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Inside Politics

Enron Hearings Begin; President Bush Sends Budget to Congress

Aired February 04, 2002 - 16:00   ET

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

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JUDY WOODRUFF, CNN ANCHOR: I'm Judy Woodruff in Washington. I'll ask a senator who was stood up by former Enron chief, Ken Lay, about his charge that Enron ran a Ponzi scheme.

JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT: I'm Jonathan Karl on Capitol Hill, where a senior Democrat just called the Bush administration a "cash and carry government, paid for by Enron."

MAJOR GARRETT, CNN WHITE HOUSE CORRESPONDENT: I'm Major Garrett at the White House, where President Bush describes the budget he sent to Congress today as a battle plan for the war on terrorism.

CANDY CROWLEY, CNN CORRESPONDENT: I'm Candy Crowley, with snapshots of a fresh face and a familiar one, from the presidential testing grounds.

WOODRUFF: Thanks for joining us. As Congress began a big week of Enron hearings, many lawmakers already were outraged by the energy giant's collapse. The fact that former Enron CEO Ken Lay was a no- show stirred the pot even more. One Senate Democrat aimed some of his anger at the Bush administration. We begin with our Congressional correspondent, Jonathan Karl -- Jonathan.

KARL: In fact, Judy, that Senate Democrat said that he thinks there should be a special prosecutor appointed to investigate Enron. But more on that in just a minute. Meanwhile, the Senate Commerce Committee will not take Ken Lay's no for an answer. They are going to subpoena him to try to force him to appear before the committee.

(BEGIN VIDEOTAPE)

(voice-over): At the press conference to announce the subpoena, Commerce Chairman Fritz Hollings took aim not so much at Mr. Lay, but at the Bush administration.

SEN. FRITZ HOLLINGS (D), SOUTH CAROLINA: A culture of government corruption -- I have never seen a better example of cash and carry government than this Bush administration. And Enron...

KARL: It was the harshest attack yet from a Democratic member of Congress on Bush's Enron ties. And it didn't end there. Hollings called the Bush administration a -- quote -- "Enron government," that gave favor after favor to Enron in exchange for money.

HOLLINGS: It's like, "I did not have political relations with that man, Mr. Lay." That's what happened to Kenny-boy.

KARL: Caught by surprises was Republican Peter Fitzgerald, who thought this was a press conference about Ken Lay, not George Bush.

SEN. PETER FITZGERALD (R), ILLINOIS: I think this is a corporate scandal. I don't believe that anyone in the Bush administration was aware that there was what appears to be a pyramid scheme going on in Enron corporation.

KARL: Lay also refused to appear before the House Financial Services Committee, which had expected to see him on Tuesday. That committee also signaled intention to issue a subpoena to force him to appear.

(END VIDEOTAPE)

Lay's attorney said that he refused to show at today's hearing because of critical comments made over the weekend on talk shows by several members of Congress. Those comments, his attorney said, showed that this would not be an impartial hearing. But meanwhile, Democrats up here and some Republicans said the real reason that Lay did not show up is because of the Powers report being released over the weekend. The Powers report, which was commissioned by the Enron board of directors, was highly critical of the Enron management, including Ken Lay, who, the report said, bears substantial responsibility for the accounting practices that led to Enron's demise.

Now, William Powers, who is the University of Texas Law dean, who headed up that report, is testifying later today on the House before the financial services committee, which was the very committee where Lay was supposed to testify tomorrow -- Judy.

WOODRUFF: Jon, are any other Republicans commenting on what Senator Hollings had to say about the Bush administration?

KARL: Well, the RNC, the Republican National Committee, immediately called for a retraction, something that a Hollings spokesmen said was not to come. But we also do -- Major Garrett got a reaction from the White House, a statement that said -- quote -- "the president will continue to press for pension and disclosure reform to protect worker retirement savings.

It's disappointing some are more interested reading off partisan Democrat attack memos and repeating unfounded and unsubstantiated allegations than working with the president to prevent something like this from happening in the future -- obviously, a reference there to that memo by James Carville last week, that said that the Democrats could benefit politically from the Enron scandal -- Judy.

WOODRUFF: All right, Jon Karl at the Capitol. And in just a few minutes I'll be asking Senator Peter Fitzgerald, who you just saw a second ago, about many of these questions.

Also on the Hill today: the arrival of President Bush's new budget plan. It calls for $2.1 trillion of federal spending in fiscal 2003, and a projected deficit of $80 billion. That is slightly less than the $106 billion deficit projected for this year. Mr. Bush makes his priorities clear in those red, white and blue books, you can see them here, and in his travels today. Let's bring in our White House correspondent, Major Garrett. Hello, Major.

GARRETT: Hello, Judy. Red, white and blue, that is the motif for the Bush budget for 2003. And of course, the headline item for the Bush budget is, this is wartime, two fronts, home and abroad. And abroad, $49 billion in additional spending for the Defense Department, bringing that budget up to $379 billion.

Judy, you've looked at a lot of budgets in Washington, so have I. I have never seen glossy pages or pictures before. Here in the Defense Department section, we have a predator, unmanned aerial vehicle. It's gained some fame in the war in Afghanistan. There are going to be a lot more of those, that's why the defense budget is going up so much, in part to pay for weapons like that in the theater of Afghanistan and elsewhere. The president, as you said, went on the road today to the panhandle of Florida. He said he hopes Congress will rapidly approve this defense budget increase.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We're unifying Washington on winning this war. One way to express our unity is for Congress to set the military budget, the defense of the United States, as the No. 1 priority, and fully fund my request.

(APPLAUSE)

(END VIDEO CLIP)

GARRETT: Now, homeland security gets another big boost, Judy, $20 billion more in this fiscal year, bringing that allocation almost up on to 40 billion. One of the losers, agriculture, some environmental spending, as well as transportation spending gets small- nicked. But the biggest loser is the overall surplus. Back in April, we were looking at surpluses over the next 10 years of $5.6 trillion. If the president gets his way across the board, come the year 2011, the surplus will only have accumulated about $600 billion, $5 trillion less than projected only last April.

WOODRUFF: Major, I gather, though, that not all the Republicans are onboard with the president's budget.

GARRETT: That's true. And the president on Friday went to the Greenbrier resort in West Virginia to sit down with House and Senate Republicans. He got kind of an unexpected earful from some House Republican conservatives. What they said is, look, Mr. President, we're with you entirely on homeland security increases and Defense Department increases, but we don't want to see a deficit this year. We're not even happy with last year's deficit.

The president said, well, look, I've got an economic security plan in there with tax cuts to stimulate the economy. I really believe in that. Republicans, some of them, said we just assume not have that, Mr. President. We believe the economy is going to get better just the same, and we'd rather run in November with a decent economy and very low deficit numbers and debt reduction that comes with it, instead of a stimulus plan and higher deficit numbers.

The White House is not yet ready to go down that route, but there is some tension within Republican ranks on deficit numbers in an election year -- Judy.

WOODRUFF: All right, Major Garrett at the White House.

For more now on budget politics, let's turn to CNN political analyst, Ron Brownstein of "The Los Angeles Times." Ron, how is this budget affecting the larger political debate out there?

RON BROWNSTEIN, "L.A. TIMES": Well, Judy, this budget could have as lasting an impact as the Reagan budget in 1981. When Ronald Reagan came in and pushed through his tax cut and his big increase in defense spending, he really defined politics for the rest of that decade. He set in motion a series of conflicts between and within the parties.

Now in sequence from the tax cut last spring, the recession and unavoidable increases in homeland security and defense, we may be setting in motion a process of similar here, by reducing the anticipated surplus, as Major said, from 5.6 trillion to 1 trillion through 2012, by eliminating on budget surpluses throughout the entire rest of the decade.

We have completely changed the definition of a possible in Washington, which gets us to a second major change that this is likely to produce, which is the elimination of a lockbox, and the reopening of a debate about what to do with Social Security money. In 2000, both President Bush and Al Gore promised to use Social Security money, to segregate that aside and use only to pay down the national debt.

Now all of these new demands -- the tax cut, the recession, the war -- mean that in the budget he put out today, the president says they're going divert $1.73 trillion -- a lot of money -- in Social Security money to fund other operations of the government through 2012. That means we're going to be paying down a lot less of the national debt which, among other things, means we're going to be spending, according to the Congressional Budget Office, a trillion dollars more in interest over the next decade that we anticipated, which...

(VIDEO GAP)

.... of having to deal with terrorism. For the Democrats, this puts them in a situation back to the 1980s, where you've got the combination of big tax cuts, a big increase in defense spending that both parties now support because of the circumstance. And what that means is that unless they are willing to challenge the later stage of this tax cut, they're not going to have the money to fund any of their other priorities, really, for a very long time. So that debate has got to be coming sooner or later. Maybe not this year, but it's going to be coming before 2004, I suspect.

WOODRUFF: All right, Ron Brownstein, thank you very much.

Speaking of later political years, some of the president's potential rivals in 2004 are becoming more vocal in their criticism of Mr. Bush's domestic agenda, and more active in laying groundwork for possible runs for the White House. Our senior political correspondent, Candy Crowley, has an update from New Hampshire and beyond.

(BEGIN VIDEOTAPE)

CROWLEY (voice-over): Can a big-time liability lawyer-turned- senator from North Carolina make a connection in small town New Hampshire?

SEN. JOHN EDWARDS (D), NORTH CAROLINA: Hello. How are you?

CROWLEY: On a three-day venture north, Senator John Edwards became the latest member of the "unannounced but interested," an amorphous group of politicians looking at '04 seriously enough to pay homage in New Hampshire.

UNIDENTIFIED FEMALE: Enjoying the cold weather?

EDWARDS: Actually, it's beautiful today. It is very pretty.

CROWLEY: Only 1,002 more days until the next presidential election. In New Hampshire, a state of permanent campaign, hard-wired activists say the busiest '04 players right now are House Democratic leader, Dick Gephardt, and Senator John Kerry of neighboring Massachusetts. Both have campaigned, raised money and otherwise supported local candidates.

EDWARDS: Thank you all very much for being here.

CROWLEY: This is Edwards' maiden political voyage to New Hampshire. He is getting his bearings from several people who once did the same for Al Gore. And that's part of the reason the former Democratic nominee pumped up the volume over the weekend.

AL GORE, FORMER PRESIDENTIAL CANDIDATE: Don't get ahead of yourself. The focus should be on 2002.

CROWLEY: Message: I'm here.

GORE: Tonight, as this new election season opens, I intend to rejoin the national debate.

CROWLEY: At a party fund-raiser in Tennessee, the state he loved and lost, Gore rejoined the debate with a critique of the Bush administration, and the formation of a political action committee to help 2002 candidates.

UNIDENTIFIED FEMALE: End the suspense for us.

GORE: End the suspense?

UNIDENTIFIED FEMALE: Yes.

GORE: Well, I'm announcing leadership '02.

UNIDENTIFIED FEMALE: How about '04?

GORE: I am not going to announce that tonight. I haven't made up my mind on that.

CROWLEY: Message to former Gore supporters: look if you want, but don't commit just yet.

(END VIDEOTAPE)

Some former Gore supporters on the ground in New Hampshire say they fear that Gore's lack of commitment to '04 will be seen in that politically intense state as lack of passion. Of course, reporters here in Washington believe that the former vice president has at least until after the elections in November to make a decision. And that, said one supporter, is a lifetime -- Judy.

WOODRUFF: All right. Candy Crowley, back on the campaign trail. Thanks, Candy.

Enron accusations and much more coming up next. Senate Republican Peter Fitzgerald goes on the record about the Enron hearings, Ken Lay's no-show, and the next moves on the Hill.

California Governor Gray Davis will be along later. We'll ask him about Enron, and how he is trying to use the issue against his likely Republican rival.

Plus, Clinton versus DeLay, revisited! Some jabs, just for fun, in our "Inside Buzz."

(COMMERCIAL BREAK)

WOODRUFF: "On the Record" this Monday: Illinois Republican Senator Peter Fitzgerald. He's a member of the Commerce Committee investigating the Enron collapse. He also attended today's news conference, where committee chairman, Ernest Hollings announced plans to subpoena former Enron chairman, Ken Lay.

I spoke with Senator Fitzgerald just a short time ago.

(BEGIN VIDEOTAPE)

WOODRUFF: Senator, thank you for joining us. You said earlier today that after looking at all this paper and reports and so forth, you believe that Enron was actually running what you called a gigantic Ponzi scheme. What did you mean by that?

SEN. PETER FITZGERALD (R), ILLINOIS: Well, in my judgment, what Enron was doing was doing went way beyond all hat and no cattle. It was actually pure bull. Enron, as far as I can tell, was essentially, in laymen's terms -- and this is my opinion -- they were borrowing money and booking the borrowed money as income, and they were parking the debt off their balance sheets on the balance sheets of partnerships.

And as earlier debts came due, they would borrow more money to pay off the earlier debts and to book more profit. Now, that's a gross oversimplification, but as you go into the partnerships in more and more detail, you see, as the Powers report concluded, that their elaborate, complex web that they wove really made no economic sense.

WOODRUFF: Is that legal? Was what they were doing legal?

FITZGERALD: Well, I will leave those judgments to the Justice Department. And I'm certain the SEC and the Justice Department are already all over this. The question whether there is criminality is for them to determine. But certainly, it appears to me, on the basis of the documents that have been released thus far, we had -- Enron wound up being nothing more than a giant pyramid scheme grafted onto an old-fashioned utility company.

WOODRUFF: But that -- the Ponzi scheme strongly suggests illegal, so should somebody go jail for this?

FITZGERALD: Well, I certainly think that some people are going to have a lot of questions to answer. Right now, we don't know who was the architect of this, whose idea it was, who told who what. That's why I wish Mr. Lay had shown up for our committee today, because I would have liked to have known what Mr. Lay knew. Could it be that he was the CEO of this company, didn't know where their earnings were coming from? I suppose it's theoretically possible, but certainly the documents that are out raise a lot of questions that I think he just didn't want to answer.

WOODRUFF: Your committee is going to vote tomorrow to subpoena Ken Lay. If he comes but says, "I'm going to take the fifth amendment, I'm not going to testify," what do you do then?

FITZGERALD: Well, there is nothing we can do about that. We can only compel his appearance. He has a constitutional right not to incriminate himself.

WOODRUFF: You wouldn't grant him immunity to...

FITZGERALD: I wouldn't think so, at this point. As a CEO of that company, the way I feel now is that he should not get immunity. But certainly, if he believes that the documents that are out there are creating misperceptions, then he ought to come before the Commerce Committee and seek to dispel those misperceptions.

WOODRUFF: Among other things, his attorneys are saying one of the reasons he is not coming is that members of Congress were on television yesterday -- for example, Congressman Tauzin on NBC's "Meet the Press," saying, "Were there really wrongdoing and maybe somebody ought to go to the pokey for this? And I think we're going to find out yes to that question." They're saying members of Congress have already passed judgment.

FITZGERALD: Well, the problem for Mr. Lay is that many of the autopsies have already been done. And there are documents out there, and he can't get out ahead of the documents. And the documents paint a damning picture, and I think they raise questions that his attorney probably doesn't want him to answer, and that's what happened.

The Powers report released by the board of directors of Enron, a special committee of the board over the weekend, was very damning. And it raises all sorts of questions about Mr. Lay and all the senior management at Enron.

WOODRUFF: Senator, let me ask you about something that the Commerce Committee chairman, Fritz Hollings, said today. He called the Bush administration an Enron government. He went on to say -- quote -- "he's never seen a better example of cash and carry government than this administration and Enron." And he went on to refer to the vice president, to Attorney General Ashcroft and others. Do you agree with him?

FITZGERALD: Well, it's clear that Enron was a very politically active corporation. And, yes, there are connections that it has all over Washington. But it also has had connections with the previous administration. Keep in mind, it appears that the previous administration under President Clinton, sought to help Enron get assistance from the overseas private investment corporation, to grant loan guarantees and political risk insurance for a bad investment Enron made in a power plant in India.

So I think, while the political connections make for an interesting and even salacious story, I think that what you're ultimately going to find, after all the investigations are done, that we have at its heart, what we have at its heart is a corporate scandal, where it appears to me, on the basis of what we know now, there was a giant shell game being run within the Enron corporation.

WOODRUFF: But when you have a company that's spent this much money giving to politicians running for reelection, you don't think there's going to be any sort of political problem here?

FITZGERALD: Well, certainly I think it probably will feed into the debate over campaign finance reform, if we find any special favors were done for Enron, that could feed into the mix. Based on what we know now, we know that Secretary Evans and Secretary O'Neill, of Commerce and Treasury, respectively, declined to help Enron when they asked for assistance.

We may find out more, but that really doesn't have anything to do with what was going on on the books inside Enron, where they were making earnings appear out of thin air. I don't see the connection between politics and that.

WOODRUFF: Finally, should Vice President Cheney turn over all the records of the energy task force?

FITZGERALD: Well, I certainly think Vice President Cheney has a good legal case. He might even win in court. But, that would be immaterial if he pays such a high political price for it. I agree with the administration, they have to be concerned about the precedent that they no longer can have confidential communications within the White House.

However, I think they ought to stipulate that in this case, there is a great national interest in finding out what happened in the case of Enron corporation. Get the documents out, but say this is not creating a precedent, that they do expect to have confidential communications within the White House.

WOODRUFF: Have you told the White House your view?

FITZGERALD: They have not asked me my view. And they have made very clear what their view is, and if they ask me my opinion, I would be happy to tell them.

WOODRUFF: All right. Senator Peter Fitzgerald is the ranking Republican on the consumer affairs subcommittee of the commerce committee. Senator, thank you very much.

FITZGERALD: Good to be with you, Judy.

WOODRUFF: We appreciate it.

And now checking the headlines in our "Campaign News Daily": a new Marist College poll asked voters nationwide if New York Senator Hillary Rodham Clinton should ever run for president. The response, a resounding no. Sixty-five percent said the former first lady should not make a run for the White House. Twenty-seven percent said yes, she should. Those numbers are statistically similar to responses in a poll taken last March.

Former labor secretary, Robert Reich, is stirring up the Democratic race for Massachusetts governor. Over the weekend, Reich made a strong showing in party caucuses around the state, the first step in his attempt to qualify for the September primary ballot.

Two political newcomers emerged from a crowded field in Saturday's primary for New Orleans mayor. Businessman Ray Nagin will face police superintendent, Richard Pennington, in a March 2nd runoff.

Question: does California gubernatorial candidate Richard Riordan have an abortion problem? Coming up next: Stu Rothenberg and Charlie Cook consider the power of a new ad, and other election year flashpoints.

(COMMERCIAL BREAK)

WOODRUFF: Our "Inside Buzz" now from our Bob Novak.

Bob, first of all, what you are hearing about why Ken Lay did pull out of these hearings today?

ROBERT NOVAK, CNN POLITICAL ANALYST: Well, there is a buzz around town that he pulled out because Senator Dorgan of North Dakota said mean things about him on "Meet The Press" and it was going to be a prosecutorial hearing. My sources tell me that's baloney. His lawyers were very upset that he had agreed to go on without getting immunity, without taking the Fifth Amendment. And they talked him out of going on, using Dorgan as an excuse.

In the meantime, Judy, the White House is trying to get as far away from Ken Lay as possible, saying very nasty things about him, saying he was never that close to President Bush. And they ought do that because Senator Hollings, who always go a little bit over the top, was trying to connect the White House and Lay today, as we know.

WOODRUFF: But he did have a few meetings with people at the White House.

NOVAK: Oh, he did indeed.

WOODRUFF: Bob, what is this about the president's budget and Tom DeLay?

NOVAK: Yes, the word is at the budget office, at the OMB, that Congressman DeLay, who is becoming the most powerful member in the House on the Republican side, is saying to the White House: If you want a budget through the House, don't press for your stimulus package, because it just is going to add too much to the deficit. Now, the White House says they can calm DeLay down and get him to go along. But there is a difference of opinion right there.

WOODRUFF: Well, moving -- we are staying on the subject of Republicans, but over at the Republican National Committee, some cuts going on. What's that about?

NOVAK: It turns out that the new Republican national chairman, Marc Racicot, is the grim reaper. He has cut the budget at the Republican National Committee by 20 percent. And he has caused a lot of people to be laid off, calling them in and telling them they are finished.

He has also reviewed all the budget contracts there and eliminated a lot of them. Guess who got the ax? Joe Gaylord, remember him, Newt Gingrich's right-hand man? He had a longtime contract at the National Committee. He is gone. All this indicates, Judy, that the Republican National Committee was not -- under Governor Jim Gilmore in the last year was not in the good graces of the White House. And Racicot is now using the knife.

WOODRUFF: Last but not least, a familiar face resurfaced over the weekend in Tennessee. Candy was telling us about it a few minutes ago.

NOVAK: Al Gore has returned. And I have been calling only Democrats. I don't want to hear Republicans on Al Gore. And I can't find anybody who is very happy about it. Several of them said that the first thing he is going to do if he is getting back in politics is to buy a necktie and buy a razor, get rid of that beard.

But, in all seriousness, the compacted schedule for Democratic primaries in 2004 might give Al Gore a big advantage. And I can tell you that the Democratic politicians I talked to are not happy about it at all. They are not anxious for a Gore repeat.

WOODRUFF: All right, you heard it here. Bob Novak, thanks very much. We will see you soon.

And we have another note now on Tom DeLay and his political sparring matches. Our Kate Snow got the "Inside Buzz" from the Republican retreat in West Virginia, where DeLay, we are told, duked it the out for old-times sake with Bill Clinton. Well, actually, DeLay exchanged some mock punches with "Saturday Night Live"'s Darrell Hammond, who is known for his impersonation of the former president. We all wish we could have been there, but we weren't invited.

Well, now some of the candidates in the issues in the 2002 election. We are joined by good friends, two of our regular analysts, Stu Rothenberg and Charlie Cook.

All right, Stu, to you first.

Elizabeth Dole having some difficulty getting her candidacy going in North Carolina? What is that all about?

STUART ROTHENBERG, CNN POLITICAL ANALYST: Well, I'm not sure we should have expected anything different, Judy, considering the problems that Mrs. Dole had with her presidential run. But she held a fund-raiser shortly after the 9/11 tragedy. The Democrats had an ad go up attacking her on it.

I think it's clear that she doesn't have the greatest political instincts. She doesn't always know the right thing to say. But I would warn Democrats that this is a woman who is beginning with a considerable reservoir of goodwill, terrific poll numbers. I suspect they are softening and will soften. Whether the race is really in play, right now I am skeptical. I think it may be certainly come November.

WOODRUFF: Charlie, what are you seeing?

CHARLES COOK, CNN POLITICAL ANALYST: I think this race started off to be her race to lose. And I hate that phrase, but I think she did start off with a big advantage, not only just because a typical or generic Republican would have an advantage over a generic Democrat, but she had some big advantages.

But I think to have a fund-raiser nine days after the September 11 tragedy, a period of mourning for the country, a period of crisis, and when her campaign was saying that they had no campaign events, showed awful political judgment -- and the same kind of judgment with the Christmas card. I don't think the carpet-bagger issue was hurting. But when she sends out a Christmas card of the home that she grew up in, that she hadn't lived in for 40 years, that her husband has never lived in, and it says, "From our home to yours," it's just sort of, why do you want to really go there?

And I think that campaign needs some new people in there in charge to basically say: Wait a minute, this is not a good idea.

WOODRUFF: All right, let me turn you to California.

Stu, Governor Davis, running for reelection, is already running an ad against a potential opponent. What is going to on with that?

Well, let me show you out ad, first of all. This has been running recently in the last you few days in California.

(BEGIN VIDEO CLIP)

ANNOUNCER: Where does Richard Riordan really stand on a woman's right to choose? He has contributed thousands to anti-choice candidates as recently as 2001. He was the national chair who raised half-a-million dollars to put right-wing Judge Robert Bork on the Supreme Court. Bork wanted to overturn Roe vs. Wade. Riordan funded Americans United for Life, the legal arm of the anti-choice movement. He funded the Right to Life League that blocked clinics and opposes abortion under all circumstances.

Riordan, is this a record we can trust?

(END VIDEO CLIP)

WOODRUFF: Now, Riordan hasn't even won the Republican primary. It comes up next month. Is this a smart thing for Davis to be doing?

ROTHENBERG: Well, I think it's a pretty drastic thing. It tells me that the Davis people are really worried, that the numbers that we have seen publicly showing anywhere from a dead heat to Riordan ahead by five or six points suggest to me the Democrats have the same numbers.

Look, we have seen increasingly this kind of really early attacks against someone who hasn't even won the nomination, Senate races for, example. But I wonder about this. Portraying Richard Riordan as some sort of Neanderthal on abortion and all issues, I'm not sure that is going to sell. And, in fact it may mobilize Republicans toward Riordan: If Gray Davis hates him that much, he must be the Republican nominee.

WOODRUFF: Quick comment on this, Charlie.

COOK: I think polls show, as Stu said, a close race. Riordan is slightly ahead. I think, though, that Davis is going to start pounding on Riordan right now and is going to pound on him every day from now until November 5. And, to be honest, I think Davis is going to win with points to spare.

ROTHENBERG: Well, you know, I think Davis is the favorite. But I would say, in the current environment, I'm not sure the American public or even California voters -- I don't know if there's a difference there -- they want a campaign running ten months. I don't think people want that.

ROTHENBERG: I don't think Riordan can hold up to this kind of pounding.

WOODRUFF: All right, quickly to Michigan: some redistricting in the district of somebody who is a very familiar and powerful figure here in Washington -- Charlie. (CROSSTALK)

WOODRUFF: We're talking about John Dingell.

COOK: John Dingell and Lynn Rivers.

Lynn Rivers was elected, what, three terms ago, two terms ago.

ROTHENBERG: She is in her fourth term.

COOK: Fourth-termer.

And you have John Dingell, one of the most powerful Democrats in the House, have been put into the same district. And it's a fairly liberal district. And on gun issues and things like that, it's more liberal than Dingell is. But, on the other hand, he is one of the most powerful people up here. He can raise a limitless amount of money. It's going to be a heck of a fight. I give the edge to Dingell.

WOODRUFF: Stu, would you?

ROTHENBERG: Judy, John Dingell was elected to Congress before Lynn Rivers was born. He was already in Congress. The district is really bifurcated between liberals. And there are blue-collar areas that Dingell already represents. I think Dingell has a slight edge. But this is an interesting test, whether Democrats can mobilize abortion and gun control, pro-choice and gun control Democrats in a primary. They are always running in general. Can they mobilize in a primary?

WOODRUFF: All right, we are going to leave it there, but we are going to hope to see you both very often around here. It an election year.

Stu Rothenberg, Charlie Cook, good on see you both back.

The president unveils his new budget ahead in the INSIDE POLITICS "Newscycle." Also ahead: Members of the Commerce Committee take offense at Ken Lay's decision not to testify on Capitol Hill.

(COMMERCIAL BREAK)

WOODRUFF: In the "Newscycle" this hour: Defense and homeland security get top billing in the new $2.1 trillion White House budget proposal. The budget includes the biggest spending increase for the Pentagon in more than two decades.

On Capitol Hill, members of the Senate Commerce Committee express dismay with former Enron Chairman Ken Lay's decision not to testify before their panel. The committee announced plans to force Lay to come to Capitol Hill.

(BEGIN VIDEO CLIP)

SEN. BYRON DORGAN (D), NORTH DAKOTA: We decided that we really had no choice but to issue a subpoena to require his attendance. And we will do that tomorrow at a meeting of the full committee.

(END VIDEO CLIP)

WOODRUFF: The tough talk on Capitol Hill spotlights the political risks surrounding the Enron collapse.

Our senior political analyst Bill Schneider has more on Enron and why some Democrats believe Enron could be a political winner, metaphorically speaking.

(BEGIN VIDEOTAPE)

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST (voice-over): Democrats say they don't want to be seen as exploiting the Enron issues for partisan advantage.

SEN. TOM DASCHLE (D-SD), MAJORITY LEADER: The last thing we should do is politicize this scandal.

SCHNEIDER: So what can Democrats do? They can insinuate that Enron got special favors from the Bush White House in return for campaign contributions.

TERRY MCAULIFFE, DNC CHAIRMAN: They got 17 specific proposals in their energy bill.

SCHNEIDER: But so far, there's been evidence of wrongdoing by the Bush administration. If you can't get your opponents on literal wrongdoing, maybe you can get them metaphorically -- like this.

DASCHLE: I think that we are slowly Enronizing the economy, Enronizing the budget.

SCHNEIDER: Ah-ha. Enron economics, meaning fiscally irresponsible policies that favor big shots and hurt retirees, a killer metaphor. It even made the funny pages. "Enron will do us damage as metaphor," the president says in a Doonesbury strip. "It makes us look like we're all in bed with business."

Metaphors can kill you. Remember back in 1992 when the first President Bush seemed unfamiliar with a supermarket scanner? That became a metaphor for how out of touch he was with ordinary Americans.

This President Bush may survive Enron the scandal, but he had better watch out for Enron the metaphor.

Bill Schneider, CNN, Washington.

(END VIDEOTAPE)

WOODRUFF: And INSIDE POLITICS continues after this.

(COMMERCIAL BREAK)

WOODRUFF: There's word today that Russia has offered to help rebuild public works projects in Afghanistan, including power plants, dams and highways. The attempt to rebuild Afghanistan is among the many interests of the aga khan, a man whose life has spiritual importance to millions and whose financial interests had aided people the world over. He's a fascinating figure on the world stage.

And I sat down with him recently for a rare extended interview.

(BEGIN VIDEOTAPE)

WOODRUFF: He is Prince Karim Aga Khan, the 65-year-old spiritual head of some 15 million Shia Ismaili Muslims. He is direct descendent of the prophet Muhammad and one of the world's wealthiest men. He assumed the title aga khan under extraordinary circumstances. In 1957, his grandfather willed the title directly to Prince Karim, passing over his father, a reputed playboy who had married and divorced the actress Rita Hayworth.

The new aga khan was then a Harvard undergraduate, just 20 years old. Since then, the aga khan has used his wealth to act as a kind of venture capitalist for the developing world, providing billions of dollars in loans and direct aid for social programs. He's become an important voice in the Islamic world beyond his won Ismaili community and a sort of ambassador to the West.

PRINCE KARIM AGA KHAN: I think Western society has an enormous need in its general education, in its general education, about this complex of one billion people. And that complex of one billion people is as pluralistic as Western society is.

And I'm not talking about the faith of Islam. I'm talking about the peoples, the cultures, the geographies, the languages, the economies, the histories.

WOODRUFF: At the recent Tokyo-Afghan Aid Summit, the Aga Khan Development Network put up $75 million to help the reconstruction effort.

PRINCE KARIM AGA KHAN: The first thing has got to be food security. A country that cannot feed itself is a country that is at prominent risk. And a significant part of the Afghan population lives from the land. So rehabilitating Afghan agriculture would be, I think, essential.

I think the second thing that will be essential is rehabilitating but also upgrading institutional capacity in the country: education, health care, financial resources, the pillars of civil society. And I think that needs to be done very quickly. And the difficultly there is, of course, that there's practically nothing left.

WOODRUFF: In the aga khan's vision, economic development is not only key to the rehabilitation of Afghanistan, but may in fact be the most potent weapon against terror worldwide.

PRINCE KARIM AGA KHAN: It's a sharing of hope instead of a perception of despair. It's communities who, for one reason or another, have suffered for many, many years or perhaps just suffered in their own perceptions. But in many of these situations, I think it's more the lack of confidence in future quality of life. That's the real issue.

(END VIDEOTAPE)

WOODRUFF: And you can find the complete transcript of my interview with the aga khan on our Web site at CNN.com/INSIDE POLITICS. And while you're there, you can share your thoughts on that interview or any other part of INSIDE POLITICS.

Coming up next: California Governor Gray Davis on Enron, Ken Lay and running for reelection.

(COMMERCIAL BREAK)

WOODRUFF: Joining us now: California Governor Gray Davis.

Governor, let me start with the big story here in Washington today. And that is Enron: Ken Lay telling the Senate he will not appear before the Commerce Committee to testify.

You met with Ken Lay something like six times last year. And this was at a time when Enron was doing very well -- California, though, in the midst of an energy crisis. What did you talk to him about?

GOV. GRAY DAVIS (D), CALIFORNIA: Well, I tried to talk to anyone I could about how to tame this deregulation monster. I met with Alan Greenspan on two occasions. I met with Bob Rubin many times. I met with many people who were heading up the energy companies selling us electricity.

Everyone in the Bush and the Clinton administration told me that Ken Lay was the master. He did more than anyone else to change the rules both in Washington and Sacramento. But very early on...

WOODRUFF: Who told you that, Governor?

DAVIS: Many people in the Clinton administration and many people in the Bush administration said, "You ought to talk to Ken Lay."

But the bottom line is, when I talked to him, his solution was for us to pass on a 400 percent increase in rates to California consumers. Now, the whole promise of deregulation by all these energy companies was that competition would drive their rates down, not up 400 percent. So I refused to do that. He didn't like that. Then he wanted me to deregulate the transmission lines in California. I knew we had already done enough damage with deregulation. So I wouldn't do that either.

So, while I listened to him, I did not take his advice. I sought counsel from a lot of people. But at the end of the game, I didn't want California consumers to have to pay for this bungled experiment called California deregulation.

WOODRUFF: Well, let me read to you a quote that Ken Lay -- in an interview Ken Lay gave last year to a program on PBS by Bill Moyers. He said, you, he said were counting Lay as one the biggest -- meaning Governor Davis -- were counting on Lay as "one of the biggest snakes on the globe. But yet he" -- meaning you again -- "very much wants to meet with me. And he can call me up from time to time and ask me for advice on things."

If you knew his position, why did you continue to talk to him?

DAVIS: Because I had to step in after the energy companies had bankrupted our two big utilities. The rates for electricity, in 1999, the total price was $7 billion with the utilities buying power; in 2000, $27 billion, a 400 percent increase, with the utilities buying power. So here I have to step in because the energy companies, including Enron, wouldn't sell the utilities any more power. And we did not want our economy to go dark. We did not want our technology companies to leave.

So I'm talking to everyone I can, Keith Bailey at Williams, Bergstrom at Reliant, Ken Lay, to try and find out how this thing works. It became very clear to me, however, that all he wanted to do was leave the system the way it was, have us pass on humongous rate increases to consumers, which I refused to do.

WOODRUFF: Let me quote to you something that a spokeswoman for Richard Riordan -- of course the former mayor of Los Angeles, now seeking the Republican nomination for governor, would like to take your job -- the spokeswoman said: "We need to know what happened in those meetings. And we need to know what role Enron played in the Davis energy fiasco."

DAVIS: Well, the simple answer is, I did not take his advice. I did not take the advice of all the people who told me: Raise rates 400 percent.

California consumers did not ask for deregulation or electricity, period. They certainly would have opposed it if they had known their rates were going up. This was an act of greed on the part of the energy companies and, to some extent, our own utilities. And they should have to and they are having to pay a big part of the price of correcting this problem.

WOODRUFF: All right, Governor Davis, we're going to have to leave it there. We appreciate your joining us.

DAVIS: All right, Judy. Thank you.

WOODRUFF: We hope to see you again. Thank you.

DAVIS: Take care.

WOODRUFF: And you. Appreciate it.

CNN's coverage continues now with "WOLF BLITZER REPORTS."

Thank you for joining us. I'm Judy Woodruff.

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