did you see that story?

KRUEGER: I saw the story. President has an outstanding economics team. I work for Secretary Geithner. Now, I meet every day with chief of staff, Jack Lew, and I can tell you, they're wonderful people to work with, first-rate policymakers, people whose values and judgment I trust enormously.

BLITZER: As part of this deal, assuming there's a deal before the end of the year, avoiding going over the so-called fiscal cliff, are you also including raising the nation's debt ceiling, because it's got to come up by February or march, I take it? And everyone doesn't want to go through this nightmare once again then.

KRUEGER: That's absolutely right. If you look back at what happened last year, it was a completely self-inflicted wound. Congress didn't raise the debt ceiling in an orderly fashion, and it literally brought the economy close to its knees. It's taken us a while to build back confidence since then.

Consumer confidence is now back up to a five-year high. So, it's important that we address the debt ceiling and the other issues facing us at the end of the year.

BLITZER: In your report -- I read it -- that was release this morning, I didn't see any mention to extending the payroll tax cut. If it's not extended, that's going to lapse. It's going to cause a lot of pain for a lot of middle class families. What's your thinking on that?

KRUEGER: In our report, we focused on the effect of not extending the middle class tax cuts. The Senate has passed an extension on the middle class tax cuts. The Congress could pick that up. That will provide a lot of certainty and help the economy going forward. And if not, we calculate that GDP growth will be reduced by 1.4 percentage points next year.

BLITZER: Well, what about the payroll tax cut? Does the White House want that to lapse, go away, or to be extended?

KRUEGER: Well, as you know, Wolf, there are a lot of tax provisions that are expiring at the end of the year. First and foremost, I think Congress should pass an extension of the middle class tax cuts. There will be time to consider other proposals like the payroll tax cut and also just want to make sure everyone is aware the president fought very hard for the payroll tax cut a year ago and that payroll tax cut has been helping to bolster households, help to support the economy in the past year.

BLITZER: Well, it looks like no matter what happens, that's going to go away. It doesn't even look like it's part of the negotiations, am I right?

KRUEGER: You know, as I said, there are lots of provisions that are expiring at the end of the year. The president said this should be on the table. There will be lots of tax provisions, including the payroll tax cut to consider. BLITZER: Alan Krueger is the chairman of the Council of Economic Advisers at the White House. Alan, thanks very much for joining us.

KRUEGER: Thanks for having me, Wolf.

BLITZER: Secret confidential information revealed in the confetti at this year's Macy's Thanksgiving Day Parade. You're going to find out what spectators discovered just ahead. Stay with us. You're in the SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Bangladesh remembering more than 100 clothing factory workers killed in a horrific fire. Lisa Sylvester's back. She's monitoring that and some of the other top stories in the SITUATION ROOM right now. Lisa, what happened?

LISA SYLVESTER, CNN CORRESPONDENT: Wolf, the government of Bangladesh has announced an official period of national mourning to begin tomorrow. It's also ordering an investigation into the deadly weekend blaze. Meanwhile, at least another ten people were injured just today in a new fire that broke out at a different garment factory. No one was killed in that fire.

Bangladesh actually has more than 4,000 garment factories that make clothes for a number of top brands, including some right here in the United States.

And the FBI is calling the arrest of one of its ten most wanted fugitives, quote, "a big deal." Authorities held a news conference today after finally catching up with Joe Signs (ph) in Mexico. He had been on the run for 14 years. The suspect is accused of killing four people in the Los Angeles area, and the person who tipped off police will get a $100,000 reward.

The U.S. military is recalling some body armor plates used by Special Operations Forces in combat due to a manufacturing defect. It says the problem was only detected in a small percentage of plates and no service members were killed or wounded as a result. Special operations command is issuing an older generation of plates until a full inventory of replacements is manufactured.

And wow, this could have been a bombshell evidence in the Casey Anthony trial. And the Orange County sheriff's office is calling it an oversight. CNN affiliate, WKMG, reports that prosecutors and investigators missed important computer evidence that showed the Florida mom may have researched how to kill her two-year-old daughter. On the afternoon of Caylee's death, someone reportedly searched the term "foolproof suffocation" on Anthony's computer.

The user also red about poison and suffocation, which is how prosecutors claimed Anthony killed her daughter. A jury acquitted Anthony last year of first-degree murder in the 2008 death of her toddler. So, that's pretty interesting, Wolf. But they're calling it -- they're saying it was an oversight.

BLITZER: And there's nothing they can do about it now.

SYLVESTER: there's nothing they can do. I mean, she was tried, she was acquitted, and that's pretty much the end of it at this point.

BLITZER: Yes. That would have been bombshell evidence.

SYLVESTER: Indeed.

BLITZER: All right. Thank you very much.

After a stunning power grab by Egypt's new president triggers widespread protests, should the Obama administration now threaten to withhold financial aid to Egypt? Stand by.

(COMMERCIAL BREAK)

BLITZER: Let's get back to our top story this hour. The growing crisis in Egypt where the new president, Mohamed Morsi, has given himself broad new powers, bringing tens of thousands of protesters back into the streets.

You're looking at live pictures from Tahrir Square right now. They're camping in.

Joining us to discuss is the Middle East expert Fouad Ajami. He's a senior fellow at the Hoover Institution.

Fouad, thanks very much for coming in. President Mohamed Morsi first took control of the Muslim Brotherhood, a parliament, then the military got rid of General Tantawi, now he's trying to take control of the judiciary. And you're hearing a lot of Egyptians say he's becoming a dictator. Is he?

FOUAD AJAMI, SENIOR FELLOW, HOOVER INSTITUTION: Well, when someone says basically that he is above the law, that his decisions ever since he became president last June are not subject to review, when someone suspends basically the constitution, the working assumptions on the land and promises that he will return it to the people seven months later, Egyptians have every right to worry.

They have every right to worry that this may be their classic worry about the Islamist, the Muslim Brotherhood, as the case of the one man, one vote, one time. That the Muslim Brotherhood would run away with the -- with the practice and the constitution and the power of the land. And when the man himself had 51.7 percent of the vote when he was elected, you know, this is a bit much.

BLITZER: Because he says it's temporary, that's his word, temporary. Mohamed ElBaradei, an Egyptian who used to head the International Atomic Energy Agency, a Nobel Peace Prize winner, he says, in effect, that Mohamed Morsi is not only a dictator but he's becoming like pharaoh. And you hear this from other Egyptians as well.

AJAMI: Yes, it's an arresting image. And actually there are many, many Egyptians. I've talked to several people, liberal Egyptians, who are almost -- believe it or not -- are now hoping for a military intervention. I mean this is the dilemma of Egyptian liberalism. That if it's going to somehow arrest the power and the reach of the Muslim Brotherhood, it has to rely on the army. I think --

BLITZER: You mean a military coup? Is that what you're talking about?

AJAMI: Well, there are some people who are speaking in such terms including, including Mohamed ElBaradei. I think we have to be -- we have to step back and look at these decisions and the announcements of Morsi and what he was trying to do.

What's interesting, there was a man, an Egyptian academic, who said, there was a disease in Egypt, but this is not the right remedy, an Egyptian academic. I think the courts in Egypt, the judiciary will really a runaway judiciary. And -- there is a kind of discontent in the country with the judiciary. The judiciary, for example, was supposed to try these people responsible for the murder of 850 protesters in the events of Tahrir Square. None of that happened. None of that happened.

And there was great unease with the prosecutor. There was a prosecutor that the Tahrir Square people, the liberal people, did not take to. And so Morsi removed him. And that actually was a very popular decision.

BLITZER: The State Department spokeswoman, Victory Nuland, spoke about what's going on in Egypt today. I'll play a little clip.

(BEGIN VIDEO CLIP)

VICTORIA NULAND, STATE DEPARTMENT SPOKESWOMAN: We want to see this issue resolved in a way that meets the standards and principles that we've been supporting all the way through since the Egyptian revolution began.

(END VIDEO CLIP)

BLITZER: So what should the U.S. do right now to make sure those standards and principles are honored?

AJAMI: Well, you know, Wolf, Morsi -- Mohamed Morsi was a cunning man. Look at the timing. He did this, he did this attack, if you will, on the constitution and the attack on the judges right after he brokered the deal between Israel and Hamas. So he was already rendering services in the international community and then asking for a license at home.

It's really basically a page from the book of Hosni Mubarak. So I think in Washington, there is great uncertainty, what to do with the Islamists in power. And this is not just from this crisis of November 22nd. This crisis of the last week behind us. This has been the case since the fall of the dictatorship of Hosni Mubarak, what to do with the Islamists in Egypt, what to do with the Islamists in Tunisia and what to do with the rise of the Islamists in the -- in the region as a whole.

BLITZER: Over the weekend, Senator John McCain said, our dollars will be directly related to the progress towards democracy. If you add up all the economic and military assistance the U.S. gives Egypt every year, what, it's about a billion and a half, $1.5 billion. Should that be used as leverage to try to get Egypt back on this democracy road?

AJAMI: Well, I usually have great deference to the opinions of Senator McCain. I see things on national security the way he does. I think the Egyptians operate on the assumption that they are too big to fail, they are too big to be cut out, if you will, of Washington's largess. And that their relation with Israel and their place in the region somehow grants them an exemption from these pressures of Congress.

I don't think Congress will go through. I think the Egyptians have always played that game. They've played it for a very long period of time. And in that way, Morsi really takes up after the Mubarak regime, how to get American treasure and how to snub American wishes.

BLITZER: One quick question on Syria, because I know you've studied it.

AJAMI: Yes.

BLITZER: You've just written a book about it. Turkey has then -- has asked for and been granted a NATO Patriot air defense missiles. They're clearly worried about rockets and missiles coming into Turkey from Syria, from the regime of Bashar al-Assad.

How worried should Turkey be about engaging with Syria in an actual war?

AJAMI: Wolf, you know, the Turks are very worried. And the Turks are very disappointed. We have to be honest about that. I've spent a fair amount of time in Turkey the last year or so. They're very disappointed in Washington's abdication. They feel that Washington has left them holding the bag.

Prime Minister Erdogan has always felt that he had a kind of an inside relationship with President Obama. But now the Turks are left where they are. They are left really basically with this kind of running, shooting campaigns with the Syrians. They're left with well over hundred and -- perhaps 120,000, 130,000 Syrian refugees and they feel that they have been left alone.

The Patriot missiles are the least we can do for them.

BLITZER: Fouad Ajami, as usual, thank you.

AJAMI: Thank you, Wolf.

BLITZER: So could air travel cost you more if the country goes over that so-called fiscal cliff? Up next, the doomsday scenario some experts are now painting.

(COMMERCIAL BREAK)

BLITZER: The looming fiscal crisis may not only hit your wallet hard, it could also have huge implications for the next time you want to fly.

Here's CNN's Sandra Endo.

(BEGIN VIDEOTAPE)

SANDRA ENDO, CNN CORRESPONDENT (voice-over): This is air travel now. Cut that by $1 billion and it could ground millions of travelers.

MARION BLAKEY, PRESIDENT AND CEO, AEROSPACE INDUSTRIES ASSOCIATION: In the 56 years of the FAA's history, there's not been anything that has been as threatening as sequestration.

ENDO: The automatic spending cuts, which may kick in after the first of the year, would run deep for the FAA. The Aerospace Industries Association paints a doomsday scenario. Two hundred fifty small airports may have to close and 1500 air traffic controllers laid off.

A former FAA administrator heads the lobby group.

BLAKEY: FAA is not one of those places that if you are looking for smart cuts you'd go. It's an operational agency, it's a safety agency. And you sure don't want to see cuts made there. It really does force us to look at the fact that we could see our system become a much diminished system, operating on the kind of schedules you're used to in the third world, not here in the country.

ENDO: She says 9,000 TSA screeners could also get pink slips.

JOHN PISTOL, TSA ADMINISTRATOR: We have made a number of plans in the event that sequestration does go into effect.

ENDO: The head of the TSA John Pistol says they could handle the potential cuts.

PISTOL: The bottom line is to keep the frontline security operations in full force, to keep the movement of people and goods moving smoothly.

ENDO: The airlines we talked with wouldn't share their doomsday plans, referring us to a lobby group, which said, "No one knows what might happen should sequestration occurs"

Small comfort for the public looking to buy tickets.

(On camera): What do you think that's going to do for the airline industry and airports and security here?

UNIDENTIFIED FEMALE: Oh, gosh, make everything a little more difficult?

ENDO: Are you worried about that in terms of travel for yourself?

UNIDENTIFIED FEMALE: Yes, of course. Travel and travel costs.

UNIDENTIFIED MALE: I travel a lot. So anything that messes with it is a problem.

ENDO: So what's your message for Congress?

UNIDENTIFIED MALE: Let's get together and figure this out.

ENDO: The worst-case scenario may sound grim. But many industry leaders are taking a wait-and-see approach. All eyes are on this lame duck Congress, which has about six weeks to figure out where the budget acts will fall.

Sandra Endo, CNN, Washington.

(END VIDEOTAPE)

BLITZER: So was the Palestinian leader Yasser Arafat poisoned to death? Up next what investigators are hoping to learn from his remains.

(COMMERCIAL BREAK)

BLITZER: The Palestinian leader Yasser Arafat died nearly a decade ago after a sudden and severe illness. Now after weeks of preparation, investigators are trying to find out if he was poisoned.

Here's CNN's Fred Pleitgen.

FREDERIK PLEITGEN, CNN INTERNATIONAL CORRESPONDENT: Wolf, the mystery around Yasser Arafat's death is almost like a James Bond movie. Now a team of scientists is going to analyze sample from his body and what they're looking for, Wolf, is the substance polonium, a radioactive substance that has been used in assassination attempts in the past.

(BEGIN VIDEOTAPE)

PLEITGEN (voice-over): Even eight years after Yasser Arafat's death, the circumstances remain a mystery. Was the Palestinian leader poisoned? A team of international scientists will try to find clues working behind this blue tarpaulin exhuming Arafat's body and taking samples for forensic analysis.

"I consider it a painful necessity," the lead investigator says. "This is necessary to reach the truth in the death of President Yasser Arafat."

Arafat died in 2004 after a short and severe illness. Doctors were never able to determine the cause of death. Even as his body was laid to rest, rumors began to circulate Yasser Arafat might have been murdered.

A recent investigation found traces of the radioactive substance polonium which has been used in assassination attempts in the past on some of the Palestinian leader's belongings.

French authorities have launched a murder probe. Now experts from France, Switzerland and Russia will examine Arafat's remains, also looking for a possible polonium concentration.

(On camera): The exhumation process will only take a few hours but samples will then be independently analyzed in labs in Russia, Switzerland and France, and it's unclear when the first results will be made public.

(Voice-over): In his lifetime, and even after his death, Yasser Arafat remained a towering figure for Palestinians. But despite wanting to know the circumstances behind his illness, not everyone agrees with the exhumation.

"I don't support the process," this man says. "Because the opening of the grave is disrespectful and insulting."

UNIDENTIFIED MALE: I have no objection to exhuming him as long as it is done by professionals and in full respect of the leader.

PLEITGEN: "Of course I'm against it," he says. "It is insulting to the martyr and to the Palestinian people.

The Palestinian Authority has accused Israel of being behind any poisoning of Arafat, a claim the Israeli government refuses to comment on.

It's not clear if polonium can still be traced on his remains eight years after the Palestinian leader's death but if heightened levels are found, the next question for investigators would then be, who is behind Yasser Arafat's death?

(END VIDEOTAPE)

PLEITGEN: So, of course, Wolf, if indeed polonium is found inside Yasser Arafat's body, that's going to raise a whole new set of questions and most possibly lead to another very, very long investigation -- Wolf.

BLITZER: Fred Pleitgen, thank you.

Social Security numbers, birth dates and sensitive police reports, all included in the confetti raining down on spectators at this year's Macy's Thanksgiving Day parade. How did this happen? What's going on? Stay with us.

(COMMERCIAL BREAK)

BLITZER: Let's take a look at this hour's "Hot Shots."

Here in Washington, a crane lowers a Christmas tree on the lawn of the U.S. Capitol. In England, Queen Elizabeth meets with a camouflaged soldier. Sniper in this particular case. In Iraq, children hold candles during a ceremony. And in Monaco, people display a quilt in memory of men and women who died from AIDS.

"Hot Shots," pictures coming in from around the world.

Spectators at the annual Macy's Thanksgiving Day parade in New York City got much more than bargained for when they were showered with confetti made of confidential police information.

Let's bring in CNN's Mary Snow. She's in New York. She's got details.

So what happened here, Mary?

MARY SNOW, CNN CORRESPONDENT: Well, you know, Wolf, if it hadn't been for a college student, this may have gone unnoticed. Police in Nassau County which is just outside New York City are now investigating how the sensitive information wound up at the parade and why these documents weren't shredded properly.

(BEGIN VIDEOTAPE)

SNOW (voice-over): Mixed in with the likes of Spider-man and Spongebob at New York's Thanksgiving Day Parade was shredded police documents containing personal information flung along the route. It's now is the subject of an investigation.

Parade sponsor Macy's says it only uses multicolored confetti, not the white shredded paper first brought to light by college student Ethan Finkelstein. He went to CNN affiliate station WPIX saying he gathered the strips after one landed on his friend's jacket.

ETHAN FINKELSTEIN, DISCOVERED POLICE DOCUMENTS: She looked at it. She picks it off her jacket and it says SSN and then there's a number and it's, you know, written like a Social Security number. And we're like, that's really bizarre.

SNOW: Finkelstein says he found Social Security numbers for police officers along with birth dates, the symbol for the Nassau County Police Department was in the pile, along with the mention of Mitt Romney's motorcade, presumably tied to the last presidential debate in Nassau County. Ethan's father Saul who was with his son was stunned by the discovery and pointed out bits of the shredded documents that still remain along the sidewalk.

SAUL FINKELSTEIN, DISCOVERED POLICE DOCUMENTS: If somebody had the wrong intentions and they were diligent, they could definitely put together names with information that shouldn't be in the hands of the public.

SNOW: Finkelstein says detectives from the Nassau County Police Department came to see him Sunday night after he reached out to them. The department said in a statement, "The Nassau County Police Department is very concerned about this situation. We will be conducting an investigation into this matter as well as reviewing our procedures for the disposing of sensitive documents.

S. FINKELSTEIN It seems foolish. I mean, hopefully it is not more than foolish.

(END VIDEOTAPE)

SNOW: Now a Nassau County Police Department spokesperson says the department is now offering help to those whose identities may have been compromised. Wolf?

BLITZER: Mary, do police know what documents these actually were?

SNOW: You know, as far as they can tell, they believe these were all part of administration documents and not part of ongoing investigations.

BLITZER: Pretty embarrassing stuff. Mary snow working the story for us, thank you.

And you're in THE SITUATION ROOM. Happening now, the country is teetering on a fiscal cliff right now. And now a rare sighting of an endangered species here in Washington. We're talking about compromise. Some powerful Republican lawmakers are rethinking their anti-tax pledge. I'll talk about it wit the number three GOP leader in the House of Representatives.

Plus, how Iran is rearming Hamas in the wake of its latest battle with Israel.

I'm Wolf Blitzer. YOU'RE IN THE SITUATION ROOM.