"the guardian." how much is the press being spun by the president and the republicans. i'm howard kurtz. this is "reliable sources." the murdoch media empire is in all-out damage control mode as the scandal at the british papers continues to spread on this side of the atlantic, the fbi opened a preliminary investigation on whether phone hacking took place in the u.s. and the dizzies pace of developments has made headlines around the world. >> mps finally forced murdoch to withdraw his bskyb bid. his empire has cracked, but is it broken. >> following breaking news in london where the embattled chief executive of murdoch's newspaper has resigned. >> news international will issue a statement to say that rebekah brooks has resigned as the chief executive of news international. >> more damaging details are emerging in the phone hacking scandal. other news corp properties are being implicated in the growing scandal. >> rebekah brooks resigned leaving the fight for news international's future to james and rub bert murdoch. >> rebeckah brooks was forced ot as the head of the newspapers, arrested to day by police in london in connection with the scandal. her predecessor less hinton who ran the dow jones resigned on friday. murdoch was forced to drop his $12 billion bid. the company took out full-page ads with a simple headline, we are sorry. in an interview with "the journal" murdoch says the company has made only minor mistakes in handling this debacle. joining us, from new york, michael wolf, author of a biography of rupert murdoch. david faulk ken flick and here in washington sarah smith, washington correspondent for the uk's channel 4 news. sarah smith, rebecca brooks being arrested by the police, how much does this further the damage? >> on the face of it it looks very, very bad. it means we're probably one step closer to james murdoch being questioned and arrested over this which would damage the company and the family very, very much. there's probably something quite clever going on. she was arrested by appointment, if you've ever heard of such a thing, which is remarkable given the accusations that the police are too close to news international and due to give evidence to a parliamentary committee on tuesday. now she's been arrested. she may very well say she can't answer these questions because it will interfere with the police inquiry. >> i would not be surprised. david, is there a sense that this is not just a "news of the world" problem anymore but a problem with the way murdoch's company does business? >> i think that's absolutely the case. you see this reach into the executive suites, not just the "news of the world." we've had the two previous editors, rebekah brooks and the former both arrested in this matter. i think it's worth pointing out this is a scandal that encompasses hacking into voice mail messages of royals, celebrities, politicians and victim of terror attacks. but also this is a police corruption scandal in which police appear to have been routinely paid for information that had been supposed to be secret and confidential. databases accessed, other matters like that. and senior officials question whether their relationships were too cozy. questions where they soft-peddled investigations two years ago. it calls into question the proximity of the relationships between top executives, people like remembbecckah brooks, jame murdoch. >> it seemed murdoch was trying to protect rebekah brooks, resisting her resignation for more than a week. now is he down to protecting his son james and himself now that these other people have now quit or been taken into custody? >> of course he is. there's another interesting point to make here about the way that this -- about the entire company. there are really two companies. there's the perfectly reasonable, ordinary entertainment company which provides most of the revenue, most of the news corporation revenue. and then there is this newspaper company which is sort of a vestigal company, it exists because rupert murdoch himself wants it to exist. that's really where the issue is, where the contagion is. it's within the newspaper -- it affects two things. it affects the newspaper, the newspaper company, and it affects people named murdoch who run the newspaper company. i think more and more we'll begin to see that split. in fact, there really is a simple solution for the company as a whole which is to get rid of the newspapers and the murdochs. >> rupert doesn't want to do that because he loves newspaper. democratic senator dick durbin on "meet the press" launched congressional hearings. there's no evidence at this point of any wrongdoing by any of the u.s. properties of news corp. but is this now turning into a two-front war for the company, on both sides of the atlantic? >> you can see they're absolutely terrified of having to fight this in the u.s. as well. the evidence is very thin to nonexistent that there was any phone hacking done in america. certainly nobody has uncovered any evidence that 9/11 victims were hacked. jude law has brought a lawsuit against "the sun" alleging while he was at jfk airport he knew his voice mails were being listened to. that would be criminal activity in the u.s. if it happened. what the murdochs have to do is make sure it doesn't go nerney of their titles here, the "wall street journal" or "new york post" or any properties here. >> david, i wonder if you think the u.s. part of this is hype. we have a lot of members of congress and certain liberal media types jumping on saying we must investigate. but the locust of the story is very much in britain. >> there's no shortage of people in the american media establishment and the american political establishment who have taken issue with the fact that the properties, fox news and the "new york post" have done business. that said, we've got to be careful. usually you don't want to get ahead of yourselves. in this one the story has each time surpassed your wildest expectations in the past two weeks. >> happened again this morning. >> absolutely right. i would say in terms of the american implications there's a question of whether british journalists for news corp broke the law here in 9/11. the evidence is scant. if the attorney general were to issue a wider ranging investigations, even actions that were illegal taken, for example, in great britain could reflect on the ability of news corp to hold on to american broadcasting licenses here. you could see repercussions under the question of the they interpreted as foreign officials being bribed as has been alleged with some substantive hearings. >> once you start an investigation, your don't know what kind of rocks are going to be turned over. >> michael wolff, let's talk about murdoch's role himself. the full-page ad with the apology. went to the murdered girl's family whose phone had been hacked. doesn't seem like he's doing the full contrition route yet. >> one of the curious things about rupert murdoch is when he gives an interview, he only gives it to news outlets he owns. those are always very funny interviews. he's telling reporters what questions to ask and how to cast his response. >> how do you know he's telling his reporters what to ask. that's not entirely fair. the "wall street journal" is a good paper. >> i've sat with him when he's done this. i know who calls before. it is absolutely the murdoch playbook. you call ahead. you set it up. you tell them what questions to ask. in the middle of the interview he often does there. >> so what does all this get him? if he does an interview with an outlet that he controls? >> i don't know what it gets him. it gets him further into a deerp hole. in that interview he sounds -- it sounds -- first thing, his answers are peculiar. his view of the world is peculiar. it is the murdoch -- what we see is the murdoch who believes he is in control. so he believes he's in control. yet to the rest of the world, what is obviously happening in we see him losing control in a way we see him out of control. >> sarah, he also said in that journal interview that news corp has handled this crisis extremely well in every way possible, just some minor mistakes. >> which is ludicrous because you just watched the way they've had to reverse themselves through the course of the week. first of all, they weren't going to appear in front of a committee of mps. then later they would. take these in british papers, ads saying "i'm sorry." can you imagine when rupert murdoch has said i'm sorry. he. >> getting high-level pr advice. david, a short time before break. a national review online says you are treating this as the second coming of watergate and suggests geraldo rivera said you were a weak-kneed, backstabbing, sweaty palm report sgler my palms are relatively dry. people can decide for themselves. it's political, law enforcement, journalistic implicationless. it will determine the fate of this media company here in the united states. i plead guilty to thinking it's a real story. >> getting more incredible every day. on the other side we'll talk about the kind of journalist practiced by rupert murdoch's company in the states. even if there's no hacking involved, it's something that we now should shine a little brighter spotlight on. stay with us. offers an epa estimated 42 miles per gallon on the highway. sglfrnlths iles per gallon. cool? 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[ male announcer ] glucerna. delicious shakes and bars. helping people with diabetes find balance. back talking about the murdoch media scandal and michael wolff. i talked to a couple of former reporters for the new york paste which had its own brush with scandal. they talked about thuggishness where reporters would play favorites and go after people that murdoch or the company don't like and had stories killed when someone went after people the company did like. >> i think it already has -- what we're really dealing with is a portrait of this -- an ethical portrait of this company. and i think the crucial thing is, and the thing that has happened to the company is that they've gotten behind -- the temperament of the times has changed and they haven't realized this. i think we're going to look at -- the "new york post" is a good example. they probably haven't hacked phones themselves. actually their staff is too small. hacking requires too many resources. but nevertheless, the "new york post" is part of the murdoch method of reward and punishment. that's how he's built his power base. he likes you, he rewards you. he doesn't like you, he uses his newspapers to punish you. >> we do have to be careful about some of the allegations. a british blogger reported cnn's piers morgan may have known about illegal conduct that took place some years ago. he's he's the need knowing anything about that. >> that sounded like an official company denial. >> the official denial is all we have because piers morgan hasn't talked about it extensively. i'd be happy to talk to him about it. >> david, people ask me about what about fox news and the "new york post"? i wonder if you think that's unfair at this point because the scandal is in london. >> the scandal is in london. one of the things to remember about murdoch is a lot of his dna, an australian anglo american institution, has come through the london newspapers that he oversaw to great success there. particularly you've got -- if you look at the fellow who is the editor in chief of the "news of the world," it was the guy who was the number two editor at the "new york post." they're closely linkedin dna which is not to say the allegations are the same -- >> i've got to cut you off. i want to get sarah smith in. this story will continue to get bigger before the crisis passes in your view? >> absolutely. in britain certainly. people will look for tentacles of it here as britain will have to examine everything about the relationship with the press. were the politicians too close to the press? were the police too close to the press? >> very incestuous culture. the answer seem to be yes. thanks very much for joining us. coming up in the second part of "reliable sources" the newspaper who spent two years pursuing the hacking scandal is the guardian. we'll ask the editor about his paper's apology. then with murdoch on the defensive, are some of murdoch's critics using this crisis to pile on? are journalists getting the real school or just spin? candy? um-- well, you know, you're in luck. we're experts in this sort of thing, mortgage rigamarole, whatnot. r-really? absolutely, and we guarantee results, you know, for a small fee, of course. such are the benefits of having a professional on your side. 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[honks horn] ...homes around the country. every single day, saving homes. we will talk it over... announcer: if you're facing foreclosure, make sure you're talking to the right people. speak with hud-approved housing counselors free of charge at... two years ago the initial reports of a phone hacking scandal at "news of the world" had fade friday the headlines, the mess being blamed on a single rogue reporter. but "the guardian" stayed on the case, leading the the appalling revelation that is prompted rupert murdoch to shutter the tabloid. i spoke with alan rushbridger from london. >> alan, welcome. >> happy to join you. >> you started digging into this story at "the guardian" two years ago. the police said there was nothing else to it. murdoch's people said there was nothing else to it. did you have any doubts that this wouldn't lead anywhere? >> there was a moment at round the end of 2009 when nobody was biting. the police had put the story to bed by coming out and denying it all. news international denied it. they said we were deliberating misleading the british public. the regulator, these quaint things called press regulators in britain. they said there was nothing in it. and no other papers were following it up. around about the end of 2009, early 2010, it was looking as though it was only us. but nick davis, our reporter, was very determined and i knew he was never going to give up. >> on that point, your deputy editor, ian katz was quoted as saying that you were and the paper were slightly obsessive about this story. how do you plead? >> well, i think you have to be, especially a story in which you don't get a clean wind to begin with. i think the lesson of this story all around is if everybody came out and fade attention to the story we wrote two years ago in july 2009, "news of the world" would still be alive and i think rebekah brooks would still be in her job and we wouldn't have this giant crisis. >> why do you think, alan, with a few exceptions, almost nobody in the british media did aggressively follow up your story? were some of these organizations perhaps afraid their own techniques might be looked at? >> well, that's what people say. i don't know. again, there was a moment when just before the british election the -- there was an employment tribunal which found that andy coulson presided over a culture of bullying at the "news of the world" and a former reporter was awarded a million dollars in damages. that's a staggering finding about a man who is just about to walk into number 10 downing street and not a single paper reported it. i just can't understand why there was an omerter at that point. >> it seemed so incestuous in terms of people from murdoch's company later being hired by others. andy coulson being hired as the top communications adviser to david cameron. you had a conversation with the incoming prime minister about that. can you recount that for us? >> well, we tried to warn all the party leaders of something that we couldn't write in february 2010. so this, again, you have to understand the british laws we have that you can't write about people who are charged with things and waiting for the trial. we knew there was a private investigator, another private investigator who was charged with an ax murder, and he had -- he had been in prison earlier for planting cocaine, so on. he was a bad man and he had been hired by "news of the world" straight from prison in 2005. that was a story we couldn't write, but i thought the future prime minister should know that. i thought nick clegg and gordon brown should know that. i got a message to camera's office via my deputy to that effect. we know it got to his chief of staff. but his chief of staff didn't think that was worth passing on. >> did that put you in perhaps the uncomfortable position of offering advice to david cameron and other politicians about who they should or should not hire? >> it wasn't advice. he was free to do what he wanted. i went to see gordon brown and e-mailed nick clegg. i was doing it's cally with all the parties. i just thought particularly as this was a story that was being ignored, i thought people ought to know there was going to be a story at some point that everybody would be writing. haven't we seen that this week? just because we couldn't write it and blow it open then didn't mean that there wasn't serious mud coming down the slipway. >> you caused a huge stir at "the guardian" when you reported roughly a week ago that former prime minister gordon brown, that his family medical records had been accessed by "the sun," another murdoch tabloid. that, of course, led to the story that the five-month-old baby hat cystic fibrosis. brown was outraged. on friday "the guardian" apologized and said you did not have evidence that the medical records were obtained by "the sun." that's a pretty bad mistake, isn't it? >> well, the difference is between the medical information and the medical records. "the sun" says they didn't have access to the medical records. and gordon brown, his recollection as he told us, was that they did say they had the medical records. if