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Transcript:

December 19, 2008

BILL MOYERS: Welcome to the JOURNAL.

On his victory tour of Iraq and Afghanistan last week President George Bush stopped in Kabul to tell President Karzai that he could count on us no matter who's in the White House. It's in our interest, he said, that Afghanistan's democracy flourish. What President Bush didn't say is that democracy is on life support there, bleeding slowly to death from internal wounds. Despite the $200 billion the United States has already spent in Afghanistan, this has been the deadliest year for our forces since the war began seven years ago. Despite the presence of 31,000 American troops in the country, Osama bin Laden is still on the loose. The Taliban insurgents control much of the territory. And Afghans supply the world with over 90 percent of its opium. If anything's flourishing in Afghanistan, it's the poppy.

And where in all this is the government installed in power by the United States and supported by our troops and taxpayers? There's the rub. In this article in the "Washington Post", Sarah Chayes says Afghanistan's government is corrupt and abusive and is driving its people back into the arms of the Taliban fundamentalists.

Sarah Chayes went to Afghanistan to report for National Public Radio just a few weeks after 9/11. She reported from some of the most dangerous areas and then decided to stay on as a private citizen. She's been running a co-op, employing Afghan men and women to produce skincare products. She also wrote this book, THE PUNISHMENT OF VIRTUE: INSIDE AFGHANISTAN AFTER THE TALIBAN."

Welcome back to the JOURNAL.

SARAH CHAYES: It's great to be here.

BILL MOYERS: Your article in the "Washington Post" paints a devastating picture. The Taliban insurgents are making headway again because the government we support is a gang of corrupt gunslingers, feared as much by everyday people as the Taliban themselves.

SARAH CHAYES: Yes. That's about the size of it.

BILL MOYERS: And this is what American soldiers are dying for there?

SARAH CHAYES: Our democracy is famous for one thing in particular, checks and balances. That was the genius of the American system.

BILL MOYERS: Rule of law.

SARAH CHAYES: Rule of law but also recourse. If one branch of government is abusing you, you've got other branches of government that you can turn to.

BILL MOYERS: And Afghanistan?

SARAH CHAYES: Doesn't. So what we've really done is set up a kind of monopoly on the exercise of power. I mean, it's the opposite of what everything that we consider to be democracy, we've allowed an abusive concentration of power in the hands of, in particular, the executives, be it, in particular, on a local level like the provincial governors and their acolytes. Because we've convinced ourselves and often we have to - by "we" I mean us and our NATO allies - convince our own public opinion that this is a democratically elected representative government of Afghanistan in order to justify the sacrifices in money and troops and things like that. But the Afghans see it differently. The Afghans say you brought these people in here. We repudiated-

BILL MOYERS: You mean the Afghans at the local level-

SARAH CHAYES: That's it.

BILL MOYERS: -people where you work, right?

SARAH CHAYES: Ordinary people.

BILL MOYERS: Yeah.

SARAH CHAYES: The ordinary population. The people I work with are villagers. They're semi-literate, illiterate, these are really ordinary men and women. And they all are telling me, "You brought these people back into Afghanistan. We had repudiated them in the early 1990s. We knew what these people are. They're"-

BILL MOYERS: Warlords, right?

SARAH CHAYES: Yes. Yes.

BILL MOYERS: The criminal class.

SARAH CHAYES: Exactly. So you brought them in and now you're backing them up. And you are making it impossible for us to make our voices heard and to have any leverage on the behavior of these people.

BILL MOYERS: This is what leaped out at me as I read your piece. The Pakistani military, you say, is using the Taliban from over the border to gain a foothold in Afghanistan. And the only reason it's succeeding is "the appalling behavior of Afghan officials."

SARAH CHAYES: The last time I saw President Karzai, I said, "Mr. President, I can't walk out my door without seeing a member of your government abusing one of your citizens." And it really is the case. You see a police officer kick out the back light of one of these little rickshaws, these putt-putt little rickshaws that are like the taxis in Kandahar. It stops at a restricted place. Instead of just saying, "Could you please move along," they go running behind it and kick out the back light.

Then you've got, for example, one of my cooperative members, her electricity was cut by a jealous family member so she needed a new electricity account. She needed to get a meter. She goes through the electricity department, is told there are no meters. "You can't - nobody can open a new account." But then she finds out from the little linesman, "Well, if you pay me $600, I can set up a meter for you." So then I go to the head of the electricity department and I say, "She needs a meter." She gets a meter. So it's, no recourse. It's no recourse.

BILL MOYERS: You quote a woman in your co-op, I think it's in your co-op, who talks about: It's like standing on a watermelon?

SARAH CHAYES: Two watermelons. One foot on one, and the other on the other. She says, the Taliban shake us down at night, but the government shakes us down in the daytime. And I was recently sitting with a group of tribal elders and they put it this way - these are, you know, dignified elderly gentlemen with their beards and turbans - and they started hitting themselves. "The Taliban hit us on this cheek. And the government hits us on this cheek." That's how they felt.

BILL MOYERS: We don't know if Barack Obama understands this is what is happening in Afghanistan. But we do know that the President-elect is talking about sending another 20,000 troops to Afghanistan on top of the 31,000 who are already there. Are troops going to make any difference?

SARAH CHAYES: We do need more troops. And let me just remind you that the number of troops on the ground per population is pretty much the lowest of any U.S. post-conflict involvement since World War II. And at this point the Taliban kind of military campaign plan is effective enough that, you know, you do need troops to prevent them from making military encroachments that are really dangerous.

You also need troops to protect the population from the Taliban. There are people who don't like the Taliban but may kind of knuckle under to them because, on the one hand, the government isn't doing anything better for them. And the Taliban are going to kill them if they don't visibly divide themselves away from the government.

So you need to be able to protect people from that kind of an intimidation campaign, and that takes troops. For example, a battalion commander in any province is interacting with the governor of that province on a probably weekly basis. If that battalion commander becomes more aware of some of the ways that that governor is abusing the population and brings it up to the governor, he can start using his leverage, and he's got a lot, to demand better behavior on the part of the governor. And so that's one way that I think that the military - and this is iconoclastic because people say, oh, the military shouldn't get involved in governance and things like that.

But the Afghans are actually looking to us to ask some questions, some accountability questions: "Why did you do this?" Or, "I hear that you are about to take a large slough of land that belongs to the so-and-so tribe and hand it out to your cronies. Why are you doing this?" See, the way it works now is if a military commander is only interacting with the governor about killing Taliban, he's got his arm around the governor. The governor helps him kill ten Taliban. But the governor's behavior is actually creating thirty Taliban over here. You're actually at a deficit. And that military commander would do better to ask the governor a little bit more about how he's governing and handle the killing the Taliban part himself.

BILL MOYERS: You know that there are a lot of respectable people in this country, in the military and in foreign affairs, who question the logic of our being there, period. I mean, that if Obama dials back our presence in Iraq while increasing our presence in Afghanistan, he's buying into the "global war of terror" mantra that the Bush administration has been pushing.

SARAH CHAYES: There is a direct link between Afghanistan and 9/11. I don't think Afghanistan is an isolated place. Afghanistan is very connected to its neighbors, in particular to Pakistan. I don't think that we can afford to leave this region alone to fester. I also-

BILL MOYERS: But isn't the Pakistan military supporting the Taliban?

SARAH CHAYES: Yes. Yes. And that's why-

BILL MOYERS: Our ally in Pakistan, we expect to fight the terrorists, are supporting the terrorists in-

SARAH CHAYES: Precisely. So we need to get the knots out of our foreign policy here. It's very perplexing to Afghans to understand that we are providing $1 billion a year to the Pakistani military which is creating the Taliban. That's the other thing they don't understand. And they say, "Wait a second, are you with them or against them?" This is something I've been beating my head against for the last seven years. It has been obvious to me that the Pakistani military intelligence agency has been basically creating, orchestrating this so-called Taliban resurgence for the last - since the end of 2001. So why are we paying Pakistan a billion dollars a year?

And they've been fooling us, you know, with the well-timed delivery of an al-Qaeda operative. And that really had us fooled for a number of years until incontrovertible intelligence demonstrated that the ISI was behind the bombing of the Indian embassy in Kabul a few months ago. And then it was, uh-oh, they really are doing this. And this is after years of U.S. military officers watching. I know somebody who was mentoring the Afghan National Army and was looking for where he can, you know, set up some operating posts or outposts for the Afghan National Army along the border, and he chose a couple of pieces of high ground. He goes outside with his field glasses and he finds the Pakistani Army in those pieces of high ground inside Afghanistan with Taliban training camps at the foot of the hills. These are things that have been going on for several years. And I think that we're finally copping to them. So we need to realign our policy, I think.

BILL MOYERS: What do you mean realign? All right, let's play that game.

SARAH CHAYES: Okay.

BILL MOYERS: Suppose it's the 21st of January.

SARAH CHAYES: Right.

BILL MOYERS: And President Obama calls you.

SARAH CHAYES: Okay.

BILL MOYERS: You go to the White House. He says, "What's the first thing I should do about Afghanistan?"

SARAH CHAYES: Okay. So I think one thing I would tell President Obama to do is a full-court, serious press on governance. I would tell him to - and he's such an inspiring person. I think he could inspire-

BILL MOYERS: Obama?

SARAH CHAYES: Obama. Yeah. He could-

BILL MOYERS: They talk about him in Afghanistan?

SARAH CHAYES: Oh, yes. Oh, yes. They were very interested in this election, very delighted.

BILL MOYERS: So how does he use that?

SARAH CHAYES: Well, it's not just in Afghanistan. I think he needs to use it here and with our NATO allies. For example, rather than berating some of our NATO allies about how come you're not sending more combat troops? I would suggest that he tell, for example, Germany or Norway, some of our staunch NATO allies who have some difficulty sending combat troops to the south, instead of berating them, tell them, "I understand your capacity constraints. I understand your public opinion problems with this mission. If you can't send us combat troops, send us some retired mayors. Send us some water department officials. Send us some agriculture department officials. You guys know how to administer cities and regions and things like that. And we need"-

BILL MOYERS: Send in the Peace Corps, you're saying.

SARAH CHAYES: Yeah. But a senior Peace Corps. Senior Peace Corps. Experienced-

BILL MOYERS: People who know how to run things.

SARAH CHAYES: Yeah. And for them to come in and mentor. And that means rigorous mentoring of Afghan public officials. And I think this would both be tremendous for Afghanistan and it would help re-knit some of the somewhat frayed fabric of our friendships with our European allies that-

BILL MOYERS: I understand that. I hear you. But isn't there a basic need for real services? You know, electricity, sanitation, public hygiene? Isn't infrastructure really what you're talking about?

SARAH CHAYES: Yes. But you don't get infrastructure if you're passing it through corrupt channels. You don't get it. So you can build all of the power plants you want. But, you know, if the electricity department is still playing footsy with people's meters, it's not going to work out. So that's one track. The other track is the Pakistan track. What I would say is the really dangerous thing in Pakistan right now is the Pakistani Army and, in particular, its military intelligence agency.

And I think what you have in Pakistan is a fledgling civilian government that's kind of fighting for its life. And it's not in a position to be able to challenge this military intelligence agency very powerfully. We need to get with that government and figure out and scheme with it, how do we reign in this state-within-the-state that is the military intelligence agency, which has been manipulating and instrumentalizing religious extremism for the past twenty, thirty years to in a very myopic way, to forward its regional agenda both in Kashmir and in Afghanistan? And you start working on a really serious hard-hitting plan for how you clip the wings of the ISI.

BILL MOYERS: In the meantime, doesn't another American soldier have to die for a government run by the criminal class of Afghanistan?

SARAH CHAYES: I agree with the thrust of your question. If we are not willing to even begin challenge President Karzai on a manifestly corrupt removal of a perfectly upstanding governor, if we're not even willing to send our ambassador to sit down with him and say, "You don't get to do that," I agree. Then why are we sending people to die?

BILL MOYERS: Sarah Chayes, good luck when you go back to Afghanistan. And thank you for being on the Journal again. Come back.

SARAH CHAYES: Thanks for having me.

GEORGE BUSH: Afghanistan is a drastically different country than it was 8 years ago.

BILL MOYERS: That sinking spell you are feeling could also be from the Ship of State going down in your own state capital. 43 of our states report they've hit the reefs and don't have the cash to pay their bills. Collectively, they face a total deficit of more than $100 billion by fiscal year 2010. Governors are sending out distress signals.

Here in New York, Governor David Paterson walked the plank just this week, carrying with him what the local media are calling his "doomsday budget." To deal with a gap of just over fifteen billion dollars, Paterson is raising taxes and cutting services, nobody is happy.

DAVID PATERSON: The other day somebody threw a pair of shoes at President Bush. And I don't know what prompted that action, but I would certainly assert that at the end of this budget presentation, if that's the most severe punishment I get, I'll sign for it now.

BILL MOYERS: New York's first African-American governor who is legally blind was thrust into office earlier this year when the incumbent Eliot Spitzer resigned over a sex scandal. David Paterson served as the Democratic leader in the State Senate and then as Lieutenant Governor before fate made him captain of the Titanic. I went over to his Manhattan office yesterday for this interview.

BILL MOYERS: This downturn we're in is hitting families and business very hard. People are struggling to get by. Now the states seem to be socking it to the taxpayers. You, like other governors, have proposed serious cuts in education, funding for hospitals, nursing homes and home healthcare, cuts in pension programs for state employees, new taxes and fees. How are people going to make ends meet in this recession that is deepening even as we speak?

GOVERNOR DAVID PATERSON: Well obviously there aren't many places for governors and legislators to go. You're going to have to cut healthcare and education because they comprise huge amounts of state budgets. There is a lot of pain in the downturn of this economy. And I think 2009 will be the year that people feel the pain. And my conscious is definitely in turmoil, I have vetoed bills that I sponsored. I was in the legislature until 2006. And by 2008 I never would have dreamed or had a nightmare of this proportion.

But I'm thinking that the sooner we respond to this crisis, the stronger and faster that we'll emerge from it and that perhaps we can learn a lesson about budget priorities in that we as governments have made the same mistake that consumers have made running up $950 billion in credit card debt. And that home buyers made with a million and a half to two million foreclosures in the last 18 months, which is that we were seduced by this societal doctrine that can, you can just keep borrowing and pushing problems off to the, into the future. The future has now stared us right in the face and we're in economic peril.

BILL MOYERS: You're asking New Yorkers to face 137 new or increased taxes and fees that will fall heavily on everyday people, paying more, for soft drinks, cable and satellite TV, haircuts, movie tickets. But you're not asking the wealthy to pay more in income taxes. And people are saying is that fair?

GOVERNOR DAVID PATERSON: I'm not ruling it out, Bill. What I have learned is that when you tax the wealthy in the downturn of an economy, you have an automatic link of a loss of job opportunities and then a loss of population. New York loses 150,000 people from its population every year, people moving to other states looking for greater opportunities.

BILL MOYERS: And lower taxes?

GOVERNOR DAVID PATERSON: And lower taxes. Lower property taxes and lower costs for food and for energy. What I'm afraid of is taxing the wealthy now, which in New York we're very fond of doing, still having a deficit, where are we going to go then? Tax the wealthy again? No.

What has happened is we have had consistent spending increases. Let me give an example. The Dow Jones average on Wall Street rose from about 2,500 in 1990 to over 10,000 in eight years. It quadrupled. And yet New York managed to be in budget deficit five of those eight years because no matter how much money we collected in taxes, we overspent it. It's spending that's causing our problems. And even though the special interests are all valid, I mean, the arguments against cutting education, the arguments about not cutting healthcare at this time are completely valid. Everybody's right individually. What it has added up to is everybody's wrong because we've overspent so much.

BILL MOYERS: Here's what the head of the Civil Service Employees Association has said about your budget. Quote, "The middle class will have to pay more and get less while the wealthiest New Yorkers slide by. There is no sharing of sacrifice here. It's working people getting stuck with the bill." If he were sitting here, would you concede he has a point?

GOVERNOR DAVID PATERSON: He has a point. However, it's the overspending, as I've said, that is continuing to create this problem. Every time you see another credit card, another refinance, another way to defer problems into the future, people jump at it. But that's what got us into this situation in the first place. So I'm saying I want to hold taxation or progressive income tax to the end so that I can say we've learned the lesson. We've proven we can stand up to a crisis. Now we'll finish it off by letting those who can most afford it close it down for us. When we bring it to a point where our economy's turning around, when this is all over, I want to guarantee the head of CSEA and the other unions and the other advocates and also the public, everybody is going to share the pain before New York brings back prosperity.

BILL MOYERS: What about this obesity tax? This is what the critics are calling your tax on regular soda drinks.

GOVERNOR DAVID PATERSON: Well.

BILL MOYERS: What's behind that?

GOVERNOR DAVID PATERSON: Twenty-five percent of New York's children, one out of four, would be diagnosed as obese right now. The same items that you and I would have been kicked out of class for,

Bill, when we were in school, are now in vending machines in the halls, which is where I used to get kicked out. So you get kicked out of class, you go down to the vending machine and have a candy bar. But when you realize that children are 60 percent more likely to become obese if they drink these sodas, we were just saying that our government is inevitably having to care for them. And the obesity is leading to diabetes. It is staggering the number of young people who are pre-diabetic and diabetic. Who got diabetes when they were 16? It's happening regularly now. The government is the one that has to actually pay for these problems, as we did with cigarette smoking. And we're going to stand up and challenge the industry to help us pay for it.

BILL MOYERS: There's a libertarian group called Freedom Works led by former congressman from my home state of Texas named Richard Army. Let me read you what he writes about your proposal. Quote, "Who is Governor Paterson to make moral judgments about what New Yorkers drink and whether they should be punished by having to pay a tax?" Does he have a point?

GOVERNOR DAVID PATERSON: He can cloak himself with moral turpitude but really, has to bear the responsibility in even making a statement like that for the unfortunate illnesses that are becoming epidemic. One out of four children is obese? I think it's, I think it's outrageous. And in terms of the budgetary question, if people would like to persuade us that maybe this isn't the time for an obesity tax, we're open. We'll listen to that. We understand. However, what I want to hear is not as much the criticism of our deficit reduction plan but how the individuals who criticize it think it should be replaced. In other words, by law, we have to close a $15 billion budget deficit by April 1st. If you want to take one of these taxes out, we're open. Tell us how to replace it.

BILL MOYERS: You and other governors met with President-elect Obama in Philadelphia recently to talk about this budget crisis. But to help you and the other 42 states that are in such trouble, he's going to have to go deeply into debt at a time when we're suffering a crisis because of debt.

GOVERNOR DAVID PATERSON: I think that that is a seeming paradox. But the way I would explain it is that medications you'd never take when you're well but you take them when you're sick to help you get well but then you know you can't keep doing it. In other words, there's a point that some of the conservative governors, Governor Sanford of South Carolina, they're right that there's a well. And there's a point that if you just keep spending and you just keep borrowing, you're going be in a further crisis. And what the president I think is trying to accomplish is a psychological stimulus package. When you see people working again repairing bridges and building train tracks, when you see the dollar available to spend again, then the economy will grow and we can go back to I think a far more pragmatic governing principal.

BILL MOYERS: And the "New York Times" this week has a remarkable story. The headline is Wall Street profits were a mirage. But huge bonuses were real. And it talks about the role that lavish bonuses played in the debacle. Has anybody suggested to you that maybe you go back to those Wall Street tycoons who took those and executives who took those billions of dollars in bonuses and retrieve some of that money?

GOVERNOR DAVID PATERSON: Bill, this may surprise you. That's how the state got its money. That's why we're in deficit now.

BILL MOYERS: What do you mean?

GOVERNOR DAVID PATERSON: At the end of the year, when they got their bonuses, that would be the fourth quarter of our fiscal year, January, February, and March. Thirty percent of New York's revenues came from those bonuses. And although I totally agree that they were voluminous and I think out of line, as the bonuses start to go away, New York's economy sinks further into a hole. And so I never rooted for the Wall Street tycoons. But I read that top officials at Goldman Sachs deferred their bonuses this year. I went and factored it out. That cost New York $213 million.

BILL MOYERS: So we're in a catch-22 situation.

GOVERNOR DAVID PATERSON: For New York it is because we are so dependent on Wall Street. And that was the problem. It was a false economy. And our state spent more and more money against the backdrop of Wall Street taxation as I was saying, in the '90s. And now here it is when the revenues have fallen off the cliff and New York never transposed itself or adjusted to a new economy.

So the manufacturing jobs going away upstate, and Wall Street collapsing downstate, we're in a very, very prohibitive situation where we're going to have to not only close our deficit but find workable, sensible, and different solutions in the future. But I guarantee people who are watching, wherever you are viewing this program, by the time New York takes control of its budget and restores our state to its mission of creating jobs and hopefully providing good educations for its children, everyone in New York will be grumbling. That's how severe it is. I went on television before the problems of AIG and Lehman Brothers collapsed and Merrill Lynch was subsumed by Bank of America. And I told New Yorkers this would be the greatest downturn in our economy since the Great Depression. It was said that I misestimated revenues. It was said that I was Chicken Little and that I was an alarmist. This is what I was trying to say.

BILL MOYERS: What was it? What did you see that others didn't see?

GOVERNOR DAVID PATERSON: When I looked at the skepticism of people who were evaluating the stock market, when the short sellers were saying we were headed for a downturn, when economists that I would watch on other networks talked about it in a kind of hint but not direct way. And one time I heard an economist say, "We could be headed for trouble." And the other one says, "Oh, are you, are you being an alarmist" "Oh, no, no, no, no. I mean temporarily we'll have trouble."

I realized that a lot of people knew that the economy was going in the tank but no one wanted to say it. Because we as a society have learned how not to tell the truth. I saw a woman who was saying she didn't know how to tell her children that their home was going to be foreclosed on. There's an answer. Tell the truth. Tell them we're going to have to move. And I think, governments, our government, New York State's government was guaranteeing the public that things were fine, that we had a budget that called for six percent growth after the negotiations. And I thought that the best way to buy credibility is to tell the truth.

You'll have to take a hit from it for it for a while. See, I think, Bill, a lot of people knew it was coming but weren't able to address it. And I thought I'll roll the dice. I'm unafraid of being unemployed. The truth has to be told sometimes. I'm willing to tell it because I think that the public is angry. And, and I'm honest. The criticisms, the CSEA quote, as you read before.

BILL MOYERS: The labor union.

GOVERNOR DAVID PATERSON: The labor union, they hurt me. But the reality is that in the end people remember those who were willing to identify and direct on problems that actually exist, even if they weren't heard right away. And I may be rolling the dice. But I believe that New York citizens, just as well as other Americans, will at least be happy that someone tried to warn that our habits need to be changed, that our culture of spending needs to be reduced, or we are headed for even greater trouble.

Those people think this budget is bad. Wait until they see an austerity budget or a state that can't get, can't borrow because its credit rating is in the toilet or a state that can't meet its cash flow. When that happens people will wish they had addressed these issues and this budget right now.

BILL MOYERS: Is there any consolation to have a disaster prove you prophetic?

GOVERNOR DAVID PATERSON: I don't want it to. My job is to persuade people that the better course is to bite the bullet. And years from now we'll realize how close we came to economic disaster.

BILL MOYERS: Governor David Paterson, thank you very much for joining me on the Journal.

GOVERNOR DAVID PATERSON: Thank you, Bill.

BILL MOYERS: In his WALL STREET JOURNAL column this week, the historian Thomas Frank, who wrote the important, recent book THE WRECKING CREW, looks at the Blagojevich scandal in Illinois as the latest revelation of what's wrong with American politics. The problem, he says is "the conception of the state as a business in which every public function is for sale." He says, "The rot is structural; it is trans-partisan; and it stinks to high heaven".

When President George W. Bush announced that "Government should be market-based," writes Thomas Frank, "he was merely applying an ideological gloss to this ancient and supremely bad idea." So we've had one government service after another being turned over to private business for a profit. The Bush administration has outsourced at least $400 billion dollars of government work.

In an investigative series published by the "Seattle Post-Intelligencer", reporter Eric Nalder revealed what happens when one private contractor drops the ball. Here's the latest from our colleagues at expose, narrated by Sylvia Chase.

SYLVIA CHASE: Jacksonville, Arkansas, Little Rock Air Force Base. On the flight line, military precision is on display. But the impressive sight of the C-130 transport aircraft stands in stark contrast to another scene just a mile away within base gates. A military exercise gone awry. The remnants of a battle waged against an unexpected foe. A private contractor hired to build and manage 468 new military family homes at the base, a job it never finished.

GENERAL SCHATZ: This is what I call Jurassic Park, we've got concrete slabs to partial houses built, the homes were just stopped in various stages of construction, as the different contractors walked off the jobs because they weren't being paid. It's just as if you turned the light off back in April of 2007, and nothing has changed since then.

SYLVIA CHASE: The private housing company is called American Eagle Communities. In 2004 it came with the lowest bid not only to build the new homes, but to renovate and manage more than 700 more at the Little Rock base. At the time, the deal was estimated to be worth 500 million dollars. But after building only 25 of the 468 new homes American Eagle left town.

GENERAL SCHATZ: So we still have airmen and their families that are living in housing that was built in the 1950s. They were promised nice new houses, and that's what I was upset about.

SYLVIA CHASE: Seattle, Washington: known for rain, software and aircraft manufacturing. It is also home to a large military community: 80,000 Navy, Air Force and Army personnel, living and working at seven different bases. And in February 2005, even as project delays were beginning back in little rock, American Eagle landed another military housing contract here. John Jack oversaw that contract.

JOHN JACK: I started with American Eagle in March of '05. My job was to administer the contractual agreements between the General Contractor and American Eagle Communities. As well as administer the budget controls.

SYLVIA CHASE: He didn't like what he saw. He says he wanted to do the right thing. He became a whistleblower. But he'd gotten nowhere spending two years of his life trying to convince authorities that the project had gone awry. Now he called a reporter at the "Seattle Post-Intelligencer", Eric Nalder.

ERIC NALDER: He said right away that he was quite nervous. He said he had never called anyone like this before. Right away he told me that it involved a large military project. But he said to me and I remember the words, were, he said something like, you wouldn't believe the fraud. John had a ton of information; it was a very complicated story that he was telling me, much more full clinically detailed information than full of anger.

JOHN JACK: American Eagle was a newly formed company. They told me that the project consisted of 605 new homes with associated amenities package. On the surface it looked great. It appeared to me there was more than enough money there. To construct the homes that was originally designed.

SYLVIA CHASE: In 1996 Congress enacted a law that put military housing in private hands. Companies would compete for building and managing 180,000 new homes across the country replacing housing dating to the 1950s. The law required public-private ventures, with each military branch given the job of overseeing their new housing partners. The program grew slowly at first, but soon it took off.

ERIC NALDER: In the Bush administration you have a wish to turn over to private industry the business of government. In turning over of government to private industry, to release them from oversight. There is a lot of logic behind the idea, one of the logics is that, if only government were to operate like private industry, then government would be a more efficient operation. But if you think about it, what if they spent money like the executives of Lehman Brothers and Enron? Do we really want our governments operating like that?

SYLVIA CHASE: Soon a bevy of companies started competing for housing contracts, one was American Eagle. It won contracts in Florida, Georgia, Arkansas, Massachusetts and Missouri. But its biggest deal was to build homes in the Seattle area at three Navy bases: Kitsap-Bangor, the Whidbey naval station, and Everett naval air station.

It was a lucrative contract that would total $3.2 billion over its life. The contract worked like this: American Eagle would form a partnership with the Navy, each putting in some investment money - for American Eagle it was $5.5 million. Then the partnership borrowed hundreds of millions more to build military homes. As part of the deal, American Eagle also gained the right to become a landlord - collecting rents on some 3,000 Navy homes in the Seattle region for 50 years.

ERIC NALDER: It's a very good deal, because you get homes for free to manage, and to collect rents on, you get up front money from the taxpayer and the rents are provided by the taxpayer because those are in the form of housing allowances given to military personnel. They are going to control that property for 50 years.

SYLVIA CHASE: Military officials say the industry that has risen out of the 1996 law is comprised of reputable companies and individuals. Eric Nalder discovered troubling facts. However, about some of American Eagle's principal players.

ERIC NALDER: Simply looking at the court records, the Navy, Army and the Air Force would have realized that they were dealing with two of the three major players in this company, that they were dealing with people that they might have second, third or fifteenth thoughts about.

SYLVIA CHASE: Nalder found that Kathryn Thompson, American Eagle's managing director, had led a developer in California which defaulted on a multi-million dollar public housing project and then was sued by Orange County, the suit was ongoing when American Eagle got the contract in Seattle.

ERIC NALDER: Another thing is that in the early part of this decade she went into bankruptcy proceedings, and during those bankruptcy proceedings it was revealed that she owed millions of dollars to the IRS.

SYLVIA CHASE: Then there was Carabetta Enterprises, a low income housing developer in Connecticut, and one of American Eagle's owners. Nalder would learn that Carabetta had a past problem with the U.S. Department of Housing and Urban Development - HUD.

ERIC NALDER: It was a big problem. Carabetta Enterprises, Inc had violated scores of HUD regulations and steered money the way they were not supposed to steer money in a HUD project, so badly did they do so that they were banned from HUD projects for quite a while.

SYLVIA CHASE: Then why would the military partner with American Eagle? Pouring through civil lawsuit records, Nalder found a potential clue: Carabetta appeared to have agreed to pay retired four-star Air Force General Merrill McPeak $200,000 to help American Eagle with its first military contract.

ERIC NALDER: He was well connected in the Pentagon and Carabetta had hired him to help American Eagle get their first contract. Which was very important because once they got that first contract, that was the doorway to the remainder of those contracts.

SYLVIA CHASE: Overseeing American Eagle's $230 million Navy contract in Seattle, John Jack saw that it was not going according to plan.

JOHN JACK: The original per square foot cost was 66 dollars a square foot, when I received the work package, it was 76 dollars a square foot, there's 1.1, almost 1.2 million square feet of new home to be built and you're 10 dollars a square foot over you're 12 million dollars over right out of the chute.

SYLVIA CHASE: There was more. John Jack says that executives at American Eagle okayed the use of sub-standard building materials in the new houses.

JOHN JACK: The reason a 50-year roof is spec'd out, is because this is a 50-year contract. Makes sense. They installed a 30-year roof, which is half the cost. They went from copper piping to PEX piping. They went from solid core doors to hollow core doors. So very substandard products than what was originally spec'd. So not only did they bill for $76 a square foot, but they're also putting inferior products in the home.

SYLVIA CHASE: More shocking to Jack was the response he said he got when he told his bosses at American Eagle.

JOHN JACK: I started putting together letters and, you know, cost analysis and I was submitting them to my boss, and they were being overlooked. At this time the Navy is clueless. The Navy doesn't know what's going on, you know, they see homes. They, you know, we're right out of the chute of construction. My bosses are telling me to be quiet. You know don't talk about this.

SYLVIA CHASE: As the months progressed John Jack says he kept detailed records. By that point his estimates were showing that if allowed to progress, cost overruns for the Seattle project would amount to $28 million. Jack says his continual attempts to get his superiors at American Eagle to listen were ignored. Then in February 2006, while still employed by American Eagle, he decided to take a new tack: He called the Navy. Surely, he believed, they would want to put a stop to the overruns.

JOHN JACK: I called my counterpart in the Navy. We met middle of February over at the new model home. We were sitting in my truck and I just handed her some documents that showed what my company was up to. And she asked me point blank how do we stop this? And I said you need to hold American Eagle to the terms and conditions originally agreed to.

ERIC NALDER: This moment in February of 2006, is a very key step for John Jack. He went from being an American Eagle director of a project to being a whistle blower within American Eagle. Going to the Navy and telling them that money was being wasted or, who knows what was happening to the money, and that the project was in trouble. When he reported this to the Navy, you would expect them to immediately halt everything on this project and, and turn every stone. They didn't really do that.

SYLVIA CHASE: In a subsequent meeting, Jack says, his Navy contact told him, she had spoken with American Eagle, and she had news.

JOHN JACK: So we went downstairs in their cafeteria and she bought me a sandwich and she says that 'They're firing you in two weeks.'

SYLVIA CHASE: But before he was fired, he started gathering documents.

JOHN JACK: I made copies of every document that I had and I started taking them with me, all my emails, all the letters, all the change orders, tens of thousands of different correspondence, here and there.

SYLVIA CHASE: He filed a federal whistleblower lawsuit against American Eagle. He also turned his information over to the U.S. Justice Department hoping to convince them to join him in suing on behalf of the Navy. The charge: American Eagle had illegally over billed the Navy.

Under the law if the suit was a success, John Jack would receive a percentage of any financial settlement. And then for a year and a half he went silent - the result of a court gag order, as the Justice Department investigated his claims. After Eric Nalder got that first phone call from John Jack in April 2008 about the Seattle contract he decided to check out American Eagle's other deals.

ERIC NALDER: It became apparent, very quickly, that this was not an isolated example, that this was not an isolated problem.

SYLVIA CHASE: Nalder found that in one job after another - from Patrick Air Force Base in Florida to Fort Leonard Wood Army Base in Missouri - American Eagle's military home building projects had fallen behind schedule. In Jacksonville, Arkansas, home of Little Rock Air Force Base. Local journalist John Hofheimer reported that civilians were suffering from American Eagle's actions, as well.

JOHN HOFHEIMER: The first indication we had that there were any problems occurred when we heard rumors that some of the contractors were being paid late, or perhaps not being paid at all. That's when we started making phone calls. American Eagle was, perhaps, months behind on paying them, and they had, you know, they had their own crews to pay, and they had materials to pay for, and some of these are very small companies, and this was really putting them in a bind.

SYLVIA CHASE: John Hofheimer reported that at least one subcontractor filed for bankruptcy; dozens of others had to settle for small percentages of what they were owed. One hold-out though is Tommy Austin, whose cement business was contracted to pour the foundations of more than 200 houses for American Eagle.

TOMMY AUSTIN: We didn't get near that number before the project was come to a halt. We really ran hard on that project for approximately six months.

SYLVIA CHASE: His lawyers are still trying to get all the money he says he was promised.

TOMMY AUSTIN: I have an investment up front every day. When I load a load of concrete and ship it out of here, I've invested in somebody's project, whether they pay for it or not. You know, my money went out the gate in that truck. If they don't pay me, then I'm stiffed. We're still owed on the air base project in excess of $70,000. That doesn't account for the attorneys' fees and filing fees that we've been out. That's money we'll never recover.

SYLVIA CHASE: Contractor complaints about American Eagle made it all the way to Arkansas Senator Mark Pryor.

SENATOR. MARK PRYOR: I do consider them as a rogue company. I mean, they maybe underbid this contract in order to get it. They maybe had good intentions, it's hard to tell. My preference is that they never be allowed to do any government contracting in the future. And the Air Force actually bears some of the responsibility here, because they did not have tight controls over this process.

They also, in my opinion, should have never given this contract to American Eagle in the first place. There were some red flags there, some previous business dealings with the federal government, with other contracts they'd had, and I just feel like if the Air Force is doing its due diligence, you wouldn't have had this problem in the first place.

SYLVIA CHASE: Back in Seattle it took the Navy more than a year after receiving inside information from John Jack to do anything about American Eagle - even as the company fell behind in building houses.

GENERAL SCHLESINGER: American Eagle was having performance issues, and their reputation had been sullied somewhat. Some of their paperwork was way behind. They were also behind schedule as a combination of excusable and inexcusable delays and ultimately the Navy assessed damages against American Eagle for late performance.

SYLVIA CHASE: That penalty cost American Eagle $500,000. But it would be a fraction of what the Navy was willing ultimately to overlook. Soon it would issue what is called a "change order" forgiving American Eagle $13.8 million in cost overruns, overruns said to be mainly due to weather delays. To John Jack, that amounted to pure profit.

JOHN JACK: On August 3rd, 2007, the Navy forgave American Eagle Communities through this single change order, and not only did they forgive them but they paid them thirteen point eight million dollars to do it.

ERIC NALDER: The financial problems were being, at the very least, obfuscated, and John Jack would say were being covered up, by the Navy forgiving the cost overruns and the delays.

SYLVIA CHASE: American Eagle was supposed to have built 605 homes in the Seattle area. It left town with 421 unbuilt. Of those, 141 were to have had their grand opening on this site.

JOHN JACK: We have an undeveloped site that has no construction activity so far. And this lot was slotted to be done and the end of October 2008, which was six days ago.

SYLVIA CHASE: In April 2008, it had appeared John Jack would finally be vindicated. He says he was told the Justice Department's whistleblower investigation supported his allegations. However as Nalder would report, the Navy's forgiveness of that $13.8 million in cost overruns had weakened the Justice Department's case for prosecuting on the Navy's behalf. "If the Navy was going to be its client," he would write, "the client had waved the white flag."

Subsequently, Jack's complaint against American Eagle on behalf of the Navy was dismissed, but it was quote, "dismissed without prejudice." Which means Jack and/or the Justice Department could still bring suit again.

As for American Eagle, Nalder would report it had sold its share of the Seattle housing project to another developer for over 25 million dollars. That's some 20 million more than American Eagle had originally invested.

JOHN JACK: So they made a net gain just by selling the project. That is a lot of money to do the wrong thing. So what's in it, to do the right thing, when the wrong thing pays?

BILL MOYERS: A post script about this story: American Eagle's Kathryn Thompson told journalist Eric Nalder that the millions of dollars she owed owes the IRS were irrelevant to the awarding of military contracts. And a Carabetta Industries lawyer told Nalder the company regrets that base houses haven't been completed, but claimed the air force refused repeated offers to finish the job as planned.

There is some good news to report: Senator Mark Pryor from Arkansas got legislation passed this year that beefs up government oversight and the accountability of those private contractors hired to build military homes. And the company that bought out American Eagle's contract is working hard to get those military families into new houses as soon as possible.

That's it for the JOURNAL. I'm Bill Moyers and we'll see you next week with a remarkable documentary called BEYOND OUR DIFFERENCES, don't miss it.

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