DALEY: Well, it's rather unfortunate that the speaker has made the comments he has. The president is still very committed to solving this deficit problem for the future of America. He's looking forward to the meeting tonight to lay out once again his case. He's been saying to the leaders, it is time now to make the tough decisions. In this town, generally they kick the can. Nobody wants to do the tough things. He's committed to do that. He's not giving up on trying to bring some economic sanity to this city, and that's his goal. AMANPOUR: So is he still committed to the mega deal, so to speak? Because this is what has been floated in the last several days that Speaker Boehner says is no longer possible. Will the president continue to push for that? DALEY: The president believes it is time to solve this problem. It is time to give confidence to the American people, give confidence to the markets, to the world. Obviously no one wants a default. We shouldn't even be close to this situation, but it is a result of Congress's, Republican, Democratic, Democratic presidents, Republican presidents who have committed the country to certain bills. They have got to pay them off. This president is committed to bringing economic soundness to this country, and that takes a big deal. A lot of pain politically. Democrats obviously are very upset that the president has talked about pain on their side of the aisle, basically, and Republicans are saying no way will we give tax relief to middle-income Americans. They are concentrated on trying to bring continued tax relief to the wealthy. AMANPOUR: Just to be clear, $4 trillion is what the president will still try to go for, a big deal, or will he try to go for something smaller? DALEY: Everyone agrees that a number around $4 trillion is the number that will send -- make a serious dent on our deficit. It will send a statement to the world that the U.S. has gotten hold of their problems, fiscal problems, and they are moving forward. And it will give confidence to the American people, give confidence that we can then move forward over the next number of years to bring economic soundness. That's the president's commitment. That's what he wants to see. He's going to talk to the leaders again tonight. He's not someone to walk away from a tough fight. This is a very tough political fight, no question about it. But he didn't come to this town to do little things. He came to do big things. AMANPOUR: He came to do big things, you say. It is a big deal, this $4 trillion, and it would require a lot of complex negotiations. Why is it, then, that he came to it quite late?
DALEY: He didn't come to it quite late. Not at all. AMANPOUR: He did come to the actual urgent, aggressive negotiations quite late. DALEY: That's not true. He laid out a budget in February. He laid out in April after Congressman Ryan and the Republicans put their budget forward, which basically changed Medicare as we've known it and the contract with Americans that's been there now for 70 years. He came in, he laid out a $4 trillion plan in April. His message has been repeatedly. We've been in discussions, negotiations. He had the vice president, after meeting with the eight senior leaders in I think it was April, late April, early May. Have a process to move forward. That went up until 10 days ago or so, and then the Republicans decided that they would back out of that. Again, because they are trying to make a statement about the -- their position that no revenue can be in any deal. We're fighting to try to bring tax relief to middle Americans, and that is not -- that's the heart of this debate right now. AMANPOUR: So you're talking about -- the Republicans are saying no tax revenue, no new taxes. Democrats also are saying no cuts to entitlements-- DALEY: No, we're not, that's absolutely true. AMANPOUR: The House. DALEY: In the House, some Democrats are saying, this president is saying it has to be a balanced approach. AMANPOUR: So does the president still call for cuts and changes to Medicare, Social Security? Is that still on the table? DALEY: Social Security is not about the deficit. AMANPOUR: Medicare. DALEY: We've got to strengthen Social Security. Medicare has got to be strengthened. It will run out of money in five years if we don't do something. Obviously, there has to be improvements to it. There has to be at the same time a balanced package. It's not just about Medicare cuts that some people want to see. We've had a contract with the American people for the last 80 years about Medicare. People pay into that. They expect certain benefits. They don't want to see that trashed. It's a difficult time for many Americans. This town seems to get stuck in the politics. You go out in America today, people are concerned. They want certainty, and this president is fighting for them and not for the usual game in this town. AMANPOUR: So, going forward then, what will you be trying to negotiate tonight? Will entitlements be on the table tonight? Will there be any chance with the Republicans of any kind of revenue raising?
DALEY: That's up to the Republicans to decide whether or not their plan is to just kick the can. AMANPOUR: For the Democrats? DALEY: For the Democrats, for this president, he will be, once again, stating his strong belief that in order to bring fiscal soundness to this country, there must be a balanced approach. We all understand that no actions we're going to take right now should be short-term that are going to impact our recovery, albeit slow, and nowhere near as strong as we would like. So there's no attempt to do anything short-term, other than try to bring some relief. We're trying to extend the payroll tax, which is -- give it about $1,000 to each American, to extend that. That will help this economy, help the American people. There are things we can do in this short-term that will bring relief. But this is really -- this debt was created over a very long period. Again, by Republicans, by Democrats. And this is going to have to be solved over a long term. But this is the time to do it. Our president believes that the call to the leaders is to step up and be leaders. A very wise man once said he didn't come to this town to have a big title. He came to do big things. And this president is still committed to doing big things. AMANPOUR: Do you believe that there will be a deal that will avert a default, there will be a deal by the 22nd of July or at least by the 2nd of August? DALEY: By the 2nd of August, there's no question in my mind that the leaders of America will not see a first default, will not allow the first default in the history of the country to occur. I'm confident of that. But this is not just about the debt ceiling being extended. This is about bringing fiscal soundness so that the world and Americans can know that we can solve our problems ourself, and do it in a way that there is shared pain, and there is shared responsibility. And that's what the president is fighting for. AMANPOUR: In the meantime, for Americans, the job situation is really critical. We saw some grim numbers again on Friday for the June numbers. That followed grim numbers of May. Then we were told, on this program and elsewhere, that these were headwinds, they were bumps in the road, speed bumps. Do you think the grim numbers now reflect an unfortunate trend that's developing? DALEY: Well, listen, there's no doubt that these numbers are very negative. On the other hand, there are some positive things out there. You can't have job growth if the overall economy is not growing. I do firmly believe that one of the wet blankets on this economy and on companies, on the system right now, is a question, as to whether or not our political system, whether the leaders can get together, whether they can solve big problems or they're going to just kick the can. If I was a business owner trying to make a decision on an investment, I would have a little concern right now whether this political system -- if you look at the statements of the ratings agencies who have questioned the fiscal soundness of this country, it's about our political system not being willing or able, seemingly, to take on big tasks. AMANPOUR: Your long-standing relations and your history of professionalism here is with the business community to a large extent. What are you saying to them? You were meant to be able to sort of convince them to start investing and hiring people. Instead, they're racking up profits, doing sort of cost-cutting and not hiring. And this is a problem for the employment rate.
DALEY: There's no question that there's a tremendous amount of profit on the company's books. But they are looking to see the signs of confidence for them to invest. Every major company does that. I talk to business leaders every day. They don't have as negative an attitude about the economic situation, that they know it's difficult, that Washington seems to have. On the other hand, they want to see leadership. What I say to the business community is, you complain and whine about the political system all the time. Get involved. Get involved and make the statement about the fact that you need a balanced approach to solve our fiscal problems. It is not going to be solved -- it should not be solved on the backs of those who have given and are having a difficult time right now. AMANPOUR: So given what you say, their legitimate concerns, what is your prediction for employment next month and the month after? DALEY: Well, I'm not a predictor, nor would I be stupid enough to try to guess what the numbers are going to be. I think there's plenty of signs. But whatever the numbers are, positive, we have come – we are coming through the worst economic crisis since the Great Depression. When President Obama came in, there were almost 800,000 jobs a month were being lost. That's the size of Charlotte, North Carolina. Four million jobs have been lost the previous, 13 months before he came into office. This country was in a crisis like very few people had ever seen. And we are slowly coming out of that. Albeit, it is frustrating to this president that it's not coming fast enough. But a lot of that is based upon this dysfunction that seems to be going on in this town, and that gets felt throughout the country, and there's a lack of confidence in whether these political leaders in this town will have the guts to stand up and do the tough things. AMANPOUR: Let me turn to Pakistan, quickly. There's an article in the New York Times today saying that the money is being reduced to Pakistan, some hundreds of billions of dollars. The president came in saying that he would agree to bring Pakistan to the table with more aid. Has that policy failed, and is there a change of policy now? DALEY: It's not changed. It's not failed, pardon me. The truth of the matter is, our relationship with Pakistan is very complicated. Obviously, they've been an important ally in the fight on terrorism. They have been the victim of enormous amounts of terrorism. But right now they've taken some steps that have given us reason to pause on some of the aid which we're giving to the military, and we're trying to work through that. It's a complicated relationship and a very difficult complicated part of the world. Obviously there's still a lot of pain that the political system in Pakistan is feeling by virtue of the raid that we did to get Osama bin Laden. Something that the president felt strongly about. We have no regrets over. But the Pakistani relationship is difficult, but it must be made to work over time. But until we get through these difficulties, we'll hold back some of the money that the American taxpayers have committed to give. AMANPOUR: Some $800 million. DALEY: Yep. AMANPOUR: On that note, William Daley, thank you very much indeed for joining us. DALEY: Thank you. AMANPOUR: And up next the roundtable weighs in on the partisan paralysis that's gripped Washington. As the recession stumbles, will anything get accomplished, on jobs, on the debt? And which party will pay the political price for this gridlock? Lots of questions. And we'll have the answers coming up. - END- ROUNDTABLE 1 AMANPOUR: Back in April, with a government shutdown looming, Republican Senator Kay Bailey Hutchison issued a sober warning. The fiercest fight, she said, was yet to come. The battle over raising the debt ceiling would be, quote, Armageddon. Well, welcome to Armageddon. Washington is now in the thick of it. The clock is ticking, the parties are more polarized than ever, and the whole world is watching. Here with me now, our roundtable, George Will. Democratic strategist Donna Brazile. Al Hunt, the executive Washington editor of Bloomberg News. And ABC's senior political correspondent Jon Karl. Thank you all for being here. George, you just heard what William Daley said. Blamed it all on politics for the collapse, and then said that the president would still go for the big deal. WILL: This is politics. We have two parties for a reason, and they have different views of the proper scope and purpose of government. The Democrats are here with their own litmus test, which is we're here to defend the entitlement structure as it exists forever. The Republicans who won the last election are here to say we did not win the last election for anything other than to shrink the government. They want to shrink both the debt, the deficit and the debt, and the government at the same time. And part of the problem is, I think the American people are suffering Apocalypse fatigue. They've been told over the last 40 years they are going to die from nuclear winter, global cooling, global warming, and they hear now that this is Armageddon. I don't think they believe it. AMANPOUR: But, George, are you suggesting that there's not a big catastrophe looming if the U.S. government defaults? And every economist, including the head of the IMF, not the liberal lending and spending organization, but real sort of serious organizations are really worried. Do you think there's going to be a deal in time? He said -- William Daley said that he thought there would be. KARL: If you talk to Republican leaders on the Hill, leaders, not rank and file, they say there's got to be a deal. It's simply unthinkable that there won't be. But the Apocalypse here is that we're spending more than 40 cents, more than 40 cents of what the government spends is borrowed money. You've got to have a deal, and any impartial observer knows what that deal has to include, which is some revenue increases and some cuts to the growth of entitlement spending. That was the direction they were heading in. And the very forces that got us into the mess in the first place made it impossible. AMANPOUR: So Donna, if the president, and he's floated the idea that he's willing to look at entitlements, which is what everybody says also has to be on the table, I suggested to Bill Daley that the president was late to the actual hard negotiations, and he obviously pushed back on that. But he has been sort of pushed into this debate by hardball Republican tactics, is that, on Republican terms right now. BRAZILE: Well, there's no question. By coming into the debate at the time the president showed up, the Republicans had already framed the narrative, and it's cut, cut, cut. Well, we can't cut our way back to prosperity, nor can we cut our way to creating the kind of jobs that we need to sustain us in the 21st century. Here's the problem. The Republicans get cold feet every time you talk about raising revenue. Every time you talk about closing loopholes. Every time you talk about taking away something from the wealthiest Americans. Democrats get cold feet when you talk about entitlement programs. George, every two years, or every year we have a budget debate. That's where the partisans can come in and pick their sides and do this posturing, but this is about the full faith and credit of the United States of America. And we should not play political games with something as serious as risking default. There's one thing I worry about, and that is our credit rating. Moody said last month in June, if the United States -- you know, the politicians don't get their act together, they are threatening to reduce our rate. That will have serious implications for us in the future. AMANPOUR: For each and every individual American, because interest rates will go up, unemployment will go up. We'll hear from Christine Lagarde on the global ramifications of this in a month. But, Al, so where does one go now? If it's just politics, if it's just short-termism, if the holy grail of taxes and entitlements are now going to be in play, what happens? HUNT: They have to be in play, or they are not going to do anything that's substantive. It may not be Armageddon, George, but a default would be cataclysmic. I agree with Jonathan, that there's no economist who doesn't believe that. Even a short-term default. Do you choose between Chinese bond holders and veterans? That's not a choice that we want to make. So (inaudible). They may have to go a few times and have it rejected, and they'll probably have to do something rather cosmetic. The idea of a small deal, $2 trillion, $2.5 trillion, that still involves entitlements and taxes. Joe Biden never agreed to anything that didn't involve taxes. So all it does, is it's 60 percent of the big deal, and it's just as complicated and as difficult. And in the end, if you want to do something substantive, there's no way you can do it without doing entitlement reform and without added revenues. Same reason Willie Sutton gave when he said why you rob banks, that's where the money is.
KARL: And this short-term deal is going to be really difficult to pull off, even you know, $2 trillion, a lot of money as Al points out. But the problem is, you have about 30 to 50 Republicans in the House who will vote no on any increase in the debt ceiling, period. That means you are going to need 20 to 25, maybe more Democratic votes on this thing. And if you're doing anything to touch entitlements, Nancy Pelosi has made it clear, no go. BRAZILE: Well, first of all, Social Security did not cause the mess. And the Democrats-- AMANPOUR: Medicare she's talking about. BRAZILE: Yes, but Democrats have been very clear that we cannot simply back -- continue to cut programs that benefit the middle class, that -- senior citizens, people with disabilities, without putting everything on the table. The Republicans, every time you put revenues on the table, they walk out the room, they say no deal, we want a short deal. A short deal is a cop-out. This is about making hard, tough decisions.
AMANPOUR: Everybody knows that entitlements have to be in play as well, and if it hadn't been for the hardball negotiations that the Republicans were doing, the president may not have come to even talking about entitlements. BRAZILE: He put it on the table. The Republicans came in the room, got the appetizers and said, you know what, main course, we'll just walk away. Maybe tonight the president will serve dessert, because after 6:00, George, that should be cooking (ph). WILL: Before we have a moratorium I hope on the can metaphor, let's look at who has been kicking the can down the road. Democrats started this, started kicking the can down the road when they stopped writing budgets. The president kicked the can down the road by appointing a deficit commission. Then he kicked it again down the road by ignoring the deficit commission. Then he submitted a budget in February that no one on either side of the House would support with the promise to increase the deficit. That's a lot of kicking. That's can abuse. AMANPOUR: Let me ask you, because you've done some reporting. Speaker Boehner obviously has a hard time with his group in the House. You said that one of the things that were being considered in this mega deal where both the president and Speaker Boehner were talking about a mega deal was about some kind of revenue increases, as well as entitlements on the president's side. KARL: $4 trillion in deficit spending, about $1 trillion of it coming from tax revenue increases. Republicans would simply call those tax increases. And the speaker was willing to consider this, but at that White House meeting on Thursday, Eric Cantor said, point blank, I personally will not support a deal like that, and most of the Republican conference in the House will also vote no. BRAZILE: They get cold feet. Every time you talk about raising revenues, they get cold feet. We've got to have both-- (CROSSTALK) AMANPOUR: In the meantime, the obsession with the deficit is, American people say, at the expense of focus on jobs. HUNT: It is, but let me just say, I think George is absolutely right about how Obama has handled this. But I also would point out it was Eric Cantor who walked out of the small bargain, out of the $2 trillion deal with Biden. So this is the second Republican to walk out. And I don't know of anyone, anyone who seriously thinks you can solve this, or begin to deal with this, unless you do it on a bipartisan basis. This is not going to be passed, and every single group that has looked at it, whether it's Simpson-Bowles, Domenici-Rivlin, have said you have got to have entitlements and taxes. And that's what Eric Cantor and Nancy Pelosi won't face up to yet. AMANPOUR: So, about jobs, how are they going to move that from where it looks to be trending now, which is not in a very positive direction at all? HUNT: Well, talking about being able to walk and chew gum at the same time. What they really have to try to do is have some short-term stimulus, mainly for the tax code, and long-term deficit reduction. That may not be easy for people to understand, but I don't think very many people, whether it's Marty Feldstein or a liberal economist, thinks that we ought to begin cutbacks in this economy right now, whether it's tax increases or whether it's significant spending cuts. They ought to be done a year or two down the road. That's kicking the can down the road, but I think probably that makes economic sense. WILL: Moratorium, please. Let's look at how bad the jobs numbers are. Go back to May, first of all. In May, they said we created only 54,000 jobs, which is terrible, but then they revised the main numbers down to 25,000 jobs. The June number, it is 18,000 jobs. You need seven times that many just to stay even with the natural growth of the work force. 16.2 percent is the unemployment, the underemployment and the dropped out of the labor force unemployment rate. There are 2 million fewer private sector jobs in this country than there were before the recession began. When Obama was inaugurated, the unemployment rate was 7.6 percent. BRAZILE: Well, first of all, George, for the first two months of this year, we were creating 200,000 jobs a month. In the month of May, we hit the speed bump, as you well know, but the fiscal tightening all throughout the country, you know, 400,000 jobs have been lost in the public sector. So every time we created 57,000 private sector jobs, and then we lost 39,000 public sector jobs. The president laid out some immediate things that the Congress can do in the infrastructure bank to get people back to work. He also talked about trade agreements to get people back to work. Extending the so-called payroll tax by two points. KARL: Tax reform he threw in there. (CROSSTALK)
BRAZILE: What will it take for the private sector to create more jobs, and yes, another stimulus might help us alleviate some of the short-term pain on the state and local level, where they are basically reducing jobs across the board. WILL: Let the record show, as Donna points out, that the president came out for a tax cut that is extending the tax cut on the payroll taxes. BRAZILE: He's come out with 17 tax cuts, and the Republicans opposed 16 of them. So he's been walking your walk, but not talking your talk, clearly. AMANPOUR: This is going to continue in the green room. Thank you all so much. And coming up, global anxiety over the prospect of an American debt default. My exclusive interview with the new head of the International Monetary Fund, Christine Lagarde. She took over for Dominique Strauss-Kahn, who is battling attempted rape charges in New York. Her take, next. CHAIR CHRISTINE LAGARDE TRANSCRIPT CHRISTIANE AMANPOUR, ABC NEWS: Thank you for joining us. Congratulations, the first woman head of the IMF…. Let me first ask you about the current crisis in the United States, regarding debt deals and raising the debt ceiling….. Does the rest of the world believe that the U.S. is going to, if you like, get its act together and actually raise the debt ceiling and conclude these budget negotiations by the deadline of August 2nd?
LAGARDE: Well, certainly from my vantage point, there is expectations that that will be the case, because, otherwise, it would be a real shock, and it would be bad news for the U.S. economy. So I would hope that there is enough bipartisan intelligence and understanding of the challenge that is ahead of the United States, but also of the rest of the world.
AMANPOUR: When you say shock, what do you mean? describe it. what would happen if the US were to default for instance?
LAGARDE: Well, I can't imagine for a second that the United States would default. But, clearly, this issue of the debt ceiling has to be resolved, as, otherwise, there would a hike in interest rates. there would be you know a much heavier burden to be borne by, you know, all the US taxpayers at the end of the day.
AMANPOUR: Economists have said that it could cause an immediate, big collapse of the stock market. It could really exacerbate unemployment, not just here in the United States, but elsewhere as well. It would have real big, dark consequences. Do you agree? LAGARDE: Well, if you draw out the entire scenario of default, yes, of course, you have all of that, you know, interest hikes, stock markets taking a huge hit and real nasty consequences, not just for the United States, but for the entire global economy, because the U.S. is such a big player and matters so much for other countries. AMANPOUR: does it threaten to jeopardize the U.S. position as the world's most stable economy? LAGARDE: I don't think it would jeopardize the U.S. as being, you know, the largest economy in the world. AMANPOUR: the most stable? LAGARDE: It would certainly jeopardize the stability, but not just the stability of the U.S. economy, it would jeopardize the stability at large. And that's clearly against the purpose and the mission of the International Monetary Fund. So we are -- we are concerned and we are very much hoping that a compromise will be found before the deadline. I'm glad to see that people are talking again, by the way. AMANPOUR: You have become managing director of the IMF because your predecessor, Dominique Strauss-Kahn, is in a legal battle right now. He has been accused of, as we know, sexual assault. You have spoken about wounds here that need to be healed. LAGARDE: Yes. AMANPOUR: What wounds and how do you need to heal them? LAGARDE: No criticism of the job that he has done in this institution, because Dominique Strauss-Kahn has done an excellent job as managing director. But when an institution loses its managing director under such circumstances, there is clearly wounds as a result. Some people are very hurt. Other people feel betrayed. It's a very strange chemistry of frustration, irritation, sometimes anger, sometimes very deep sadness as well. AMANPOUR: You had to go through -- and it was widely reported -- an ethics talk with the head of ethics here at IMF. It's a first for the managing director. what were told that you had to do as head of this institution now? LAGARDE: I'm having my training session next week, actually. So I will be able to tell you a bit more next week. But as you know, my contract states very clearly that I have to abide by the highest ethical principles. And I have to be on my best behavior all the time. And I'll try to do so.
AMANPOUR: And what does that mean for an organization that employs so many women? LAGARDE: You know, in the back of my mind, when it comes to ethics and whatever I do, I always think to myself, would my mother approve of that. And if she did not, then there's something wrong. I think it's a very -- it's a basic, stupid principle, maybe, to have. But it's something quite handy and quite efficient, if you think of it. When it comes to women in this organization, I've spoken to many of them already. I've spoken to representatives of the staff. And we clearly need to all work together, respect each other. And everybody needs respect, not just women, men as well. We are a community and everybody is entitled to respect. AMANPOUR: You've also said that this case is a little bit of an Anita Hill moment for France. You've said that there is a pre-DSK, Dominique Strauss-Kahn, an a post-DSK. What does that mean? LAGARDE: Irrespective of the ultimate outcome of the case, and irrespective of the facts, and whatever the damage -- and there is damage, obviously -- I believe it has helped women to appreciate that they should speak up whenever something happens to them that is not respectful, that is not tolerable. That's what I meant. AMANPOUR: Do you think that that debate is open and will stay open? LAGARDE: I don't know enough about the general atmosphere in the United States. I've just arrived a week… AMANPOUR: I mean in France, actually... LAGARDE: I can tell you in France, that is the case, absolutely. Yes. AMANPOUR: Madame Lagarde, thank you very much indeed for joining us. LAGARDE: Thank you. AMANPOUR: And coming up, anarchy in the UK, as the Sex Pistols might have said. The latest on the tabloid scandal threatening the world's most powerful media mogul. Rupert Murdoch on the ropes, that's next. -END- NEWS OF THE WORLD ROUNDTABLE AMANPOUR: Embattled media mogul Rupert Murdoch landed in London today on a mission to save his empire. His arrival comes on the very same day the final edition of his News of the World tabloid rolls off the presses. The combination of a sordid story of politics, power, and ruthless editors driven to win at all costs. ABC's Jeffrey Kofman joins us from London with more. Jeffrey.
KOFMAN: Christiane, this is the final issue, "The End of 'The World,'" filled with apologies, although no ads in sight. It's all come too late, though, for a public that just simply couldn't stand its sensationalism and its sleaziness. This is, though, much more than the story of a demise of a newspaper. It's also a political scandal here some are comparing to Watergate, a scandal at Scotland Yard because they failed to investigate. And ultimately, the question is being asked, what does it mean for the Murdoch media empire?
KOFMAN: If the News of the World really covered its own demise, today's headline might read -- Tawdry Tabloid Dies, No One Cries. The paper's cause of death -- self-inflicted, by its reporters, editors, and owner, media baron Rupert Murdoch. PETER OSBORNE, DAILY TELEGRAPH: The News of the World as owned and managed by Rupert Murdoch was a criminal organization. KOFMAN: For years the News of the World delighted in enraging and embarrassing politicians, celebrities and royals, by exposing their most intimate failings.
The public loved it. At its peak, the tabloid sold 8 million copies each Sunday, bringing in huge profits. For a decade, though, the paper ducked has ducked a nagging scandal about its news-gathering methods. This week, that changed.
All because of this girl, her name, Milly Dowler. In 2002, Britain was riveted by the story of the 13-year-old's disappearance. Investigative reporter, Nick Davies of the London Guardian broke the story.
NICK DAVIES, LONDON GUARDIAN: We discovered that during the period of time when she was missing and there was no explanation what happened to her. The News of the World were using a private investigator to listen to her voice mail. Now that in itself was horrid. But where it then got worse was that the voice mailbox on Milly's phone filled up. The News of the World were hungry for more information, for more stories, so they intervened and deleted the messages.
KOFMAN: That gave her family and police hope that she was alive. Milly was later found murdered.
In a country used to sleazy tabloid techniques, this was a new low.
DAVIES: The Milly Dowler story changed the politics of the whole saga, and it made it really impossible for anybody to defend The News of the World.
KOFMAN: Overnight, the most powerful man in British media became a villain. Murdoch controls four of the biggest papers here and Sky TV, the most profitable network. For three decades, politicians have deferred to him, lived in fear of his ability to crush them on the pages of his paper, until now.
ZAC GOLDSMITH, MEMBER OF UK PARLIAMENT: Rupert Murdoch is clearly a very, very talented businessman, he's possibly even a genius, but his organization has grown too powerful and it has abused that power.
KOFMAN: Even Britain's prime minister who was elected with Murdoch's help, scrambled to distance himself.
DAVID CAMERON, BRITISH PRIME MINISTER: We are no longer talking here about politicians and celebrities, we're talking about murder victims, potentially terrorist victims having their phones hacked into. It is absolutely disgusting.
KOFMAN: And there was more, the paper hacked voice mails of the families of Britain's soldiers killed in Iraq and Afghanistan.
For celebrities who had seen their cell phones illegally hacked and had been exposed by the News of the World, finally people were listening. Actor Hugh Grant lashed out on the BBC.
HUGH GRANT, ACTOR: No morals, no scruples at all. You didn't care who got hurt as long as you were able to sell your newspaper for a lot of money.
KOFMAN: That is Paul McMullen, for more than a decade, a reporter and editor at The News of the World.
PAUL MCMULLEN, REPORTER: Would you stop at doing anything to stop getting a he story? No you wouldn't. You would go and do anything.
KOFMAN: Even breaking the law?
MCMULLEN: Absolutely even breaking the law.
KOFMAN: We are learning that The News of the World made criminality an industry, allegedly bribing police for scoops, stealing documents for stories, and hacking as many as 4,000 people's phones.
On Friday, the arrests began starting with Andy Colson a former editor of The News of the World and what's embarrassing, he would later become chief spokesman for Prime Minister David Cameron who now concedes that maybe politicians and the police have been a little too cozy with the press baron.
CAMERON: We've all been in this together. Party leaders were so keen to win the support of newspapers we turned a blind eye to the need to sort this issue. The people in power knew things weren't right but they didn't do enough quickly enough.
KOFMAN: This morning, Murdoch arrived here in London from the U.S. to try to contain the damage. His son, James, who runs the company could face criminal charges along with many others. And a massive deal could be the next casualty.
Murdoch's takeover of the $20 billion satellite channel BskyB, which was all but approved last week.
Murdoch's life work, building what by some measures is the world's largest media empire, faces what may be its biggest threat ever.
For This Week, Jeffrey Kofman, ABC News, London.
AMANPOUR: So in this incredible story of politics and power and criminal allegation, where does Rupert Murdoch go from here? Joining me now, Michael Wolff, editorial director of Ad Week and author of The Man Who Owns the News: Inside the Secret World of Rupert Murdoch.
Nina Totenberg, NPR's legal affairs correspondent.
And Steve Brill, founder of Journalism Online and CourtTV. His new book is called Class Warfare: Inside the Fight to Fix America's Schools.
Thank you all for joining me.
Let me go to you first. Rupert Murdoch finally got on a plane and went to London. What is he hoping to do?
MICHAEL WOLFF, AUTHOR: Well, I think we should note how long it took him to get on to plane to go London, because Rupert is not a reach-out guy. He's quite the opposite. It's all about meeting power with power.
So he's in very awkward and difficult territory for him. He's got to negotiate. He's got to soothe. He's got to explain all of the things that he doesn't do well.
So he's there now, I think trying to get...
AMANPOUR: Is his empire at risk, at least in England. Is News International at risk?
WOLFF: Well, I don't think News International is not necessarily at risk. These are good assets. What is at risk is the management of this company by people named Murdoch.
AMANPOUR: That's interesting.
Steve Brill, you had a relationship with him, at one point was an investor with one of your organizations.
STEVE BRILL, COURTTV FOUNDER: Which he sold and made money on. So I don't owe him any favors, so...
AMANPOUR: No, exactly. But you know him and you know his business. You know, it was extraordinary to hear one of the future editors in that piece, Paul McMullen, admit that they would do anything to get a story, including breaking the law. Do you think it's conceivable that the head of News International, Rupert Murdoch's lieutenant, Rebecca Brooks, who is refusing to resign, is it possible that she didn't know about this as she's saying?
BRILL: Well, I think anything's possible. What I would like to know, what I haven't seen written anywhere, is what stories came out from this kind of phone hacking of the kidnapped girl. Now, if stories came out from that phone hacking, and if the editor of the paper looking at those stories before they were published said to a reporter, well how do you know this or how do you know that? Then any good editor is supposed to know how reporters get their stories.
But, so far, we don't know any of that.
AMANPOUR: And, Nina, what do you -- what impact do you think this has, not just on Murdoch's empire but the sort of tabloid culture there and even here, if at all?
NINA TOTENBERG, NPR: Tabloids will never go away. They are part of the history of, at least of Western democracy. But, it does show you, when politicians, and the news media, are completely intertwined, not just get in bed together, because they've always been in bed together a little bit, but their ownership is intertwined with the power of the press, it can get to be a very dangerous proposition.
We're reading how frightened the leaders were to even challenge Murdoch. You see in Italy, I suspect Berlusconi would be gone, except he owns -- the president, or prime minister, whatever he's called in Italy, would probably be gone with all the scandals, except that he owns most of the television media there.
We're very lucky that we have not experienced that in this country, yet anyway, but it speaks to a -- the need for a diversity.
It has nothing to do with the politics of Rupert Murdoch, it has to do with a single view or a single person or a single entity owning anybody and everything.
BRILL: Well, there is an issue here in the United States. Again, we don't know who knew what and in the aftermath of the DSK thing, we shouldn't really speculate. But News Corps has a lot of FCC licenses. There is still a clause in the federal communications law that requires that you have to be of good character to have such a license. And I was reading last night just in the approval that they gave to Comcast to take over NBC, there was actually some guy who challenged the character of Comcast, because when they installed a cable system somewhere they had hurt his building and hadn't paid for it. And this became a big legal proceeding, actually.
So, here, I am reasonably certain that someone, you know, maybe someone from the political left or whoever, is going to make a big deal of, you know, whether they are fit to have their FCC licenses under the current management.
WOLFF: But it's not a matter just of a broad, generalized anti-Murdoch notion of fitness. Let's remember, what we have here, forget this is, on one hand, not about journalism at all. What it is, about a set of crimes.
I mean, they literally committed crime after crime after crime. It's going to come back to who knew what and who knew it when.
TOTENBERG: And it seems to have been a culture of criminal behavior also. No matter what, get the story.
WOLFF: That's one from the interesting things, it's always been this culture and they never acknowledged that it was that they were doing anything illegal. So you can then say, well, why would they have hidden it. And the truth is they didn't hide it.
AMANPOUR: Your mentioned the family and you said potentially it would affect whether family members continue to run News International. Give us a sense of the dynamic: James Murdoch. his father, Rupert, what is going on in the succession there?
WOLFF: OK, you have four adult children of Rupert Murdoch. Ultimately, actually, the way it's set up, they each have one vote. There's no tie-breaking mechanisms, very Murdochian.
James is the heir apparent. He's the executive in charge of -- has been, of Europe and Asia. He has essentially been running the response to this scandal is deeply involved in it.
He signed the original checks, the payments to the people who were suing -- huge payments which would prompt the question, what am I getting here, silence.
His father has been unhappy with his management of this scandal. But, his father is -- there's a lot of pressure from the children for the father to stay -- to not be involved, to stay out. You know, these are very accomplished -- his children are accomplished, and he is devoted to them. And -- and then there's Wendy, his wife. In her position, it's --
AMANPOUR: You know, to bring it back to where it really affects our daily lives, the division, if you like, or the relationship between the press, politics and power, is that an issue here as well? I mean, look, let's not beat around the bush, Murdoch's big property here is Fox News, and that has a really strong relationship and effect on power, certainly within the Republican Party. We're not talking about any of the current issues there, but what does it mean?
BRILL: Let's bring this down to earth for a second. We don't know if any of Michael's speculation about the family's involvement is true. He certainly hasn't explained to us why he knows that. Second, you're talking in the U.K. with News of the World about real crimes. And to sort of have that discussion at the same time that you talk about, you know, whatever we like or don't like about Fox News, I think is a little unfair, because these are just out-and-out criminal acts. Now, if it turns out that people very high up in the company knew about it, that is one thing that is very serious. If it turns out that it's, quote, just the editor, who is a high-ranking person, but not someone named Murdoch, that is a different story. And I don't think that has anything to do with Fox News. WOLFF: And I completely agree. But it does --
AMANPOUR: We have to end this right now. We'll do more in the green room. Very interesting discussion. We'll see how it all plays out in England. Up next, of course, the Sunday funnies.
AMANPOUR: And now in memoriam.
(BEGIN VIDEO CLIP)
BETTY FORD, FIRST LADY: May God bless you and your family as you undertake your new responsibilities. Signed, Gerry Ford. I'm very glad that I brought cancer to the forefront. I feel that I've saved many lives. Today, I am a very grateful recovering alcoholic. And I know firsthand that treatment does work. (END VIDEO CLIP)
AMANPOUR: We remember all of those who died in war this week. The Pentagon released the names of 10 soldiers and Marines killed in Iraq and Afghanistan. We'll be right back. (COMMERCIAL BREAK)
AMANPOUR: That's it for our program. For all of us here at This Week, thank you for watching, and remember you can follow us any time on Twitter, Facebook and at Abcnews.com. And be sure to watch "World News" with David Muir tonight for all the latest information on the White House debt talks. We'll see you next week.