This is a rush transcript of "Special Report With Brit Hume" from July 26, 2007. This copy may not be in its final form and may be updated.

BRIT HUME, FOX NEWS ANCHOR: Next on SPECIAL REPORT, the nation's intelligence chief urgently pleads with Congress to fix the laws which he says are roadblocks to listening in on two-way communications between foreign terror suspects overseas. No commitment from Hill leaders,

There's a big fight brewing between the president and Congress over spending. And the skirmishing has begun.

The Fred Thompson campaign, still not announced, facing a possible mutiny over the role of Thompson's wife. All that right here, right now.

Welcome to Washington. I'm Brit Hume. The director of national intelligence says the United States is facing a crisis that Congress can and must fix. Fox News has learned that Mike McConnell is telling the House Intelligence Committee that the Foreign Intelligence Surveillance Act, or FISA as it is called, is dangerously outdated. And he points to the recent National Intelligence Estimate about al Qaeda's rebuilding as part of his argument that an update cannot wait. Chief Washington correspondent Jim Angle has the story.


JIM ANGLE, FOX NEWS CHIEF WASHINGTON CORRESPONDENT (voice-over): The director of national intelligence sent a letter to the House Intelligence Committee today calling for urgent and immediate action to fix a major roadblock in eavesdropping on terrorists; "We are significantly burdened in capturing overseas communication of foreign terrorists planning to conduct attacks inside the United States," he writes. "This situation is unacceptable in the current, heightened threat environment.

McConnell urged Congress to act without delay to fix the law known as FISA, a point he has made publicly to Congress for several months.

ADM MIKE MCCONNELL, DIRECTOR OF NATL INTELLIGENCE: Today's FISA requires judicial authorization to collect communications of non-U.S. persons, i.e. foreigners, located outside the United States. This clogs the FISA process with matters that have little to do with protecting civil liberties or privacy of persons in the United States.

REP. PETE HOEKSTRA (R), MICHIGAN: Foreign intelligence from foreign terrorists in foreign countries and we can't collect it.

ANGLE: Republican members of the House Intelligence Committee are helping lead the charge.

HOEKSTRA: This is a wakeup call for Congress and for America. At a time of increased threat, we are handicapping ourselves in the fight against al-Qaeda and radical jihadism.

ANGLE: The problem is that FISA, which governs such intercepts, was passed in 1978, when communications were far different. It required warrants for any signals that went through a wire, aimed at protecting Americans.

MCCONNELL: Almost all local calls, meaning in the United States, were on a wire and almost all long-haul communications were in the air, known as wireless communications.

ANGLE: So any intercepts here at home required a warrant, while international phone calls, which often used satellites, did not. But now everyone acknowledges the situation is reversed, as communications have changed.

REP. ROY BLUNT (R-MO), HOUSE MINORITY WHIP: Over the Internet, fiber optic cables, a lot of it coming through the United States, even potentially two terrorists talking to each other in the Middle East come on a wire through the United States and back. That should not require a warrant.

ANGLE: But at the moment, it does and a staff of lawyers and intelligence agents must spend days trying to prove probable cause to listen in on two foreign terrorists outside the United States.

REP. HEATHER WILSON (R), NEW MEXICO: This is putting Americans at risk. It means our intelligence agencies are having their fingers stuck in their ears and their hands over their eyes when terrorists are using the communications networks that we have built to plot and plan to kill Americans.

ANGLE: Some Democrats have minimized the problems as recently as this week.

REP. ANNA ESHOO (D), CALIFORNIA: We owe more to the American people than just trying to scare the hell out of them.


ANGLE: Some Republicans say Congress must act before it recesses next week, arguing al-Qaeda won't be taking a break. Not all members agree that the matter is that urgent. Even those who do say Congress can't act as quickly as McConnell is urging. And the chairman of the House Intelligence Committee urged the president in a letter to use his own authority to do whatever is necessary. Brit?

HUME: Jim, thank you. Senate Democrats today opened two new fronts in the ongoing wars with U.S. Attorney General Alberto Gonzales and the White House over fired U.S. attorneys and over the use of warrantless wiretaps. In the first matter, Gonzales was accused of lying under oath and in the second case, more subpoenas have been issued. Congressional correspondent Major Garrett reports.


MAJOR GARRETT, FOX NEWS CONGRESSIONAL CORRESPONDENT (voice-over): New York's Charles Schumer today sought a special prosecutor to investigate perjury charges again Attorney General Alberto Gonzalez.

SEN. CHUCK SCHUMER (D), NEW YORK: The attorney general took an oath to tell the truth, the whole truth and nothing but the truth. Instead, he tells the half truth, the partial truth, and everything but the truth.

GARRETT: Separately, Judiciary Committee Chairman Patrick Leahy subpoenaed White House counselor Karl Rove and deputy White House Political Director Scott Jennings, seen here at a February White House function, to investigate possible political influence in the firing of eight U.S. attorneys.

SEN. PATRICK LEAHY (D), VERMONT: The evidence shows that senior officials were apparently focused on the political impact of federal prosecutions and whether federal prosecutors were doing enough to bring partisan voter fraud and corruption cases.

GARRETT: The White House dismissed both Democratic maneuvers.

TONY SNOW, WHITE HOUSE SPOKESMAN: It is not an attempt to get the facts, not an attempt to respond to an accommodation, but an attempt to pick a fight.

GARRETT: The White House also found an ally in Pennsylvania Republican Arlen Specter, who traveled with the president today to Philadelphia. After conferring with the president and Rove, Specter returned to the Capitol to denounce Schumer's call for a special prosecutor.

SEN. ARLEN SPECTER (R), PENNSYLVANIA: Senator Schumer's not interested in looking at the record. He is interested throwing down the gauntlet and making a story in tomorrow's newspapers.

GARRETT: Schumer and other Democrats accuse Gonzales of lying in sworn testimony Tuesday that there was not an intense administration debate over the National Security Agency's terrorist surveillance use of warrantless wiretaps. Gonzales also said the surveillance program, often referred to as TSP, was not discussed at a meeting in March 2004 to seek an extension of the surveillance program from an ailing Attorney General John Ashcroft, who lay in a Washington hospital bed recuperating from a serious illness.

SCHUMER: Both of those statements appear to be false.

GARRETT: Across the Capital, House Democrats grilled FBI Director Robert Mueller about that March 2004 emergency meeting on continuing the terrorism surveillance program. Mueller's carefully drawn answers referred to operations by the National Security Agency or NSA.

REP. SHEILA JACKSON LEE (D), TEXAS: Could I just say, did you have an understanding that the discussion was on TSP.

ROBERT MUELLER, FBI DIRECTOR: I had an understanding that the discussion was on a NSA program, yes.

GARRETT: Moments later the White House denied any conflict between the answers of Mueller and Gonzales.

SNOW: He responded not about the terrorist surveillance program but about, quote, an NSA program. I'll tell you what's happening right now; members of Congress are asking about highly classified matters in open session. They know that we can't give full answers and they are trying to play politics.


GARRETT: The distinction just drawn there appears to be extremely important. Senator Specter said today it appears there might have been a second surveillance program underway in March 2004. And there is now, just now, confirmation that in fact is the case.

Brit, let me read to you and our audience a statement just released by the Justice Department. It reads as follows; "The disagreement that occurred in March 2004 concerned the legal basis for intelligence activities that have not been publicly disclosed and that remain highly classified." Brit.

HUME: OK, Major, that would seem to rule out the terror surveillance program that we have all heard so much about. Thank you very much. Congressional Democrats find themselves heading into their traditional August break with not so much to show their constituents at home in the way of signed legislation. The pressure for solid accomplishments in the next week or two is particularly clear in the case of the federal budget for the next fiscal year. As Chief White House correspondent Bret Baier reports, today the president weighed in.


BRET BAIER, FOX NEWS CHIEF WHITE HOUSE CORRESPONDENT (voice-over): In a speech to the American Legislative Council in Philadelphia, President Bush said Congress should not leave for its August recess until it finishes what he called the most important spending bill.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: At the very least, members of Congress ought to finish the spending bill for the Department of Defense before they go on recess so I can sign it into law. We got troops if harm's way.

BAIER: Not a single one of the 12 annual spending bills has passed the full Congress yet with the start of the next fiscal year in October looming. The Democratic led Congress has added about 23 billion dollars to the president's proposed budget, setting up what promises to be a heated showdown over spending.

BUSH: Congress wants to return to the tax and spend policies of the past that did not work then and will not work in the future. And that's why I plan on using my veto to keep your taxes low.

BAIER: In fact, almost all of the House appropriations bills now face the threat of a presidential veto. The 12 annual spending bills dole out about 1/3rd of the federal budget. The upcoming veto showdown and the administration's hard line on Congressional spending has put the president's budget director nomination in jeopardy.

In today's Senate confirmation hearing for former House Budget Chairman Jim Nussle, Democratic senators wanted him to explain the president's veto thinking.

SEN. DEBBIE STABENOW (D), MICHIGAN: We've gone, on the one hand, from no vetos to the president saying he is going to veto all nine appropriations bills coming out of the House.

JIM NUSSLE, OMB DIRECTOR NOMINEE: Let me step back into my old shoes of having been chairman of the Budget Committee. In all of those years, there was a top-line agreement between the administration and those Republican Congresses on the top line number.

BAIER: Nussle said there is a 23 billion dollar difference now and indicated he was and is in favor of the veto strategy.

NUSSLE: For no other reason than just to wake a view of us up.

BAIER: Nussle was pounded with questions about the Democrats proposed expansion of the state children's health insurance program that faces another potential presidential veto. White House officials believe an expansion of the program would erode private insurance and take the country a step closer to a government-run health care system.

Nussle said the president wants lawmakers to refocus the program on low income uninsured children while Congress deals with the larger issue of health care and health insurance.

NUSSLE: We need to tackle those bigger issues so that we don't force those big issues into smaller authorization process that are moving through.


BAIER: Late this afternoon, White House officials announced that the president will meet with Congressional leaders next week, focusing on the spending bills. Senate Budget Committee Chairman Kent Conrad called that invite encouraging and said the nomination of Jim Nussle will, quote, certainly be affected by that meeting. As of now, there is what is called an anonymous hold on that nomination. Brit?

HUME: Which means some member has blocked it. We don't know who it is or how long it will last.

BAIER: Exactly.

HUME: Thanks, Bret. Later on SPECIAL REPORT, the fight over federal fees between commercial airlines and owners of smaller planes. But first, is Republican Fred Thompson's presidential campaign in trouble or just having some growing pains. We find out next.


HUME: Defense Secretary Robert Gates has written a three page letter to Democratic presidential candidate Hillary Clinton in an apparent effort to calm a political storm. It began when Clinton asked the Pentagon for information about contingency plans for pulling U.S. forces out of Iraq. In his response, Undersecretary Eric Edeleman suggested that talking about withdrawal option, quote, reinforces enemy propaganda that the United States will abandon its allies in Iraq, end quote. Gates writes that he agrees with the senator that such planning is essential, and assures her that it is, in fact, taking place.

Has the presidential campaign of Republican Fred Thompson gone off the rails before the candidates has even declared he is running? Whispers to that affect are now loud enough to be the buzz. Where there is political buzz, we count on our chief political correspondent Carl Cameron for the whole story. So Carl, what is up?

CARL CAMERON, FOX NEWS CHIEF POLITICAL CORRESPONDENT: Well, it looks like there is a bit of a mutiny starting on Fred Thompson's campaign ship even before it leaves the dock. Another staffer resigned today. That is three in three days, with more expected, over what insiders call the haphazard, unfocused and undisciplined way things are being handled or not handled and over the candidates' wife.


CAMERON (voice-over): On the surface, Thompson is soaring. Before even officially entering the race, he is second in the polls and has recruited 30 people around the country to run things. The problem is who is in charge? Aides say Thompson wants his wife constantly involved. And it is causing problems. Mrs. Jeri Kean Thompson (ph) has authority over just about everything and uses it, often making the campaign run in circles.

Critics have dubber her his trophy wife. She is 40; he is 64. But Mrs. Thompson is a force. She has Capitol Hill political experience and a strong reputation as a talented, feisty partisan. And it has only intensified as the candidates spouse and mother of their two young kids. But the spouse is not supposed to be the campaign manager, and so-call Fred Heads worry that even though Mrs. Thompson has good ideas, means well, and claims she wants very much to hand over the reigns, when push comes to shove, they fear she will retain control, continue to overrule staffers and hamper the campaign's development.


Thompson does have a campaign strategy. It is basically to do well enough in Iowa and New Hampshire, the first test states, and then make a strong showing in South Carolina to be credible, and score a big win in Florida that ultimately catapults him to the nomination. It is perfectly plausible campaign strategy. But word is out about the internal problems and prominent Republican operatives have actually been turning down job offers as a result of it, that and the fact that a few of them hired are actually leaving. Brit?

HUME: So does the campaign have a plan to turn this around?

CAMERON: Well, they say it is going to require a serious team and serious money, and frankly a serious change of Mrs. Thomson's role. They say it is perfectly correctable but that she has to take a step back and let them do their jobs. The wrap on Fred Thompson has almost always been that he is a little bit undisciplined and inattentive. Aides really want him to spend a little bit of time to talk to his wife about how things need to change. Brit?

HUME: OK, Carl, thank you very much. Up next on SPECIAL REPORT, don't look to Canada to help you out anymore if you are trying to get out of your military obligations. But next, Mexican development directly benefits Americans on the border. We tell you how that works next.


HUME: It seems that not all the news from the southern border is bad these days. Stricter enforcement has cut the number of illegal immigration attempts and now we learn that economic development in some parts of northern Mexico is bringing economic benefits to nearby communities on the American side. Correspondent Chris Gutierrez has an example.


CHRIS GUTIERREZ, FOX NEWS CORRESPONDENT (voice-over): In Coahuila, Mexico construction is underway on the area's most anticipated factory. In 2010, this field in the town of Piervez Negras (ph) will be home to the world's largest brewery. The Modelo (ph) company chose this border town over three other sites in Mexico and among those lobbying for this location --


GUTIERREZ: Was Eagle Pass, Texas mayor Chad Foster, whose city backs up to the Mexican border.

FOSTER: That growth has a direct impact on the city of Eagle Pass.

GUTIERREZ (on camera): The Modelo plant promises to bring 6,000 new jobs with competitive wages. And it predicted another 10,000 jobs could be created to support the plant on both sides of the border.

FOSTER: There is going to be more warehousing, more custom brokerage, more distribution on the U.S. side.

GUTIERREZ (voice-over): The growth in Northern Mexico is already spurring new development in South Texas. Border towns like Eagle Pass are preparing for the future by building new homes. Commercial development is up as well.

GUILLERMO BERCHELMANN, COAHUILA ECON DEVEL DIRECTOR: Eagle Pass has grown in the past four or five years what it hasn't grown in decades. And the ball game hasn't even started.

GUTIERREZ: Giullermo Berchelmann is director of economic development in northern Coahuila, where last year he says new Mexican factories created 40,000 new jobs. And studies show most of those employees spend nearly 40 percent of their income shopping, living and dining in border towns.

BERCHELMANN: So all the job creation and wealth that is created on this side, a big part of it is staked in the state.

GUTIERREZ: So Eagle Pass Mayor Chad Foster will work with Mexican leaders to bring even more businesses north, hoping the money they generate continues to cross the border.

In Eagle Pass, Chris Gutierrez, Fox News.


HUME: A federal judge in Pennsylvania today struck down the city of Hazelton's tough anti-immigration law. It would have imposed fines on landlords who rent to illegal immigrants and denied business permits to companies that give them jobs. But District Judge James Monley (ph) says the federal law takes precedent. The city is expected to appeal his ruling.

The disgraced former prosecutor Mike Nifong in Durham County, North Carolina has now offered a complete and unqualified apology to three former Duke University lacrosse players. Nifong acknowledged there is, quote, no credible evidence that the players committed any of the crimes, rape, kidnapping or sexual offense, that he accused them of last year. A North Carolina judge is now considering whether to hold Nifong in criminal contempt of court for his handling of case.

While lawmakers here in Washington consider funding for the Federal Aviation Administration, the people who build, own and fly private airplanes are marshaling their forces for a fight. They are strongly opposed to an FAA proposal to impose a fee, called a modernization surcharge, on their flights. Correspondent Jeff Goldblatt reports.


JEFF GOLDBLATT, FOX NEWS CORRESPONDENT (voice-over): More than 100,000 private planes and jets take off and land at the Chicago Executive Airport each year. The manager here says Chicago skies would be more crowded if it weren't for this facility.

DENNIS ROULEAU, CHICAGO EXECUTIVE AIRPORT: Less than five percent of general aviation use all the busy airports in the United States. Airports like Chicago Executive, we relieve traffic from O'Hare.

GOLDBLATT: And yet commercial airline executives say corporate jet owners should be paying a fee each time they fly, in addition to the fuel tax they now pay. Commercial airlines also get taxed for fuel, but at less expensive rate because of the large quantities consumed. Supporters of user fees argue private aviation is a getting a free ride in the skies, clogging travel lanes, and contributing to airport delays nationwide.

JIM MAY, AIR TRANSPORT ASSOCIATION: The people we are focusing on are the corporate executives, movie stars and others. That portion of the aviation community is not paying their fair share, if you will, which should be roughly 16 percent of the overall use of the system.

GOLDBLATT: The Federal Aviation Administration says user fees charged to some private planes would help fund a 25 billion dollar improvement project to replace the nation's aging air traffic control system over next decade.

MARION BLAKEY, FAA ADMINISTRATOR: It's a little like a Homeowners Association, when you have to pay an extra assessment to put a new roof on the building. I don't think many people find that unreasonable.

GOLDBLATT: Ultimately Congress decides whether user fees are adopted and there are now competing proposals on Capital Hill on this issue, with the Senate bill charging a 25 dollar per flight user fee, and a House version not including one. The debate has taken off among pilots in Wisconsin this week for the world's largest annual fly-in air convention. Although not targeted by current Congressional proposals, owners of smaller propeller planes worry they too could be charged fees down the line.

Pilot Bob Brown says he supports paying his fair share to use the skies, but that prop pilots already fund the FAA through fuel taxes. He argues commercial airlines have created their own delays.

BOB BROWN, PLANE OWNER: What I have noticed is that most airlines depart all their flights at the same time. They arrive their flights at the same time. So it's a little discipline on the part of the airlines to mitigate that.


GOLDBLATT: And Congress must vote on this issue by September 30th, which is when the FAA's current budget expires. Otherwise the FAA's funding scheme for the next fiscal year will be up in the air, so to speak. Brit?

HUME: Thank you, Jeff. Army Secretary Pete Garren (ph) is considering whether to demote a retired three star general for his role in providing misleading information about the death of Army Ranger Pat Tillman. The former NFL player, who quit to join the military, was killed by friendly fire in Afghanistan back in 2004. Retire Lieutenant General Philip Kensinger is one of ten Army officers being reviewed for punishment, including five generals and five junior officers.

A federal judge in Massachusetts has ordered the government to pay more than 101 million dollars to two men and the families of two other who died after the four spent decades in prison for a murder they did not commit in 1965. U.S. District Judge Nancy Gertner (ph) says the FBI encouraged perjury, helped to frame them and withheld evidence of their innocence for decades. They were fingered by a mob hit man during a federal effort to take down the Mafia.

Got to today take a break to pay our bills and update other headlines. When we come back, the soldier who wrote the disturbing accounts in the "New Republic" reveals his name and how he really feels about the war. That story is next on the Grapevine.


NASA says the damage should not have posed any danger to either the shuttle or station astronauts.

The new British Prime Minister is coming to America to meet with the president next week, the White House announcing Gordon Brown will arrive Sunday and have dinner and meetings at Camp David on Monday. Topics on the agenda expected to include Iraq, Iran, and the U.S. plan to set up missile defense systems in eastern Europe.

Atlanta Falcons quarterback Michael Vick pleading not guilty to charges related to dog fighting. The NFL star taking some heat from protestors outside the courthouse in Richmond. Vick was released without bond. His trial is set for November.

New home sales seeing their biggest drop in five months, the decline much worse than expected. The news follows a report yesterday that said sales of existing homes fell to a five-year low.

Stocks plummeting on that news, The DOW dropping 311 point after recovering from a 400 plus-point dive earlier in the day. The NASDAQ down 48, the S&P down 35 on the day.

The FOX Report with Shepherd Smith comes your way at the top of the hour. Special Report with Brit Hume continuous right now, right here on FOX News Channel.

Some conservative Episcopalian churches in America are looking outside the country for leadership in response to the ordination of gay clergy and other changes. Correspondent Molly Line reports on one priest's efforts to recapture the roots of his faith, a mission taking him to the other side of the world.


MOLLY LINE, FOX CORRESPONDENT: When the U.S. Episcopal Church ordained an openly gay bishop in 2003, Anglican conservatives were outraged. Now some church leaders are looking to guide their flock back to traditional ground.

For one Massachusetts priest, the journey is leading all the way to Africa.

REV BILL MURDOCH, ALL SAINTS EPISCOPAL CHURCH: This is part of our witness to the world about what we are doing.

LINE: Reverend Bill Murdoch of All Saints Episcopal in West Newbury is traveling to Kenya, where Anglican leaders share his orthodox views. In August, he will become a bishop of the Anglican church of Kenya.

Then he is coming home to lead his congregation out of the U.S. Episcopal Church.

MURDOCH: Many will come at this time and follow us out into this new beginning. Some will stay, some will come later.

LINE: They will leave behind multi-million dollar properties, take out loans, and start from scratch.

TIM SHERATT, PARISHIONER: It seemed to us the leadership of Episcopal Church was moving that church further and further away from orthodox Christianity.

LINE: The decision to leave the U.S. Episcopal Church may seem dramatic, but this congressional is far from alone. Parishes across the country are defecting, many of them looking overseas for new authority within the worldwide Anglican community. Globally, some Anglican leaders charge that the U.S. church has created a crisis. But at the Episcopal Divinity School in Cambridge, leaders call this a time of transition.

REV EDWARD RODMAN, EPISCOPAL DIVINITY SCHOOL: Most issues such as this require a generation to go through the various aspects of the change that occurs. There are still people 30 years out who do not accept women's ordination.

LINE: It is estimated more than 150 parishes nationwide have left so far. But, in reality, that is a tiny percentage of the 2 million member U.S. church.

In West Newbury, Massachusetts, Molly Line, Fox News.


HUME: There was a time not so long ago when Americans who wanted to avoid the military draft and service in Vietnam sought refuge in Canada. But the draft is gone, and so is Canadian sympathy for members of U.S. military who want to escape their duties.

Correspondent Dan Springer reports.


DAN SPRINGER, FOX CORRESPONDENT: U.S. soldiers, like Jeremy Hinsman, who deserted their units and fled to Canada, are discovering that the welcome mat, so commonly used during the Vietnam War, has been rolled up.

Hinsman and some 200 other AWOL servicemen have been denied political asylum. But they are not giving up without a fight.

JEFF MILLER, DESERTERS' ATTORNEY: You shouldn't go to jail because you want to obey the law. And the international law makes it illegal to attack countries for no reason.

SPRINGER: Jeff Miller, a Vietnam draft dodger, is trying to help this new generation of border jumpers get refugee status. But Canada's laws have changed in the past 40 years. Deserters have to prove they will be persecuted, not just prosecuted, if sent back to the United States.

CATHERINE DAUVERGNE, UNIV OF BRITISH COLUMBIA: Claims made by Americans in Canada generally fail because the United States is viewed to be a country which will protect the basic human rights of its citizens.

SPRINGER: In 1969, then Prime Minister Pierre Trudeau famously encouraged Vietnam draft dodgers to flock north of the border. He declared Canada a refuge from American militarism, and tens-of-thousands of Americans took him up on his offer.

That legacy has not been forgotten. Two years ago a reunion for war resisters was held in Nelson, British Columbia. And veterans groups on both side of the border were outraged when a bronze monument to draft dodgers was unveiled.

Today, Canada's conservative Prime Minister Steven Harper has made better relations with Washington a priority. But critics say more needs to be done to get rid of American deserters.

MARTIN COLLACOTT, FRASER INSTITUTE: When we let them get into our system, it means they can stay here for, sometimes, quite a long time, they can get benefits, they, basically, block up system.

SPRINGER: The Pentagon says hunting down AWAL soldiers is not a high priority, that morale is high, and the current desertion rate is one half of one percent, seven times lower than during the Vietnam draft.

As for those hiding out in Canada, if the last two appeals are denied, they could fine themselves rounded up and dropped off at the border.

In Blaine, Washington, Dan Springer, Fox News.


HUME: And a quick update on that controversy in New York State about whether Democratic Governor Eliot Spitzer knew about efforts by two top aides to discredit Republican State Senate Leader Joseph Bruno. The New York State Ethics Commission says it will investigate use of state police by Spitzer's aides in an effort to find information about Bruno's use of state aircraft.

New wrongdoing was found on Bruno's part, and Spitzer insists he was not involved.

Next on Special Report, the Director of National Intelligence says Congress must act, and soon, to change the Foreign Intelligence Surveillance Act. We will get thoughts from the FOX all-stars on how this is all being handled.


REP PETE HOEKSTRA, (R) MICHIGAN: The Director of National Intelligence is telling us we are missing vital intelligence that our nation should be collecting to protect our homeland--foreign intelligence from foreign terrorists in foreign countries, and we can't collect it.

REP ANNA ESHOO, (D) CALIFORNIA REPRESENTATIVE: We owe more to the American people than just trying to scare the hell out of them, and say after all of the expenditure of life and limb, and the investment that the American people are now making, $10 billion a month in Iraq alone, that we are blind.

HUME: But that is, in effect, what the Director of National Intelligence Mike McConnell said in a letter today to the Chairman of House Intelligence Committee, in which he said because of the changes in technology, the old law governing the Foreign Intelligence Surveillance Act makes it impossible to listen in on phone calls, certain phone calls, between foreign terrorists in foreign countries, speaking to each other.

Because some of these calls are now, because of the complex systems we use, are routed through American lines, or through America. And therefore, they fall under the purview of the law, and you have to run out and get a warrant. He says it is leaving us blind, and it urgently needs attention.

Some thoughts on this issue now from Fred Barnes, Executive Editor of the Weekly Standard, Mara Liasson, National Political Correspondent of National Public Radio, and Mort Kondrake, Executive Editor of Roll Call, FOX News contributors all.

So, question--does the DNI have a point? And how does Congress seem to be responding to this? Mort?

MORT KONDRAKE, EXECUTIVE EDITOR, ROLL CALL: It strikes me that this is about as close to a no-brainer as you can get, if the Democratic Chairman of the House Intelligence Committee says that this is something that the president ought to do on his own authority.

However, in the old days, when the president did something on his own authority, the Democrats screamed bloody murder, and said, you know, people are talking about censuring for that kind of thing. So now he is trying to go through Congress and get legal authority to do what he wants to do.

They ought to give it to him with dispatch. I mean, they could hold hearings, they could pass a bill. They could do it overnight if they had to.

MARA LIASSON, NATIONAL PUBLIC RADIO NATIONAL CORRESPONDENT: Look, Serias is the head of the House Intelligence Committee wrote this letter that says that he doesn't even believe FISA requires a warrant for these kind of communications, foreign terrorist--

HUME: You mean Mitch McConnell, or Sylvester Reyes?

LIASSON: McConnell says we need the law changed in order to do this. Reyes says no. But he also went further. He said look, if clarification of the law are necessary, we are prepared to deal with this. He is committed to working on developing a targeted solution as an interim measure.

And, in the meantime, the president should use his authority, which he has claimed over and over again that he has.

HUME: And Congress has repeated insisted that he does not have.

LIASSON: I think when you get a letter from a Democratic Committee chairman saying look, we are with you on this, you know--

HUME: We, or I?

LIASSON: Well, he is. And the only question is, do they need the law changed to do this. And if so, how fast is this law going to be changed?

FRED BARNES, EXECUTIVE EDITOR, WEEKLY STANDARD: I will have to go along with McConnell on how fast they need a change--he says it is urgent.

And Brit, I don't think it is just phone calls, it's emails as well that get routed through the United States. And that is, certainly, a form of communication.

Look, if this is fine with Reyes, then he should have no problem with changing the law that covers here so it will make it explicit, what Reyes has said, that the president has the authority to do this without getting a warrant.

I mean, why don't you want to get a warrant? Because it takes some team. You have to show probable cause.

HUME: But you have to show probable cause, and that relates to probable cause of a crime being committed in violation of American law.

BARNES: Exactly. When you had that sound bite from Ann Eshoo, you can see that there is among many, many Democrats, there is a completely different view of terrorists than there is inside the administration, and, obviously, with McConnell.

And they don't view the war on terror as something that is all that critical, that the terror threat is as great. They want to shut down Guantanamo, they want to give the prisoners there, the terrorists, they want to give them all the rights that criminals in U.S. courts would have.

They don't like at all the president's doing any sort of surveillance that might involve American citizens without a court order, even though they are dealing with--those citizens might be in a phone call with somebody with al-Quida, or something.

This is just a completely different view, and you see it in the lack of urgency on the part of the Democratic Congress enacting.

KONDRAKE: This ought not to be a partisan issue. And I think Reyes statements indicate that he doesn't want to make it a partisan issue. And they ought to work this out as fast as they can.

HUME: This is not the first time this has been requested, though. And Reyes' committee hasn't done anything.

KONDRAKE: And the Republicans are raising the roof, and saying that this ought to be done. And they have had to make a public case out of it. This shouldn't be.

I mean, Usama bin-Laden does not care whether somebody is a Republican or a Democrat before he beheads them. And this is a threat that we face in common, Republicans and Democrats, and they ought to do what is necessary to combat it.

BARNES: Well, they certainly have enough time to deal with Attorney General Gonzalez and all he did or didn't do as the president was exercising the right he has clearly to name and fire U.S. attorneys.

HUME: We are going to come up with that next. So let's take a break here panel. Democrats call for a special council, or prosecutor, to investigate alleged perjury by Attorney General Gonzalez. We will talk about that next.


UNIDENTIFIED MALE: We are asking the Solicitor General to appoint a special council to investigate potential perjury by the Attorney General. Earlier this week Attorney General Gonzalez testified before the judiciary committee, and his inability to answer simple and straightforward questions was just stunning.

HUME: Some Republicans would agree with that last assessment about Attorney General Gonzalez's ability to answer questions in a simple and straight forward way. However, the question is, has he committed perjury? And if he has, or is alleged to have done so, would it be wise for the Solicitor General who is next in command, and therefore, because, obviously, Gonzalez wouldn't be ruling on whether a counsel would be appointed to investigate him, would it be wise for the Solicitor General to appoint a special prosecutor to investigate?


BARNES: Well, in the first place, they are not going to name one. The boss of the Solicitor General is President Bush, and he is not, particularly after the bad expense about the last special prosecutor, and they are a bad idea in the first place.

HUME: Do we know this, or do we just sense this?

BARNES: I sense it. But I sense it strongly, let me put it that way.

There are three areas that were cited in the letter that Schumer and these three others Democrats sent to the Justice Department. And a couple of them are kind of fuzzy, and whether they were discussed at a meeting, some other intelligence program, and what happened at a meeting when Gonzalez was at an aide, who was saying she wanted a transfer, and what they said about the U.S. attorneys' firing, and so one. It's all fuzzy.

There is certainly nothing in any of these charges that is clear perjury. It does show you, though, with the hair trigger suddenness in which they are demanding a special prosecutor, criminalizing the whole U.S. attorneys affair, or at least attempting to, it shows you what Democrats are up to, and why they will jump on any discrepancy, and then try to criminalize that, and get a special prosecutor, or something, to carry out a prosecution.

I mean, this should be more evidence for people like Karl Rove and Harriet Miers and others who have refused to testify under oath why they are correct in doing that.

LIASSON: I agree with Fred. There is not going to be a special prosecutor appointed in this. And we have had a bizarre standoff where Gonzalez has probably lost the confidence of almost everyone. As you said, there are few Republicans who would say they still have confidence in him yet, because he really answers to only one person, he is still there.

And so you have got this weird standoff. And what are the Democrats options to escalate this? Not much except for what they did today, calling for a special prosecutor. There is nothing they can do to get rid of him except for continue to have him up for hearings, and get him all snarled up, as he is so happy it oblige them, with his answers.

But I think the standoff will continue until the end of term.

KONDRAKE: Schumer clearly, as Senator Specter said, was acting precipitously and politically.

LIASSON: And Specter is no fan of Gonzalez.

KONDRAKE: Exactly. But what I think is interesting is there is a conflict between, apparently, Gonzalez and the Director of the FBI, who said that the program discussed wasn't--an NSA program that had been much discussed, that seems to be the terrorist surveillance program, which Gonzalez saying no, no, I wasn't talking about that, I was talking about another program.

Now, there is one other point that very few people have raised, and that is--

HUME: Do you think that is perjury?

KONDRAKE: I don't know whether it is purge or not. I don't think there ought to be a special prosecutor appointed, I think there ought to be a clear examination of the record, and lots of closed door testimony--

HUME: But it is all this classified stuff, right?

KONDRAKE: That brings up another point. Back in 2004, there was a program, and it sounds like it was not the terrorist surveillance program, that was so controversial in the Justice Department that the Deputy Attorney General threatened to resign. They could not get the Attorney General to sign off on it, and it sounds as though even the Director of the FBI had his doubts about it.

Now, these are not pussy cats, these are not ACLU types, right? So something that the administration wanted to do was over the line.

I don't want to know what it was, because it is still highly classified, but somebody ought to want to know what it was, and be a check on the--

BARNES: Yes, but that doesn't substantiate a perjury charge.

KONDRAKE: It does not.

BARNES: The word for this is "confusion," not "perjury."

HUME: And I think we would all agree that confusion is something to which the Attorney General seems subject.


HUME: And that's it for the panel.

But stay tuned to find out why doing a political debate with YouTube carries some risks. That is next.


HUME: Finally tonight, part of the YouTube/CNN debate the other night which you might have missed.


UNIDENTIFIED MALE: Our first question tonight is from Zack Kemp in Provo, Utah.

UNIDENTIFIED MALE: Hey I'm Zack from Utah. And I have a gently used IKIA shelf, which I'm selling for $25. And my question for the candidates is, do any of you guys want to buy this?

UNIDENTIFIED MALE: Congressman Kucinich.

REP DENNIS KUCINICH, (D) OHIO: The answer to your question is "yes."


HUME: The man knows a bargain when he sees one.

And that's Special Report for this time. Please tune us in next time. And in the meantime, more news is on the way. Fair, balanced, and unafraid.

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