sees the economy, and the future of america. >> we will get growth in the future. i mean you've got american genius of capitalism working. it creates growth over time. i mean, that is not primarily a function of-- a lot of times they talk about growth when they mean to create inflation. so i don't worry about the united states growing per capita gdp over time. we'll have periodic recessions. this was a particularly strong one because it was a particularly wild binge. i mean it was something. and we're paying for it. >>ose: we conclude this evening with the story of anwar al-awlaki who was killed by a drone attack in yemen. joining me david ignatius of the "washington post", eric schmitt of the "new york times" and john miller former assistant deputy director of natiol intelligence. >> early this morning yemen time he was targeted by a drone and killed along with a key other younger memr.

these two were important in part, charlie, because this is not your grand dad's al qaeda. these are young, charismatic, english-speaking, internet savvy. sort of inspitional figures for a younger generation. and that's part of why it scared the u.s. counterterrorism officials. >> warren buffett on america today, and th killing of anwar al-awlaki when we continue funding for charlie rose was provided by the following: a

gitional funding provided additional funding provided by these funder captioning sponsored by rose communications from our studios in new york city, this is charlie rose. . we celebrate this evening, the 20th anniversary of this program, yes, 20 years ago this program began over the 20 years there have been no guests that have been more interesting and more eagerly

anticipated thanarren buffett. his is a fascinating story. his is a name that is known throhout the worldor his extraordinary success as an investor and the parallel success of his company berkshire hathaway. he has been in the news recently because he made a major investment in bank of america. he also announced a stock buyback of berkshire hathaway shares. perhaps the sharpest focus recently has been on fis announcement that wealthy people should pay for taxes. president obama was certainly listening because he included it in his list of tax law recommendations. he called it the buffett le. warren buffett is in new york and we're pleased to have him at this table. not only because he has been such a wonderful guest for us, but also because he is a friend of mine. welcome. >> thank you, charlie. >> rose: you've announced recently you're going to buy back, or started the process of buying back berkshire hathaway shares. some people were surprised because you had written in your sckholders letter, which is now famous, i don't do that. >> well, i haven't said that. i have said that you should buy back your shares only

when you think they're selling at a does count to their intrinsic value. and since intrinsic value is not a precise figure, it's a guess. >> rose: part of the reason you said that is because you don't necessarily think that people without buy back shares simply to improve e stock performance. >> sometimes they are trying to prop their stock. who knows what their motivations are. there's only one motivation for me. if i think i'm buying our businesses at a discount. i think then it helps all the shareholders. now i also think youhould tell the people before you do that, just like if you are my partner, and i want to bu- you want to sell out, if i think i'm bying it from you too cheap i ought to tell you that. now with the stock exchange it sets the price. and every now and then it happened about 10 or 11 years ago, i thought berkshire hathaway stock was selling demonstrableably below the value of its businesses. and we announced we were going to possibly do it 10 or 11 years ago and the stock went up and we couldn't do it. but this time, if the market is weak, we could buy a lot

of stock. but what i say is we'll buy the stock if we're think we are doing a favor for the people stay approximating in the boat. >> rose: because you think intrinsic value of your businesses, those that make up berkshire hathaway is undervalued. >> it's higher than the price. it's clarely higher than the price. it's not a precise figure but it's clearly higher than the price. >> rose: you offered book value plus 10%. >> i said that is the limit of what we will pay. the market will determine what we pay. yeah. so i mean if the market tanked, you know, ne week we'll say, berkshire could be a lot cheaper tn that. and yoknow, i'm not opping the price in any way. but i'm just setting the outer limits of what we will pay. because above that, i probably still think it's cheap but i don't-- i want to be demonstrably eap i want to be doing the shareholders a favor by buying the shareholders by buying in the stock, that they are getting. >> rose: so you have what, 47 to 50 llion in cash. >> it'down some, we spent some, charlie. but weave plenty of cash,

put it that way. >> rose: is there a limi of how much you always want in reserve in case an incredible opportunity comes . >> we go below 20 billion in consolidated cash. >> rose: so you could be prepared it to spend more than 20 billion to buy back your stock. >> we can spend a lot of money depending over how long a period because we're earning money all the time. as we earn money, the money comes in. there's noime limit on it, there is no dollar amount limit on it. there is this limit in terms of valuation and there is this limit in terms of maintaining a given level of cash. >> rose: it is said some people think that the asset value of berkshire hathaway is close to 130 to $150 a share for the class a stock. >> yeah, closer to 1,000. >> rose: right. >> i don't know what the number is i know it's more than 110% of book. i mean we've got some wonderful businesses. we're got some that aren't wonderful. but some of the big ones, particularly are really very, very good businesses. and they're worth a lot more than they were when we

bought them. >> rose: why don't you sell those that aren't so wonderful. >> i just don't do it i don't do it. if i have ten kids, one of them is a little slow, i'm not going to put him up to adoption. >> rose: that is the way you feel about these businesses. >> i do. unless they promise to have permanent losses over time or major labor problems. i put that in my annual report for 30 years. i just, people come to me to sell their busins to me. they work hard for me after they sell their businesse you know. everything doesn't work out perfectly in life. and i'm notbout to dump somebody because, you know, it's subpar. if it is a disaster, we have to get out of it. >> rose: this is a signal from the sage of omaha that there are not a lot of investment opportunities out there. >> both segments are wrong. we actually get the paperwork cleared, i guess just yesterday morning. >> rose: for the process. >> so we actually bought some shares. now whether we buy a lot of shares or not will depend on the price. but we intend to buy shares, the paramets we laid

out are correct. it hasothing to do with what-- you know, if i live to be 100 and keep m marbles, i hope i'm still around. >> rose: well, in fact, in the last quarter didn't you spend about $4 billion on common stock. >> in this, actually, yes, september 30th being the currenquarter. the third quarter we spent a necessary of 4 billion, roughly. >> rose: and have spent about $8 billion so far this year. >> that's almost exactly right. >> rose: which suggests you are buying stock because you believe in america and you believe in these companies. >> they are american companies. they do business, some, a fair amount abroad but they are american companies. and incidentally, we are investing $7 billion-- . >> rose:ou make that point. in terms of infrastructure and -- >> when we buy stock, our own stockback, we're tensifying our interest in a whole bunch of postly american companies. our shareholders will own a greater passage of-- percentage of b nsf, geico if we buy back shares.

the pie will be as big but there won't be as many slices. >> rose: here is what george soros told cnbc last week. rather than the u.s. flipping into recession in the future, i think we are already in it, michael spence and paul krugman said there was 50% chance of another he res. -- recession. you don't buy that. i don't buy it. i'm looking at 70 some companies and i will tell you that a railroad carried 193,000 cars last week. and i can tell you in terms of caddie sales and jewelry sales, three different jewelry operations, four dierent furniture operations. >> rose: there all up. >> yeah, they're not gallopping but there has been no downturn. there has been no downturn, you know. except iold you before, home construction is flat on its rear. >> rose: when ist going to turn around. >> it's going turn around when weapon's created more households than houses that inventory of houses gets downo shall did --. >> rose: is there a macal way to do that, to create

more inventory. >> the way to do it is hold down creation of new hses. we have about 500,000 plus housing starts going on, in houses, apartments. >> rose: the way to do is limit the supply. >> if we create more households than houses, we will bring the inventory into balance. i don't know when but we did just the opposite sixor seven years ago. we created more houses than household. surprise, we had too many houses. it is really, it is really a question of supply and demand. and we created too many houses relative to households. a few years back, now we're creating more households every day than we are houses and we will come back into balance. i don't know when it will be. but when it happens, you know, when we get bacto a million units a year, or something like that, i think will you see unemployment rates drop significantly. >> rose: perhaps to 6%. >> yeah. >> rose: and you will see the full economic recovery at that time. >> you will see, certainly see something much closer to it. >> rose: do u believe it will get back to where it was prior to 2008? >> well, to some extent-- .

>> rose: because- >> we hadn unsustainab binge because we were creating among other things creati too many houses and selling them to people without couldn't pay for themnd all of that. so we were-- we were in the bar drinking, you know. i'm not sure we want to go all the way back in but we want tget over the hangover. >> rose: but at the same time you recently made a significant investment in bank of amica. >> correct. >> rose: and some say that part of the reason that they are having a difficulttime is because of the amount of the mortgage lending that they are responsible for. >> they made a lot of stakduring the binge as did a number of other financial institutions. you know, including the two run by the federal government, fannie mae and freddie mac. but they made mistakes. you know, i made mistakes. and the present management is paying the price and unwinding some of the sins of a previous management.

and that takes a lot of time. and it's not done yet and it will take them a lot of time. but that doesn't bother me. that's just part of business. you do some dumb things and then you work your way out of them. >> rose: time has been your best friend. >> time, yeah, right. i try to, you know, geico got in trouble in the mid 70s. american express got in trouble in the mid 60s. those are two of the greatest investments i've ever had. and you had to look out five or ten years and say-- and that's what you have to do with the economy. we have a wonderful economy in the united stes over time. and it will come bk just like geico came back, erican express came back. bank of america worked its way through its troubles. it will be painful. there will be lots of adlines for a long time. you can't do it in three or six months. but you have a fellow working at it. he didn't create the problems but hs working on solving them. and you have a very, very fine business underneath. >> rose: one of the arguments between republicans and democrats in this upcoming political battle is the balance

between spending cuts which treadeficit in part and a growth strategy that builds towards a future. how do you figure out where you ought to be on that. >> well, there's-- we will gegrowth in the future. you've got american genius, genius of capitalism working, to create growth over time. i mean that is not primarily a function of-- a lot of times they talk about growth when they mean to create inflation. and so i don't worry about the united statesrowing per capita gdp over time. we'll have periodic recessions. this was a particularly strong one because it was something and we're paying for it. >> rose: do we need something to stimulate the economy to create growth either on the part of the federal gornment or part ofhe federal reserve? >> well, we've been stimulating like crazy, you know, we've been running a deficit cle to 10%.

of gdp annually. that a lot of stimulus. it is stimulus. and we hav given monetary policy, you know, we put our foot to the floor and driven interest rates to 0 and piled up reserves at the fed. so. rose: but there is some debateithin the fed as to what might be done, where the focus will be. >> i don't think that will be too important. i mean the important thing is what the fed did three years ago. mean if they played it wrong, then we would be paying a huge price for that. but they've used up most of their-- the chairman will probably disagree with me. but in my opinion, monetary policy has been played out about as r as it can. and it's been useful but i don't think there's a lot to be done there. that's going to change the course of business recovery. >> rose: he thinks there are few things can do. >> he is doing this operation twist and trying to bring down longer rates. we've got low rates. interest rates are not the

problem inhe economy now, and short rates are nothing and long rates are pretty darn cheap. so i don't think anything further than that direction is going to have a big impact on the economy. >> rose: i just talked to some chinese businesspeople in washington meet the secretary of ste and treasury and came to the table in washington. and they were worried about inflation in china. >> yeah, well, you know, they'll have some. and they mayave a lot sometime i mean any economy that,well, look at what we've had over the years. i mean a dollar, when i was born, is worth about 6 cents now. so wve had a lot of inflation, you know, it's something ithe area of 15 for 1 since i was born. if you had told my dad that in 1930, i'm not sure he would have had me. he would have thought the world would come to an end. and things have turned out pret well. during that same period real gdp per capita has gone up 6 for 1. so i'm against inflation-- i'm for

temporary inflation, but en you have a booming economy, you know, you may well get some and sometimes it may get out of control and sometimes you have to do something about it. but most of these things aren't the end of the world, charlie, welways think they are the end of the world. but you know, as i mentioned before when i wasorn in 1930 that was the high end for the school year, went straight down to 41. i mean my mother must have felt guilty as hell, witnessing what had happened. >> rose: little did she know. >> but 25% unemployment all kinds of things. this country comes back t came back from what happened at pearl harbor. it comes back from all kinds of things. and it's coming back now. >> rose: so what role would the buffett rule play in that comingback. >> well, i thinks that it's very important in terms of in terms of getting people to make the kind of sacrifices they're going to face. i mean we're going to be telling pele tt some of the promises have to b modified. and these are people that

don't have lots of margins of safety in their own affairs. they're not like me. they can't just sell a few stocks or something like that, if the payment doesn't come through for this or that. so we're going to be asking the american public as a hole to participate in a belt-tightening when we bring down expenditures from 25% of gdp or thereabouts. and i think that when you have a very, very small group of ultra rich people who have incomes of a million dollars or more, who are paying very low rates ke i am, 17% in my case, but i have a number of friends, i have talked to a lot of people in the last few months. and a number of them are below my 17% even though they are in this-- some are in this famous 400 category, their average is 220 some million llars of come per person. that is some kind of income, isn't it. >> rose: because there have been-- they pay capital gains rate. >> that is a lot of it. >> rose: that is 15%. >> but dividends are 15%. >> rose: right.

>> and they, the ultra rich who are paying really subnormal taxes, and there's a lot ofhem. but there is a lot of them thatren' but there are a lot of them that are, i think can best-- i think it's a terrible mistake to ask 300 million amerans to tighten their belt and ignore that group. >> rose: here's my point. is it because of the economic value of ing that per se in terms of the more revenue going into the irs or is it because the essential fairness of the american system isan important point if you are having the population at large, you have to make damn sure they think that the country is operating out of a sense of fairness. >> it's both. but the second point is the more important than the first point. i would estimate there might be 20, if you put a minimum tax in it would affect a portion of the ultra rich. that might raise 20 billion a year byome rough estimatesment i don't think those are crazy estimates. now 20 billion a year seems lauck a drop in the bucket when you have a deficit of a

trillion or so. but 20 billion a year is still $1,000 each for 20 million families. i mean and you've got to get the revenue someplace. so one way or another, i mean who knows how they are going to ask everybody to sacrifice. but if you have a choice between asking million families to come up with fore$1,000 each, or hitting 50,000 or so people who are paying very subnormal taxes, on ver large incomes, i woul say that, you know, i would rather get the 20 billion from the people that are like me. >> rose: and when john boehner says that the president, when he buys this idea is practicing class warfare. >> yeah, well, the class warfare has been going on. i mean if you look at these 400 top incomes that have gone from 40 million on average per person-- per family up to 200 million, their tax rate has gone from 29 and a fraction down to 21% so there has been class warfare going on. it's just that my class is wing. my class isn't just wing, i mean we're killing them.

it's been a rout. >> rose: you've got everything on the board. just look at america today in terms of the ultra rich. they have not suffered through this. listen, and incidentally, if somebody is making 5 tore 10 million dollars here, 20 million, 30 million dollars a year as a c.e.o., athlete, whatevert may be, and they're paying the normal tax rate, they are in the mid 30s or something like that, i have become convinced after talking to a lot of the superrich who talk to me about is, that the best way to do is is this minimum tax of making sure that everybody at those levels, million and over, is paying in the mid 30s. >> rose: how many people will be affected by this, if you use the million dollar as the point of reference. because is it everybody that makes more than a million dollars. >> no. >> or a select group. >> no, there are twoways of going it. one is to do it by rate in which case the wol group would be affected, be about $250,000, just raise the thing five points or something li that. i have-- and that's,hat's an acceptable way to go at it. i have talked to a lot of

very rich people and i think the fairer way of doing it is to take the people that have found ways to bring their rate down to the 15% or 17 in my case, some of them i know arebelow 10, and just have a minimum tax for them. thatould hit about 50,000 in my guess. and i don't have any great figures on it, it might be 70,000it might be 40,000 but it won't be 10,000. it won't be the whole group. might hit 50,000 of the 2 50,000. and they wouldbe brought up intohe 30s in terms it of their tax rate overall. >> rose: so what percentage of your income is taxed at 15% or 17%. >> a lot. >> rose: because you have some ode income. you pay yourself $100,000 a year. >> and i have some interest and that sort of thing. but-- . >> rose: that say small percentage of your income. >> it depends on the year, charlie. there have been some years, there were years a few years back, for example, when i made a lot of money out of owning freddie mac and fann mae mortgage pass-throughs. and i got a lot of interest income on that but i also

endeup making a very large capital gain on it. and incidentally that money had not been taxed before, at some corporate level. i read these arguments about that, and didn't apply at all. i made a lot of money a few years back off a bunch of korean stocks, those companies dinot pay any s. income tax. >> rose: what do you think of this idea that you need to change and have tax reform because if you do companies will start bringing moneyback in that are withholding overseas d doing something with it overseas and not bringing it here because they think they're double taxed. >> well, the's-- they would like to be able to repatriate money. >> rose: right. >> that was taxed at very low rates in some various places around the glob some sort of legitimate n rms of whether they manufacture, sometimes sort of artificial and they would like to bring that back as ey were allowed to , i don't know, five or six or seven years ago there was a one time repatriation. but we own stock in some of those companies shall incidentally, that have a lot of money that they would call trapped over there. if they are allowed to bring

it back and pay very little tax on it. they are going to want to keep earning money over there. >>ose: you don't think they are going to bring it back. >> well, if they were allowed to do it without paying any tax or a% tax they would bring it back. but they say that would wonderful, because we would be bringing it this money back to the united states. >> rose: and investing. >> but what it would mean is my g, we can earn a lot of money over there at 5 or 10% tax rates, let's keep bringing it backment we ought to keep trying to make more money and build more plants over there. so it cuts both ways. it is an incentive, if you come up with a low repatriation rate t is an incentive for people to try and put more of their production and make more money abroad because that brings downheir overall tax rate. >> rose: corporate america is spending on a lot of cash and they say number one it is because of regulations and ey don't have confidence iwhat the stocks, what the tax structure is going to look like. do you believe that? >> no. i lieve that they can't find good projects that they like. and that they don't see the demand f certain things. i'm to the going to build

more carpet mills or something like that or brick plants if i don't see where i'm going to sell the carpet. >> rose: we're talking about a whole lot of corporations sitting on a lot of cash and they say they don't have confidence in the future and that's why the do it. and you say what. >> well, i've got a lot of confidence. they ought to have confidence. they're earning very good returning in most cases on tangible net assets. american business are doing fine. >> rose: could be better off if they were investing money and hiring people. >> but they have to find the right projects. and do their credit i don't know of any companies that see intelligent things to do with the money whether it's here or abroad, and that have the money that are sitting there not doing it. >> rose: okay, so you are basicay saying the problem with the american economy right now is corporate america which creates private jobs is not seeing a lot of intelligent things to do with the money. >> yeah, there's a lack of demand. >> what does that say. >> as kanes would say, we say you got to stimulate a lot more because only government shall did --.

they may be right but we've done a lot of at. we've already seen a lot of that. so i-- it would have some effect in my view but i think the efficacy of it, once are you off the stimulus of 10% of gdp to start with, i think-- it is questionable. >> rose: do you thinthe absence of that kind of demand and intelligent opportunity to spend the money is in part because of the administration has been in charge that owns this economy now? >> i think it's a funk of coming back from a brutal-- we talked about the hospital. we had an incredible bubble. i mean, it manifested in all kinds ofays. >> and focuses aund housing. you had $22 trillion in residential housing. at the peak houses were worth, that was a huge part of the american public's net worth. so we had a body blow and we are coming back from that. and we will see more things to do. >> rose: so you are saying you think and you are supporting the president and you had a fund-raising event

here in new york because you believe he and his administration have made the right decisions for the economic growth of the country. >> in general. >> rose: you see no specific example that was so egregious that you cou to the support the president. >> that's correct. and i will tell you, charlie, we're making rail cars, this is not this is a company called marman. we make tank cars. we lease them frequently. we're down in alexandri louisiana. i think we've increased production three or ur times in the last 12 months. we're employing a lot more people in alexandria louisiana building tank cars then we were a year ago and it's been steby-step it's increasing. we're seeing utilization of cranes in terms of oil fields. but we see it all over -- >> but what makes you different. because the conventiona wisdom is that most of wall street that supported th president last time is not supporting tresident this time. jamie diamond included. these are people who lk at the economy, the same

economy. >> jamie, i don't think jamie would tell yo the economy is not getting better. in fact i think i've seen something where he specifically said-- . >> rose: and the bank is getting better and he's happy with the bank. >> but he is-- . >> rose: he'not supporting the president as far as we know. >> we don't know. >> rose: but a lot of wall street, at least you will accept the idea that a lot of people look at the same evidence and say we don't think the stewardship has been so good and we don't believe that the economy is as good as you do. and they think regulation and everything else is part of the mix. >> yeah, i would say this. most of them are in businesses that are doing pretty well. they may not be doing as well as in the binge. wall street is to the doing as well, but you take the number of people making a million dollars or over on ll street and you can fill a very large auditorium. >> rose: so they're doing well. >> but they're not supporting the president, are they. >> that's my impression. >> rose: what happened. why have the deserted the president. >> i think some, ere was some rhetori that contributed to that.

>> rose: demonizing of business. >> they felt that. and i think the president felt i got toook at all the things we did for business and they're unappreciative. i'm all that stands behind them and the pitchforks. >> rose: he said that at one meeting. >> yeah, and so wall street certainly doesn't feel loved. and maybe they like to feel loved. >> rose: you don't find that in main street america n omaha. >> well, there are pele-- there's no question, yo know, mary como mayor como said you campaign in poetry and govern in proceeds. and if you think about it the whole act of campaigning is raise people's expectations a once you get there you have to bring them down. >> rose: you essentially are saying that-- you're to the disappointed by this president for the most part. >> i agree with that statement. i'm to the disappointed, no. >> rose: like some. >> everybody has-- . >> rose: you like for him to be supported more loudly, bowles simpson and that kind of thing. >> definitely, listen, any

time you like a preside are you not going to feel 100% about every single thing they do. i'm sure the shareholders of berkshire hathaway don't feel 100% of everything i do. it just doesn't work that way in a country with 300 million people. and strong feelings abo is issue and that issue. >> rose: what about this idea that somehow if we had someone who understood business, who had managerial experience in business, or managerial experience at all, we would have been in a better place, the decisions would have been different. >> yeah, i don't think-- i think if you take the overall group of decisions, i don't agree with that. i think that re given desion might be better here othere. but the decision to make tim geithner was a terrific decision. >> rose: and talk him into staying. >> yeah, well, yeah. but when i puck a good c.e.o., that's a terrific decision. then i don't have to think about that. >> rose: is it possible that you are just different.

that somehow, some way because of your mother, because of your wife, influences on you have made you different, your own native intelligence, whatever it is. >> wel everybody's influenced, whatever it is that you, warren buffett, look at the world differently than most of the prominent businessmen in america. >> well, maybe true i think differently than a very good number of them. but ihave lot that agree with me. they don't agree 100% with me,. but nobody is in total sync with anybody else even if theyre twins, probably. but there are-- i've heard from plenty of people who are very, very wealthy and i have heard from others who were businesspeople who were not that wealy. but that in general agree with what-- they've got a similahope for america. and there's plenty that disagree. >> rose: two things on the horizon. number one is europe. >> yeah.

>> rose: you have i think said you're to t going to be rescuing any banks over there, with any kind of significant investment. you've also said if this thing goes bad, you're in greet fear of what the consequences are. what did you mean? >> well, it's big. and you know, they have tried an experiment which were the imperfections in it are becoming manifest. and the numbers are big. the banks are-- the solvency of the banks are intertwined with the solvency of sovereigns and vice versa. and they have found that well while they melded into a single currenc r 17 countries, they didn't meld the culture. they didn't meld fiscal policies, all kinds of things. so they either have to come closer together in a major way or they have to separate. and. >> rose: give up on the euro and give up on the euro zone. >> and they don't want to do

that and that's understandable. and there's all kinds of-- . >> rose: all they are doing is kick the can down the road. they reallyeed a lot more on the le and they really need to sort of do more at one time to make sure that they have stopped -- >> it is a short road, charlie. you can see the end of that road. they better not give it a good kick or it won't be on the road any more. >> no-- >> rose: what happens to us if it happe, if the worst happens what happens to the ited states. what happens to the global economy. >> i don't think-- i think-- i don't know what they are going to do. when you get 17 them, nobody knows what they are going to do. politics, all kinds of things. but if you ask me the most likely thing that in the end they will decide to print money, which they've got a lot of problems doing because they do have this common currency. but when politicians face almost insuperable problems and it looks like they can solve it by prting money, i think they will do it.

i think they will, to the extent they ed to, th will help the banks but i don't know what-- i don't want to-- that's not a prediction. that's my best guess. >> rose: but the hours late. >> it's late. it's very late. and it's very late. their banks were encouraged to load up with soften debt. because there were no capital requirementsgainst them. and it gave them the chance to leverage further and increase the earnings per she so they can ld it up with them. they thought they were all good credits because they all belong to this uon. and they're finding out that isn't true. >> rose: what did you see a year or so ago when you got out of european sovereign debt. >> i saw where the can was going. but did you see it, and other people didn't e it. >> no, i think people-- . >> rose: saw it but didn't -- >> it was-- it's a little like our own situation back in 2006 and 7.

everybody sort of saw it but you kind of thought well-- . >> rose: i don't know that they all saw it i don't think they understood it. i think people didn't understand it. you mean the subprime crisis or you think i'm wrong. they saw it. >> i think people had kind of an uneasy feeling, a lot of people. they were like cinderella at the ball. >> . >> rose: as long as the music is playing you have to keep dancing. that was a classic-- that's right. >> he didn't think it was midnight. >> it is-- he's not the only one i made a lot of mistakes in that respect. i saw certain things taking place. but i didn't take strong enough action in many cases. i am as guilty as anybody. >> but in terms of europe, i think it was clear, well over year ago that we were heading for a cliff. i mean you just can't have

people tied to a currency who have lost the abili to print money behaving recklessly. it's going to come home to roost very quickly. and when those bond-- when bonds of those countries are held in huge extent, it's a bad situation. and it won't end the world, charlie. rope isn't going to go away. europe will be stronger ten years from now for sure than it is now. i don'know how much agony it will go through in between. there will be a great market for goods. >> rose: but is the answer austerity. >> i don't know. >> rose: that's the question. >> i mean, it's always great to say the other guys should get austerity. that is the problem they have. but it isn't a common austerity. i'm sure austerity will take care of pie bonds. >> rose: the germans have a point, don't they. >> sure they have a point, sure they have a point. >> rose: people are beginning to say maybe a flat taxs not such a bad idea. >> a flat tax is, you know, that is not progressive. >> rose: i know. >> no, i mean-- you are going to have to raise some more revenue-- revenue than

we are raing now. we're going to have to bring it up to 18% of gdp or 15.5. we're going to have to bring spending down. >> rose: why don't you convce the president to lay out what he would do in terms of entitlements. >> charlie, i have never lled the president my-- in my life. >> re: you never called. >> no. >> rose: but he calls you and ask yous you to speak, he lissities your advice. you come to the white house because he wts to hear what you he to say. he doesn't bring you there to tell you what he thinks. he wants to know what you ink. >> he wants to give me a new tie, actually. >> rose:hat'true. >> but it-- . >> rose: wouldn't it be better if he laid out for the political discourt-- discourse in washington, if he laid out where he thoughts cuts would be appropriate. >> well, looking back, but this is easy to do, the looking back, he probably should have prepared the american public somewhat better for what lay ahead. i mean we were not going to-- there was to the going to some magic wand when he came in in 2009. and he did a lot of very correct things. i admire him enormously and

the actions taken. but to the extent the people thought that was going to cure everything in six months or eight months or ten months, that was a mistake. >> rose: as you know standard & poor's downgraded their evaluation of america mainly because of political dysfunction. >> right. >> rose: at least that is what they said. >> do you know how we stop this political dysfunction? >> that's the $64 question. we've got people, we've got too many people in washington and the american public understands this who are thinking primarily about you know how do we-- e ore guy from lookinged goo. i want them both to looked goo. i want a government that looks good. and it's always, there's always been a lot of that. but i think it's just extraordinary. and the debt ceiling situation you know, just played it out in technicolour and stereo fonic sound for themerican public and the american public feels that washington

just is in some ways dysfunctional because they want it to be dysfunctional. >> rose: do they think they win by dysfunctionality. >> well, if you can be in either party and convince the american public who are not feeling good about how their country is going, if you can convince them it's the other guys fault. >> rose: you would think the american public would rebel against that if they can find out who they thought shows the least regard for their own sense of well-being. >> i would really hope so ani think there's a possibility of that. but how this all plays out, i mean, i think that there's-- i think there are plenty of people in both parties, this is not limited to one party, who are thinking that things are going to look bad over the next 12 months, at least be perceived as bad and the unemployment rate won't fl that much and so on. and i think they think how do we lay this on the other guy's doorstep. and that's-- . >> rose: so therefore i will t vote for something that might improve the economy of the country because i don't want to see the other guy do

well. >> it may not be quite that dramatic but it's that impression. and i think that's why people have the feeling about washington that they do. >> rose: but the problem is that they may very well be saying a plague on both your houses. they're certainly saying that about congress. >> yeah, i think they feel that way about congress. and i think they probably have a ptty good reason to feel that way about congress. >> rose: do you think we need a third party. >> i just don't know how that works, you know. >> rose: it's great to see you. >> it's great to be here. >> rose: a pleasure to have you re. >> and anoth 20 years to you. >> rose: we continue this evening with the lead story of today, american born terrorist anwar al-awlaki was killed in a u.s. drone strike in yemen. was the leading figure in al qaeda's affiliate in yemen. awlaki been linked to many terrorist plots in the united states and europe. it also silled sam irkhan an editor of an al qaeda magazine, he was also an american citizen. this strikes another blow to al qaeda five months after

bin laden was killed. president obama stock about the killing today in articleton, virginia. >> the death of awlaki is a major blow to al qaeda's most active operational affiliate. awlaki was t leader of external operations for al qaeda in the arabian peninsula. in that role he took the lead in planning and directing efforts to murder innocent americans. he directed the failed attempt to blow up an airplane on christmas day in 2009. he directed the failed attempt to blow up u.s. cargo planes in 2010. and he repeatedly called on individuals in the united states and around the globe to kill innocent men, women and children to advance a murderousgend. the death of awlaki marks another significant milestone in the broader effort to defeat alqaeda and its affiliates. >> rose: joining me now from washington david iatius of

the "washington post", eric schmitt of the "new york times" and former assistant putyirector of national intelligence john miller. i'm pleased to have the three of them here. eric schmitt has a book we all should know about called counterstrike, the untold story about american's secretary campaign against will quitea. i begin with david ignatius to give me the sense of what happened here and how did it happen, david. >> over the last few months the u.s. has been focusing surveillance in yemen trying to locate al-awlaki so that he could be attacked by a drone attack or in some other way. he was put on a list, the last year, of individuals who the u.s. regard as targets under our counterterrorism policies, that we can discuss the legal mifition of that later, perhaps. but he's been on that list for quite a while. they've beenooking for actionable intelligence that would allow them to go after him. and they got it he was moving north in yemen away

from the southern areas where he had been based. his movementnd the abili to collect the signals u.s. officials tell me is a sign that if you ar you going to be active in al qaeda you have to surface enough that we can then target you. in other words, it is a self-frustrating process going on. >> rose: how big a loss, eric, to al qaeda. >> it is a big loss, charlie for two reasons. as david just said awlaki was one of theirhief prop gandist to the english language world. he had developed quite a followinparticularly in the united states where american officials, law enforce. officials were growing increasingly concerned about his ability to radicalize americans over the internet with his very appealing on-line videos. but more than that, and the reason he was really targeted here was because of his increasing role as an operational planner. he was the guy who helped prep and train the young nigerian man who tried to blow himself up aboard a commercial jetliner over detroit in christmas of 2009. he was the one who really

helped inspire the creative bomb maker that this al quitar branch in yemen has to pack explosives in printer cartridges ten months later and smuggled them aboard cargo planes that were des tinned for the united states. both those plots were thwarted but it raised the alarms that again, this individual was becoming a more and more important figure in this branch of al qaeda that american counterterrorism officials say is probably poses the most direct and immediate threat to the united states. >> re: and who cass samir khan. >> samir khan is an american born, grew up in north carolinand new york city. and he was the itor oan on-line english an gauge magazine called inspire. they have come out with half a dozen issues so far. anit's basically a very slick publication that's again appealing to an english language audience, particularly young audience. and basically it offers not only articles that are inspirational trying to get people to go and create, go

to jihad but it's very practical tips of how you can create a bomb in your kitchen, for instance, if you needed to. and go out and carry out attacks against americans in the western-- in the west in general. so it both has an ideaological component and they're trying to inspire a new generation of jihadies particularly on-line but it's also got a very practical value to it as well that concerns counterterrorism officials a great deal. >> rose: john miller have been invved in antiterrorism activities with the lapd as we as with the fbi. tell me who he was, awlaki, and in a sense, give me the kind of journey he took from the time he was in california until he moved south and what he did,nd then goingo yemen and what opportunities were there for him to go a different direction. >> well, anwar awlaki in the beginning is a bit of a

puzzle. in the end, n so much. heree is, as eric and david said, relatively young. he's born in 1971. torrow would have been his birthday. born in new mexico. his parents were teachers. he h attended college in the united states, an engineering student. but he became an imam atsings in california and in virginia. and of course the lightning rod piece there is when three of the 9/11 high knac knack-- hijackers were among his followers in california and then turned up again in virginia, and an awful lot of investigation, first his alleged connections to hamas fund-raising is even before 9/11. and then rater his connection to the 9/11 hijackers really dell of the into was he part of their inoperation, a support network, did he have foreknowledge. and know real clear answer ever emerged there. the intensity of the investigation and the pressure pushed him out of

the country to yemen whi he was still the subject of an fbi probe. and in yemen he was locked up. he was put in the prisons of the public security organization, subject to the conditions there, which can be quite harsh, as well as the interrogations. and th thrown into the mix, with people who were quite certainly al qaeda people, the people who brought about the s cole bombing a the people without were forming al qaeda of the arabian peninsula as it relocated from saudi arabia to yemen. and awlaki, if he wasn't a terrist leader before he got in there, that was ceainly his college and then his graduate school because he certainly was when he got out. >> rose: how did he use youtube for example. >> i think if you look at awlaki, what you see is the moment where terrorism and the democratization of television crossed paths there, you know, osama bin laden had to do interviews

on cnn with peter berg, and on abc news with me to get out on national television in america, until they figured out the magic of youtube and the idea that they could post their messages. awlaki really embraced that. and he shows al qaeda, al qaeda learned an important less from him. which is the messenger often transcends the message. he had charisma. as david said he ske in clear, unaccented english. he understd the western culture. and he didn't do the fiery fist shaking sermons of iman al-zawahiri which lacked soul or meaning, just kill, kill, kill, awlaki wld do a tape on taking better care of your house, on being a better husband and family man, another one on being a better muslim. and he would get around very slowly to the kill, kill, kill part. meaning once you have improved yourself to this degree, now it is time to prove wh a really good person will do for their religion and their people. and that message resonated tremendously. charlie, if you look at the stats, we had an average four cases, plots on u.s.

soul from 9/11 forward. once you see awlaki emerge as i youtube star, and radicallization, you see those plots jump from four or five to eight, in 2008, 9 in 2009. more than 10. and this year we're on track to surpass all of those. and that shows by reaching out to the individual, which he could do with the underwear bomber, you can turn somebody, strap them with a bomb and send them on a planement but reaching out to the masses, you can turn lot of peoplehoou never met. >> rose: is this simply, david, because drones have en effective, is it because the military simply is better, with the counterterrorism strategy was both digned and executed. or is it because in some way president obama, these two things have happened on his watch, osama bin laden and

now awlaki has given it an urgency whichhe should be given credit for? >> president obama perhaps paradoxically because he ran as an anti-war opponent of the iraq war has ended up being devastatingly effecte i cal him cort commander in chi. he uses the tools of the intelligence war aggressively and effectively. he's made some very tough decisions. may 2nd raid that-- was that killed bin ladens with a very gutty decision. another part of it, obviously, is a development of these armed drones. they are extremely efficient killing machine. the only way to put it. it's like having a sharpshooter loitering 10,000 feet above a target near, permanently able to watch, wait, discriminate, wait for the ideal momen to

shoot. the drones are such good weapons they can become almost addictive, i think. not just for us but others will see, there is demonstration effect here of how powerful they are. the final thing to say is that our intelligence agencies workin with the special forces have learned to fusin tell against coming from multiple sources and to be extremely efficient in exploiting it, pulling it together, signals, a visual overhead reconaissance. other signates. and then acting very quickly with that fused intelligence. sometimes on the ground, more often using the drones. and so in terms of protecting the country from al qaeda you would have to y yes obama has used all these tools pretty darn aggressively and effectively. >> rose: i would assume that the more important point here is that it's the intelligence that tell you where he is and when he is going to move, eric?

>> yes. >> that's right, charlie. what happened here is you have the refinement of the intelligence that david is talking about. in fact, there was almost a year want by until last may, for instance, where they did not fire anyrones into yemen because there had been a strike earlier. this one by a military drone that killed a deputy governor in an imptant province in yemen. it set off all sorts of political protests and repercussions there, and anti-american protests and up set the very tennuous relationship that preside saul of yemen h with the united stas. so what were seeg he is again a refinement of that intelligence. as david said, the increasing number of surveillance drones flown both by the military and this one is of course by the cia, phone from a secret new base on the arabian peninsula, to give more overwatch into this very troublesome place of yemen where just in the last few months, this al qaeda bnch has taken advaage and exploited the unrest and

turmoil that's going on in yemen and expanded its territory. >> i think it's really worth discussing the legal framework for these drone attacks. the counterterrorism center of eciaas a target list which it compiles. they are typically i'm told less than a couple dozen names on it and those names are generated by intelligence, that these people are specifically linked to plots that target the u.s. homeland. so awlaki got on that list after intelligence surfaced linking him as an operational leader. it's not enough to be a fiery cleric. you need to be tied to actual operations. in the case ofawlaki, because is a u.s. citizen, there is this difficult question of what due process was he given. you know, we don't go out and shoot people even if we have overwhelming evidence that they are industrials-- criminals when they are u.s. citizens. so in the case ofwlaki,

it's said that in addition to this list which was tted by cia lawyers and then by the white house council's office in a careful process, thereas an additional review that was done by the entire national security council including the attorney general. and so the attorney general was brought in and appropriate lawyers from the justice department reviewed this. and so it said there was a kind of secret due process. and i think what people will want to ask in the aftermath ofhis, is that a sufficient proce. do we feel comfortable that someone's gotten, that are you not going to have an adversary process but that th is enough for drones to go out and target that person. it's a very difficult question. final thing, our government has been in a really interesting debate about how as the war against al qaeda's affiliates broadens and moves into yemen and somalia, how broad the targeting should be. should you be able to go after what's called signature targets. not named individuals on a

list. but people who fit the signate. that makes sense on one level but another level it risks why we'ren the war so much more and creating new emies and that isart of what our government has been discussing in the last couple of months. >> rose: thank you, david, thank you, john, thank you, eric. as i said earlier this the th anversaryf this program. we have been on the air for 20 years. it is for me as fresh today as it was 20 years ago when we started with a mission. over the next week we will talk more out what's happened in the last 20 years of this program. we will introduce you to am so of the memorable people who have been on the program. you should knowhat i could not ha done this without you, and i could not have done this without the people who supported the program over these 20 years. i'm deeply grateful then, especially could i notave done it with the people who have worked here with me. my colleagues who do not get the full cdit that i do from making this program what we believe it has become, a part of the global conversation. my special thanks to he vet

vega whoas been with me from the beginning, who is the executive producer of this program. we believe in it and we believe in its mission. and we thank you, for sharing it with us. good night captioning sponsored by rose communications captioned by media access group at wgbh access.wgbh.org

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