'The Journal Editorial Report,' April 25, 2009

This is a rush transcript from "The Journal Editorial Report," April 25, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, FOX HOST: Coming up on "The Journal Editorial Report," presidential poison. Why Barack Obama's opening to prosecute Bush officials for torture will haunt his presidency.

Plus, cyber wars. Spies breach the Pentagon's fighter jet program, the latest in a string of potentially deadly computer attacks.

And pay-to-play scandals are popping up all over America. This week, a closer look at the one that ensnared the president's car czar.

"The Journal Editorial Report" begins right now.

Welcome to "The Journal Editorial Report," I'm Paul Gigot.

Call it the day that any chance of bipartisanship in Washington may have officially ended. President Barack Obama on Tuesday left open the door to investigating and prosecuting the Bush administration officials who devised the legal authority for so-called enhanced interrogation techniques. In a reversal of what his chief of staff had said two days earlier, the president said the question of whether to bring charges against those officials would fall to an Attorney General Eric Holder.

The response from the left was swift, with Senate Judiciary Committee Chairman Patrick Leahy calling for a 9/11-style commission to investigate and House Judiciary Committee Chairman John Conyers promising to begin public hearings soon.

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; foreign affairs columnist, Bret Stephens; and Washington columnist, Kim Strassel.

Kim, Rahm Emanuel is the chief of staff of the president of the United States. Why would he say something on a Sunday and two days later have the president essentially contradict him?

KIM STRASSEL, WASHINGTON COLUMNIST: I'm sure that's what Rahm Emanuel was advising because he probably had a sense of what was going to happen. Look, the president overruled him here. He clearly decided that he was going to try to placate his left wing groups who, by the way, are unhappy about other decisions the Obama administration has taken on national security, continuing some of the former Bush policies. He also decided that he was going to placate liberal members in Congress, who are demanding that they can put Bush officials up on the chopping block. And these are some of the officials, the congressmen he's going to look to help him pass some his key legislation.

GIGOT: But why take the risk of inflaming Republicans and national security hawks, who he's going to need. He's going to need their support on Afghanistan down the road. He's going to need their support if he runs into trouble on funding the different Defense Department policies and other things. And this is really going to inflame them. Why take that risk? Why does he need to appease the left?

STRASSEL: He doesn't. Look, I think this was a miscalculation. I think they honestly thought that they could throw this out there and make the left happy, but it was always going to be this way. They have created a bonfire. We now have questions what Congress knew, when they knew it. You can't have investigations like this that don't look into the CIA, lower down officials on the CIA and the Bush officials and Congress. So he's ignited something big here and it was a misjudgment.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yeah, the problem is that this is his style of so-called presidential leadership. He is always on both sides of the issue. He did that in the campaign. And in that Tuesday press conference, when he said that he would allow Attorney General Holder to make the decision, he then followed up by saying, I do worry about this getting so politicized that we cannot function effectively. That's our position. He has our position. He has their position.

(LAUGHTER)

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: Well, I think part of the problem here is that Obama hasn't made up his mind as to whether he wants to govern or whether he wants to campaign and if he wanted to govern, he would squash...

GIGOT: But you're saying this is not a question so much of ideology on Obama's part. it may be a question of character, willing to stand up and say, you know what, I'm going to stand up to the forces that want this retribution and revenge.

STEPHENS: You know, it's interesting. This is an exact replay of the AIG play of about a month ago. When...

GIGOT: With bonuses, the uproar over bonuses.

STEPHENS: Exactly. But remember, just as with Tim Geithner playing the role that Rahm Emanuel is playing, saying that the bonuses were legal, they had to go forward. Two days later, you had Obama contradicting one of top lieutenants.

GIGOT: I think it was Larry Summers.

STEPHENS: Larry Summers, excuse me.

GIGOT: Larry Summers, yeah.

STEPHENS: This is what he's doing. So it's about the character of a president who either can't make a decision or thinks he can make a decision and please all of the constituencies.

GIGOT: Kim, let's talk a little bit more about what you raised earlier, which is Speaker Pelosi's involvement here. In 2002, when some of these enhanced interrogation techniques were first bruited about by the CIA and the administration, Nancy Pelosi was on the House Intelligence Committee. She was the ranking minority member, I think, at the time. Is what's going — what are we going to find out what she knew and when she knew it?

STRASSEL: Well, look, what we know — and this has been out there for a while — is that the CIA and others in the Bush administration briefed these members, the leaders and the ranking members on the Intelligence Committee. They later expanded it to even more people in Congress, to make them aware of what was happening. By all accounts, most of them understood it. It was very clear. And that has always been the case.

Now, you have the speaker saying, I didn't know anything about this. There's clearly some stuff in the history that suggests otherwise. And so now she's in the spotlight, as are going to be the other Democrats who are demanding this probe when questions start to be brought up about what they knew and when, and whether or not they didn't agree that this should happen.

GIGOT: I think the speaker is saying, well, I did hear about waterboarding and some of the legal justification, I just didn't know they were going to actually use it. Or that this probe was actually going to begin. Is that credible?

HENNINGER: No, it's not credible at all.

STRASSEL: No.

HENNINGER: And they're turning themselves inside out to push the attention away from themselves and towards the same old thing, the Bush administration. The Democrats are going to prop up the presidency of George Bush and carry it around for the rest of Obama's term. Senator Rockefeller issued a report this past week, in which he included Condoleezza Rice and Carl Levin and Dick Cheney.

GIGOT: I think that was a Senate Intelligence Committee, Carl Levin.

HENNINGER: So they're saying it's not just the Justice Department, but it was the secretary of state and Dick Cheney.

GIGOT: One thing I want to ask — I want to get on the table here is Dick Cheney, the former vice-president, came out this week and said, all right, if you want to release the memos, which you did, let's release another memo, which is a results memo, which was written by the CIA Counterterrorism Center which said, all right, here is what we think these interrogations gained. Is President Obama going to be able to resist releasing that?

STEPHENS: I hope he does release it. But look, even if you read the four memos that were released, it gives you a sense of the context in which the decisions were taken, when enhanced interrogations were accepted for Abu Zubaydah. There was, quote, "Pre-September 11th-type chatter."

GIGOT: Chatter, yeah. That's a direct quote.

STEPHENS: It makes very specific. And it notes that roughly half of all of all of the intelligence that the CIA got, it got from enhanced interrogations of Zubaydah, Khalid Sheikh Mohammed and other high-value detainees. so people have to read the memos and understand just how much information was obtained and plots that were foiled.

GIGOT: All right, Bret, last word.

When we come back, spies breach the Pentagon's fighter jet program, the latest in a growing number of dangerous computer attacks. Are we already in a cyber war? And can we win it?

(COMMERCIAL BREAK)

(BEGIN "WAR GAMES" VIDEO CLIP)

ACTOR JAMES ACKERMAN AS JOSHUA: Shall we play a game.

ACTOR MATTHEW BRODERICK AS DAVID LIGHTMAN: How about global thermonuclear war?

JOSHUA: Wouldn't you prefer a good game of chess?

LIGHTMAN: Later. Let's play global thermonuclear war.

(END VIDEO CLIP)

GIGOT: Welcome to War Games 2009. And this one may not have a happy ending. The Wall Street Journal reported this week that computer spies have broken into the Pentagon's $300 billion Joint Strike Fighter Jet Program, copying date that that may make it easier for adversaries to defend against the aircraft. The officials say such attacks appear to have escalated in the past six month. The Air Force's Air Traffic Control System was recently breached allowing Internet hackers to see the location of U.S. military aircraft in flight. And computers used to control the U.S. electrical grid have been infiltrated by cyber spies believed to be from Russia and China.

So, Bret, you recently took up this subject in a column and you entitled that column Hiroshima 2.0.

STEPHENS: I was understating things.

GIGOT: I know you want people to read your column. But is that a little overstated?

STEPHENS: No, I don't think so. And I'm quoting an expert here. It's as if we've entered the nuclear age without having yet had the advertisement of a Hiroshima. Because the kind of damage that you can inflict through cyber attacks is literally nuclear level.

People talk about the threat to the integrity of our weapons systems, but the real threat is to the integrity of our critical infrastructure, particularly the electricity grid.

GIGOT: Often civilian infrastructure not just targeting the Pentagon, but things like the Air Traffic Control System and the electrical grid.

STEPHENS: Precisely.

GIGOT: Elaborate on that.

STEPHENS: If any of these grids are hooked up in any way to the Internet, they are susceptible to, you know, cyber intrusions, putting malware, different kinds of software that can be activated under certain conditions and can cripple huge generators. Imagine what would happen if, through cyber warfare, you crippled dozens of large generators across the United States and denied large portions of the U.S. electrical capacity, not just for a few days, but for weeks at a time, no air conditioning in the summer, no heating in the winter, no functioning hospitals. You just start to realize that the economic — the economic damage would be catastrophic.

GIGOT: One factual point. In response to the Journal's news report this week, Lockheed Martin, the contractor, said that the — for the F-35, said that the classified data was never breached in that program. Do we know what, in fact, they did learn about the program?

STEPHENS: Well, they — from what I understand, they were able to download terabytes worth of data about the plane. So when you talk about what is exactly the most sensitive information about the plane, it's difficult to find out what's really sensitive, what would some of our adversaries like to know and what they might not know already.

GIGOT: Dan...

STEPHENS: But the key point here is not — the F-35 story is the sexy story. The electrical grid story is very important — the most important story. We're not talking about perimeter defense. We're talking about infrastructure in the country.

GIGOT: Dan, this is very difficult to defend against because you're talking about a computer system based on open networks, interconnectivity. It's been a huge boost to productivity. It's brought us the Internet, e- mails, all of that. This stuff makes us vulnerable to these kind of attacks?

HENNINGER: Yeah, it's a real paradox. The Internet itself, of course, was created by the Defense Department years ago for the express purpose of keeping our communication system viable in the case of something like a nuclear attack. But it supposed to be easy to use. And once it got out into the public realm, it became easier for people to go in either direction.

And part of the problem here is that we have spread the Internet, created networks at a much faster pace than we have created security to protect those networks. Security is way behind. And that's the piece here that is eventually going to have to catch up.

GIGOT: Kim, President Obama has really seemed to have been on this story. He — I mean, on this problem. He was obviously briefed before coming in by the outgoing administration. And he asked for a 60-day cyber review. What has it found?

STRASSEL: Well, they're about to come out with the results. And you're right. This actually started under the Bush administration. People understood that this needed to have higher precedence. So they're going to come out. And one thing people are talking about is setting up a new command structure within the military that will have more control over handling this and kind of take the lead on this issue.

GIGOT: Do you like that idea? Do you think it's a good idea?

STRASSEL: Right now — Well, I think it's definitely necessary. Right now, these different tasks are spread out among many of the different forces out there, and the different intelligent agencies. This is something that needs to have a unified approach because it is a difficult problem. And we should point out the difficulty of dealing with this is also intense because you're not just asking about guarding against government programs, as Bret was saying. You're talking about all these private industries as well. And the question is, how did the government get involved in that? There's some very touchy issues involved here?

GIGOT: All right.

Still ahead, pay-to-play scandals are popping up all over America. When we come back, we'll take a look at how President Obama's car czar got himself wrapped up into one of them.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: He's not accused of doing any wrongdoing and is not likely to face criminal nor civil charges, as it relates to this. And a pending investigation was something that he brought up to us.

(END VIDEO CLIP)

GIGOT: That was White House Press Secretary Robert Gibbs coming to the defense of Steven Rattner, the investment banker tapped by President Obama to oversee the rescue of the auto industry.

The Wall Street Journal reported last week that Rattner's private equity firm is the subject of an SEC investigation into an unfolding pay- to-play scheme in New York in which investment firms were allegedly solicited for kickbacks in order to get state business. Authorities allege that Rattner's firm, Quadrangle, along with several others, paid to get investments from the $122 billion state pension fund.

We're back with Dan Henninger and Kim Strassel. And we're also joined by Wall Street Journal editorial board member, Jason Riley.

Kim, let me frame this issue. First, you've got $122 billion in state pension money, public money, on the one side. On the other side, you've got these private equity firms and hedge funds who want to get that money to be able to invest with their investment vehicles. Then you have these placement agents in the middle, who are kind of brokers, who try to put these two together. That's not technically illegal, this brokering activity. But when does it become illegal in this case?

STRASSEL: Well, we've got...

GIGOT: Allegedly. Allegedly.

STRASSEL: Right. Well, look at it this way. You know, it's not unusual for private equity firms and hedge funds to hire placement agents. They used them as outsourcing marketing. These guys, agents, go out, they say this firm is great and you should investigate in it. And they get a cut of any money they rake.

In this case, it was coming from the other direction, allegedly, in that you had pension officials, government officials and former connected political operatives serving as placement agents, who allegedly were going to the company saying, "You want a piece of this pension fund action? Here is the campaign donations you need to make. Here is the favor you need to do for me. Here's the political operators who need to get paid." That's the argument that's being made.

GIGOT: Jason?

JASON RILEY, EDITORIAL BOARD MEMBER: This is a story, plain and simple, about public officials who control these pension funds, shaking down private companies for access.

(CROSSTALK)

GIGOT: And we should stipulate that Steven Rattner has not been indicted, hasn't been charged.

RILEY: He hasn't been indicted.

GIGOT: And there's no suggestion he will be.

RILEY: The point is that whenever you put — whenever political discretion is involved in controlling access to these vast pools of money, corruption is likely, if not inevitable. And that's what we have here.

GIGOT: So, you think that this is — the fault here lies more with the public officials or their agents here, the political operatives, like Hank Morris, who is a long-term Democratic strategist, who was very close to the controller of New York State, who's essentially has the ultimate discretion for these funds — they're the people at fault much more than the private actors, like Carlisle and Quadrangle, who would pay essentially campaign contributions or invest, in the case, actually paid too invest in a dubious movie by the distribution rights for a dubious movie by the name of "Chug (ph)," a kind of goof-ball comedy that made no money?

RILEY: Right. Made no money. I think that the public policy problem here is structural. And it's one that puts politicians, elected officials, in charge of the cash. I mean, all the reforms we're talking about, about reducing campaign contributions that they can receive or maybe putting a board in charge of this money. What you really need to do is get political actors away from controlling this money.

GIGOT: But let's address the culpability, Dan, if there is any — I'm not saying criminal, but maybe ethical — of these private companies. Basically, they know these are political actors. They're paying in either — in some way, to be able to get some of this business.

HENNINGER: Right.

GIGOT: Is that an ethical business model?

HENNINGER: It's not an ethical business model, but politics itself isn't a particularly ethical business model.

(LAUGHTER)

And you know, the larger question here is Steve Rattner, who is one of the founders of the Quadrangle — he is now the car czar. Let's put it this way. If this were a Republican administration, if he were a Republican, they would have hounded Rattner out of the job. Why hasn't he left? I think because Steve Rattner's job is to protect the UAW and the unions' interest.

GIGOT: United Auto Workers is a part of this whole thing?

HENNINGER: It's not a part of it. But that's why Rattner — the Obama administration is not going to push Rattner out no matter how much pressure he comes under. They want him to protect the union's interest in that auto industry problem.

GIGOT: Kim, the New York Post this week called for Rattner to step aside, arguing, for President Obama, this is a distraction. It's not going away. Obviously, the New York attorney general, Andrew Cuomo, has said that there's going to be more to this investigation. Why is the White House taking something of a political risk to stand by Steve Rattner?

STRASSEL: Look, Rattner is at the center of all of these negotiations over Chrysler and G.M. I think that, in part, they didn't want to disrupt those. But the real risk they're taking here — it's not just that this is going to be a distraction, but that Rattner becomes a liability. And they don't get things done in that there are the bond holders out there, the management. They're nervous about dealing with a guy who, they're not sure when the next shoe is going to drop, if it does. And the worry is that they're not going to negotiate or not going to get something done and that this isn't going to work out for the Obama administration. So that's something they've got to bear in mind.

GIGOT: Jason, are we going to see this spread to other states, do you think?

RILEY: We already have. Some of the same players that were involved in New York have been involved in investigations out of New Mexico, for example. So, no, this has become a business model for these private equity firms, these hedge funds, these hedge funds that want access to these state funds. And they've taken this business model nationwide.

GIGOT: But we've learned this — this week that Quadrangle gave $20,000 to Governor Bill Richardson of New Mexico and then got some money back from that pension fund.

GIGOT: All right, we have to take one more break. When we come back, Apple shakes a nasty iPhone habit, and our other "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Winners and losers, picks and pans, "Hits and Misses," it's our way of calling attention to the best and the worst of the week.

Dan, first to you.

HENNINGER: Homeland Security Secretary Janet Napolitano misspoke this week. She was trying to equate the problems on the Mexican border with the Canadian border, and along the way, said that the 9/11 terrorists had come across the Canadian border. This is not true. Don't mess with the Canadians. They went ballistic running stories with headlines like, "The Border for Dummies."

(LAUGHTER)

She took it back. She apologized. But I'll tell you, this summer, crossing that Canadian border is going to be hell.

GIGOT: All right.

Jason?

RILEY: The Heritage Foundation, a think tank in Washington, just released its annual study on where members of Congress have sent their own children to school. Turns out that 44 percent of the Senate and 36 percent of the House of Representatives have opted out of the public school system and sent their own kids to private school. And this is interesting because the same Congress just voted to kill a choice program in the District of Columbia for poor and minority children who also would opt out of the public school system and go to private schools. So what these lawmakers want is school choice for themselves, but not for more disadvantaged people. And I think if that's not hypocrisy, I don't know what is.

GIGOT: All right, Jason.

Kim?

STRASSEL: A miss to Apple for ever agreeing to sell baby shaker, a new iPhone app which a baby cries through the phone. They shake it so hard until you get two X's across the baby's eyes. This was created by an outside company and Apple just sold it on its site. But at a certain point, big companies, like Apple, are going to have to decide it's in their rush to show their big hip products, if they're going to just abandon all kind of standards of taste and sensitivity to what's a real question, shaken baby syndrome.

GIGOT: All right, Kim, thanks.

Remember, if you have your own "Hit or Miss," please send it to us at JER@FOXnews.com.

That is it for this week's edition of "The Journal Editorial Report."

Thanks to my panel and to all of you for watching.

I'm Paul Gigot. We hope to see you right here next week.

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