We know the Malaysian Airline was shot down with a surfacetoair missile. Russia has a lot of covert personnel. Wouldnt the russians have to know about it . You have just stated the obvious that the surfacetoair missile had to come from russia. The Training Provided to operate the surfacetoair Missile System most likely came from russia. Whether that russia knew specifically about this incident or not, i dont know. The International Investigation that the United Nations responded to our call for on friday with a resolution that was passed and the russians voted for it, we will find out. We will track this all the way back. If the russians were complicit, john mccain said there should be hell to pay. What would that be . They will come out the losers but we should wait for the facts. The russians have been instigating this trouble in Eastern Ukraine for months. They have been encouraging the separatists, providing the separatists with sophisticated military equipment. They probably have 12,000 Russian Troops on the border. We know there has been a lot of heavy military equipment that has gone into ukraine. What then would be the price russia would pay . The president at a News Conference today talked about options, but i get i think the president was careful on this. Lets get the facts first. The russians continue to isolate themselves in the world. This is an International Incident with nations represented on that flight. This is a very serious International Incident. The russians are going to have to take some responsibility for all of it. The president also called on the russians to go along with the ceasefire. If they dont do that, would you be willing to reconsider and provide more lethal arms to the ukrainians . Again, lets get the facts and then we will make some decisions as to what would be the appropriate response. Let me turn to iraq. What is the latest assessment of the military situation there . Weve had assessment teams on the ground for the last 15 days. The assessment teams have come back with their complete, final assessments. They are not there an advisory capacity but were looking at those now with chairman dempsey. I just finished reading through all of them to get the final assessment recommendations. We know this. Iraqi Security Forces, some have done well. Others have not. It is the will to fight. It is leadership. It is a different dimension depending on the part of iraq where you have a military that is, in fact, divided between sunnishiite lines. We have a government in iraq that has essentially failed its people over the last five years. The military has, too. The military answers to the government. There are areas in iraq where the Security Forces are doing well. Others they are not doing well. As the International Community assesses this, we need to be aware of where we can be of assistance. He said isis is not only a threat to the middle east but to us. If the Iraqi Military does not shape up in time and they are a threat to us, dont we have to do something more than what we are doing now . We are looking at sanctions . The president said we will not have combat boots on the ground, literally in combat, like we did for many years. There are other options. We are looking at strike options and different buckets of targets. We could do more in the way of putting advisors in places to help more iraqis . Bottom line, the president has been clear. The new government being formed now, or we hope will be formed, is in the process of being formed, there was good news this week with a sunni representative being brought forward to be a new speaker, without the unity of a new government that is inclusive, it will be pretty hard for the iraqi Security Forces or other important governing elements of iraq to come together to secure that country. We do not want to see a country that implodes with no government. We are looking at all of the different possibilities and options. This is one of the areas where we have a mutual interest in fighting isis with the iranians. Can it be expanded . Does it depend on whether a nuclear deal can be struck . What are the odds . Iranians are in iraq. They have been in iraq. They have influence in iraq. It is one of the few shiadominated countries in the world. The relationships there, the shia relationships, have been pretty strong. Iran has very clear interest in iraq. That is one part of this. To your question, aside from the p5 plus one talks that we hope produce something, secretary kerry and his team are working very hard on that, to see a stabilized iraq and our interests, other countries interests, not to see a middle east in flames is pretty clear. We are not coordinating any efforts with iran, but well have some similar efforts here to help stabilize the government of iraq so they can govern in the people of iraq have a future. Do you worry the crisis in gaza can spread to the middle east . I do. When you look at whats going on in gaza, iraq, syria, libya, tunisia, lebanon, its all pretty serious. Its not all directly connected. Its not all directly related. But these are faultlines that go back centuries, as you know. This is the time for steady leadership and partnering with other countries especially in the region and weve been doing that. Gulf countries, turkey, jordan. As the president has said, there is no military solution to any of this. This will have to be worked through with a political solution bringing people together. Its going to take a while. Any part of the complicated dimension will not get solved in a matter of a few months or in a year or two. This has to play out. In the meantime, we have interests there. We can help, and we are, to help facilitate a higher landing on this. Mr. Secretary, were going to take a short break. Well be right back. Welcome back. Were here at the pentagon with defense secretary chuck hagel. Your fiveyear plan calls for 115 billion more than under the budget control act. Are you assuming congress will repeal teh sequester act as it pertains to defense . Were not assuming anything. What were doing and asking for that additional funding, al, is complying with what we think the department of defense who has the responsibility of securing this company, but it will take to secure our National Interests over that time. You know we are in a twoyour stand down from sequestration even though we are not living with sequestration right now, it will come back in fy 2016. We are still taking big hits. Congress, both the house and Senate Appropriations committee are rejecting any reforms you are proposing like retiring the a10 aircraft. Making reforms necessary for us to move this institution to the future to deal with future threats and the reality of a congress continuing to cut our budget, you cannot have both. The longer the Congress Rejects these kinds of reforms, the more difficult its going to be the next year and the next to do the things that are required to reset and adjust our defense capabilities for the future. Its going to be a lot more difficult for the people who come behind me and the leadership of this congress. I would hope that congress would get serious about partnering with us. Its not a matter of accepting exactly what we say but if theyre going to reject our reforms, they need to come back with some alternatives. You notify the congress you are sending six guantanamo detainees to uruguay. Theres still a lot of tension up on the hill about the fact the administration did not notify about the swap involving Sergeant Bergdahl. Do you think that will complicate further transfers . The president has made it very clear that he would like to see guantanamo closed. We will continue to work within the law to do everything we can to close it. We feel it is very clearly not in our interest. You have Legal Authority issues how long you can hold people and under what authority. Do you know if Sergeant Bergdahl has spoken with his family yet . I dont know. As you know, he is back on active duty as far as capacity where he could handle it. He is still under the care of all of our doctors there. He is still getting medical treatment. You have promoted women to high rank and named a new commander. The problem of Sexual Assault continues to plague the military. Former marine commandant general amos said female victims do not come forward because they do not trust the command. Isnt it time to change the system . We are changing the system. Think about the change of command and give it to an independent prosecutor . I dont think so nor do the people who i have sought their opinions on this over the last 12 years. This is the advice i have gotten and i have listened to hundreds of people on this. I have been on panel with different groups and taken 28 initiatives, worked with the congress. We just had a report brought back to the congress with an outside panel of experts with their recommendations and their recommendation also was not to disconnect the command from the responsibility of the Sexual Assaults. The real fundamental problem for me, and most of the people i asked about this, on the issue if you take it out of the chain of command, it is critical in the military because it has not worked out very well. We went back up to canada and Great Britain and asked how that worked out. Some say they have made a mistake. If you eliminate the responsibility of commanders of what is going on in their command, you take away an authority that is critical to good order, discipline, whats going on. We have not done it very well and i agree. Directives i have done and taken, one issue that i meet once a week on, the Sexual Assault prevention group, commission, all of the Senior Leadership meets with me and we have changed everything. We changed our training, our military academies. We changed every part of the culture. Is it where we need to be at . No, its not, but weve made tremendous progress. Secretary hagel, thanks so much for being with us. When we come back, john walcott, Margaret Carlson, Megan Mcardle. Welcome back. I will get to Margaret Carlson and Megan Mcardle in a moment. But first, bloomberg newss john wolcott to analyze the latest in ukraine in the middle east. It seems almost certain that the separatists shot down this plane. What evidence are we looking for now . Why do you think they did it . In terms of evidence, you are looking for things Like Communications intercepts in which either someone is ordered to do it or someone reports a doing it. There is clear evidence of who did it, who ordered it. In terms of the motive, the intelligence consensus is that it was probably a mistake. They shot down a Ukrainian Military transport on monday. They probably thought they were doing that again. They could not distinguish between that and the airliner. The Obama Administration had ratcheted up sanctions on russia. They still have not gone as far as we like. Is proof coming that they are doing it . How does putin respond . Does he begin to back down . Or does he double down on what appears to be a bad bet. If he begins to back down, my bet is he does not do it publicly. Thats not his style. What you might see are things like some of the tanks that went from russia into ukraine going back to russia without anyone talking about it. You might see some people in some of these units suddenly being recalled or whatever. Again, without anybody talking about it so i suspect the europeans, who have far more to lose from pushing putin into a corner will wait a little while and watch to see how he responds. Lets turn to the middle east. Do we have any leverage on all . The main point of leverage, keep an eye on where john kerry goes next, may be through egypt. They have the ability to prevent the iranians resupplying hamas. They have used Something Like a quarter or a third of their arsenal. Most of the stuff they get to replace that comes through the sinai desert and through these tunnels that the israelis are trying to shut down. The egyptians have gotten tougher right on the border but there is still a lot of stuff that moves through there. We know with the down side for palestinians. Is there a downside for israel . So far, none of the Israeli Operations in their neighborhood, in lebanon or gaza, has done much to improve security. They have gone in there three times now. They have gone into gaza once before in a big way in the operation and here we have this problem again. The last thing they need to do is to go in there and try to occupy gaza and get bogged down. Thank you, john walcott. A number of American Companies locating overseas so they can pay fewer taxes. They will crack down on it. They would not have to if they would pay any attention to our disgraceful tax code and reform it. We have the highest tax rate in the world and they are noncompetitive because they go in. They are paying 10 or 20 more in taxes so they are not competitive. They will take advantage of what is there. You will not need to close that if you fix the tax code. I would push toward eliminating the Corporate Income tax entirely which is very easy to game and move towards a consumption tax and eliminating the special treatment for Capital Gains dividends. Is really not much a cando if they want to move their headquarters abroad, its extremely difficult preventing them from doing so. Let me turn to politics. Could you envision possibly that they nominate senator paul . I can. He embodies several things the republican is moving towards. When republicans look out the landscape and say we do not want to cut Social Security or medicare because its politically toxic, the money has to come from somewhere and defense is the other big pot. I think megan has been spending some time in colorado. Rand paul will not be the nominee if the Republican Party has anything to do with it and the establishment wing, not to mention the neocons will not let it happen. Look at the pushback to try and tamp him down after he wrote the oped condemning rick perry. Its hard to describe him as anything him as a neoisolationist. Margaret carlson, Megan Mcardle, thank you so much. We will see you next week. Political capital is a production of bloomberg television. 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