♪ there's no place likargh!e ♪ i'm trying... ♪ yippiekiyay. ♪ mom. ♪ a very good christmas eve morning to you. i'm jim sciutto in new york. on this last full week of 2018, the focus in washington is on

800,003 federal employees on forced paid leave or due at work but also unpaid because of the partial governmenttia shutdown its third day. james mattis out even sooner than he planned. other the weekend, president trump decided he hated mattis' resignation letter and basically fired him after the fact. the head of the federal reserve jerome powell is thought to be safe for now, but only because steve mnuchin informed the president the law would prevent him from firing him because he blames him for rising interest rates and falling stocks. cnn has learned the president's anger now centers on mnuchin, who recommended powell for the fed job in the first place. much more on all of this in the hour ahead. we begin, though, with cnn's barbara starr at the pentagon. we understand the shakeup at the top causing real alarm in the

field. you have u.s. forces deployed ipactive war zones today who don't know what's going to happen next. >> that's right, jim. several senior commanders are overseas on long planned holiday trips to wish the troops the best, and they're getting questions from the troops about what will happen. are they coming? when will they come home? what can they tell their families? what will happen in the conflict zones in syria and afghanistan that they may leave behind? so there's a lot of uncertainty, and that is not what the military likes to see. now, we know that deputy secretary of defense patrick shanahan will take over on january 1st. mr. trump not happy with how mattis' resignation letter was so widely and warmly received, and the kudos secretary mattis got from across the world for the job that he did. so now, he will leave on january 1st instead of at the end of february. shanahan steps onto the world stage, a former boeing executive with no foreign policy

experience. he will have to deal with america's allies and keep a sharp eye on america's adversaries. one of the final acts that mr. mattis may have undertaken is over the weekend, he signed the execute order, the military order, that will now pave the way for how and when u.s. troops come out of syria. jim. >> barbara starr, quickly, is shanahan a possible candidate to be the permanent defense secretary? we know it's our reporting that a number of other possible candidates have taken their name out of the running. >> i think he well may be on that short list to become the permanent secretary to be nominated by the president. he and mr. trump are said to have a relationship. and that the president likes shanahan's business approach. shanahan has been in charge here at the pentagon of all the business type matters. acquisition, contracting reform, foreign military sales, getting

the space command set up that mr. trump wants. so here's the interesting thing. patrick shanahan has never had to tell the president no because it's all the issues that he's dealing with are the ones that mr. trump likes. now, as acting secretary of defense, dealing with nato, russia, china, iran, north korea, isis, al qaeda. he may be forced for the first time to confront mr. trump's instincts on national security. jim. >> that tends to threaten one's job security in our experience. barbara starr at the pentagon, thanks very much. i'm joined by former deputy national security adviser and former deputy secretary of state, tony blinken, along with david sanger. tony, just want to ask you, you served inside government in a number of levels in national security. does the u.s. today have a national security decision making process where the commander in chief consults his commanders in the field, other senior national security staff,

or as we saw last week, makes summary decisions and issues proclamations by tweet? >> jim, as far as i can tell, the answer is no. that's deeply troubling and concerning. by the way, susan rice lays it out effectively in an op-ed in "the new york times" yesterday. in my years in government, people, policy, you want a process, and you want it to result in a policy everyone can follow. what we're seeing now is the goingrogation. the piece people are gone or going, starting with jim mattis. there apparently is no process. the president just decides things arbitrarily, and people think there's a policy, but the president seems to disrupt it with a tweet. the syria policy is gone and so is the afghanistan policy. that's not a way to run a government, and it is a way to get us into trouble. >> we just had on this very topic, a new tweet from the president. and we tend to stay away from

these reflexingly unless there's news in here, but here's what the president is saying right now. we're substantially subsidizing the militaries of many very rich countries all over the world while at the same time these countries take total advantage of the u.s. and our taxpayers on trade. general mattis did not see this as a problem. i do, and it's being fixed. david sanger, the president seems to be applying his issue with nato to a whole host of things. i can't imagine you can include the kurds as fighting isis as a wealthy nation taking advantage of the u.s., but what is the president trying to do as he fields a lot of criticism on the decisions in the last week? >> i think the fascinating part of the tweet is the end part. when maggie haberman and i went off to interview the president in 2016 and some foreign policy interviews, he kept merging our role in helping protect countries around the world with our trade relationship. and he asked the question, why would you protect a country with

whom you have a trade deficit? the answer is we're not always there just for them. we're there for us. that's been the concept of forward deployment involved in american strategy since the end of world war ii. and so he does this sort of straight on equation as if the only reason that we have troops in asia or the only reason we have troops in europe or in the middle east is to protect them. instead of being our early warning system. instead of keeping the peace along the way. instead of keeping those areas open for trade. and this is a bit mystifying. you would have thought over two years that over time, general mattis and others would have begun to sort of change his view or explain at least how the system works. what's clear from this is he believes mattis never came around to his view. >> right. if they don't change, you're on your way out. i have to ask you, tony blinken, because folks will often ask me

this. what does it mean? what does it matter? as you know better than me, russia and china are watching this. they have places where they want to poke the u.s., they want to expand, et cetera. do they watch this and take advantage? just an example, does russia test nato by invading, like it did ukraine and eastern ukraine and crimea, a nato ally in the baltics. does china take this message and threaten taiwan? because if you have a president here who is walking away from a whole hest of alliances, what is it keep him from sticking to those? >> that's certainly the message they're getting, jim. as they see the united states turn inward, it creates an atmosphere of impunity for them to start poking and prodding and testing and seeing what they can get away with. and so i worry that this is a recipe for greater instability. not the opposite. and you know, david's exactly right on the points he was making. i would add just one thing. i think what the president misses is this. yes, we made investments in our allies and partners around the

world, in their security, in their prosperity. but we have gotten that back ten times over, 100 times over. new markets for our products, new partners to deal with global challenges and yes, new allies to deterand if necessary fight aggression. sure, the nato allies should be doing better and paying more, but put it in perspective, together, our nato allies spend more on defense than russia and china put together. that's significant. we have global responsibilities. they don't. that's why our defense budget is bigger. we need to not alienate the very folks who have been with us in every single fight since the second world war, and who are actually making us safer and giving us an opportunity to be forward deployed in the world, as david said, as an early warning mechanism. >> these decisions have real consequences. a big part of this is the politics. here's a president, he's just lost the midterms. he's feeling squeezed by his own advisers who don't bend to his will. politically, it seems like he

feels empowered now to ignore the advice of others and just plow on with decisions, you know, damn the consequences, damn the media firestorm. do you expect more of these kinds of decisions going forward in the next two years? >> i think you have to, jim. i think the reason for that is twofold. first, the president surrounded himself initially with a group of advisers who were willing to push back some. rex tillerson did, even if he was not very effective at running the state department. certainly, jim mattis did. h.r. mcmaster did. >> nikki haley. >> nikki haley did. each of them have been replaced now. we haven't seen yet from mattis, with people who are not likely to go stand up and say to the president, you know, i think you're going in the wrong direction. i can't live with this. mattis was sort of the last one to do that. the second is, the president is going to recognize, starting on january 3rd, he has already recognized this, he has no

domestic agenda left. democratic majority in the house will get in the way of that. so traditionally, presidents become more foreign policy presidents after they lose their ability to go do that. tony served in an administration where a president decided to head off in that direction. but those two things combined, a president who is going to be heading more toward foreign policy because he believes he's gotten more power there, but who is not willing to listen to others who push back, that may be what we're looking at in 2018. >> goodness gracious. tony blinken, david sanger, thanks to both of you. i hope you get a break these holidays. >> thanks. still to come, this could take a while. soon to be acting chief of staff, a lot of acting these days, mick mulvaney says it is possible the latest government shutdown will spill into 2019. ahead, the latest on the shutdown, and a top democrat said he's willing to take on the white house to make sure the

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well, as we speak, we're two days and just over ten hours into the partial government shutdown, and while the white house now says the president is open to lowering his $5 billion wall funding demand, lawmakers are already home for christmas, so there are no signs of a compromise in sight. in fact, they're not even talking. joining me, senior white house correspondent for bloomberg news. first on that, margaret, what do you read into the white house signaling here that they would come down from this $5 billion figure? >> it looks like the president understands that the longer this creeps into january, once the

democrats take over, he's got very little leverage on that house side. if we end up there, he understands that the game changes and then it becomes about trying to blame the democrats for this, but if he can try to make the point, secure some money for border security, and make it look like by holding out, he gets a win, he may end up trying to do that. i think he'll use the next couple days to tist the waters on that. later this week at the earliest, but it could slip pack the first of the new year. >> look at the politics. democrats would be very aware, even if it's $2 billion, the number almost doesn't matter. the president will claim a win, and based on past practice, he might even say he got the better of democrats. you could picture that. do the democrats, particularly as they're about to take over the house come january 3rd, do they have political incentive to yield on this? >> the only political incentive is that if they are able to start the new year with this out of the way, they can focus on

what they were planning on focusing on, which was the series of investigations into the president and being able to set a proactive agenda rather than having to deal with it on his terms. you can see sort of the upside to a deal, but you can also see that they understand from a policy perspective they'll have much more leverage to be decisive and stop him on some of these fronts if they wait until the beginning of january. >> i want to take a look over to the markets because not a good start to this christmas eve morning here. you see it there, down another 300 points. percent and a half in less than an hour of trading. as you know, this is one of the president's favorite if not his favorite barometer of success. a lousy 2018. market is down more than 1,000 points. i think approaching 2,000 points since the passage of the tax cut. how much is that indicator affecting the president's decision making on the shutdown and other issues now? >> yeah, i think it's pretty

important. we're looking right now at this moment at the u.s. markets being in really the worst position since around may of 2017, which you may remember on the calendar for a different reason. that's right around the time that jim comey changed jobs or left his position. so the economy and the markets are two different things, but performance of both has been good in a way that's really helped president trump to be able to use a hammer and pursue some of these policies, that combined with the initial bump from the tax reform plan has helped the president try to be able to make some of these arguments on tariffs and immigration policy and such. he understands that losing that edge or having a sort of flipped scenario to that edge, if the markets are doing poorly and/or if the economy is doing poorly, it weakens him greatly, both in terms of how he deals with democrats and in terms of how he

can campaign heading into re-election. >> "the new york times" had some fascinating color from inside the white house right now, describes the president as angry and frustrated, but this line caught my attention. he spends even more time in front of a television, often retreating to his residence out of concern he's being watched too closely. frustrated with decision making, agitated by aides not listening to what he says. you cover this white house very well and closely. is the president doing his job? >> well, there is no one uniform definition for how a president should do his job, but it's certainly true since the beginning of the administration, the president has sort of tried to navigate traditional governance with his version, which is absolutely very reliant, very responsive to television coverage, news coverage, what conservative pundits are saying, and to the extent these conditions have

exacerbated that, you see him spending more time alone, less time listening to advisers. when he reaches agreements with advisers or with republicans in congress, such as on the shutdown or how to pursue on syria, and then changes his own mind at the last minute, it creates discordance and erodes whatever good faith is left. it's important for him to be able to have a working relationship with the republicans in the senate and with his own advisers. and to the extent that that is ever more strained, it makes it that much more difficult for him to govern going forward in this new phase. >> margaret, thanks very much. >> thanks, jim. still ahead, a top democrat on the house intelligence committee is pouring cold water on any plan the white house might have to block the public release of robert mueller's report on the russia investigation. we'll discuss that next.

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♪ yippiekiyay. ♪ mom. ♪ top democrats in the house plan on ringing in the new year with subpoena power. incoming chairman of the house intelligence committee, adam schiff, already warning president trump he better allow the public release of the special counsel's report on the russia investigation. but if the white house were to try to block it release, as the president's lawyer said that they might, schiff says he is prepared to force mueller's

report into the public eye. >> i'm prepared to make sure we do everything possible so that the public has the advantage of as much of the information as it can. now, there may be parts of the report that have to be redacted because they involve classified information or grand jury material. this case is just too important to keep from the american people what it's really about. >> joining me to discuss is sara murr murray, and paul callan legal analyst. sara, to you, what's your latest reporting on the white house's intention s regarding this report. are they exploring ways to block this? >> they have been clear they don't want this entire report made public. we know the view right noum from the justice department is they can't bring charges against a sitting president, so let's say mueller comes up with a report that says, look, the president did a whole lot of things wrong when he was running this campaign. he made a lot of bad decisions, a lot of errors in judgment, not

just from him but people around him. that's not something the white house wants out there. they're going to try to protect as much as possible under the scope of privilege, but the reality is what schiff is getting at is the american public has spent a long tite waiting,hering drips and drabs of this. there's been a rlot of money devoted to this. there are many americans who want to know what mueller has been up to this whole time. >> paul callan, you heard sara mention the idea of executive privilege, which is something this president, this administration, likes to use liberally. is there legal justification for if not blocking the whole report, redacting significant sections, saying these are private conversations. >> if the predwas conferring with advisers and the consultations were regarding perfectly legal president actions, yes, executive privilege could apply. but if they were part of a criminal conspiracy of some sort, the privilege would not apply and that would not be

grounds to release. there are, however, other problemsnition to executive privilege. that's the special counsel law itself. it's got two sections that deal with how the report, if a report comes, gets released. and i will tell you that in reading it carefully, the attorney general has enormous power here to block disclosure to the congress. if he wants to. so i think what you're going to see is a battle between the legislative branch, the executive branch, and maybe even the supreme court getting involved in whether it gets released. >> one more legal question, paul. we learned what was explosive news in a week of explosive news. that the president's acting attorney general was advised by doj ethics lawyers, career lawyers to recuse himself from overseeing the russia probe because of past and repeated comments criticizing that very probe. he refused that legal advice. >> yes. >> how unusual is that, and how can you consult the ethics lawyers? you're supposed to listen to

what they say, aren't you? >> you are supposed to listen to them. they reviewed this extensively. what they decided is there is not technically a conflict of interest in him being involved because he publicly expressed an an anti-mueller opinion. that doesn't mean he will be biased now. that's what the law says. however, there's a section of that law that says if a reasonable person would look at this and say that lawyer is biased and shouldn't handle it, it's called the public perception of conflict of interest, then the best thing to do is step aside. clearly that applies here. >> gets to the confidence in the institution. sara murray, the other thing we learned last week, cnn reported in the last few days, the president scolded matthew whitaker because he didn't shield the president from what were charges against michael cohen that made the president look bad. explain what happened there and what right the president imagined he had to keep -- to

force his attorney general's hand, i suppose, to hold back independent federal prosecutors, pursuing crimes. >> i think this is the exact concern people had when president trump sort of hand plucked matt whitaker to be the acting attorney general out of this line of succession, somebody who was not senate confirmed and president trump made clear he didn't like a number of actions mueller's team had taken, a number of these reports regarding michael cohen that have implicated president trump. he was livid about that and shared those frustrations with matthew whitaker. it is pretty stunning because we already know that obviously president trump has come under plenty of fire for appearing to interfere in the mueller investigation. matthew whitaker has come under fire for appearing to have bias in the mueller investigation. this is another example of president trump looking at somebody who holds the attorney general position and say you're there to protect me and serve me and not serve the country. one thing we were talking about, the special counsel regulations to remember, the one thing they

have to inform congress about is let's say bob mueller decides he wants to do something like bring charges against someone, and the attorney general, in this case, matthew whitaker says no, that has to go to congress. >> thank you. the country indonesia reeling from a tsunami. hundreds dead. the death toll keeps rising. look at the pictures of devastation. now there are fears more tsunamis could strike within days and without warning. ♪

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the death toll in indonesia is soaring this morning from a catastrophic tsunami there. nearly 400 people confirmed. search crews are still combing through piles of debris. a 10-foot-high wall of water struck without warning. now indonesia's president says he wants a better detention system. all this amid fears more tsunamis could strike within days. more from ivan watson. >> jim, the death toll from saturday night's deadly tsunami in indonesia has surged even as the recovery efforts have been complicated by fears and warnings a volcano could erupt again and trigger another deadly tsuna tsunami. the situation we have was triggered, the indonesian authorities believe, by this

volcanic island that is in the middle of the strait that erupted on saturday and sent more than 150 acres, indonesian authorities say, of mountainside plunging into the sea. they believe that subsequent underwater landslide triggered the deadly wall of water that hit the shores in resort communities in indonesia that were full ofind indonesian tours on what was supposed to be a christmas weekend holiday. some of the survivors have told us that they got no warning that this tsunami was coming. they didn't even see the waters receding, which is sometimes a sign of an impending tsunami. the indonesian president has toured the area and urged his agencies to create some kind of a new early warning system. an existing one appeared to have been defunct since 2012,

suffering from lack of attention and from robberies and vandalism. there was talk of trying to fix it up after another deadly tsunami struck another part of indonesia in september of this year, killing around 2,000 people after an earthquake. indonesia is very vulnerable, jim. it's made up of more than 17,000 islands. it's on the ring of fire, home to more than 125 active volcanoes. so protecting this long coastline will be an immense challenge. jim. >> ivan watson, thanks very much. >> we take another look now at stocks. dismal december already. market down nearly 200 points. a little off its lows right now. responding to a lot of news. coming up, we break down this year's top business headlines. jardiance asked-

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wall street is on track now for one of the worst decembers since the great depression. but believe it or not, that is not the top business story this year. cnn's christine romans and richard quest have our 2018 year in review. >> iconic american industries transformed. >> the stock market, wild ride. >> the u.s. takes on the world. >> scandals shake confidence in big tech. >> these are the top business stories of 2018. >> number eight, retail implodes as amazon explodes. this year, two decades old

iconic american retailers closed up shop. >> the dramatic fall from what used to be one of the united states's largest retailers, sears, filing for bankruptcy. ♪ i'm a toys "r" us kid >> lost generation of toys "r" us kids have spoken across the u.s. >> toys "r" us and sears struggled to keep up with retail's digital transformation. target, macy's, and walmart are investing millions in their websites and mobile apps. the goal, compete with amazon. the online behemoth dominates the industry with billion dollar profits and a trillion dollar market value. granting its ceo a coveted title. >> jeff bezos is now the richest person of all time. two new locations will feel amazon's power. new york city and northern virginia. they won a year-long competition for its second headquarters. >> number seven, auto companies reckon with the future.

americans are shunning sedans for suvs. that's changing the industry. ford will drop all but two passenger cars from its lineup by the year 2020. and general motors is restructuring its work force and announcement that sent shockwaves through american's heartland. >> they're cutting staff and closing plants. >> president trump slams gm's decision to shutter five north american factories costing 14,000 jobs, but u.s. automakers say it's evolve or die. they're investing in self-driving and electric cars to compete with each other and their new rivals in silicon valley. >> number six. trump versus the federal reserve. in 2017, president trump praised his pick for fed chief. >> he's strong. he's committed. he's smart. >> well, that didn't last long. the president breaking precedent by repeatedly criticizing jerome

powell for raising interest rates. >> the fed is out of control. not happy when hot what he's doing. >> we have much more of a fed problem. >> historically, presidents always avoid confronting the central bank. it's supposed to operate independently from political influence. so president trump's attacks may have unintended kw eed conseque. if the fed suddenly slows the pace of rate hikes, that could raise concern it's bowing to political pressure, or the president could do exactly the opposite of what he intended. the fed may feel it has to raise rates to show it's not surrendered. >> number five, elon musk's erratic behavior cost tesla and himself. many credit tesla's incredible market value to belief in musk as an innovator, but this year, his actions caused many to question his leadership, line slamming analysts on an investor call. >> smoking marijuana during a

live telecast. >> tobacco and marijuana in there. >> calling a british cave diver involved in the thai soccer team rescue a pedophile, and of course, the fiasco over potentially taking tesla private. he tweeted he had secured funding to take the company private, a plan he has since abandoned. that triggered a jump in tesla's stock price as well as scrutiny. they concluded musk misled investors forcing him to pay a $20 million fine and step down as tesla's chairman to settle the charges. >> it's number four. wall street's wild swings. now, 2018 started with a bang. and then trading turned volatile. >> happening now, breaking news. wild ride. another dizzying day on wall street with stocks nose diving more than 1,000 points for the second time this week. >> in february, the dow lost

3,200 points in just two weeks when inflation fears ramped up. stocks recovered as corporate tax cuts juiced profits. but then came the tech stock meltdown that dragged the whole market lower. >> very scary october in the markets. >> stock market just had its worst month since 2011. >> breaking news, the dow plunging more than 500 points yet again. >> trade fears, rising interest rates, brexit chaos, slowing growth, recession concerns. all of them putting strain on a bull market that's already the longest in history. >> number three, president trump took on the world, turning his tough trade talk into action, slapping tariffs on foreign steel and aluminum, ripping up nafta for the usmca, and trashing america's neighbor in the process. >> canada has treated us very badly. we think they're negotiators have taken advantage of our country for a long time.

>> but what really unsettled investors, a trade war between the world's two biggest economies. the president announced tariffs on $200 billion worth of chinese goods, china shot back saying it would retaliate with countermeasures. china and the u.s. hit each other with tariffs on billions of dollars of goods. president trump and xi jinping agreed to a truce. investors hoped that could lead to a real deal, but that could be complicated by the arrest of a chinese tech giant in canada. >> number two, unemployment hits historic lows. >> a 49-year low. >> the u.s. labor market is strong, adding jobs for the past 98 months in a row. as the u.s. nears what's known as full employment, employers will struggle to find workers. hiring may slow. but for now, job gains are solid and wages finally started to rise. a missing piece of the recovery

so far. >> number one. facebook scandals, which sows distrust. facebook reveals it exposed 87 million users to a third-party app. it angered users, advertisers, lawmakers, and investors. >> it was a hit to facebook's reputation, already tarnished for spreading misreputation and allowing election meddling. it led to an apology tour from mark zuckerberg. >> i started facebook, i run it. at the end of the day, i am responsible for what happens here. >> facebook promised to spend billions to put privacy first. users like that. investors didn't. >> facebook just suffered the biggest single-day loss for any public company in history. >> in one day, facebook lost $119 billion in market value.

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christmas celebrations are under way now around the world, including where it all began, the city of bethlehem. thousands of tourists and people on pilgrimage are expected to visit the west bank town. joining me from bethlehem, cnn correspondent ian lee. i have been there before. such a remarkable place, but on this night, it must just be breathtaking. >> it really is. merry christmas to you, jim, and to my family back home who is watching. the festativities today have been nonstop. there was a parade earlier where the latin patriarch, the head of the catholic church, came from jerusalem to the church of the nativity behind me. that's where it all began, where christians believe jesus was born. i have to tell you, if you're mary and joseph, if you didn't have a reservation, there's no room in any inns or hotels tonight as they're fully booked.

thousands of pilgrims and tourists coming here, seeing this. i talked to one priest. i asked him, what is his christmas message to his congregation. he said one of love, equality, and justice. for the palestinians as well as for the israelis. and this has been a very deadly and bloody year. there have been scores of palestinian protesters killed in clashes between the israeli army and gazans along the border fence that separates gaza and israel. scores of rockets have also been fired by gaza militants, and if it really weren't for diplomatic efforts by the u.n., by egypt, there could have been likely a war. so tonight, they're grateful that that was averted. also, they're here celebrating peace and love and hoping that peace will prevail. you can hear the music behind me. they're here to celebrate, jim. >> well, ian lee, very merry christmas to you as well. i'm going to take ian's lead and wish my family and friends who are watching a merry christmas, and all of you. thank you for joining me and our

whole team. we wish you the best for the holidays and the new year. i'm jim sciutto. "at this hour" with my colleague kate bolduan starts right now. >> hello, everyone. i'm kate bolduan. welcome to a special edition of "at this hour" today. depending on where you live, your dream of a white christmas may be coming true. for anyone dreaming of a quiet and uneventful holiday week out of washington, keep dreaming. christmas eve 2018 feels a whole lot like almost every other day in 2018. disruption, dysfunction, and disarray. the government still partially shut down. the president so angry over the response to the defense secretary's resignation that trump is now kicking secretary mattis out two months early, and the treasury secretary throwing out the most unreassuring reassurance possible