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THE SITUATION ROOM

Singled Out on Iraq: Richard Perle Answers Accusations; $65 Million Pants: Dry Cleaners Stunned by Lawsuit

Aired May 4, 2007 - 17:00   ET

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


CAFFERTY: Jim writes: "As usual, Bush is consistently wrong. Bigotry that results in violence is still very common in this country. It's often not prosecuted. This law would ensure that if local law enforcement refuses to prosecute violent bigotry, it can be prosecuted by federal authorities."
And Jacob in Gainesville, Florida writes: "President Bush should definitely veto this. As a gay man, I don't need or want special protection. People should be punished for the crimes they commit, not the reason they commit them" -- Wolf.

WOLF BLITZER, HOST: Jack, thank you.

And to our viewers, you're in THE SITUATION ROOM.

Happening now, anger, fear, paranoia and more -- the brutal war in Iraq taking a more serious toll on U.S. troops than anyone realized. Results of a groundbreaking study showing many service men and women on edge right now.

Also, diplomacy derailed -- the meeting the world -- at least much of the world -- was hoping for between the U.S. and Iran a no-go.

What role did a sexy red dress play?

And a $65 million lawsuit over a pair of pants. We're going to have details of a simply unbelievable case making headlines around the world and threatening to end one family's American dream.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Deadly new violence in Iraq claiming five more American lives as the U.S. military seizes 16 terror suspects accused of helping bring in deadly armor-piercing explosives from Iran. And now we're learning that the unrelenting carnage and seemingly endless insurgency is taking a very serious toll on U.S. troops, much more severe than anyone imagined.

Our Pentagon correspondent, Jamie McIntyre, is joining us now with details.

A truly groundbreaking study.

What does it show -- Jamie. JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, Wolf, this is a survey of troops doing dirty, dangerous duty in Baghdad and in other places in Iraq. And what it found was the more stress they face, the more stressed out they are.

(BEGIN VIDEO TAPE)

MCINTYRE (voice-over): Anger, fear, paranoia, sleep disorders -- Iraq veteran Joe Wheeler knows all the telltale signs of Post- Traumatic Stress Disorder. He lives it.

SPEC. JOE WHEELER, IRAQ VETERAN: And I think what really pushed me over the edge was I was at a concert and somebody whistled into the microphone. And it sounded like an incoming mortar round. It sounded exactly like it. And I -- I was throwing myself to the ground before I realized what was going on.

MCINTYRE: A new Army study of front line combat units in Iraq confirms Specialist Wheeler is far from alone, showing that nearly half of all National Guard troops, close to 40 percent of active duty soldiers and almost a third of Marines, report psychological problems.

A key finding?

Marines suffer less because their tours are shorter -- seven months compared to a year or more for Army troops.

MAJ. GEN. GALE POLLOCK, ACTING ARMY SURGEON GENERAL: The level of combat is the main determinant of a soldier's or Marine's mental health status.

MCINTYRE: The finding comes as the Army has just extended basic tours to 15 months, with one year off. The study suggests battle weary troops really need at least 18 months to three years to recover.

But the ground-breaking part of the study focused on battlefield ethics -- for the first time ever, asking 1,300 soldiers and 450 Marines their attitudes about torture and abuse.

DR. WARD CASSCELLS, ASSISTANT DEFENSE SECRETARY: They looked under every rock and what they found was not always easy to look at.

MCINTYRE: Among the findings?

Only 47 percent of soldiers and 38 percent of Marines agreed that non-combatants should be treated with dignity and respect. Ten percent of soldiers reported mistreating non-combatants or damaging their property. Fewer than half of soldiers and Marines said they would report a team member for unethical behavior. And more than one third of all soldiers and Marines said they thought torture should be allowed to save the life of a comrade.

That's what they say. But the Army says, not what they do.

POLLOCK: What it speaks to is the leadership that the military is providing because they're not acting on those thoughts. They're not torturing the people.

(END VIDEO TAPE)

MCINTYRE: So what's the answer?

Well, General Pollock, the Army's acting surgeon general, said at one point the real answer is to end the war in Iraq. But barring that, the Army has to be a lot bigger to give more time for troops who are rotating in and out of Iraq.

Until then, the answer is going to be discipline, leadership, training and as much time off as they can give the soldiers and Marines -- Wolf.

BLITZER: That's going to be tough given the demands out there right now.

We'll be watching, Jamie.

Thanks very much.

Moving on, like the Democrats, the Republican presidential candidates now have a debate under their belts. From both fields, the war in Iraq certainly was a major topic of discussion on those stages.

After those debates, have the candidates' positions on the war been clarified?

Here's our senior political analyst, Bill Schneider.

(BEGIN VIDEO TAPE)

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST (voice-over): President Bush's veto of the Iraq funding bill generates powerful pressure for the two parties in Congress to come together. Democrats acknowledge it.

REP. STENY HOYER (D), MARYLAND: It's incumbent upon us to work together. I don't even think it's a question of backing down. It's a question of recognizing reality.

SCHNEIDER: Republicans acknowledge it, too.

REP. JOHN BOEHNER (R-OH), MINORITY LEADER: I hope my Democratic colleagues will do the right thing. The Republicans are here to work with them and if they're willing to do the right things, Republicans will be there to support them, to get a new bill to the White House.

SCHNEIDER: Presidential candidates face different pressures.

STU ROTHENBERG, POLITICAL STRATEGIST: Are there going to be pragmatic? Are they going to talk about compromise? Or are they going to play to the base?

SCHNEIDER: In Congress, the pressure is to make a deal. In the campaign, the pressure is to stand firm. Hillary Clinton has gone from explaining her vote to authorize the war...

SEN. HILLARY RODHAM CLINTON (D), NEW YORK: If I knew then what I now know, I would not have voted that way.

SCHNEIDER: ... to pressuring Congress to reverse it.

CLINTON: It is time to sunset the authorization for the war in Iraq.

SCHNEIDER: John Edwards' first TV ad urges Congressional Democrats not to compromise.

(BEGIN VIDEO CLIP FROM EDWARDS FOR PRESIDENT CAMPAIGN COMMERCIAL)

UNIDENTIFIED FEMALE: Don't back down to President Bush.

UNIDENTIFIED FEMALE: Send him the same bill again and again.

(END VIDEO CLIP)

SCHNEIDER: Republican candidates warned of the consequences of getting out of Iraq too soon.

MIKE HUCKABEE (R), PRESIDENTIAL CANDIDATE: Rather than simply walking away and leaving the Middle East in a complete disastrous chaos that will spread to the region and to the rest of the world, it's important that we finish the job.

SCHNEIDER: The direst possible consequences.

SEN. JOHN MCCAIN (R), ARIZONA: If we withdraw, there will be chaos. There will be genocide and they will follow us home.

(END VIDEO TAPE)

BLITZER: Our senior political analyst, Bill Schneider, reporting tonight.

Let's go to Carol Costello.

She's monitoring some other stories incoming into THE SITUATION ROOM right now.

What's going on -- Carol?

CAROL COSTELLO, CNN CORRESPONDENT: Yes, we just got some new pictures in, Wolf.

A small plane has gone down in Maryland City, Maryland. That's in Arundel County, which is south of the city of Baltimore. That plane, well, you're not seeing it right now, because these are live pictures. I think they're scanning an airport that's close by where the plane is believed to have taken off from. The plane appears to have flown a short distance and then went down nose first into a patch of woods.

This is a very rural area. When I find out more, I'll tell you. We don't know if anyone was hurt in the crash.

Also in the news this afternoon, a top aide to President Bush is stepping down. Just a few hours ago, the White House announced that deputy national security adviser J.D. Crouch is leaving his post. In a statement, President Bush said Crouch was at the forefront of developing and implementing a new Iraq strategy. No reason being given for his departure.

The mayor of Los Angeles is cutting short a trip to Mexico and heading back to the city amid a growing controversy over alleged police brutality. This week, officers used batons and more than 200 rounds of rubber bullets to clear a park where immigration rights activists were rallying. Mayor Antonio Villaraigosa is promising a thorough and transparent investigation.

And checking the bottom line for you now, on Wall Street, the Dow Jones Industrial Average up slightly, hitting a record high for a fourth straight day. The Dow has now risen 23 out of the past 26 sessions, the longest bullish trend since 1927. The broader S&P 500 and the tech heavy Nasdaq also ended the week at six year highs.

Back to you -- Wolf.

BLITZER: But I want -- we've always got to remind our viewers out there Carol, what goes up...

COSTELLO: Must come down. I know.

BLITZER: So don't get too -- don't get too bullish on this market yet.

We're watching it very, very closely.

Thanks, Carol, very much.

Jack Cafferty is watching the markets. He's watching everything else, as well.

It's been a pretty good season out there on Wall Street -- Jack.

JACK CAFFERTY, CNN CORRESPONDENT: You know, I was just listening to your advice there.

do you do -- do you do like financial planning or anything...

BLITZER: Yes, I do.

CAFFERTY: ... like, you know, on the side?

BLITZER: On the side.

CAFFERTY: I might have...

BLITZER: I'm...

CAFFERTY: I might have you give me a few -- a few recommendations.

BLITZER: Trust me, Jack, you don't want to listen to me.

CAFFERTY: Another -- another day, another government outrage. Wait until you hear this. If this doesn't steam you, then nothing will.

Veterans care in this country -- there is a backlog, currently, of 600,000 cases of veterans who are waiting to get disability benefits.

Nevertheless, some senior Veterans Affairs officials are collecting hefty bonuses, some of them as high as $33,000. This is according to Associated Press.

Someone, fortunately, noticed this, trying to put a stop to it. It's nonsense.

Democratic Congressman John Hall says it's shocking and scandalous. There are other words for what it is, but we can't use them, because this is a family program and you saw what happened to Don Imus when he got too far over the edge.

Anyway, this congressman is introducing a bill that would put a hold on the bonuses paid to these guys in the Veterans Administration until they get the backlog down to under 100,000 cases.

The V.A. says that could take months, maybe even years, to accomplish.

Right now, delays for our veterans returning from the war in Iraq and Afghanistan 177 days on average for veterans seeking treatment. Six months these people are having to wait.

In 2006, the V.A. paid out $3.8 million in bonuses, I guess because the agency is doing such a bang up job taking care of our returning soldiers.

The average bonus for a senior V.A. official, $16,000 -- the highest of any branch of government.

In light of the delays and backlogs, here's the question -- what sort of bonuses do Veterans Affairs officials deserve, do you think?

E-mail caffertyfile@cnn.com or go to cnn.com/caffertyfile -- Wolf.

BLITZER: Get ready. You're going to get a lot of e-mail on this one, Jack.

CAFFERTY: Oh, it's outrageous.

BLITZER: Stand by. There's some other outrageous stories we're watching, as well.

Coming up, he's singled out in former CIA director George Tenet's scathing new book on the buildup to the war in Iraq. The former assistant secretary of defense, Richard Perle, is here in THE SITUATION ROOM. He'll answer Tenet's allegations.

Also, CNN's Richard Quest -- he's hot on the heels of his monarch as she visits Virginia. We're going to go there live.

Plus, this is truly outrageous, this story. You're going to find out how one family could lose almost everything they've worked for all over a pair of pants.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Diplomacy derailed, possibly by a red dress. An international conference on Iraq has now wrapped up in Egypt, but the meeting the world was really watching for, between the U.S. and Iran, never materialized.

The question now is this -- why?

Our State Department correspondent, Zain Verjee, is in Sharm-El- Sheikh, Egypt with the latest -- Zain.

ZAIN VERJEE, CNN STATE DEPARTMENT CORRESPONDENT: Wolf, Iran and the U.S. came face-to-face here in Egypt, but did a violinist keep them apart?

(BEGIN VIDEO TAPE)

VERJEE (voice-over): A lady in red -- did she get in the way of some potential breakthrough diplomacy between the United States and Iran?

At a closed door dinner in Egypt, Iran's foreign minister fled the room just before Secretary of State Condoleezza Rice arrived, dashing her plans for a bit of conversation.

CONDOLEEZZA RICE, SECRETARY OF STATE: You can ask him why he didn't make an effort. Look, I'm -- I'm not given to chasing anyone.

VERJEE: We did.

MANOUCHEHR MOTTAKI, IRANIAN FOREIGN MINISTER: Because some tactical issues, I could not attend there.

VERJEE: Others told us Manouchehr Mottaki was offended by the Russian violinist in a sexy red dress.

Rice's spokesman wasn't convinced. He said: "I'm not sure which woman he was afraid of, the woman in the red dress or the secretary of state." Officials from the two sides finally sat down together. Their chitchat lasted a mere three minutes.

MOTTAKI: We are not looking for some kind of demonstration.

We are not looking for some kind of show, you know?

We are not looking to talks just for talks.

VERJEE: Mottaki told CNN he thinks Rice wants better relations with Iran.

MOTTAKI: We see some changes in words and we hope these words will be translated in practice.

VERJEE: Iraq's foreign minister says the proxy war between Iran and the United States is bad for his country and it's time for the two to talk.

HOSHYAR ZEBARI, IRAQI FOREIGN MINISTER: It is in my country's interests, really, to see a reduction of this tension.

VERJEE: That's why the U.S. is reaching out.

RICE: The United States has no desire to have anything contribute to a more difficult set of circumstances for Iraq.

(END VIDEO TAPE)

VERJEE: Secretary Rice says this week's conference was a breakthrough for everyone because for once, the United States and Iran were on the same side -- Iraq's -- Wolf.

BLITZER: Zain Verjee at Sharm-El-Sheikh for us.

Thank you, Zain.

There were also some other positive developments at the conference, including a declaration by Iraq's Shiite-led government to work for more inclusion of the country's Sunni minority while Iraq's Sunni-led neighbors agreed to work harder to stop foreign fighters from entering the country, entering into Iraq.

Other international news we're following, what does China -- China -- have to do with your mortgage?

A lot more than you probably realize.

CNN's John Vause explains how decisions in Beijing could impact your wallet -- John.

JOHN VAUSE, CNN CORRESPONDENT: Wolf, what could ultimately be the world's biggest investment fund will be controlled by a government whose own leaders admit is rife with corruption.

(BEGIN VIDEO TAPE) VAUSE (voice-over): Would you trust this man with hundreds of billions of dollars?

The Chinese government does and what Lou Jiwei decides in Beijing could end up costing American homeowners.

RICHARD MCGREGOR, "FINANCIAL TIMES": In theory, China's investment decisions could have a -- cause a spike in U.S. interest rates.

VAUSE: Lou is the head of a new government agency which will soon be investing part of China's massive stockpile of foreign cash reserves, worth $1.2 trillion U.S. and growing fast -- $1.5 billion every day.

MCGREGOR: At the present trends, in two years, they could have $2 trillion.

VAUSE: It's the end result of a booming economy. Beijing's central bank has been buying U.S.-issued Treasury bills earning a low 4 percent interest rate, effectively loaning Americans cheap money and along the way, propping up the U.S. dollar.

DONG TAO, CREDIT SUISSE: Now, if we can double that, to 8 percent, which is still below the average of the fund return in the world, that's equivalent to China's entire national education budget.

VAUSE: If China stops buying treasury bills, the dollar could plunge. To prop it up, the Fed would increase interest rates and that means higher mortgage costs. And never has there been an investment fund potentially this big -- hundreds of billions of dollars. Analysts warn it could move markets and the value of your 401K by the touch of a bureaucrat's button.

TAO: Sometimes when we talk about huge funds worth like $20 billion U.S. a movement could move the market. And now we're talking about $200 billion every year.

(END VIDEO TAPE)

VAUSE: But the catch here for the Chinese, if they hurt the U.S. economy, they also hurt their number one customer -- Wolf.

BLITZER: All right, John, thank you.

John is in Beijing for us.

The U.S. is China's number one customer, by far. We have a trade deficit with them totaling $232 billion. Another interesting note, the U.S. national debt stands at about $8.8 trillion. Of that, just more than $2 trillion, roughly 24 percent, is held by other countries. Japan holds the largest share, more than $617 billion, 29 percent. China holds more than $416 billion, or roughly 19 percent of U.S. foreign held debt.

Coming up, the former assistant defense secretary, Richard Perle -- he'll be joining us to answer accusations from the former CIA director, George Tenet, in his explosive new book on the run-up to the war in Iraq.

Plus, catching up with the queen -- our own Richard Quest. He's standing by live.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: The next stop for British's Queen Elizabeth II is Louisville, where she'll be attending the Kentucky Derby tomorrow. Today, she's in Virginia to help commemorate the founding of the first British settlement in North America.

Our own Richard Quest is following Her Majesty's visit here to the United States.

What's going on -- Richard.

RICHARD QUEST, CNN CORRESPONDENT: Literally, Wolf, following in the queen's footsteps. It was down this path that the queen walked earlier today. There were 300 people watching her do it. Now we seem to be on our own.

And she was looking at the archeological digs and the sites from the original fort that was founded 400 years ago.

A bit of trivia for you, Wolf. That tower is part of the church built in 1680 and it's probably the only part of the fort that is still above-ground and still here.

The queen was fascinated, Wolf. This is something she really wanted to see, for one reason, when she was here 50 years ago, it had been thought that none of the underground part had still survived -- Wolf.

BLITZER: And how has she been received by the Americans?

What's the mood like wherever she goes?

QUEST: I would say the mood is jubilant. There is a welcoming rah for Her Majesty. You know, people in America are not smitten in a sort of pathetically craven way over the queen. But they are delighted to see her.

Listen to the crowds that you're hearing. "God save the queen!" they shouted in some cases.

At William and Mary College she was given -- where she is at the moment this afternoon -- she was given a warm welcome.

And what we will see at the Kentucky Derby will be fascinating to see whether that holds through -- Wolf.

BLITZER: And then she shows up here in Washington, at the White House, on Monday, as does Richard Quest.

Richard, we'll stay in close touch with you.

Thank you very much.

Of course, royalty has its privileges, but free pizza and booze might not exactly be what you have in mind when you think of royal perks. But that's just what the queen will be presented with tomorrow in Louisville. Kentucky Derby sponsor Crown Royal is giving the queen a barrel of specially blended whiskey, to be opened only on her command.

And not to be outdone, Louisville-based Papa John's Pizza is promising her and her family -- get this -- free pizza for life. Just what she needs.

Coming up, he was billed as the hardest working man in show biz. But there was more to the late James Brown's life and career than you may realize.

And a family on the brink of losing everything -- everything -- because of a pair of pants. $65 billion questions.

All that coming up here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, he wants to warm up ties with America and convince his own people to work more. Conservative Nicolas Sarkozy is favored to win Sunday's runoff vote in France against the socialist, Segolene Royal -- and from becoming France's first woman president, if he wins, that is.

Also, the attorney general, Alberto Gonzales, will appoint a new director of the Executive Office for the U.S. Attorneys. The Justice Department says Kenneth Nelson will take over for Michael Battle. Battle had to deliver the bad news to eight federal prosecutors fired last year. That scandal, as you know, has rocked the department.

And former President Bill Clinton said today the U.S. health care system could be destroyed by disasters such as worldwide famine, along with the current American obesity epidemic, unless politicians begin to plan ahead.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

Former CIA director George Tenet painting a picture of an administration aching to invade Iraq immediately after 9/11. He makes some very serious allegations in his new book, singling out individuals, including a former assistant secretary of defense, Richard Perle.

Richard Perle is here in THE SITUATION ROOM to answer some of Tenet's accusations. Richard, thanks for coming in.

RICHARD PERLE, FORMER ASSISTANT DEFENSE SECRETARY: It's a pleasure.

BLITZER: The book is entitled "At The Center of the Storm." Tenet was here in THE SITUATION ROOM earlier in the week.

He writes this right at the beginning of the book: "As the doors closed behind him, we made eye contact and nodded. I had just reached the door myself when Perle turned the me and said: 'Iraq has to pay the price for what happened yesterday. They bear responsibility.' I was stunned, but said nothing."

That's what Tenet says happened on Wednesday, September 12th, the day after 9/11.

You've said you weren't even in town that day.

He said he may have the day off by a day or two.

What do you say about the substance now, of what his allegation is?

PERLE: It never happened. I never said the things that he attributes to me.

BLITZER: Did you see him walking in or out of the White House any time after 9/11, within the days that followed?

PERLE: A week later, on the morning of the 19th, I was leaving the White House. He came into the White House. We didn't converse at all.

BLITZER: You didn't say anything to him?

PERLE: Nothing.

BLITZER: You didn't say anything along the lines, "Iraq has to pay the price for what happened yesterday?"

PERLE: No. It was all -- first of all, I would not have said yesterday.

He gives the appearance in his book of recalling with great precision.

BLITZER: You didn't say anything to him?

PERLE: Nothing.

BLITZER: You didn't say anything along the lines Iraq has to pay the price for what happened yesterday?

PERLE: No. It was all -- first of all, I would not have said yesterday.

He gives the appearance in his book of recalling with great precision. He says, for example, he was thinking on this of all days, the day after. He's just got it completely wrong.

I never believed that Saddam Hussein was responsible for 9/11, and by the time I returned to the U.S., it was pretty clear that it was bin Laden. Indeed, bin Laden was claiming credit.

BLITZER: You were on CNN's program -- here on CNN on September 16th. A few days later, shortly after you returned from France -- you got back, what, the 15th -- here's what you said on that day. I'm going to play that little clip.

(BEGIN VIDEO CLIP)

PERLE: Even if we cannot prove to the standards that we enjoy in our own civil society that they were involved, we do know, for example, that Saddam Hussein has ties to Osama bin Laden. That can be documented.

(END VIDEO CLIP)

BLITZER: All right. So, what was the point you were trying to make then? Because it sounds as if you were already thinking that Saddam Hussein had to go as a result of 9/11.

PERLE: Well, I had been in favor of removing Saddam for a long time before 9/11 because it seemed to me he posed a danger to the United States. And the sense of the danger he posed was made far more acute by 9/11 because we discovered on 9/11 that we had waited too long to deal with a known threat, with Osama bin Laden, with al Qaeda. So, we had been watching al Qaeda preparing an attack on the United States and we did nothing...

(CROSSTALK)

BLITZER: But the relationship that we now know, at least the U.S. intelligence community and other experts have suggested, that the relationship, if any, between Saddam Hussein and al Qaeda was very, very limited, certainly no coordination or anything along those lines.

PERLE: There was a relationship. It has not only been documented, as I said in that clip, but George Tenet himself has written a letter that indicates...

BLITZER: I referred -- I spoke to him about that letter, and he said that letter he wrote to the Senate Intelligence Committee was sloppy and he should have been more precise.

PERLE: Well, he is, indeed, sloppy by nature. And the failure properly to account for his run-in with me is a good example of it. He simply makes up things that I never said to him, places them on a date when I wasn't in the country. And the book is riddled with inaccuracies.

BLITZER: Have you gone through the book yourself?

PERLE: Bits and pieces.

BLITZER: And -- but you've looked for the references to Richard Perle?

PERLE: I did.

BLITZER: Are there other blunders, other mistakes he makes referring to you?

PERLE: Well, he actually refers to the meeting the second time. It seems to me very clear he's uncomfortable, as he should be, with the failure not only to anticipate 9/11, specifically, but the failure to understand the extent of the terrorist threat. And so he wants to shift responsibility.

BLITZER: I guess what he's trying to suggest is that you were among those, as you acknowledge, pushing to remove Saddam Hussein even before 9/11. And given what's happened over these past four years, the question is, was that a blunder? Should the U.S. simply have allowed Saddam to be contained in his box in Iraq, where he posed a significant threat to his own people but not necessarily to anyone outside of Iraq?

PERLE: You know, you can't replay history and judge today what Saddam might have done had he been left alone. It's easy to say he was in his box, but the sanctions that kept him in that box were very fragile and would not have survived. At least I don't believe they would.

BLITZER: But Richard, given what we know now -- obviously, four years later we're all a lot smarter -- are you sorry that you had that sense, that drive to go into remove Saddam through military might?

PERLE: Well, I'm sorry that after removing Saddam we did not hand things back to the Iraqis. I'm sorry that we embarked on an occupation that became the basis for an insurgency against us. I think the right thing to have done -- and I said it at the time -- was to hand things to the Iraqis as soon as Saddam was removed.

BLITZER: Who bears responsibility for that blunder?

PERLE: Well, ultimately, the decision-maker in this democracy is the president of the United States and his closest advisers. And they made the decision, I think wrongly, that we would send thousands of Americans to Iraq and try to administer that country.

They did it with good will and good intentions. I certainly don't fault them for that. But it was politically inept, and I think it contributed to the situation we're in today.

BLITZER: Richard Perle, thanks for coming in.

PERLE: It's always a pleasure.

BLITZER: And still ahead here in THE SITUATION ROOM, a bonus question. Do Veterans Affairs officials deserve a big payoff? Jack Cafferty with your e-mail, that's coming up.

And the ferret that could come back to haunt Republican presidential candidate Rudy Giuliani story.

Jeanne Moos here to show us what that story is all about.

We'll be right back.

(COMMERCIAL BREAK)

BLITZER: This is truly a shocking story. A $65 million lawsuit over a missing pair of pants. We're not making this up. Just about everyone agrees it's a totally frivolous lawsuit, but it's real, nonetheless, and it's really threatening the American dream of an immigrant family.

Let's go back to Carol Costello. She's here in Washington.

What exactly is at stake for this family, Carol?

CAROL COSTELLO, CNN CORRESPONDENT: Oh, Wolf, they could lose everything.

You know, we've all been there. It can make you really mad if your dry cleaner loses your favorite whatever. But come on. Is anybody's anger worth a cool $65 mill?

(BEGIN VIDEOTAPE)

COSTELLO (voice over): Meet the Chungs, immigrants from South Korea who built a successful business in just seven years and are now on the brink of losing its all.

CHRIS MANNING, CHUNG FAMILY ATTORNEY: They emigrated here with hopes of achieving the American dream. It's turned into an American nightmare.

COSTELLO: The Chungs' nightmare has become not just the talk of the town, but talk across the globe. A nightmare, yes. How many of us can say we're the alleged victims of pair of pants?

Take a look. They could cost the Chungs $65 million. MANNING: It's incredibly stressful for them both physically and emotionally. They don't understand how one pair of pants can somehow grow into what this has become.

COSTELLO: And, he says, they don't know why Roy Pearson, a judge in D.C., would be so upset over a missing pair of pants that he would file a lawsuit.

It all started in 2005, when the Chungs lost and then a few weeks later said they'd found Pearson's pants. You'd think it would end there. But according to Manning, Pearson claimed these pants are not his.

MANNING: My clients know for a fact that they are his. There are some very significant markings on the pants. Specifically there are three belt loops, one after the other, that my clients remember whenever they brought -- whenever Mr. Pearson had brought the pants in originally.

COSTELLO: But he says Pearson denied that. The Chungs made him three settlement offers -- $3,000, then $4,600, then $12,000.

Pearson said no, then added a twist that's inspired news stories and blogs from Washington to New Zealand. He now claims he has to drive to a dry cleaners farther away from his home, so he threw in the cost to rent a car every weekend for 10 years, then factored in fines of $1,500 per violation, per day. That's the penalty imposed for offenses of D.C.'s consumer protection law.

He multiplied that by three people who own Custom Cleaners. Grand total, $65 million.

MANNING: I think everyone is baffled by the point that he's trying to make.

COSTELLO: And Pearson isn't talking. His attorney did not return our calls.

The Chungs left so frightened at their future, they're pondering a move back to South Korea to start all over again.

(END VIDEOTAPE)

COSTELLO: The Chungs didn't talk to me on camera because they speak very little English. Judge Pearson, the man suing, is now the target of the American Tort Reform Association. They say Pearson's suit raises serious questions about his judgement and judicial temperament, and they wondered, Wolf, if he is really fit to be a judge at all.

BLITZER: I think a lot of people are wondering about this predicament.

Thanks very much, Carol, for that. A really shocking story.

Of course, frivolous lawsuits are nothing new. Among some of the most unusual cases we found, a Virginia inmate who sued himself for $5 million -- get this -- for getting drunk and committing crimes. He claimed he violated his own civil rights, but he wanted the state to pay it because he was a ward of the prison system and couldn't work.

Then there's the FBI agent in Nevada who crashed his truck while drunk. In fact, three times over the limit. He sued the manufacturer and the dealer, saying the truck malfunctioned and filled with heavy smoke as he passed out.

And then there's this: the Oregon man who actually sued Michael Jordan and Nike's founder for defamation, claiming he looks just like Michael Jordan and was tired of being mistaken for the basketball star. That, despite the fact that he's eight years older, three inches shorter, 25 pounds lighter.

Coming up, the man known as the Godfather of Soul would have been turning 74 this weekend. James Brown, of course, died last year, but the social impact of his life and music lives on and will be the focus of a CNN Special Investigations Unit piece this weekend.

Here's CNN's Don Lemon.

(BEGIN VIDEOTAPE)

DON LEMON, CNN CORRESPONDENT (voice over): The James Brown of the late '60s was a man with a message, from a nobody who dropped out of school in the seventh grade, to the somebody he always said he would be. Standing side by side with Vice President Hubert Humphrey, encouraging kids to stay in school.

JAMES BROWN, SINGER: And you won't be able to do nothing unless you have a good education.

CHARLES BOBBIT, MANAGER: Mr. Brown had a talent that, until this day, had been unequal for any politician. People listened to him. He could talk to the masses.

LEMON: And talk he did. In April 1968, in the wake of Dr. Martin Luther King Jr.'s assassination, cities around the country erupted in violence. The day after King's death, Brown was scheduled to perform in Boston, but city leaders feared he might stir up more trouble.

BRUCE TUCKER, BIOGRAPHER: The mayor of Boston, Kevin White, was under some pressure to cancel it. But after some tense negotiations in the limo from the airport on the way to the garden, arrangements were made for the -- for WGBH there in Boston to broadcast the concert live to try to keep people home and off the streets.

UNIDENTIFIED MALE: All of us are here tonight to listen to a great talent, James Brown.

LEMON: The atmosphere that night was tense. Towards the end of the concert, many in the audience rushed the stage. Then the police jumped in.

BROWN: I'll be all right. I'll be fine.

LEMON: Brown, unfazed, kept the peace.

BROWN: We're black. Don't make us all look bad. Let us do the show. Come on the stage.

LEMON (on camera): After the Boston concert, it became clear James Brown had sway with blacks, so-called street cred. It became more apparent in the riot-filled summer of '68. After performing in Los Angeles, back in his hotel room, James Brown saw a disturbing news report about black-on-black crime. It became inspiration.

UNIDENTIFIED MALE: He used to come to my room, "I want to show you something." So, I walked up to his room, and when I went in his room, laying on the desk on two napkins was "Say it Loud, I'm Black and I'm Proud".

LEMON: Just 40 hours later, the song hit the airwaves and struck a nerve. It was finally OK for black people to say...

BROWN: Say it loud.

UNIDENTIFIED GROUP: I'm black and I'm proud.

BROWN: Say it loud.

UNIDENTIFIED GROUP: I'm black and I'm proud

(END VIDEOTAPE)

BLITZER: And CNN's Don Lemon hosts the CNN Special Investigations Unit program that documents James Brown's truly remarkable life, his legacy.

"James Brown: The Real Story" airs over the weekend at these times Saturday and Sunday night, 8:00 p.m. Eastern.

Still ahead, Jack Cafferty with your e-mail on our question of the hour. What kind of bonuses do Veterans Affairs officials deserve? Jack standing by with "The Cafferty File".

And this note. Coming up in our 7:00 p.m. Eastern hour, explosive allegations by a British official and Iraq expert. He calls the run-up to the war -- and I'm quoting now -- "a gross exaggeration."

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

(NEWSBREAK)

JACK CAFFERTY, CNN ANCHOR: The question this hour is: What kind of bonuses -- you can't even say this stuff. What kind of bonuses do Veterans Affairs officials deserve? They have a backlog of cases estimated at 600,000. The average returning veteran waits 177 days to get his disability treatment. And they're handing out bonuses to these clowns.

Jack writes, "I'm a disabled veteran. I get no real help from the V.A. I guess my help went in to the $3.8 million for their bonuses. I guess 22 years wasn't good enough, and the sacrifices that I and my family made weren't good enough either."

David writes, "How many employees do you suppose they could have hired to help clear up that backlog with the $3.8 million they spend on bonuses?"

Mike in Boston, "I'm so angry at what I just heard it might take 177 days for me to calm down. As an unapologetic peacenik, I suggest they be given a weapon and sent to war for a double tour of duty. Then put the injured vets in charge of the chicken coup and give them the money. My god, what horror."

"I'm off to call my senator. What an outrage."

Kelly in St. Louis, "In 1997, I enrolled at the V.A. for medical care. After presenting my discharge papers, I was given a photo I.D. card, I saw a doctor, and was given appointments with two specialists. This took a total of 45 minutes. Today it takes six months. What happened?"

Richard in Syracuse, New York, "What's less than $0? That's what they deserve."

"I'm a disabled vet who had to fight for over eight years to get any help. It took Senator Clinton sending one letter asking to be kept informed before I got my disability that no less than three V.A. doctors said I needed. They deserve nothing."

And John in Bethany Beach, Delaware, "My proposal: put the bonus money in briefcases and hide them in the patients' rooms at Walter Reed. That way, they can meet our veterans in person and hear what a bang-up job they're doing."

If you didn't see your e-mail here, you can go to CNN.com/caffertyfile. We post more of them online, along with video clips of "The Cafferty File" -- Wolf.

BLITZER: Jack, thank you for that.

Coming up next, you may call it a pet peeve. See why remarks by Rudy Giuliani nearly a decade ago about ferrets are now being used against him.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Rudy Giuliani had to know when he decided to run for president people would try to dig up dirt from his past. That, of course, comes with the territory. But even he might be surprised about a tape that's now resurfaced.

CNN's Jeanne Moos has a most unusual look at what Giuliani's critics have ferreted out.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice over): Ferrets have a habit of crawling everywhere.

UNIDENTIFIED MALE: She'll work her way all the way up the sleeve if she's given the chance.

MOOS: She will?

UNIDENTIFIED MALE: Oh yes.

MOOS (voice over): But this must be the first time they've worked their way into a presidential race. Blame it on the blogs.

"Rudy Giuliani's Ferret Freak-Out," says one. "Ferret-Fire in Chief" says another. And though the liberal "Huffington Post" says "Just In," this story was just in some eight years ago when Rudy Giuliani had a dustup with a ferret lover on the then-mayor's radio call-in show.

MAYOR RUDY GIULIANI (R), NEW YORK: There's something deranged about you.

DAVID GUTHARTZ, NEW YORK FERRETS RIGHTS ADVOCACY: No, there isn't, sir.

GIULIANI: You -- the obsessive concern that you have for ferrets is something you should examine with a therapist.

MOOS: You never took the mayor's advice. You never got any therapy.

GUTHARTZ: Why would I? I'm sane.

MOOS: David Guthartz is pretty fanatic about ferrets. He created the Society for the Prevention of Cruelty to Ferrets.

AUTOMATED VOICE: Attention please. This car is backing up.

MOOS: He attended public hearings with a stuffed ferret. He made a habit of calling up officials trying to get New York City's ban on ferrets overturned. And he made one call too many to the mayor.

GIULIANI: Please.

GUTHARTZ: Don't go insulting me again.

GIULIANI: I'm not insulting you. I'm being honest with you. Maybe nobody in your life has ever been honest with you. But this obsessive...

GUTHARTZ: I'm (ph) more sane than you.

MOOS: All these years later, the tape of that phone call is being recirculated, mainly by Giuliani critics who want everyone to hear a different side of the mayor who ended up hanging up on Guthartz.

GUTHARTZ: Mr. Giuliani -- Rudy...

GIULIANI: David, this conversation is over, David. Thank you.

There is something really, really very sad about you. You need help.

GUTHARTZ: Rudy Giuliani has classic signs of a Napoleonic complex. That's what a maniacal person is.

MOOS: The Giuliani campaign wouldn't comment on the resurrection of the eight-year-old tape.

(on camera): Could a ferret come back from the past to bite Rudy Giuliani -- or me?

(voice over): Some bloggers have come to Giuliani's defense. "There was something tremendously appealing about Rudy's refusal to coddle New York's large population of weirdoes."

(on camera): I mean, with your hat and your look, you could come across as kind of eccentric.

GUTHARTZ: No. Not in the least bit. I mean, I do have a unique look.

MOOS (voice over): So do ferrets.

(on camera): In this case, I don't think it would be the issue of the actual -- he likes -- she likes hair.

GUTHARTZ: Oh, yes.

MOOS (voice over): One result of Ferretgate...

GIULIANI: This excessive concern with little weasels is s sickness.

MOOS: ... Giuliani can forget the ferret vote.

Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

BLITZER: What a story.

We'll -- we're here weekday afternoons from 4:00 to 6:00 p.m. Eastern. We'll be back in one hour at 7:00 p.m. Eastern.

Much more of THE SITUATION ROOM coming up. Don't forget this Sunday on "LATE EDITION," the last word in Sunday talk, among my guests, Senator Chuck Schumer, Senator Richard Lugar. "LATE EDITION" airs for two hours Sunday mornings, starting at 11:00 a.m. Eastern.

That's it for me for this hour. See you at 7:00.

Let's go to Lou in New York.

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