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MR. MCLAUGHLIN: Issue One: Gitmo Giveth.

PRESIDENT GEORGE W. BUSH: (From videotape.) I understand we're in a war on terror, that these people were picked up off of a battlefield. And I will protect the people and at the same time conform with the findings of the Supreme Court.

MR. MCLAUGHLIN: Well, the findings of the Supreme Court are now before us: Stop the illegal military trials at Guantanamo. Commander-in-Chief Bush created a special military court to bring to trial war crimes suspects at Guantanamo Bay.

The vote was 5-3, with Chief Justice Roberts recusing himself. For the majority: Stevens, Kennedy, Souter, Ginsburg, Breyer. The minority: Scalia, Thomas, Alito. Since the facility opened in 2002, hundreds of prisoners have been held there, but only 10 have been charged with any crimes. Yet abuse, torture, riots and suicide have been reported at what has been called Gitmo, or the Guantanamo gulag.

Q Should President Bush be embarrassed by the Supreme Court's ruling against expanded war powers -- his, that is -- at Guantanamo? Mort Zuckerman.

MR. ZUCKERMAN: Well, this decision certainly goes to that issue and sort of begins to undermine the claim of the Bush administration that the resolution declaring war on Iraq basically gives him the broadest amount of power to execute the war, including setting up these kinds of commissions. It's just another phase of it.

And so this is a serious, serious issue, and it's why it had a blockbuster impact, it seems to me. And we're not through with it yet, because there are going to be a lot of other issues where this doctrine is going to now reach.

Now, what Stephen Breyer said in the court, which is that not only did the Congress not give him a blank check, but it said he can go back to the Congress, and it really goes to the issue of separation of powers. And he is now -- Bush is now going to have to work with the Congress to get what he needs to on a whole host of issues.


MS. CLIFT: Well, the president should be embarrassed, because he just got knocked off his throne. But I suspect that Karl Rove is not that displeased with this decision. Number one, he can frame it as the unelected liberals on the Supreme Court are setting up roadblocks in the war against terror.

And the president is going to have to go to the Congress. It's a Republican-controlled Congress. They can write him rules that give him essentially what he wants. And he can also exploit this as a political issue going into the November elections. This crowd is very good at converting the war on terror, broadly speaking, into their political advantage.

MR. MCLAUGHLIN: That point is very well taken about Rove being able to use this. It looks like the Republicans are going to feature the gay marriage amendment, abortion, the issues associated with that, religion, the Ten Commandments, the Pledge of Allegiance, gun rights, tax cuts and Guantanamo.

MR. ZUCKERMAN: And the role of the press.

MR. MCLAUGHLIN: This means the Republicans know how to practice stern patriotism instead of coddling terrorists. MR. BLANKLEY: Let me address your question. I think it's the Supreme Court, at least the four or five, depending on the issue, who ought to be embarrassed by this. I've actually, in the last 24 hours, read the whole 185 pages -- I haven't fully digested it yet -- of all the majority-dissenting opinions. And it is an appallingly wrongheaded set of conclusions that were reached. And if you read the dissents, particularly Scalia's and Thomas's dissents, I challenge any lawyer watching this show to read the dissents, to read the majority opinion, and see who's better law.

But, having said that, the opinion is not as bad as it's headlined, because, in fact, it has nothing to do with the conditions at Gitmo. The court fully allowed -- all eight justices fully allowed the continuing of keeping detainees there indefinitely. Conditions were not dealt with.

This all has to do with this fairly arcane proposition of whether Article III of the 1949 Geneva Accords includes responsibility to provide even those individuals who are not parties to the accord some minimal civilized conditions regarding military tribunals. I think it's bad law that they've reached, and there's a split on that.

By the way, I'd remind you that because Chief Justice Roberts had to recuse himself because he had actually decided the case below --

MR. MCLAUGHLIN: Appeals court level.

MR. BLANKLEY: -- the next time this issue comes up in another case, with another petitioner, there will be an entirely different mix. All of the plurality decisions within the decision will no longer be pluralities, because he'll be adding his vote to the court, because he's already decided with the dissent. And it may change the chemistry even of the majority opinion. So I think this is a very short-lived precedent we're looking at.

MR. MCLAUGHLIN: Well, that's a pretty learned description, I must say, Tony. It is interesting that John Roberts' legal reasoning was rejected by the majority, which is an indication of how severely ruptured that court is in its present state.

My question to you is, what about the Geneva Accords that he mentioned? Does this now put us in a position where we have to abrogate the Geneva Accords, the Geneva Conventions? And isn't that a ridiculous choice we would have to make?

MR. O'DONNELL: The majority said that Article III does apply to these al Qaeda captures.


MR. O'DONNELL: It really just has to do with the quality of their incarceration. It means you can't torture them. It settles that question that the Bush administration had out there, which was "We don't have to apply any of these Geneva Accords to these people because they're not enlistees in some nation's army." That now is settled by the Supreme Court in relation to these detainees.

But, listen, this was a great decision. It was a great decision for the United States. And it's not an embarrassment for the president. This court said, "Look, you can do almost all of this. You can do 90 percent of it if you legislate it," which, with a majority Republican legislature, it should not be a difficult thing to do. And this is the only country in the world in which this kind of prisoner, you know, his -- what's his name? I'm losing his name.

MS. CLIFT: Osama bin Laden's driver.

MR. O'DONNELL: Osama bin Laden's driver actually gets a Navy lawyer. He brings his case to the United States Supreme Court, and they rule, partially at least, in favor of his rights in these tribunals. This is the one country in the world where that could happen.

MR. ZUCKERMAN: Absolutely.

MR. BLANKLEY: Let me make one other point regarding the Geneva Accords, because this is one of the areas that I think is most grievously misdecided.

In 1987, Ronald Reagan rejected expressly protocol number one, which was being argued for around the world, to add to the 1949 Geneva Convention, that would have included terrorists in the category to be protected. And therefore -- the Senate never confirmed that protocol. And therefore the United States has never been a treaty to the provision. The majority of this court stands that we violated that.

MS. CLIFT: Aside from the technicalities, why should we as a country want to walk away from the Geneva Conventions?

MR. BLANKLEY: We don't have to walk away. We can --

MS. CLIFT: Well, that's what you're arguing. And the Supreme Court upheld --

MR. BLANKLEY: No, we don't --

MR. MCLAUGHLIN: Question --

MR. BLANKLEY: -- have to walk away from anything we've agreed to. But we expressly didn't agree to that two decades ago.

MR. MCLAUGHLIN: Will talk of -- will concern over civil liberties trump terrorism?

MS. CLIFT: Well, speaking as a political issue, when people are scared, they're willing to set aside their civil liberties. It's been the underpinning of everything this administration has done for the last five years.

MR. MCLAUGHLIN: Fear trumps hope every time.

MR. ZUCKERMAN: What has happened now is that the sense of threat that we felt five years ago has been diminished dramatically in the public. And second, frankly, the confidence in the Bush administration has diminished dramatically in the last five years as well. There's a feeling that they have been arrogant, that they have not listened, that they assert rather than rationalize and prove. And I think this has operated politically in this context as well.

MR. MCLAUGHLIN: Exit Q On a blessing-in-disguise scale, zero to 10, zero meaning zero blessing and 10 meaning papal blessing, Benedict XVI, what's the blessing in disguise of the Supreme Court ruling for President Bush?

MR. ZUCKERMAN: Well, I think it'll give more legitimacy to everything that he does if he works with the Congress. I think that is absolutely essential to going forward and doing what he has to do.

MR. MCLAUGHLIN: Fear trumps civil liberties.

MS. CLIFT: It will give a lot of Republicans nervous about losing the election in November an excuse to talk about how tough they want to be on terrorists and how we really shouldn't abide by the Geneva Conventions.


MR. BLANKLEY: Well, it's not really in disguise, but the good news or the blessing for the president is that the Supreme Court has upheld all of the conditions at Gitmo that all of his opponents have been criticizing him for.

MR. MCLAUGHLIN: So you say it's a blessing in disguise of a 10.

MR. BLANKLEY: On that issue. It's not in disguise, but for those who --

MR. O'DONNELL: But the court said very specifically you can't torture. They're saying very specifically you can't do some of the things that we have heard may be occurring at Gitmo. And so they have limited what can go on during the incarceration.

But what they absolutely continue to allow is we can hold any one of these people, not accuse them of anything, simply say they are a military combatant, and we can hold them for as long as we say the war on terror continues, which could be 50 years.

MR. MCLAUGHLIN: On a 10 scale, Karl Rove must be experiencing a 10 on this decision.

MR. O'DONNELL: How is this good for Karl Rove?

MR. MCLAUGHLIN: Because --

MR. O'DONNELL: Because of those liberal judges, those three Republican liberal judges that ruled against the president? MR. MCLAUGHLIN: Fear trumps hope every time. Fear trumps hope. And fear right now is what's operating in the atmosphere, as Mort points out. So it's a political plus for the president.

Issue Two: Olmert's Crucible.

Extreme action is what Israel promised to deliver to Gaza, and extreme action is what Gaza got. Israel midweek clamped down on the five-mile-wide, 25-mile-long Gaza Strip after the abduction of an Israeli soldier and the killing of two Israeli soldiers.

The soldiers were attacked in a raid by Palestinian militants who tunneled under an Israeli army outpost near the Gaza border. A Hamas spokesman says the tunnel raid by Palestinian militants was retaliatory.

Here's Martin Fletcher on the ground.

MARTIN FLETCHER (NBC reporter): (From videotape.) A Hamas spokesman called the raid a direct response to Israel's killing of women and children. Israel killed around 30 Palestinians in the last two weeks.

MR. MCLAUGHLIN: After demands for the abducted soldier's release went nowhere, Israel sent thousands of troops and armored vehicles into Gaza. From the air, Israel warplanes pounded Gaza's roads, bridges, weapons warehouses, and its only power station.

MUSTAFA BARGHOUTHI (Palestinian legislator): (From videotape.) It's a total humanitarian crisis with an act of what I can call collective punishment.

MR. MCLAUGHLIN: Israel arrested over 60 Hamas members and officials, including 20 members of parliament and one-third of the cabinet. In a Palestinian retaliatory move, an 18-year-old Jewish settler was shot in the head in Ramallah.

Q Is this a test of Ehud Olmert's fortitude under fire? Mort.

MR. ZUCKERMAN: Well, to some extent, of course, it is. It's the first time he's really engaged in a military confrontation now with Hamas. The real issue is how you deal with Hamas. Nobody's figured out the way to do it. They try to do it diplomatically. They try to do it without violence. After all, they left Gaza entirely to the Palestinians and to the Gazans. And what did they get? They got a thousand rockets flying into the Israeli cities, particularly of Sderot. They had this particular attack. They've had several kidnappings in the West Bank.

The Israelis at some point said -- they said diplomatically, "Send back the kid; we won't go in." They got nowhere. This was decided by Mashal, who is the leader of Hamas, who lives in Damascus, who's the head of the militant wing. This is what they are. They're a terrorist group. And that's what the Israelis believe, and that's why they had to go in.

MR. MCLAUGHLIN: Why didn't Israel invade northern Gaza this week --

MR. ZUCKERMAN: Bear in mind --

MR. MCLAUGHLIN: -- on the eve of the G-8?

MR. ZUCKERMAN: They are very careful in what they're doing. They're capturing individuals. They're not going ahead. It's not a big bloodbath, okay. They have tried very carefully to control what the physical violence --

MR. MCLAUGHLIN: Do you believe that Olmert has shown himself to be measured in this, because he's got Netanyahu on his right wing saying, "I told you what would happen if you elected Olmert," correct?


MR. MCLAUGHLIN: And he's also got Hamas, and he has to be tough with Hamas.

MR. ZUCKERMAN: Right. Right.

MR. MCLAUGHLIN: And so is he playing this right?

MR. ZUCKERMAN: Well, yes. I think, first place, this was his first test. Yes, he had to respond. And yes, he did respond.

It's too early to tell how this is going to play out, but he's played it in a very measured way, not just in the military sense that's visible, but in the diplomacy that goes on behind the scenes, because he's been in constant touch with every western leader. He's been working with Egypt to try and get the thing settled diplomatically. And that's where -- the Israelis do not want to stay in Gaza.

MR. MCLAUGHLIN: Do you have thoughts on the way this is being handled by Olmert?

MR. O'DONNELL: He's doing, you know, the only thing you can do under these circumstances. Unfortunately you have two completely different universes here, and the Palestinians believed that this was going to happen anyway, that the Israelis are just using the kidnapped soldier to do what they wanted to do anyway, and they are never going to believe that this is -- that they were in any way part of a direct provocation.

And so the problem with the response ultimately is that the response can't really work on the Palestinians in the way that the Israelis would like it to, which is to say, be a lesson. The lessons never get taught. They never get learned by either side in these exchanges. But I don't know what else you could ask Olmert to do.

MS. CLIFT: When one of your soldiers is taken hostage, the only response is "Go get them." And I think that was the initial response, and it's appropriate. But it looks as though they're trying to really dismantle the Hamas government, capturing the leadership and so forth, and trying to empower Abu Mazen. And they're not having that effect, because Abu Mazen looks totally powerless.

As far as I can tell, there is really no policy here that leads to anything other than a worsening of the status quo. And I'd like to know what our government is doing.

MR. MCLAUGHLIN: Well, you know, the populist angle on this in Israel must be enormous, seeing that young corporal. He's under terrific pressure. How would you rate him? I think we all give at least an A to Olmert.

MR. BLANKLEY: Yeah. You know, Netanyahu's challenge to him on the right isn't only about how he's performing now, but it was a critique of the Sharon policy of giving up Gaza, because they said, "You give it up and these kind of things are happening."

MR. MCLAUGHLIN: Right. That's Netanyahu.

MR. BLANKLEY: So this isn't only challenging his performance now. It's challenging the judgment of the policy.

MR. MCLAUGHLIN: Issue Three: Stop the Presses.

PRESIDENT BUSH: (From videotape.) We're at war with a bunch of people who want to hurt the United States of America. And for people to leak that program and for a newspaper to publish it does great harm to the United States of America.

VICE PRESIDENT CHENEY: Some in the press, in particular The New York Times, have made the job of defending against further terrorist attacks more difficult by insisting on publishing detailed information about vital national security programs.

MR. MCLAUGHLIN: The detailed information Mr. Cheney refers to involves the Society for Worldwide Interbank Telecommunications, otherwise known as SWIFT. SWIFT is a Belgian financial services cooperative that routes $6 trillion a day between banks and brokerages in stock exchanges across the globe. If you've ever tried wiring money overseas or transferred funds to a foreign bank or broker, odds are SWIFT moved your money.

Last week the New York Times revealed that beginning shortly after 9/11 and continuing on to this day, SWIFT has cooperated with the U.S. Department of the Treasury and the Central Intelligence Agency in using computer data-mining techniques to sift this massive volume of financial transactions for links to terrorists.

New York Republican Representative Peter King wants The New York Times prosecuted.

REP. PETER KING (R-NY): (From videotape.) I believe that the attorney general of the United States should begin a criminal investigation and prosecution of The New York Times. And that would include the writers who wrote the story, the editors who worked on it, and the publisher.

MR. MCLAUGHLIN: This latest disclosure follows on The New York Times' scoop about the National Security Agency's eavesdropping on millions of telephone calls, faxes and e-mails without court warrant.

Q The Bush administration has testified repeatedly before Congress over the past four years about tracking the financial dealings of al Qaeda and those charities which support terrorism. So is The New York Times revelation truly a revelation? And, if not, what does the White House dust-up amount to? MR. ZUCKERMAN: John --

MR. MCLAUGHLIN: Do you understand that?

MR. ZUCKERMAN: Yes, I do understand it. I mean, how many people heard of SWIFT before this whole episode?

MR. MCLAUGHLIN: They have a computer web site. There are 15 offices of SWIFT around the world -- 15.

MR. ZUCKERMAN: John, I know that. I mean, now I know that.

MR. MCLAUGHLIN: Did you -- you knew it before.

MR. ZUCKERMAN: I follow this world fairly carefully. I didn't know that this whole thing --

MR. MCLAUGHLIN: Mort, everybody knows about SWIFT.

MR. ZUCKERMAN: I don't know that much about money at that level as you do.


MR. ZUCKERMAN: But all I can say to you is some guy in various parts of, shall we say, Egypt --

MR. MCLAUGHLIN: Oh, come on, Mort.

MR. ZUCKERMAN: -- they do not know that all European money transfers are being tracked.

MR. MCLAUGHLIN: You know that the press -- many people believe that the press is being used as a foil again by this administration.

MR. ZUCKERMAN: John, it has worked. It has worked. The guy who was -- the mastermind of the Bali disaster, terrorist act, he was caught. Several people have been caught.

MR. MCLAUGHLIN: So you get one here, you get one there, and they don't know about SWIFT. The others do, and they also use the street method.

MR. BLANKLEY: Let me just make a point. When John Murtha and former Chairman Hamilton --

MR. ZUCKERMAN: And Tom Kean.

MR. BLANKLEY: Yeah, but the two Democrats actually --

MR. MCLAUGHLIN: The 9/11 commission co-chairmen both wanted the Times not to run it. MR. BLANKLEY: And John Murtha, for everything that he said against the (president?). When even they're on that side, you have to concede the possibility that The New York Times is in error.

MS. CLIFT: First of all, the terrorists have been moving away from the banking system and using their informal network of hawala. And it has been advertised by this administration repeatedly that we have been following their money. So I don't think this is going to come as a huge surprise.

And secondly, whatever you think -- if you think it was a close call whether The New York Times should have printed this or not, this is not treason. It is not --

MR. ZUCKERMAN: I agree with that.

MS. CLIFT: That is pure political --

(Cross talk.)

MR. BLANKLEY: It might --

MS. CLIFT: They're trying to impassion --

MR. MCLAUGHLIN: Let her finish. Quickly, quickly.

MS. CLIFT: They're trying to impassion Tony Blankley -- are you trying to wave, Tony? -- (laughter) -- Tony Blankley and his pals to get all worked up to make sure they vote in November.

MR. MCLAUGHLIN: All right, we've got to get out.

MR. BLANKLEY: Let me just respond, because it's not a settled question. In the Pentagon Papers issue, the court left open the possibility -- that was a prior restraint case, so that was illegal. They left open the possibility of prosecuting a newspaper for reporting classified information. So it's very much an open question whether that may be possible. Whether this --

MS. CLIFT: Want to make a bet on that?

MR. BLANKLEY: No. Betting is illegal.

MS. CLIFT: That's what I thought. (Laughs.)

MR. MCLAUGHLIN: The Pentagon Papers occurred in an era where there were no supercomputers doing data mining to the extent that we are today. Your health records, all of your records, can be examined. Do you understand?

MR. BLANKLEY: Yeah, I understand that well. I wasn't talking about data mining. I was talking about whether news organizations are vulnerable to espionage and classified information prosecution. And the fact is that, according to the Pentagon Papers Supreme Court decision, they held open that possibility.

MS. CLIFT: Espionage. And treason requires willful --

MR. BLANKLEY: I didn't mention treason.

MS. CLIFT: -- assault on the government, which is not what this was.

MR. MCLAUGHLIN: Two hundred and fifty million people in the United States, at least, the government knows everything about, and none of it is legal -- none of it. MR. O'DONNELL: Look, there is no such thing as a private banking transaction. No country in the world can keep a banking transaction private. We all know that. Every banking transaction --

MR. ZUCKERMAN: You authorize releasing that information when you open your account.

MR. O'DONNELL: -- thousands of eyes are on it --

MR. MCLAUGHLIN: Should The New York Times be prosecuted, yes or no, Mort Zuckerman?


MS. CLIFT: No. (Laughs.)

MR. BLANKLEY: Certainly the people who leaked the information should be. And I'd be in favor of at least looking at what the law permits regarding such prosecutions.

MR. O'DONNELL: It was a great job of reporting. Republicans are trying to jump on it as a way of just politicizing this whole issue. But there's nothing to it.

MR. MCLAUGHLIN: How do you sustain both of your opinions at the same time?

MR. ZUCKERMAN: It's a publisher's and an editor's decision to write this. I don't think it's a question of whether or not they broke the law. The question is, do you put at risk classified programs when you have been importuned by a whole host of both Democrats and Republicans? And on that grounds, it's a decision that the publisher can make.

MR. MCLAUGHLIN: I think that the head of the Financial Times should get the medal of honor for publishing this story.

MS. CLIFT: New York Times.

MR. O'DONNELL: New York Times.

MR. MCLAUGHLIN: The New York Times.

MR. O'DONNELL: Richard Clarke says al Qaeda already knew that we were tracking this stuff through SWIFT and all those other things, and that's why they've tried to move away from those kinds of transactions.

MR. MCLAUGHLIN: You know the extent to which the supercomputers that the government has, that other people have, that you can track anything, anywhere, and all of this data is unbelievable in terms of your health, your total background. MR. ZUCKERMAN: When we cannot get human intelligence on these folks, we should not give up the technology --

MS. CLIFT: We're not giving up anything. (Laughs.)

MR. ZUCKERMAN: Oh, yes, we are.

MS. CLIFT: I don't believe so.

MR. ZUCKERMAN: You bring this to the attention of the world, believe me, it's going to change the use of this.

MS. CLIFT: If there's a terrorist out there who didn't think his banking transactions were being monitored, it's a pretty dumb terrorist.

MR. ZUCKERMAN: Well, a lot of them are.

MS. CLIFT: I don't think so.

MR. MCLAUGHLIN: Okay, the human toll: U.S. military dead in Iraq, including suicides, 2,530; U.S. military amputeed, wounded, severely injured, injured, mentally ill, all out now of Iraq, 60,010; Iraqi civilians dead, 127,890.

Issue Four: Red, White and Burn.

Stop the parade. July 4th has come and gone. We celebrated it this week. The U.S. Senate was oozing with patriotism when it took up the matter of, quote-unquote, "physical desecration of the flag of the United States." The red, white and blue was hailed. In the end, the amendment failed, however, 66-34 -- one vote short of a two-thirds majority.

Q Why can't the Senate muster a two-thirds majority during a war to protect the flag from desecration? Lawrence O'Donnell.

MR. O'DONNELL: I don't get it. Look, John, I bought this flag last week in West Virginia; thought it was a beautiful little thing until I read here, "Made in China."

MR. MCLAUGHLIN: Made in China?

MR. O'DONNELL: Made in China. Now, I'm sure there are some people in the labor movement in this country who would like to burn this little piece of Chinese cloth to protest its origins and get this kind of thing out of this country.

Those 34 votes in the Senate were the bravest political votes cast this year --

MR. BLANKLEY: Oh, look -- MR. O'DONNELL: -- for the Constitution. In China, I can't burn the Chinese flag because there is no constitution, and they would send me straight to jail.

MR. MCLAUGHLIN: You want to protect your right to dissent. Is that correct? The Taliban would insist that you take their --

MR. O'DONNELL: Burning a flag is free speech.

MR. MCLAUGHLIN: Predictions. Mort.

MR. ZUCKERMAN: In the context of deteriorating Russian-U.S. relations, the Russians are not going to give the support the United States wants them to give to impose sanctions on Iraq, and therefore it's going to make it much more difficult to get Iran to stop their nuclear program.


MS. CLIFT: If the Iraqi government has any hope of surviving, it will have to grant amnesty even to Iraqi insurgents who kill U.S. soldiers. And the Bush administration will go along with it.


MR. BLANKLEY: I think there will probably be an immigration bill passed by Congress and signed by the president, against all expectations.


MR. BLANKLEY: I think it's trending that way.

MS. CLIFT: I noticed the word "comprehensive" was not in that description.

MR. MCLAUGHLIN: So that means border crossing only.

MR. BLANKLEY: No, there will be some sequencing.


MR. O'DONNELL: Scooter Libby will be on the president's Christmas list for a Christmas pardon.

MR. MCLAUGHLIN: Andres Manuel Lopez Obrador will be the next president of Mexico.

Happy 4th. Bye-bye.