Sy Hersh tells us that the echos of Iran Contra weighed heavily in Negroponte's decision to resign his post and is claiming that Bush is funneling money without authorization or oversight that has ended up in the hands of Sunni jihadist groups.

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The President is taking his notion of executive privilege to the extreme----running covert operations, using money that's not authorized by Congress...Negroponte is too ethical for Cheney...

Hersh: There has been some violence. So America, my country, without telling Congress, using funds not appropriated, I don't know where, by my sources believe much of the money obviously came from Iraq where there is all kinds of piles of loose money, pools of cash that could be used for covert operations. All of this should be investigated by Congress, by the way, and I trust it will be. In my talking to membership -- members there, they are very upset that they know nothing about this. And they have great many suspicions. We are simply in a situation where this president is really taking his notion of executive privilege to the absolute limit here, running covert operations, using money that was not authorized by Congress, supporting groups indirectly that are involved with the same people that did 9/11, and we should be arresting these people rather than looking the other way… He -- that is one of the reasons, I was told. Negroponte also was not in tune with Cheney. There was a lot of complaints about him because he was seen as much of a stickler, too ethical for some of the operations the Pentagon wants to run. (full transcript below the fold)

Thanks to CNN for the full transcript:

BLITZER: Near the end of your article, you have this explosive point in there about John Negroponte, who is now going to be the deputy secretary of state, as opposed to the head of U.S. intelligence.

You write this: "I was subsequently told by the two government consultants and the former senior intelligence officials that the echoes of Iran-Contra were a factor in Negroponte's decision to resign from the National Intelligence directorship and accept the position of deputy secretary of state."

Explain what you were hearing, because that is obviously a very explosive charge.

HERSH: Yes. It is probably the single most explosive, if you will, or depressing -- or distressing sort of thing I discovered in the last few months, which is simply this. This administration has made a policy change, a decision that they are going to put all of the pressure they can on the Shiites, that is the Shiite regime in Iran, the Shiite -- and they are also doing everything they can to stop Hezbollah -- which is Shiite, the Hezbollah organization from getting any control or any more of a political foothold in Lebanon.

So they essentially, I quote the -- I saw Nasrallah, the head of Hezbollah, and he described it this way, as "fitna (ph)," the Arab word for "civil war." As far as he is concerned, we are interested in recreating what is happening in Iraq in Lebanon, that is Sunni versus Shia.

And in looking into that story, and I saw him in December, I found this. That we have been pumping money, a great deal of money, without congressional authority, without any congressional oversight, Prince Bandar of Saudi Arabia is putting up some of this money, for covert operations in many areas of the Middle East where we think that the -- we want to stop the Shiite spread or the Shiite influence.

They call it the " Shiite Crescent." And a lot of this money, and I can't tell you with absolute certainty how -- exactly when and how, but this money has gotten into the hands -- among other places, in Lebanon, into the hands of three -- at least three jihadist groups.

There are three Sunni jihadist groups whose main claim to fame inside Lebanon right now is that they are very tough. These are people connected to al Qaeda who want to take on Hezbollah. So this government, at the minimum, we may not directly be funneling money to them, but we certainly know that these groups exist.

My government, which arrests al Qaeda every place it can find them and send -- some of them are n Guantanamo and other places, is sitting back while the Lebanese government we support, the government of Prime Minister Siniora, is providing arms and sustenance to three jihadist groups whose sole function, seems to me and to the people that talk to me in our government, to be there in case there is a real shoot-'em-up with Hezbollah and we really get into some sort of serious major conflict between the Sunni government and Hezbollah, which is largely Shia, who are basically -- or as you know, there is a coalition headed by Hezbollah that is challenging the government right now, demonstrations, sit-ins.

There has been some violence. So America, my country, without telling Congress, using funds not appropriated, I don't know where, by my sources believe much of the money obviously came from Iraq where there is all kinds of piles of loose money, pools of cash that could be used for covert operations.

All of this should be investigated by Congress, by the way, and I trust it will be. In my talking to membership -- members there, they are very upset that they know nothing about this. And they have great many suspicions.

We are simply in a situation where this president is really taking his notion of executive privilege to the absolute limit here, running covert operations, using money that was not authorized by Congress, supporting groups indirectly that are involved with the same people that did 9/11, and we should be arresting these people rather than looking the other way…

BLITZER: And your bottom line, Sy…

HERSH: … and could lead to a real mess…

BLITZER: Your bottom line is that Negroponte was aware of this, obviously, and he wanted to distance himself from it? That is why he decided to give up that position and take the number two job at the State Department?

HERSH: He -- that is one of the reasons, I was told. Negroponte also was not in tune with Cheney. There was a lot of complaints about him because he was seen as much of a stickler, too ethical for some of the operations the Pentagon wants to run.

As you know, this Pentagon has been running covert operations. I think Mr. Gates' job and one of the things he wants to do is get some control over it. But under Rumsfeld we were running operations all over the world with who knows what money and who knows what authority, because most of those operations were not briefed to the intelligence committees.

And the Pentagon has basically been open about it in saying, hey, this is military stuff that has nothing to do with CIA operations. We have nothing to do with them. We are running military operations. And the president has the authority to do this.

But Negroponte was unhappy about -- in general about some of the things. He also, I don't think, liked -- he may not have been terrific at his job, that is another factor. But certainly John Negroponte went through this issue, Iran-Contra in the '80s, when we had the first big debate over the use of unlawfully obtained money to buy arms.

We know, the whole arms-for-hostages business was to generate cash to fight the war -- the Contra war against the Sandinistas, that mess that we had. Negroponte was ambassador to Honduras there, very sensitive to the issue that took place 20 years ago. He did not want a repeat of it.

And I frankly -- it is something that I think to be asking him in congressional session or whatever. But I have that -- you know, I understand this is very serious stuff. And my magazine understands this is very serious stuff.

And we have really taken a lot of time with this story and couched it as carefully as we could and with all of the caveats, this is serious business.

BLITZER: The article is entitled "The Redirection: Is the Administration's New Policy Benefiting Our Enemies in the War on Terrorism?"

That is the subtitle, the author, Seymour Hersh.

Sy, thanks very much for joining us from Cairo.

HERSH: Thank you.