Return to Transcripts main page
Lou Dobbs Moneyline
Dow Declines 96.11 to 9891.42; Nasdaq Declines 31.72 to 1990.74
Aired January 14, 2002 - 18:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: This is LOU DOBBS MONEYLINE for Monday, January 14th. Here now, Lou Dobbs.
LOU DOBBS, HOST: Good evening, everyone. Tonight the investigations into Enron's collapse have only begun, but the questions and the revelations are flying, from charges of insider trading to more possible links between Bush administration officials and Enron executives.
Ted O'Brien reports from Washington now on some of the facts and some of the fiction.
TED O'BRIEN, CNN CORRESPONDENT: Good evening, Lou. And there is a late development. Congressional investigators say they've come up from a former Enron employee written to Kenneth Lay warning that Enron's accounting practices and the, quote, "vale of secrecy" surrounding them could lead to disaster. Now, that could be relevant when company officials are asked what have been historically among the most damning questions every asked in a congressional investigation: What did you know, and when did you know it?
A lawyer representing Enron shareholders said today that top execs, from CEO Ken Lay on down, knew of the company's pending lapse in plenty of time to cash in their stock, leaving shareholders holding a empty bag.
(BEGIN VIDEO CLIP)
WILLIAM LERACH, SHAREHOLDER'S ATTORNEY: Let's be direct here. These books were cooked by Lay, Fastow (ph), Skilling and the other top executives, who put hundreds an millions of dollars in their pockets while the employees of Enron were victimized and hundreds of thousands of other investors lost billions of dollars.
(END VIDEO CLIP)
O'BRIEN: In a statement, Enron's attorney, Bob Bennett, said "I am unaware of any evidence that supports the allegation there was improper selling by members of the board or senior management."
Meanwhile, the Arthur Andersen consulting firm has also issued a statement responding to a "Time" magazine report that an internal company memo instructed employees to destroy Enron-related documents. That's possible obstruction of justice. The company said, "We acknowledge that there were internal communications that raise questions. Until we know more, it would be inappropriate to comment further."
And the Center for Public Integrity, a Washington-based public interest group, today reported that 14 high or mid-level officials in the Bush administration hold or held Enron stock. But the center's director said neither that nor the huge campaign contributions Enron made to Bush and other key congressional candidates is in and of itself suspicious.
(BEGIN VIDEO CLIP)
CHARLES LEWIS, CENTER FOR PUBLIC INTEGRITY: The business community in general and the energy industry in particular has traditionally supported Republicans two-to-one or three-to-one, in terms of campaign contributions, for ideological reasons, because of deregulation and the role of government in general.
(END VIDEO CLIP)
O'BRIEN: The immediate focus of all these investigations will surely be the actions or inactions of top officials at Enron and Arthur Andersen. But Lou, it's also sprawling and it's still so early, it's anybody's guess where it all might lead.
DOBBS: Anybody's guess, Tim, as you put it, as to where it might lead. But we do have a sense that Enron not only contributing to Republicans but mightily, as well, to Democrats, wherever it served the political purpose of the company, isn't that correct?
O'BRIEN: That is certainly true. More to Republicans than to Democrats, but certainly to both parties, and especially in Texas its home base. But it's not surprising, especially the contributions to the Republicans, which support causes that have always helped large industries and particularly the energy industry, and such issues as deregulation.
DOBBS: The one thing we don't want to ever be accused of here is, of course, participating in creating, if you will, in the court of public opinion, making it a hanging. Court so many questions here that I think it's really incumbent on us to be careful. There is enough here to create huge questions, serious questions, perhaps criminal indictment, and I just want to make sure we are balanced in keeping it all in perspective, Tim. Thank you.
Well, Enron's bankruptcy, the biggest in history, left millions of investors holding simply worthless paper. Billions of dollars have been lost, and some of Enron's own employees saw their life's savings wiped out altogether. Now some critics are saying the government should have intervened. Others say that sort of intervention is not the government's job. In fact, they say it's improper.
Peter Viles now takes a look at where investor responsibility ends and the government's begins.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): A new angle to the Enron fiasco: Why didn't the Bush administration try to save the company? The short answer? It's not the government's job to save failing companies.
PAUL O'NEILL, TREASURY SECRETARY: Companies come and go. It's part -- part of -- part of the genius of capitalism is people get to make good decisions or bad decisions and they get to pay the consequence or to enjoy the fruits of their decisions. That's the way the system works.
VILES: Democrats seized on the remark, anxious to portray administration as uncaring.
SEN. JOE LIEBERMAN (D), CONNECTICUT: You know, I might expect a secretary of the treasury in the 18th century to have said what Paul O'Neill said this morning, but not one in the 22nd century.
VILES: The government does intervene on very rare occasions. Congress bailed out Chrysler with $1.2 billion in loans in 1980. The New York Fed brought banks together to buy out Long Term Capital Management, but no government money was involved. And Congress approved $15 billion for the airlines last September. So why isn't Enron next on the list? Well, here's what it would have taken.
CHARLES GABRIEL, PRUDENTIAL FINANCIAL: If you had had worries that the entire energy market might have really had a meltdown which could have had cascading effects on the economy, the financial markets, et cetera, then I think it would have -- the Treasury Department would have very much been compelled to go in and get involved.
VILES: But Paul O'Neill didn't see that as a risk. Enron, it now appears, was not all that crucial to the economy.
MICHAEL MOSCOW, PRES., CEO, FED BANK OF CHICAGO: In terms of the impact on the overall economy, I don't see it as a significant impact.
VILES: As for shareholders and 401(k) investors, the government is not in the business of protecting them from losses. And if it was, it would have much bigger rescue missions now than Enron, such as Cisco Systems, still a viable company, but investors have lost $399 billion on the stock. Lucent Technologies, $216 billion in investor losses. AT&T, $93 billion in losses. Enron's loss, roughly $70 billion, are painful but hardly unprecedented.
(END VIDEOTAPE)
It would be a cliche to say that businesses file for bankruptcy in this country every day. It also be a massive understatement. On average, about 100 businesses file for bankruptcy every day. The government keeps tracks of those filings, but it almost never intervenes.
Lou? DOBBS: You have to admire the fact that Bush administration could be criticized for taking phone calls and at the same time criticized for not doing anything by the very same people. How does that stack up?
VILES: Well, I just -- the phrase comes to mind, they want it both ways. If they did something,it's a scandal, and if they did nothing, it's a scandal.
DOBBS: It could be interesting to see where all of this leads in terms of the SEC, in particular, and certainly with the auditing firm. But at this point, after all of this, with so much real pain, those investors and employees have lost money, the political football that it's become is amazing.
VILES: And just one other thought. If you look back to the times when earnings were restated, it goes back to 1997. So you have another SEC and another administration to ask about the earnings that were stated incorrectly.
DOBBS: Absolutely. Pete, thank you very much.
Well, last week, Enron agreed to sell its energy trading business to UBS. Details of that purchase were to have been made public today. But that release has been pushed back twice now. Allan Chernoff has the latest on the deal and how the scandal is affecting Wall Street's bigger big accounting firms.
Alan?
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): Sources familiar with the deal tell MONEYLINE UBS will pay no cash up front and Enron will have no ownership rights. Enron and its creditors would receive one third of pre-tax profits in years one and two. UBS would then have an option to buy Enron's profit share, reducing it to zero by year five. UBS would likely rehire most of Enron's 800 traders and support personnel, to be based in Houston.
Meanwhile, new details on Enron's accounting scandal. The House Energy and Commerce Committee said a memo authorizing disposal of thousands of documents related to Enron audits came from an in-house attorney at Enron's accountant, Andersen. Congressional investigators say documents were destroyed as late as last November, after Enron had restated its financials and the SEC had begun a formal inquiry, documents that should have been held indefinitely, according to accounting experts.
ALAN ANDERSON, AMERICAN INST. OF CPAS: If the records were certainly subject to subpoena and they're destroyed after the subpoena was rendered, that would be more than unusual. That would be illegal.
CHERNOFF: One month ago, Andersen's chief exec told Congress the firm would reform itself. JOSEPH BERARDINO, CEO, ARTHUR ANDERSEN: Andersen will have to change to restore the public's interest and confidence. The accounting profession will also have to reform itself. Our system of regulation and discipline has to be improved.
CHERNOFF: Yet there is now more heat on the accounting profession. the Securities and Exchange Commission today censured accountant KPMG for violating auditor independence rules. At the time, it was a major investor in the Short Term Investment Trust, KPMG was also the auditor of the fund, part of the Aim family of mutual funds.
HOWARD SCHILIT, CTR. FOR FNCL. RESEARCH & ANALYSIS: When auditors are found not to be independent, as in the case of KPMG, or they're found to have missed some major accounting frauds, in the case of Arthur Andersen, we have a profession in crisis.
CHERNOFF: The SEC found that KPMG had no procedures in place to prevent conflicts of interest between the firm's investments and its auditing clients.
(END VIDEOTAPE)
And tonight, more financial fall-out from Enron. Northern Trust Corporation is taking a $45 million dollar write-off of loans made to Enron. Northern Trust stock fell 4 percent today. And the New York Stock Exchange tonight is still considering de-listing Enron. Its average price has been below $1 for 30 days. The stock once again was halted today, pending official details of the sale of Enron's energy trading operations.
Lou?
DOBBS: I guess the question would be, for the big board, is there any reason to keep Enron listed?
CHERNOFF: They're considering that, of course, and they don't want to do any damage to stockholders. They're not trying to make the situation worse. But there is a rule on the books that says 30 days.
DOBBS: Well, they violated just about every rule I can think of, in terms of the listing requirements, so I suspect that vote will come in rather quickly. Allan, thanks a lot. Oh, are we going to get those details, those public details of this...
CHERNOFF: The latest time now is 11:00 PM Eastern time. Supposed to be posted on the Web, Enron.com.
DOBBS: Well, you're going to have a very long evening. Thank you very much, Allan.
Well, Jack Coffee -- John Coffee is a law professor at Columbia University. He is one of the leading lights in terms of securities law in this country. And he says while Andersen's activity may not be illegal, it was clearly a blunder and may spell the end of the accounting firm. Jack, it is good to have you here.
PROF. JOHN COFFEE, COLUMBIA UNIVERSITY: Good to be here, Lou.
DOBBS: Let's start with these -- everything that is swirling around Enron. This is an outrageous story, in terms of a collapse of corporate governance, in terms of the executive direction of the firm, and frankly, oversight, whether it be by the SEC or the firm's auditors. At this point, where does it leave us, in terms of the SEC?
COFFEE: Well, this is right now like a John Grisham novel that's been overwritten. There are a thousand different directions. I think the SEC is principally going to focus on the auditors. That to them is probably the biggest issue right now. It's fairly easy to develop a case against Enron for securities material misrepresentations. The problem is there that the criminal proceeding takes precedence, and generally investigations, civil investigations get stayed, while the U.S. attorneys go out and make their criminal prosecutions.
DOBBS: So misrepresentation, in securities speak, is civil. And fraud is criminal. Is that a fair way to put it?
COFFEE: You can indict the same offense, but you got to show a willful intent to defraud.
DOBBS: Is there anything in this -- from what we know now, is there anything that suggests to you that this could have been anything other than willful on the part of the Enron executives?
COFFEE: I'd have to say that when it goes on for over three years and you sell over $100 million of your own stock, the combination of cooking the books and bailing out yourself does sound a lot like, at least at some levels within the company, there was an awful lot of awareness of just how dangerous and aggressive their financial policies were.
DOBBS: As you've look at this, in terms of the structured financing, the partnerships, it is so reminiscent -- to me, at least, and I'd be delighted to hear what you think -- of the 1980s savings and loan crisis, in which the "good bank, bad bank," "keep it off the balance sheet" approach to life took hold among some very greedy people. It really -- is it really that simple? They simply cook the books, move the bad over to those structured financings, kept it off their balance sheet and let the devil take the hindmost?
COFFEE: I won't say it's quite that simple. But the really big question is Stanley Sporkin's old question. Where were the guardians? Where were the gatekeepers? Where were the auditors? Where was the audit committee, all of the people who were supposed to correct -- protect shareholders in these cases look like they were either acquiescent or asleep.
DOBBS: Well, in -- in all of the firelines that Enron had to provide the Securities and Exchange Commission, for example, where in the world was the SEC during all of this? COFFEE: Well, the SEC can't act on a real-time basis. They have to get indications from the market that something is wrong. The SEC learns about fraud from the market dropping. They see certified financial statements by a seemingly reputable auditor. They got other targets to investigate.
DOBBS: How about the auditors? I know you think Andersen is in significant trouble here.
COFFEE: Well, I think this is an extraordinary event. The destruction of documents violates the first rules that I think any financial manager or any lawyer knows. Any experienced lawyer knows this above all else, there's nothing in document that's as incriminating as its destruction. It was a huge blunder and possibly a crime to have destroyed document the way it appears to have happened.
DOBBS: Andersen's situation here -- as the auditors for Enron, under investigation by the SEC, the Justice Department, extraordinarily and self-admittedly culpable in so many areas -- what is the future of the firm?
COFFEE: Well, put it this way. Until a day or two ago, they had a defensible position. They could say, "It was honest mistake and we were defrauded. We were deceived by reckless managers who lied to us." That was possibly a very plausible position. But once you start destroying documents, no one listens anymore to the claim that you were innocent and deceived. You look very much like you are in on it and have some awareness.
DOBBS: And recourse, if any, for those employees first who had their money in 401(k)s made up of Enron stock?
COFFEE: Well, the sad truth, Lou, is we've just heard earlier tonight that the total damages are over $70 billion. Enron cannot be sued because it's in bankruptcy. The next deepest pocket is Arthur Andersen, and a partnership of individuals couldn't pay 10 percent of that amount. Most of the losses will go unreimbursed. There may be criminal and civil penalties, but there is no real prospect that the individuals who are victims will get their money back from any of the people who were the perpetrators.
DOBBS: What do you expect to be the end result of all of this, if I can ask you to project six months, perhaps a year down the road?
COFFEE: If this scandal continues at same level of intensity or increases, I think we're going to force Congress to act. I think they're going to have to look at the structure of auditing and the accounting profession. The accounting profession is very weakly supervised. All they have is an institution called peer review...
DOBBS: Right.
COFFEE: ... under which the big five examine each other. The problem with peer review is in a concentrated industry with only five big firms, a norm of reciprocity evolves, and everyone knows what goes around comes around, and you don't be harsh to anyone else. I think we're going to have to move beyond that simple system of peer review into a true, meaningful self-regulatory agency, much like broker- dealers have.
DOBBS: OK. Jack Coffee, as I understand you, you're saying the big five -- the metaphor, if you would, would be General Motors, Ford and Chrysler sort of setting EPA mileage requirements.
COFFEE: They'd have the same incentives.
(LAUGHTER)
DOBBS: OK, Jack, thank you very much. Great to have you here.
Well, still ahead: There could be a silver lining for the silver screen in California. We'll tell you what California's doing to keep movie makers from moving north of the border.
The Pentagon tonight says the bombing of a terrorist training complex in Afghanistan is winding down. We'll have the latest developments for you.
And there are signs the economy is bouncing back. Our next guest says recovery isn't here quite yet, but just stay tuned.
(COMMERCIAL BREAK)
DOBBS: Enron's meltdown has Congress calling for limits on how much retirement money employees can invest in their own company's stock. But as Brooks Jackson reports, the story of what happened to Enron's retirement money isn't as simple as it seems.
(BEGIN VIDEOTAPE)
BROOKS JACKSON, CNN CORRESPONDENT (voice-over): Who's to blame for Enron employees losing their savings? Here's how some employees told it last month.
ROBERT VIGH, ENRON EMPLOYEE: The employees had no choice to ride the stock into the ground.
JACKSON: But the truth is more complicated.
(on camera): In fact, Enron employees had a choice. They could have sold nearly all the Enron stock in their retirement funds last year at $80 or $70 or $50 or $30. Nothing prevented them.
(voice-over): A year ago, 62 percent of Enron's 401(k) funds were invested in Enron stock, $1.3 billion dollars, way more than investors advisers say is prudent. But 89 percent of the stock had been bought by Enron employees voluntarily with their own salary deductions and could be sold. Only 11 percent had restrictions on being sold because it had been given by Enron as a match to employee contributions.
(on camera): Back then, the stock looked like a world beater. January 25th, as it was trading at over $81 dollars, Enron raced its estimate of earnings for the year. But markets took a dimmer view. Enron's stock price slid to $70, $60, $50 and lower. Why didn't the employees sell? An attorney suing Enron says they were misled.
ELI GOTTESDIENER, ATTORNEY: While they physically and legally had the power to sell their shares, they were being exhorted by the company "Don't sell shares. Don't be a sucker. Stick with Enron. We're going to go right back up to the 90 bucks a share we were at."
JACKSON (voice-over): And employees believed it.
CHARLES PRESTWOOD, ENRON RETIREE: They said, "Well, you could have moved in -- you could have rolled out of that, rolled it into something else." But who wants to get off a winning horse?
JACKSON (on camera): But it wasn't a winning horse anymore. By October 16th, the stock was already down to below $34 dollars. That's when Enron reported it had actually lost money in the third quarter, the date many say was the start of the bad news. Employees still had several days to sell before a lockdown on their 401(k)s, when Enron changed the administrator of the plan. The lockdown effectively began at the close of the market Friday, October 26th. On that, the last day they could have sold, the stock price closed at $15.40. During the lockdown, on November 8th, Enron restated earnings and announced another $600 million in losses. And by the time the 401(k)s were unfrozen November 12th and employees could sell again, the stock was down to barely down to $9 a share. That still left weeks for them to sell before December 2nd, when Enron filed for bankruptcy and the stock dropped to 40 cents. Enron's critics say the law needs changing.
GOTTESDIENER: Employees definitely have some responsibility. But listen, the deck is stacked against them. You've got a bad law that puts "the sky is the limit" limit on employer stock.
JACKSON (voice-over): And that's where corporate lobbyists want to leave the limit, though even they say employees should never invest too heavily in a single stock.
EDWARD FERRIGNO, 401(K) COUN. OF AMERICA: We think they need to think long and hard about is that the right course. But we think it's their decisions to make. We don't think that the government should by making the decision.
(END VIDEOTAPE)
JACKSON: And Lou, Enron employees had that freedom, but them, it was a road to disaster.
Lou?
DOBBS: Brooks, that's a terrific report and puts it in context. Just to be clear: Only 11 percent of that money was locked up as a result of the change in the administrator? Is that correct?
JACKSON: No, Lou, 11 percent of the money was locked up pretty much all the time -- 89 percent...
DOBBS: OK.
JACKSON: ... they could have gotten in and out. All of it was locked up for that very brief time, when stock sunk about $6 a share.
DOBBS: What -- what is, in your judgment, the mood there in Washington, Brooks? Let me go to the subjective. These stories are always terrible. You and I have been reporting them for longer than perhaps either of us would want to acknowledge. When you see some people get hurt like this, and desperately hurt financially, there's always a reflex to regulation. Do you believe that there's a disposition in Washington to regulate or overregulate, if you will, the 401(k)?
JACKSON: I don't know about overregulating, Lou. I do think there is changed attitude here. A few years ago, as you know and many of our viewers know, there was a drive to put percentage limits on what employees could invest in their own company's stock in just these kinds of plans. And it went down, partly because corporations opposed it, partly also because the stocks were going up and a lot of employees didn't want that kind of regulation. Now it looks different.
And just as a straw in the wind, shortly before the show began here, Senator Chuck Grassley, the chairman of the Finance Committee and a staunchly conservative Republican, issued a press release saying perhaps some changes are needed and he's going to be taking a look at this.
DOBBS: OK. Brooks Jackson, as always, terrific reporting. Thanks for joining us.
JACKSON: Thank you, Lou.
DOBBS: On Wall Street, the markets begin the week where they left off, moving lower, stocks falling across the board today, technology issues leading the decline. The Dow fell 96 points. The Dow below 9900. The NASDAQ fell 31 points and the S&P 500 down just over 7 points on the day.
Christine Romans at the New York Stock Exchange, Greg Clarkin at the NASDAQ market site.
Christine, let's start with your part of this damage report.
CHRISTINE ROMANS, CNN CORRESPONDENT: Well, Lou, it was the two- year anniversary of the all-time Dow high, and today they celebrated by adding a sixth day onto the losing streak. They're worried about valuations of stocks at these levels and about the upcoming earnings season. Also, cautious advice from Merrill Lynch didn't help here, the company coming out, telling its investors that they should trim stock holdings, beef up bonds, allocating 50 percent of a model portfolio to stocks, 30 to bonds and 20 to cash.
Meanwhile, the most actively traded stock here again today K- Mart. Lou, this stock is trading at levels that we have not seen since 1967. S&P cut its debt rating to -- on this one, its third downgrade in a week. A lot of concerns about this company's ability to compete with Target and Wal-Mart.
IBM lost another couple of bucks, too, today. This one reports earnings on Thursday, a little bit of wariness overall on the street. Dow Chemical losing some ground, as well. Last week's asbestos- related selling continuing on this one. It tumbled another 10 percent today. But Tyco rose 4 percent after it denied rumors that it wants to buy Honeywell. Tyco reports earnings tomorrow.
And speaking of earnings, a lot of guidance out there. We've got a negative -- negative guidance from Corning. That stock lower after the bell. And Gap -- a ratings agency came out and downgraded Gap debt. So watch both of those tomorrow, Lou.
DOBBS: Christine, thank you. Let's turn over to NASDAQ market site. Greg Clarkin.
Greg?
GREG CLARKIN, CNN CORRESPONDENT: I'll tell you, Lou, Christine mentioned that asset allocation shift by Merrill Lynch -- that really hit tech stocks hard, as well. And also, you have Lehman Brothers becoming the latest brokerage house to come out and basically cut their rating on all the wireless stocks they cover, and that really weighed on the wireless stocks, a lot of the networking stocks and overall technologies. So the NASDAQ down 1.5 percent, a 31-point loss.
Here's a couple of the wireless stocks that were hit hard today. Nextel -- it gets a sell rating out of Lehman Brothers. That's a rarity on Wall Street these days -- down $1.64. Ericsson -- it was downgraded over at (UNINTELLIGIBLE) and Amro (ph). They're worried about slowing handset sales. That stock fell. Ariba, though, gets an upgrade out of Goldman Sachs. It rose nicely. And then Intel gained ahead of its earnings report tomorrow.
And one reason why investors didn't want to wade into the market today -- take look at some of the major earnings reports you have coming up later this week. There's just a ton of information out of technology coming up later this week. And people want to hear not only how the first quarter's shaping up but possibly maybe any insight into the second quarter. Intel, Apple, Microsoft, Sun Microsystems -- you can see what they've been expected to post versus what they did for the year-ago period. And those are just four out of the big, big batch of technology earnings reports due out later. And again, Lou, things will really kind of get under way with Intel after the close of trading tomorrow.
Lou?
DOBBS: And Sun also in anticipation, apparently, of that earnings report, also off sharply on the day.
CLARKIN: It did, Lou. We saw a lot of the big caps, with really the exception of Oracle, off on most of the day, trading lower.
DOBBS: OK. Greg, thank you very much. Greg Clarkin.
Well, turning to oil prices -- they continue to slide on weak demand, inventories nearly 10 percent higher than last a year ago, light sweet crude oil today dropping 79 cents in price, settling at $18.89 a barrel. Despite those falling oil prices, the price of gasoline rising, prices at the pump climbing 3 cents over the past three weeks, that increase ending a 15-week decline in prices that began on September 11th.
According to the Lundberg survey, the average price of self- service regular gasoline is $1.12 a gallon. Across the country, Atlanta had the cheapest prices, 98 cents per gallon. The most expensive, Honolulu, where the average pump price is $1.62.
Well, my guest says the economy is inching toward recovery, but not quite there yet. Lakshman Achuthan, economist and MONEYLINE regular, joins us now. Good to have you here.
LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INST.: Good to be here.
DOBBS: As we've discussed, you believe that we are moving toward recovery. Is there any obstacle to that that you see as being significant?
ACHUTHAN: Between now and an upturn in the economy? I think it's fairly well along. The leading indicators have advanced in a way that shows the economy will turn up in early 2002.
DOBBS: Early 2002. We have, as we've just reported, lower energy prices. We have still low interest rates. Unfortunately, we also have a lower stock market...
ACHUTHAN: Right.
DOBBS: ... as well. What's going to, in your judgment, drive this recovery?
ACHUTHAN: Well, fundamentally, the lower interest rates. Lower prices all around, as you mentioned, make it easier to go out and buy things and for businesses to be profitable. I'm not saying that there's going to be a strong or a robust recovery. I'm simply putting a marker on the calendar as to when we're going to turn and stop contracting and begin advancing. And those items that you mentioned earlier in the report, those are leading indicators.
DOBBS: And that marker is going to fall on the calendar where? In February?
ACHUTHAN: Oh, I take...
DOBBS: In March?
ACHUTHAN: In the first quarter somewhere. Maybe -- you know, because I'm not sure, maybe towards the end of the first quarter. Between now and then...
DOBBS: Late March?
ACHUTHAN: Late March, February, March, in there.
DOBBS: Right.
ACHUTHAN: And that's about as good you could do because...
DOBBS: Right.
ACHUTHAN: ... try as -- wish as we would like, this is not a science.
DOBBS: What's your best judgment as to when we'll see a reduction in the unemployment rate?
ACHUTHAN: A reduction in the unemployment rate could be well out in 2002, well past the middle of the year, because that is a coincident to lagging...
DOBBS: Right.
ACHUTHAN: ... indicator of the economy. So even when the economy begins recovering, like it did in 1991, you could still have unemployment rise into the recovery.
DOBBS: Now, admittedly, these are not complete sales figures that we're looking at for the holiday season, but they look to me, at least, far more robust than I would have expected, given all of the dire alarms that were being set off going into the holiday season. Retail sales -- your reaction to them.
ACHUTHAN: Well, retail sales are a coincident indicator, so they don't tell us where we're headed but where we've been.
DOBBS: Right.
ACHUTHAN: They point to part of the character of this recession. The consumer has kept this from being really bad. The consumer has gone out there and kept this economy afloat. It may be part of the challenge to the recovery, because the consumers already fairly well spent as we begin the recovery. Typically, there is pent up demand for the consumer when you get into the recovery.
DOBBS: We may just have almost exhaustion.
ACHUTHAN: Well, you know, it's like that runner, that marathon runner. You get a runner's high at the end and then second wind.
DOBBS: Go for that second wind. Lakshman, thank you.
ACHUTHAN: Thank you.
DOBBS: Well companies could face $4 billion in annual penalties from the European Union. The World Trade Organization has ruled against a U.S. law that grants billions of dollars in tax breaks to U.S. businesses operating overseas. An appeals panel ruled that those tax breaks for exporters are an illegal subsidy.
The case brought by the European Union, it is the largest case the United States has ever lost before the World Trade Organization.
Coming up next, we'll tell you what California's doing to keep filmmakers home. And we'll have the latest on the War against Terrorism. We'll assess the progress of the war. We'll have a live report for you from Kabul, all of that and more, next.
ANNOUNCER: Next, Lou speaks with CNN Military Analyst and retired U.S. Army General David Grange.
(COMMERCIAL BREAK)
DOBBS: The Pentagon says its bombing of an al Qaeda training camp in eastern Afghanistan is coming to a conclusion, that it's now time to seek other targets. Rear Admiral John Stufflebeem says U.S. warplanes dropped bombs over the weekend, trying to seal those caves.
Also today, the Pentagon revealed just how large that training camp is saying, it is three miles by three miles and includes 60 structures, both above ground and below, and about 50 caves. The Pentagon says searching for al Qaeda and Taliban fighters remains a top priority.
Meanwhile, an additional 30 Taliban and al Qaeda prisoners are heading to the U.S. Naval Base in Guantanamo Bay, Cuba. The Pentagon says 20 of those prisoners already being held there are being treated humanely and are being allowed to exercise.
The U.S. military has 414 Taliban and al Qaeda prisoners under its control in Afghanistan. Some, they say, are providing very useful intelligence.
Joining us now to assess the progress of the War against Terrorism, CNN Military Analyst General David Grange. General, good to have you here.
GENERAL DAVID GRANGE, CNN MILITARY ANALYST: Good evening, Lou.
DOBBS: Some reaction over the weekend, some expressed concern about the treatment of those, what the Pentagon is calling, detainees in Guantanamo Bay. What's your reaction?
GRANGE: Well, I think they should be very fortunate they're being treated the way they are. You know, most detainees, prisoners that our country, when we've been in that situation have received very inhumane treatment, and being a prisoner, detainee, whatever you want to characterize them, the United States of America is a good deal, and I don't think there's any inhumane treatment probably at all.
In fact, if we're exercising these detainees, I hope we're exercising them a lot, and I'm sure they're being taken care of according to the Geneva Convention. DOBBS: Well General, we're four months into this War against Terrorism. The Taliban have been thrown out of control in Afghanistan. Give us your assessment of the results of the campaign to this date.
GRANGE: What I think, Lou, is to date, you know, we've really destroyed or disrupted a good piece of the al Qaeda network, especially in Afghanistan, and more importantly we've taken a fight to the enemy. You can't win unless you're on the offensive, and by taking the fight to the enemy, I think the United States and its allies have preempted quite a lot of operations that may have happened if that wasn't the case.
I think a lot of intelligence has been gained, which has been able to be used against future operations, for instance in Singapore, assisting probably in the operation preparedness in the training inside of the Philippines, in the United States homeland itself. All those are great results, and I think it's also deterred countries from harboring terrorist organizations.
Now, we haven't found bin Laden or Omar yet. I think it's a matter of time. I think we found two of the eight key lieutenants under bin Laden. There's more to be found. The situation in Pakistan and India is very tenuous right now, a lot of effort there to keep that stabilized. We have negligible rule of law in Afghanistan itself, a very tough road ahead for Karzai and the rest of that government to go ahead and accomplish.
DOBBS: General, we've got about 30 seconds here but, with the Taliban effectively removed from power, the al Qaeda at least neutralized, is it your judgment as a military man that this would be an appropriate time to pull U.S. forces from Afghanistan?
GRANGE: Quite the opposite. I think we probably ought to put more soldiers on the ground. I think the 10th Mountain Division soldiers, or the 101st Airborne Division in the marines should be integrated to search a lot of these areas, like the Wolf's Hole, which is the current complex that's being hit, and there are several other complexes that haven't been hit.
I think you have to have that synergy between the air-to-ground and probably more than just the Special Forces can provide. It seems to me they're overworked quite a bit right now.
DOBBS: General David Grange, thank you.
GRANGE: Thank you.
DOBBS: Just ahead, Pakistan and India, as General Grange just mentioned, two nuclear nations tonight on the brink of war. We'll take a look at the steps being taken to reduce the tension between the two countries, that story and more just ahead.
ANNOUNCER: After the break. Lou talks with James Woolsey, former CIA Director.
(COMMERCIAL BREAK) ANNOUNCER: LOU DOBBS MONEYLINE continues. Here again, Lou Dobbs.
DOBBS: In the War against Terrorism, the U.S. Embassy in Yemen is tightening security following intelligence that suggests it may be the target of a terrorist attack. Officials say the threat was linked to al Qaeda and the information is believed to be credible. That warning also extends to Americans living and traveling in Yemen.
The Pentagon is considering scaling back patrols over U.S. skies because of the drain on the Air Force. One possibility under consideration is to reduce the number of air patrols and to place more aircraft on alert status. Since September 11th, around-the-clock patrols have been conducted over New York City and Washington, D.C.
The bodies of several U.S. Marines killed in last week's crash in Pakistan have returned to the United States. The Pentagon says the search continues for the seventh victim. Those marines were killed when a refueling jet crashed in a mountainous area of southwestern Pakistan.
Another concern for the United States tonight is the standoff between India and Pakistan. Today, Pakistan made good on a promise to crack down on terrorist groups operating inside Pakistan, but the possibility of war between the two nuclear powers still remains. India says it will not withdraw its troops from the border until the terrorism stops. Tackling the tension between India and Pakistan, high on the agenda of Secretary of State Colin Powell. Kitty Pilgrim has the report.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice over): Along the India- Pakistan border is the biggest mobilization in 30 years, hundreds of thousands of troops, reportedly 200,000 from Pakistan and more than triple that on the India side.
Pakistan's President Musharraf reportedly went to a frontline position Monday to observe. Secretary of State Colin Powell heads to the region Tuesday to consult with both sides. But the State Department says the situation remains dangerous.
COLIN POWELL, SECRETARY OF STATE: The last thing we want to see happen right now in South Asia is a war between these two nuclear- armed states. President Musharraf has done more than just speak. He is taking action.
PILGRIM: Pakistani President Musharraf's speech Saturday was seen by the international community and India as a litmus test of Pakistan's intention towards terrorists. Musharraf banned five militant groups and a police sweep, which began shortly after netted, according to Pakistan, some 1,500 Islamic militants.
Not enough for India, which refused to deescalate the standoff until "cross-border terrorism comes to a stop." The situation has escalated since December 13th, when armed gunmen India claims were from Pakistan, attacked the Indian Parliament.
Pakistan says it must keep defenses up on its borders, while Indian troops remain so close; Pakistan is vulnerable both because it is outnumbered and some key cities, including Islamabad, are close to the border.
DAVID ALBRIGHT, INSTITUTE FOR SCIENTIFIC & INTERNATIONAL SECURITY: India has a much larger army than Pakistan, and that's part of the problem is, is that in a sense Pakistan is outgunned conventionally and it tries to use nuclear weapons to equalize, and to deter India from invading, or if it does invade, from getting very far before it stops, and that's a very risky strategy.
(END VIDEOTAPE)
PILGRIM (on camera): Now there's also the possibility that war could be accidentally triggered by some mistake or miscalculation, which could incite retaliation. The sheer amount of firepower lined up at the border makes diplomacy not only necessary but absolutely critical at this time. Lou.
DOBBS: Kitty, thanks. Well here now to assess the importance of maintaining peace between India and Pakistan, and to assess the progress of the War against Terrorism, former CIA Director James Woolsey. Good to have you here.
JAMES WOOLSEY, FORMER CIA DIRECTOR: Good to be with you, Lou.
DOBBS: A half million Indian troops massed on the northern border, what is your best judgment as to the likelihood of a confrontation here?
WOOLSEY: Well it's still high. I don't know if it's about 50/50 or below, but it's probably pretty close to that. But I think President Musharraf has taken some important steps in the arrests and the speech a couple days ago. He's moving in the right direction. The Indians announced themselves not yet satisfied, but there have been one or two mildly positive statements out of India.
We're very lucky that Musharraf is President of Pakistan right now. It could be a lot worse if we'd had any of the people who have been in that job over the course of the last 15 or 20 years, other than him.
DOBBS: He makes strong moves toward conciliation with the Indians. How destabilizing is that for Pakistan? What is the likelihood that he's putting his own administration in jeopardy?
WOOLSEY: Well, he's thrown the dice hard. He has opted for cooperating with us. He's opted for crushing, perhaps not brutally, but nonetheless to a rather substantial extent some of the Islamists and terrorist organizations. He hasn't gone as far as India wants, and probably hasn't gone quite as far as he should, but he has certainly alienated the extreme Islamists.
On the other hand, he's taken steps to replace the former head of his intelligence service. He did that early after September 11th, who was a real strong sympathizer of al Qaeda and the Taliban. He's replaced several top generals. He's thrown his lot with us, and I think he deserves a lot of credit for the steps he's taken.
DOBBS: It is perhaps wishful thinking as one speculates about this, but is it possible that as a result of this War against Terrorism the United States could come out of this with stronger relations, better relations with India, with Pakistan, and Turkey, all in the same region?
WOOLSEY: It's possible. If we succeed in this tight-wire ropewalk with India and Pakistan, and they don't go to war and both stand down, India has moved in our direction substantially on the ABM Treaty, on a number of issues before September 11th. Pakistan has since. They're at dagger points with one another, but there's a chance we will end up better with both than we were before 9/11.
And Turkey is, to my mind, the really big question mark, because if we are going to move against Iraq, as former Secretary of State Kissinger argued very persuasively I think yesterday in a long piece in the Washington Post, we're going to have to have Turkey with us, the one absolutely essential state and they are nervous. They are worried. They're especially worried about any split up of Iraq leading to a separate Kurdistan, which would act as a magnet on their Kurds.
On the other hand, they have calmed things down there in the last two years, since capturing Ochelan (ph) and the PKK, the Kurdish terrorist actions have tapered way off, and I think things are looking better for Turkey, even though its economy is still in shambles from this past year, and especially post 9/11.
DOBBS: And finally, the issue of Iran, which for a while looked as if it were moving far closer to the United States in terms of its policy. It is obvious over the last week or so of reports that that is simply not the case. How concerned are you about Iran at this point?
WOOLSEY: Quite worried, and we don't want to get too clubby anyway with the Mullahs, because one of the reasons we're popular among the young people who are demonstrating around soccer games and so forth in Tehran, some of them chanting "death to the Taliban" in Kabul and in Tehran, and cheering the United States, one of the reasons we're popular with them is because we're unpopular with the Mullahs.
But I think that it's going to be interesting to see how this plays out in Iran, because President Khatami and his Foreign Minister Kharrazi have been making nice noises to the United States; whereas former President Rafsanjani, who was very senior in the religious hierarchy that controls the power instruments of the state, has been speaking very harshly. Iran is a country in ferment, and it's just not clear what's going to happen there.
DOBBS: James Woolsey, as always, good to have you with us.
WOOLSEY: Good to be with you, Lou. DOBBS: Still ahead, Hollywood hurting at the hands of something called "runaway productions." How the film industry is fighting to keep billions of dollars, tens of thousands of jobs right there in Hollywood.
(COMMERCIAL BREAK)
DOBBS: Despite a record year at the box office, moviemakers say their livelihood is in danger. They're warning the film industry is being strangled by a phenomenon known as runaway productions. That's the term for television and film production going to other countries, particularly Canada. They're attracted by a strong U.S. dollar and tax incentives.
But Hollywood is fighting back. Casey Wian has the story from Los Angeles.
(BEGIN VIDEOTAPE)
CASEY WIAN, CNN CORRESPONDENT (voice over): The United States loses at least $3 billion a year in movie production to other nations, mostly to Canada. One lure is the cheap Canadian dollar, now worth about 63 U.S. cents.
But another force behind what Hollywood calls runaway production, is a Canadian tax credit for film producers, so lawmakers in the United States are countering with tax breaks of their own.
Pending Congressional legislation proposes a 25 percent tax credit on wages paid to employees working on U.S. made films. It would apply to productions with budgets under $10 million, mostly independent films and made-for-TV movies. Now California Governor Gray Davis has a similar proposal.
GRAY DAVIS, GOVERNOR OF CALIFORNIA: If you want to film the kinds of films we want you to in this state, we will reward you for doing so. We'll keep the jobs here, keep the production here, and keep the quality as extraordinarily high as it is when films are made in California.
WIAN: Davis wants an additional 15 percent state tax credit on the first $25,000 earned by workers on low-budget California made films. Hollywood labor unions support the plan because many runaway productions employ non-union labor or don't pay union benefits.
MELISSA GILBERT, PRESIDENT SCREEN ACTORS GUILD: As an actress, these movies of the week are my bread and butter. To be able to shoot one here, not leave my family and get the benefits to my pension and health plan, my God this is a dream. I just wish it could start tomorrow and not 2004.
WIAN: Because California faces a $12 million budget deficit this year, Davis' proposal wouldn't become law for two and a half years. It's expected to cost the state $200 million in tax revenue over three years. Supporters say that will pay off. VANCE VAN PATTEN, PRODUCERS GUILD OF AMERICA: From the crews, to tech crews to the restaurants, there's a huge impact that creates jobs. It brings in money.
WIAN: It may also generate money for Davis' reelection campaign.
(END VIDEOTAPE)
WIAN (on camera): Davis faces a tough challenge, probably from former Los Angeles Mayor Richard Reardon this year. He'll likely need Hollywood's financial support to keep his job. Casey Wian, CNN Financial News, Los Angeles.
DOBBS: Economics and politics, they always go together. "WOLF BLITZER REPORTS" begins in just a few minutes. Wolf, tell us all about it.
WOLF BLITZER, "WOLF BLITZER REPORTS": Thank you very much, Lou. U.S. warplanes continue pounding suspected al Qaeda and Taliban targets in eastern Afghanistan. What's going on? We'll go live to Kandahar and the Pentagon to find out. And we'll also get analysis from the former National Security Advisor Brent Scowcroft, former Navy Secretary James Webb, and Haron Amin the interim Afghan government's new top representative here in the United States. It's all ahead at the top of the hour -- Lou.
DOBBS: Looking forward to it, Wolf. Thank you. Coming up next here, we'll take a look at earnings news we can expect tomorrow. Stay with us.
(COMMERCIAL BREAK)
ANNOUNCER: Tomorrow on LOU DOBBS MONEYLINE, point and click on success, eBay's chief executive Meg Whitman on the driving force behind the world's most successful internet group, and why she has her eye on the future. Tomorrow on LOU DOBBS MONEYLINE.
(COMMERCIAL BREAK)
DOBBS: Tomorrow, quarterly earnings reports from Intel, Ebay, and Tyco. A report on retail sales for the month of December, economists are expecting a sharp decline. And Treasury Secretary Paul O'Neill will discuss the state of the nation's economy, and the Bush Administration's tax and trade policies, that to occur at a convention in New York City.
That is MONEYLINE for this Monday evening. We thank you for being with us. I'm Lou Dobbs. Goodnight from New York. WOLF BLITZER REPORTS begins right now.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
