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Lou Dobbs Moneyline
Scandal Unfolding at Enron; Bezos Delivers Profits; 'Talk' Magazine Silenced
Aired January 22, 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: Tonight on LOU DOBBS MONEYLINE, we report on Enron's collapse and the unfolding scandal from the epicenter, Houston, Texas.
Jeff Bezos' promise to profit and he delivered. The man who runs Amazon.com tells us how his company discovered success the old- fashioned way.
Talk Magazine silenced after two and a half years. Editor Tina Brown tells us why what looked like success ended in failure.
And tensions in the Middle East rise. We report from Jerusalem. This is a special edition of Lou Dobbs MONEYLINE for Tuesday, January 22nd LIVE FROM HOUSTON TEXAS, Lou Dobbs.
LOU DOBBS, MONEYLINE CORRESPONDENT: Good evening everyone. I'm sitting in front of Enron's headquarters in Houston, Texas. Tonight this company's troubles are continuing to mount. The FBI today entered the Enron building, looking into charges that Enron employees have been shredding documents related to the phenomenal collapse of the company.
Tomorrow, a Federal judge will decide whether Enron has to turn over any and all documents that pertain to its collapse, this after an Enron employee said Enron workers were shredding papers as late as last week, despite orders not to do so. Ed Lavandera has the story. Ed.
ED LAVANDERA, CNN CORRESPONDENT: Well, Lou, it's been a rather revealing 24 hours in Houston, as late yesterday details started to emerge as attorneys arrived here in Houston for a pre-trial hearing involving Enron, Andersen, and several high profile investors who have invested heavily into Enron.
And when those attorneys arrived into town, we started hearing the details that these attorneys were alleging that they have four or five witnesses inside Enron, who say that since Thanksgiving they have seen shredding of documents inside the finance and accounting departments inside of Enron on the 19th and 20th floors. They say that this has happened steadily and lasted up until last week.
Now those details emerged when the first witness came through to attorneys. They say that this woman, Marie Castanjera (ph) was working across the hallway from these departments and witnessed this. She went home, used the scraps of paper to pack up her boxes, and when she arrived at home, she noticed details on the scraps of paper, the names Raptor and Jedi on several of the scraps of paper, and of course, those are the names that have become infamous in this Enron collapse.
Those are the names of the partnerships that led to the company's demise. Enron says that it is investigating this at the moment. They do acknowledge that since all of this came to light, that they have found one wastebasket inside the building that had shredded documents. Those papers have been turned over to Federal authorities.
Now it's hard to put a lot of this into context because the only thing we've been able to see in the last 24 hours is one box of these little scraps of papers, and of course, with everything so shredded, it is hard to put into context as to what these documents were.
Attorneys for the Enron investors say they have no idea, quite frankly, what these papers are, but that it doesn't matter. That indeed, they say these papers were shredded well after Federal investigators launched their investigation, and all of these documents should have been subpoenaed, and therefore should not have been touched.
So, Enron executives putting out another memo to employees worldwide saying that no documents should be shredded or touched in any way, as investigators across the country lead into this investigation. Lou.
DOBBS: Ed, the attorney for Enron, Robert Bennett, Bob Bennett today told me that in point of fact it was he who contacted authorities as soon as they learned of this allegation. Was there any reference today in the hearing as to why the plaintiff's attorneys did not immediately contact authorities?
LAVANDERA: Well it's kind of interesting, Lou, because these attorneys are the same people who turned over the Sharon Watkins letter.
DOBBS: Right.
LAVANDERA: One of the attorneys told me last night that they turned over the Sharon Watkins letters to investigators, and they were as a matter of fact that sometimes they wanted to use the publicity to their advantage, that their hope is that this will spur and convince other people, who still might be working inside of Enron, to come forward with more of these allegations, if in fact more people have witnessed this document tampering. Lou.
DOBBS: Even in collapse, this contest is still all about money. Ed Lavandera, thank you very much.
Well charges of shredding documents are incendiary whether it is on Capitol Hill or in the courts. It is not only the crime, the original crime that excites the interest of investigators, but shredding, the crime of covering it up. Tim O'Brien has the report from Washington. (BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice over): It wasn't the Watergate break-in that drove President Richard Nixon from office, as it was his efforts to cover it up. A jury never convicted former White House aide, Oliver North, of the massive arms-for-hostage deal he orchestrated, but rather for shredding documents and obstructing Congress. It wasn't Bill Clinton's relationship with Monica Lewinsky that led to his impeachment, as much as it was his lying under oath about it. History shows that it is not the underlying offense that causes trouble, as often as it is efforts to cover it up.
David Duncan, the Arthur Andersen auditor who headed up the Enron audit, has not admitted ordering thousands of Enron-related documents destroyed on October 23rd, the day after the SEC launched an inquiry of Enron's finances.
The company fired Duncan citing his bad judgment. Duncan says he followed the advice of in-house counsel, but that may not help.
PROFESSOR JOHN COFFEE, COLUMBIA LAW SCHOOL: If you either destroy yourself or persuade others to destroy, alter, mutilate any document with the intent of making that document unavailable for use in that official proceeding, it's a Federal felony and there's not much you can say by way of defense. It's not easy to say, my lawyer told me to do this. That's not a recognized defense.
O'BRIEN: Arthur Andersen did have a policy of routinely shredding documents. "Accountants are like packrats," said CEO Joseph Berardino. "We save lots of stuff that's not relevant."
And company lawyer, Nancy Temple, did send a memo out in early October reminding Duncan and other employees of that policy concluding, "it would helpful to make sure that we have complied with the policy."
(END VIDEOTAPE)
O'BRIEN (on camera): House investigators have been questioning both Temple and Duncan, and Duncan is expected to be called as a witness before the House Energy and Commerce Committee this Thursday. His lawyers disclosed tonight he will invoke his Fifth Amendment right against self-incrimination. That is, he'll speak but only if granted immunity, assurances that nothing he says will be used against him in court. Lou.
DOBBS: Tim, thank you very much. Tim O'Brien from Washington. Well, as a matter of fact President Bush has now been added to the list of people who are very angry at Enron. One of the President's own family members, it turns out, lost money in the collapse of Enron stock.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: My own mother- in-law bought stock last summer and it's not worth anything now. If she'd have known all the facts, I don't know what her decision would have been, but she didn't know all the facts, and a lot of shareholders didn't know all the facts, and that's wrong. So our government must do something about it, must make sure that the accounting practices that have been going on for quite a while are addressed.
(END VIDEO CLIP)
DOBBS: Well, Jenna Welsh (ph), the President's mother-in law, paid almost $41 a share for 200 Enron shares. She sold that stock last month, two days after Enron declared bankruptcy, at 42 cents a share. She lost more than $8,000.
Well focusing on Enron's off-balance-sheet partnerships that enabled Enron to hide massive amounts of debt. Chris Huntington now takes a look at those Enron deals and the executive who set them up.
(BEGIN VIDEOTAPE)
CHRIS HUNTINGTON, CNN CORRESPONDENT (voice over): At the center of Enron's collapse is this man, Andrew Fastow (ph), the company's former Chief Financial Officer. Until he was fired last October, Fastow designed and carried out a sophisticated strategy that expanded Enron's business, while keeping losses and debt off its books. It was a strategy blessed by Enron's top brass.
DAVID BOIES, BOIES, SHILLER & PLEXNER: Those transactions will be transactions that were reviewed by the Board of Directors of Enron, reviewed by the top management of Enron, and which I believe the record will show, the audit committee of the board and the outside auditors had reviewed it as well.
HUNTINGTON: In 1999, Fastow's financial wizardry was applauded by analysts as groundbreaking and innovative. At the time, CFO Magazine called Enron a master of creative financing, and presented Fastow with its annual CFO Excellence award.
While Fastow and Enron's CEO at the time, Jeff Skilling, boasted about Enron's deals in general terms, they did not divulge all the details. Anyone looking for answers about Enron's nearly 6,000 off- balance-sheet transactions in the quarterly or annual reports, found only obscure footnotes.
PROFESSION DOUG CARMICHAEL, ACCOUNTING, BARUCH COLLEGE: It's really impenetrable detail in the footnotes. Someone with some understanding of business, should be able to pick up the financial statements, read the notes, and understand the full effects of those transactions on the financial statement. With Enron, they couldn't.
HUNTINGTON: In August, 2001 Sharon Watkins, an Enron Vice President who reported to Fastow, wrote her now famous letter to Chairman Ken Lay, expressing her concerns about some of Fastow's off- balance-sheet deals.
According to Enron documents and a letter from Enron's lawyer, obtained by CNN, the transactions worked this way. Fastow set up limited partnerships called LJM. LJM then set up what are called Special Purpose Entities or S.P.E.s. One of them called Raptor was designed to invest in companies on behalf of Enron.
The structure of the deal required Raptor to pay Enron, even if the investments soured. But Raptor was essentially delivering an I.O.U. What we do know now is Raptor's only significant source of capital was Enron Stock. Enron was using its own stock to pay itself.
LYNN TURNER, FORMER CHIEF ACCOUNTANT, SEC: It's kind of like a money-laundering case. One of the things that is of interest on LJM, one is the fact that not only the was the debt and the losses kept off the balance sheet by putting these transactions in a separate corporation, but it was then used to make payments or provide compensation to the CFO.
HUNTINGTON: In an extraordinary move, Enron's Board of Directors waived its conflict of interest rules, allowing Fastow an ownership stake in the partnerships, which earned him millions of dollars.
(END VIDEOTAPE)
Enron ultimately had to account for the LJM and Raptor transactions last November, when it restated earnings going back to 1997. All tolled, those restatements of off-balance-sheet transactions trimmed Enron's profits by more than $600 million. Lou.
DOBBS: Chris, thank you very much. Chris Huntington. The Enron collapse has devastated for now at least the reputation of the nation's accounting industry. There are five major accounting firms. James Copeland is the CEO of one of them, Deloitte & Touche. What can the industry do to restore investor confidence right now in the financial reporting of corporate America?
JAMES COPELAND, CEO, DELOITTE & TOUCHE: Lou, I think there are a number of things that the financial industry can do in concert with a number of other people. This is, you know, a real financial crisis for not just our industry but for the shareholders and employees of Enron who have lost, not only their jobs, but also have lost their life savings in many cases. There's collateral damage with respect to the 335,000 auditors in the United States that go to work every day.
DOBBS: Right.
COPELAND: Try to do a good job, produce 15,000 audits a year where there are no restatements, where there are no challenges. These people are being tarred with the same brush and that's a tragedy as well.
DOBBS: Tarred with the same brush and now a number of recommendations, almost instantaneously. Harvey Pitt at the SEC comes forward with his recommendations, which have created some controversy, both in terms of its timing and, if you will, the lack of commitment behind those proposals in they eyes of some.
Senator Barbara Boxer says "take accounting firms and eliminate the consulting fees from their business, divest it, go back to the business you're best at and that's auditing." What do you think?
COPELAND: Well, I think that Senator Boxer's comments and the proposed bill is going to generate a debate that really needs to be held. There is a lot more heat around this issue than there is light right now, and we really do need to debate the issues.
Everyone is looking for an answer to a very complex problem, and unfortunately, you know, we all tend to want to move to simplistic answers. Sometimes a simplistic answer is the right one. Oftentimes, what you end up with are unintended consequences that are worse than the original problem.
So I think we need to be very careful, very prudent. We need to put everything on the table and talk about all of the potential problems and opportunities and then make some very good, very careful decisions.
DOBBS: I know that you probably won't like this aphorism, but the essence of genius is simplicity itself. It is certainly something that can not be said of the accounting system, the financial system in any way.
But if you, James Copeland, were to look and perhaps you have at the annual report of Enron for the year 2000, do you think you, one of the best minds in accounting and audit, would know, have any suspicion of these secret partnerships, and I say secret advisedly, and the huge number of off-shore tax havens that Enron had in its structure?
COPELAND: I think some of my partners are probably laughing right now about my being one of the best accounting and auditing minds in our profession, but.
DOBBS: Just go with it, James.
COPELAND: I would say that to your point, I believe, the complexity of Enron and many other companies' financial statements, really is getting to a point where they're very, very hard to understand for all of us, even for experts in the area. But at the same time, you know, making the complex simple is a real challenge.
DOBBS: A real challenge, and certainly no one would be more aware of that than you. The fact of the matter is that we have reached a stage where the essence of this country's financial system, its transparency and its securities markets and its business dealings is, if not already jeopardized and already perhaps overtaken by complex tax and accounting laws, we are also at risk of losing faith in the system itself. We're as appalled over these markets right now, cast in the instance for example of Kmart, in which credit standards are rising simply because of the Enron experience. This has to concern you.
COPELAND: It concerns me a lot. One of the things that concerns me most is that we come up with two or three simple answers that sound good. We all celebrate, go home, and 18 months later you have another body on the table, so to speak.
DOBBS: Right.
COPELAND: And you know, then what happens to the credibility of the system? We need to quit trying to polish the hood. We have a problem with the engine, you know, and we need to really get our dirt under our fingernails, work hard on the things that will really make a difference in the financial reporting system.
DOBBS: OK. James Copeland, we thank you for taking the time to be with us and we know you'll be part of the solution.
COPELAND: I hope so.
DOBBS: James Copeland, Deloitte & Touche.
COPELAND: Thanks very much, Lou.
DOBBS: We hope you'll join us tonight at 8:00 Eastern for a one- hour special on the rise and the fall of Enron. We'll be live here in Houston. We'll be taking a look at the forces that brought about Enron's collapse, and the impact it's had on that company's employees, the retirement plans of the city of Houston, and indeed business in America. All of that coming up on CNN, 8:00 Eastern.
On Wall Street today, stocks weaker despite positive earnings news form Amazon.com and Lucent Technologies. The Dow Jones Industrials ended the day down 58 points, the Dow closing at 9713. The Dow has fallen nine out of the past eleven sessions.
And the Nasdaq tonight is at a two-month low, losing 47 points today, more than two and a half percent. The broader market, S & P 500, ended down eight points. We'll have much more on today's sell off later in the broadcast.
Still ahead, we'll have more on the fallout from the collapse of Enron and the scandal now surrounding it. Then, Tyco International is splitting itself into four companies. We'll have a report for you.
Kmart says its bankruptcy isn't the end, but rather a chance for a new beginning. We'll tell you how the company plans to pull itself back together.
And a dot.com survivor turns into a dot.com success story. Amazon.com promises that the best is yet to come. We'll find out.
ANNOUNCER: Next, Lou speaks with Jeff Bezos, Chairman and CEO of Amazon.com.
(COMMERCIAL BREAK)
DOBBS: Kmart in business for more than 100 years, today filed for bankruptcy. It is the biggest bankruptcy every in the retailing industry. One reason, suppliers were cutting off their products because Kmart couldn't make its payments. And with the collapse of Enron, increasingly companies are demanding prompt payment for their goods and services. Kitty Pilgrim reports.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice over): Kmart is keeping all 2,114 stores open, and according to its latest filing with the FCC has about $17 billion in assets. But as of Tuesday, it's officially in bankruptcy. According to the CEO, it's not the end but the beginning of a comeback.
CHARLES C. CONAWAY, CEO, KMART: This is going to help Kmart actually expedite its turnaround plan and be stronger, more profitable.
PILGRIM: One of the reasons Kmart says it was pushed to the brink is the erosion of supplier confidence. Kmart has 4,000 vendors and suppliers. Fleming, a Dallas-based food distributor cut shipments to Kmart because it couldn't make its weekly payment for deliveries.
Kmart is a $4.5 billion customer, and it missed a $78 million. They won't continue to supply Kmart until they work out how they will get paid.
DEBORAH WEINSAG, BEAR STEARNS: What really kind of pulled the plug was Fleming which delivers their food and consumables, stopped delivering on Friday, and I think that really just kind of, you know, brought us to the final demise.
PILGRIM: Business analysts say the current climate of wariness has changed the way companies are thinking.
THOMAS MAYER, KRAMER LEVIN: People I think are somewhat surprised that they weren't able to go to their banks and raise the money that they needed to stay out of bankruptcy, and it may be that Enron created a climate where it was more difficult to borrow money.
WAYNE HOOD, PRUDENTIAL FINANCIAL: This company lost money in the first three quarters of the year. We cut our earnings in half by the fourth quarter. So clearly, before the Enron debacle, Kmart was headed down a spiral that needed to be reversed and I think the environment just helped push them right over the edge.
(END VIDEOTAPE)
PILGRIM (on camera): Now Kmart has secured $2 billion in financing from a handful of banks to fund its turnaround and continue operations, and with that money, suppliers like Fleming are hoping they can resume their business relationship with Kmart. Lou.
DOBBS: One assumes that this bankruptcy was a condition of that financing. We have just received word, Kitty, that Martha Stewart Living, Martha Stewart Media has decided to remain with Kmart, an expression of confidence in the outcome of this bankruptcy for Kmart.
PILGRIM: That certainly is a very important relationship for Kmart, and they had indicated, especially on MONEYLINE that they had every intention of trying to ride this out. So there we're seeing confirmation about it. DOBBS: Martha Stewart expressed her confidence in the management of Kmart last week, and today she decided to put it forward, rather straightforward. Kitty, thanks very much. Kitty Pilgrim.
Well, Tyco International, we are pleased to report, is not in danger of going bankrupt, but its stock has been slumping. Today, Tyco took steps to change all of that, Tyco announcing it will split into four companies, separating its healthcare, its fire and flood, financial services, and security sectors. Tyco will also sell of its plastics business, which it expects will bring in somewhere between $3 and $4 billion.
CEO Dennis Kozlowski also laid to rest what he called ridiculous rumors that have been circulating on Wall Street.
(BEGIN VIDEO CLIP)
DENNIS KOZLOWSKI, CEO TYCO INTERNATIONAL: I have not resigned. We have minimum exposure to Kmart. We have minimum exposure to Enron. We are not buying Honeywell. Argentina's not an issue for us. We know of no SEC investigation of Tyco and on and on. We have no liquidity crisis. We're not floating any new bonds. There's absolutely no new accounting questions.
(END VIDEO CLIP)
DOBBS: Tyco shares ended the day $1.10 higher, closing at $47.55 a share. Well there was a sharp turnaround on Wall Street after opening higher, investors becoming increasingly concerned about corporate profits, as Kmart announced its bankruptcy. Christine Romans at the New York Stock Exchange, Greg Clarkin at the Nasdaq Market site, let's go to you first, Christine.
CHRISTINE ROMANS, CNN CORRESPONDENT: Well, Lou, the tone from the floor decidedly nervous here today. Look at the most active lists, Kmart, Tyco topping that list as you reported.
Also we had Lucent there, gaining about a penny on the session, about 25 cents actually on the session. But indeed, remember this is one of the names that still has one of the largest open short positions here, so one to watch.
AOL, CNN's parent suffering at an exodus out of media stocks today. GE losing about one percent. Tracking this overall market malaise that we had here, look at the Big Board movers. IBM faltered with the big techs, as money flowed into big (inaudible) like Merck.
Wal-Mart rallying on that news of Kmart's bankruptcy filing, and Bank of America, income jumping 49 percent in the quarter, driven by fees from credit cards and bond offerings.
Finally, Williamette Industries up $8.00. This timber company finally ending a 14-month battle with a Weyrhauser (ph), agreeing to be bought for $55.50 a share in cash.
Overall, traders are saying here that the volume was average, the breadth was slightly negative. For the most part, they're waiting for some sort of catalyst to turn this thing around. They say in the meantime, Lou, the path of least resistance remains lower. Lou.
DOBBS: Christine, thank you very much. Well, the Nasdaq falling two and a half percent today. Let's go to Greg Clarkin to find out why. Greg.
GREG CLARKIN, CNN CORRESPONDENT: Lou, that's called a case of severe earnings anxiety. That's really what's gripping these technology stocks, technology investors as well. And outside of a little pop in the early going today, that was largely due to Amazon's very big news that the company had posted its first-ever profit. Outside of that, the big name tech shares really never had a chance today.
Take a look at how the actively traded issues on the Nasdaq did today. You see all the big names were lower, in some cases sharply lower. Sun Microsystems down about nine percent. Intel was off sharply, as were shares of Microsoft.
Now among those movers that were at the top of the list, you got to have Amazon. The company coming in with nine cents a share in earnings, revenue for the quarter up 15 percent to just over $1.1 billion, and Amazon shares on the day soaring. They were up basically 20 to 22 percent throughout the day. They held that level and finished up at about a 25 percent gain.
Other movers included some the shares in the chip and chip equipment companies, a lot of those companies reporting numbers after the close of trade. For the most part, they're inline with expectations, maybe slightly higher.
Novellus Systems fell ahead of its reports. JDS Uniphase has numbers later this week. It was down. Altera was down. I want to leave you with another piece of good news. Blue Martini Software, the company getting a big pop today, after Starbucks said it will use its management, software management to help its distribution channels, that stock getting a nice lift. But really, Lou, the news today Amazon a big pop there. But outside of that, it was decidedly negative, 1.8 billion shares in our volume, 1.4 billion of that was on the downside. Lou.
DOBBS: Greg, thanks very much. Amazon.com, as Greg just reported, making good its promise to post its first-ever quarterly profit. Amazon didn't have to use fancy accounting either for a change. It did it the old-fashioned way, posting an operating profit. The results beat even the most optimistic estimates, sales topping $1 billion for the first time, up 15 percent compared to a year ago.
Amazon also guided sales higher for the - guidance moving higher for the current quarter. Even though Amazon.com stock today up more than 20 percent on those number, the stock has lacked a broader market of course, over the past year, as have so many dot.coms. Joining me now, Amazon's Chairman and CEO, Jeff Bezos. First of all, congratulations. How in the world does it feel not to have to rely on pro forma accounting? JEFF BEZOS, CHAIRMAN & CEO, AMAZON.COM: Well, we're just incredibly pleased with the quarter. It went extremely well. The big driver of our results this quarter was even further reducing prices for customers. So for example, the 30 percent off books over $20, which we launched at the beginning of the quarter, really drove results.
Today, we doubled down on giving that money back to customers by introducing a free shipping offer, supersaver shipping, free for orders over $99. We're very excited about that ability to grow the business as well.
DOBBS: What percentage of your earnings would you put toward books, what toward electronics, computers?
BEZOS: Well, certainly the big driver of earnings this quarter was our books, music and video segment. That's the oldest segment of our business. Our international segment, Germany and the U.K. the two most mature geographies also coming in with operating profitability break even. And going forward, we expect that international business to drive the profitability.
Electronics, tools and kitchen, we made tons of progress there, but there's still a long way to go.
DOBBS: Are you dropping any of those lines simply because the business isn't there, the margins aren't there?
BEZOS: No. We're incredibly pleased. In fact, if you look at the electronics, tools, and kitchen business, the gross margins accelerated dramatically year over year. So did our operating efficiency. There's a $50 million delta in operating income in that segment year over year. We're very, very pleased with the direction it's headed.
DOBBS: Well, Jeff, this is an auspicious occasion for you. You have had to endure a lot of, well jokes, talking up making up your losses on volume. Obviously you don't have to put up with that after this quarter. We'll see what happens the next quarter. You can also make more history here tonight. Amazon.com gives up pro forma accounting, will report everything straight up.
BEZOS: Well actually we are - what we're going to do in a way is that. We're going to focus -
DOBBS: Terrific.
BEZOS: -- on operating cash flow. Operating cash flow is a formal gaf number and that's the number that we think is going to best represent our business in the coming year.
DOBBS: Right.
BEZOS: We're going to try to have an operating cash flow, a positive year in 2002, and then we're going to work on free cash flow after that. DOBBS: And net earnings and (inaudible) all that pro forma, you going to get rid of all that nonsense?
BEZOS: No. In our case, we're going to stay focused on cash flow. We think that's a much better measure of business, and will generate more shareholder value that gaf earnings.
DOBBS: Well, Jeff, I hope the next time we talk you'll talk about all that profit and that cash flow.
BEZOS: Thank you very much.
DOBBS: Thank you for being here. Congratulations.
BEZOS: Thank you.
DOBBS: Jeff Bezos. Coming up next, violence erupts in the Middle East. A gunman opens fire in central Jerusalem. Dozens of people are injured. American Taliban John Walker begins his trip back to this country. He faces trial in Federal Court. And Tina Brown, the woman who once ran Vanity Fair and New Yorker Magazine presides over her first failure. We'll be talking with the former editor-in-chief of "Talk" magazine.
(COMMERCIAL BREAK)
DOBBS: Dozens of Israelis were injured when a gunman opened fire on a crowd in central Jerusalem today. Israeli police quickly shot and killed the attacker. That attack followed an Israeli raid on Hamas militants in the West Bank. Mike Hanna reports from Jerusalem.
(BEGIN VIDEOTAPE)
MIKE HANNA, CNN JERUSALEM BUREAU CHIEF (voice-over): At the height of rush hour, gunfire erupts in the middle of Jerusalem. Israeli police say a lone Palestinian gunman opened fire on passing crowds. Some 40 people were wounded, the only fatality, the gunman himself, who was shot dead by police on the scene.
The terror attack, confirmation of an upsurge in the levels of violence. Earlier Tuesday, four Palestinians were killed by Israeli forces in the West Bank city of Nablus. Both sides agree the four were members of the armed wing of the militant Hamas movement.
MAHMOUD AL-ZAHAR, HAMAS SPOKESMAN: Such a crime will not pass without punishment. Retaliation is the call of every Palestinian now.
HANNA: In recent days, Israeli forces have been moving in and out of Palestinian-controlled territory at will. The Sharon government insisting it will clamp down on militant activity because the Palestinian Authority does not. The authority of Palestinian security forces being challenged by the Palestinian people as well as by the Israelis.
In the wake of the Israeli attack in Nablus, a crowd besieged the prison in the West Bank city, demanding that Palestinian police release the militants they'd arrested recently on the orders of Yasser Arafat. The prisoners are released. Among them, the brother of a Hamas member killed earlier in the day.
(on camera): Hamas has pledged revenge that it was an armed offshoot of Yasser Arafat's own Fatah movement that claimed responsibility for the Jerusalem attack. The Al-Aqsa brigade cites the killing of the Hamas members in Nablus as one of its reasons, a sign of the mounting unity between Palestinian militant groups.
Mike Hanna, CNN, Jerusalem.
(END VIDEOTAPE)
DOBBS: U.S. officials say an attack on a U.S. cultural center in Calcutta, India, appeared to be aimed at Indian police guards and not at the United States. Two motorcycle passengers, both armed with machine guns, opened fire. Four guards were killed; 20 others were injured in the attack. No Americans were hurt in the attack which comes one day -- rather one month -- after a deadly assault against India's parliament. Since then, the United States has been trying to defuse escalating tensions between India and Pakistan.
The Pentagon says anyone who suggests that Taliban and al Qaeda detainees at Guantanamo Bay are not being treated properly or fairly is simply misinformed.
(BEGIN VIDEO CLIP)
DONALD RUMSFELD, SECRETARY OF DEFENSE: Let there be no doubt the treatment of the detainees in Guantanamo Bay is proper. It's humane. It's appropriate. And it is fully consistent with international conventions.
(END VIDEO CLIP)
DOBBS: The defense secretary also says a photograph showing detainees on their knees tells only part of the story. Rumsfeld said the detainees had recently deplaned and were about to be processed and taken to their cells. Secretary Rumsfeld says the detainees will either be charged or they will be released, but that keeping them off the streets and away from airports remains a priority.
American Taliban John Walker has apparently begun his trip back to the United States. Walker is believed to have left a U.S. warship in the North Arabian Sea and flown to Kandahar airport. He's now expected to board a large aircraft headed for the United States. The 20-year-old faces several criminal charges, including conspiracy to kill U.S. nationals abroad. If he's convicted, Walker could spend life in prison.
Now for more on the war against terrorism, including the latest on the detainees in Cuba, General David Grange joins us tonight from Chicago. General, good to have you with us.
RETIRED GENERAL DAVID GRANGE, CNN MILITARY ANALYST: Good evening, Lou. DOBBS: The detainees and their treatment, are you concerned about the propriety of the treatment?
GRANGE: Not at all. I'm sure that a lot of mental anguish has been bestowed upon these detainees, as it should be. But I think their physical needs are well taken care of. I think back at times as serving as a soldier and the soldiers that served with me, actually three meals a day and having cover over your head, being able to exercise and sleep on a sleeping mat, which is the same mat that's issued to soldiers, is not a bad deal at all.
DOBBS: General, how long do you think the military will hold these detainees? Is it a matter of months, years?
GRANGE: Well, that's an interesting point. If we're building a facility for maybe 2,000 detainees, and then who knows how long they'll be there, you can imagine how mad some of these people will become, detainees of ours in Cuba. And when they are released back to their countries where they came from, they'll probably continue to be a threat to us. So this is an interesting question. But I think we have this thing built for the long term.
DOBBS: General, I've got to turn, if I may, I'm going to enlist -- your military analysis has been brilliant throughout. I want to turn you, if I may, tonight into a film critic. General Grange, highly decorated Ranger, talking about the movie "Black Hawk Down". Did you see the movie, General?
GRANGE: I did. I saw it Saturday night.
DOBBS: I'm -- I was -- the General was nice enough to invite me out to West Point, where he lectured a group of -- I believe they're called yearlings. In the civilian world, they're called sophomores -- on combat leadership. It was an amazing presentation and an amazing reception he received. "Black Hawk Down" -- tell us what you thought. I'm just dying to know.
GRANGE: I think the movie was excellent. Maybe 85 percent true as it would be in a combat situation like that, which was quite violent. And that's all -- I say that because I know a lot of the soldiers involved, served with them. And so some of the things that were highlighted were exaggerated just a bit in the relationship between different organizations that served there and some of the characters.
However, it was a true portrayal of combat, the human factor involved in battle, the buddy team, the feeling between comrades on the field of battle. And most importantly, I think it really paid tribute to those that gave their lives for the United States of America, though we did not complete the mission.
DOBBS: I believe that that's what I would call a rave review, General. Thank you very much, General David Grange.
GRANGE: Thank you. DOBBS: Just ahead here, Enron's collapse has highlighted the vulnerability of many retirement plans unfortunately. When we come back, we'll take a look at what you can do to protect your retirement savings.
And "Talk" magazine -- it succumbs to the worst advertising slump in recent history. But many in the publishing business say it never found the voice it needed. I'll be joined by "Talk' magazine's celebrated editor, Tina Brown, next here on MONEYLINE, live from Houston. We'll be right back.
(COMMERCIAL BREAK)
DOBBS: In corporate news tonight, starting next season, the NBA is moving from NBC to ABC, ESPN and TNT, part of a six-year deal announced today. In addition, the NBA and AOL Time Warner, the parent of this network, will create a new sports television network which has yet to be named.
AOL's Internet browser unit, Netscape, is suing Microsoft. The company says Netscape was harmed by Microsoft's unfair promotion of its own Internet Explorer. The browser wars are back. Netscape wants to stop the anti-competitive behavior and trouble damages to be determined, of course, at trial.
Johnson & Johnson's profits rose nearly 18 percent to more than $1 billion because of strong sales of its medical devices and a key anemia drug. J&J's chairman and CEO Ralph Larsen is also retiring. Larsen to be replaced by vice chairman William Weldon.
And AT&T is hanging up on the 900-number business. The company says the decision is financial, but also influenced by the number's association with telephone sex and psychic advice.
The Enron debacle has led to the collapse of thousands of 401(k) accounts held by Enron employees. The collapse provoked a debate about investment regulations that could prove precedent setting. At the very core of the debate: Does the federal government have any business telling you how to invest your own retirement money?
Peter Viles reports.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): You've heard about all the Enron employees who loaded up on the company stock in their retirement accounts and lost nearly everything.
UNIDENTIFIED MALE: You feel like you've almost been raped.
VILES: You've heard the Bush administration says it's studying the 401(k) rules, with an eye toward protecting your retirement money.
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: I think the public is very uneasy about their pensions. The public wants to know if what happened to Enron can happen to them. The president wants to make sure that any action is taken so that others can be protected so that it does not happen to them.
VILES: Considering it's a creation of the IRS, the 401(k) is quite simple. First off, it is optional. Your employer is not required to offer a 401(k) plan and you're not required to participate. The employer has the option of putting its money or stock into your account, but on the employer's terms. And there are no government guarantees or insurance on the money itself. It is yours to invest.
DAVID RAY, 401(K) PROFIT SHARING ASSOCIATION OF AMERICA: It is not a defined benefit plan. There are not guarantees. It's not a program where promises about future benefits are made. It's about setting money aside, investing that money and then using those contributions and returns as your retirement income.
VILES: Lastly, the employer does have the right to lock up the plan temporarily to switch administrators. The 10-day lockup at Enron is not considered to be unusually long. So how might Washington protect your 401(k)?
Senator Jon Corzine wants mandatory diversity. The government would prevent you from putting more than 20 percent of your account into any one stock. But do you really want the government telling you how to invest your money?
MICHAEL HOLLAND, HOLLAND & CO.: When we start getting lawyers and politicians telling us where we can invest our 401(k)s, I think it should send shudders up the spines of individual investors.
VILES: Corzine's argument is that the government sponsors 401(k)s by deferring taxes, so it has an obligation to regulate them.
SEN. JOHN CORZINE (D), NEW JERSEY: It is out of bounds for the federal government to be sponsoring a policy that doesn't fit together with what any investment adviser, any reasonable investment strategy coming out of academia or simple commonsense principals that don't put all your eggs in one basket.
(END VIDEOTAPE)
VILES (on camera): Well, wait, does that phrase resonate here in Houston, where a lot of people wish they had a lot fewer eggs in that one basket of Enron stock? Total losses by Enron employees in their 401(k)s alone on Enron stock, estimated at over $1 billion -- Lou.
DOBBS: Well, it's a terrific point. The fact is these 401(k)s are not required by the companies. It's become, if you will, fashionable and employees rely upon them. And it puts in stark contrast here, Enron so much it can be accused of, the fact is the 401(k), which it contributed, is probably a reason to cut them a little slack there.
VILES: Yes, a lot of the stock in those accounts was stock that Enron gave the employees. It was a gift that ultimately became worthless, but it was a gift in the first place.
DOBBS: OK. Thank you very much, Peter Viles.
Coming up next here, another victim of the slumping economy. Two-and-a-half years after "Talk" magazine roared into existence, the glossy magazine has fallen silent. We'll have the inside scoop with "Talk"'s editor-in-chief, Tina Brown.
ANNOUNCER: After the break, Lou talks with Tina Brown of "Talk" magazine.
(COMMERCIAL BREAK)
DOBBS: "Talk" magazine is only one of the latest victims of the recession. Hearst and Miramax shut down that joint venture just more than two years after launching its star-studded product. Since its debut in 1999, "Talk" has lost up to $50 million. Editor-in-chief Tina Brown tried to recreate her successes at the "New Yorker" and "Vanity Fair." Tina Brown joins me now from our studios in New York City.
Tina, first of all, I'm sorry, and you have my condolences. I know this has got to be a very tough period for you. When did you really find out that it was over?
TINA BROWN, FORMER EDITOR-IN-CHIEF, "TALK": At the end of last week. The decision was finally made that we should not go forth with it anymore. It was obviously a very, very sad day, a very disheartened thing to happen, just as we were really 6 percent up in advertising at the end of last year, and we really had turned a corner after a tricky launch.
And the staff was devastated. We have a young ebullient, talented team and they felt tremendously disappointed.
DOBBS: Creatively, there are people who say the magazine had not found its ultimate voice, if you will, creatively. Every writer I've talked with loved working on the book, loved the direction you were taking it in.
You and Ron Golotti drove sales in the midst of a downturn. It was just phenomenal. What would have been required for to you succeed?
BROWN: Another year and a half, really another two years. But what our partners were facing and I do feel very sympathetic about that, is this huge downturn in the advertising market. We've been devastated in our business in the downturn in the economy, where the advertising is slumping, and what they were being asked to do really was to not to stay on business plan, but to have a business plan that was going to reflect tremendously more losses than they had ever built in.
And I think they just felt they could not suck it up. And there were a single title in a world of conglomerates, and it was really a very tall order to stay in the business. And I'm really sorry they didn't take the view that they should have invested for longer. But I have to say that I also understand why they took the view. DOBBS: Understanding the view, I'm sure it doesn't make it any easier. Could you have cut staff, could you have reduced expenses to a point that you could have gotten at least perhaps another year on the horizon for break even?
BROWN: We did. We greatly reduced staff in the last six months. We lost a great number of people. We did. We had a business plan that reflected a large editorial cut for next year.
But you know, there comes a point when you cannot perform as a journalist without a certain number of people. You need your fact- checkers and you need your production staff, and you need your art department, you know, there's a limit to what you can could on a magazine and still produce something of any quality.
As a result it just wasn't viable to continue in the climate we were in. I still think had everyone hung in, because we were up in advertising and because we were having such a great response to the magazine and we had found our voice, we would have been there in year and a half from now.
And the sad thing is when I was at "Vanity Fair" many years ago, our finances were in exactly the same position two years in as they are today with "Talk." And yet the decision was made to stay with it and a huge asset was created by that kind of patience.
I will say, as I said, in fairness to our partners, that with what we didn't face in those days at "Vanity Fair" was this really savage advertising climate. So, that's the difference, and you know, we're just one of the many victims right now of what's going on.
DOBBS: Tina, what's next?
BROWN: Well I'm loving what I doing with the book company. We had two pieces of our company, magazine and book company. The book company, Talk/Miramax Books has been enormously successful. In the last two years we have had four best-sellers in the last year alone, and we are publishing Rudolph Giuliani's memoirs, we are publishing Madeleine Albright, we are publishing Queen Noor, we're publishing David Boise, these are really stellar...
DOBBS: How about Tina Brown's diary?
BROWN: I don't think -- I don't think I'm quite ready to burn all my bridges.
DOBBS: Well, Tina, I can't -- I know that that's an enormous challenge for most talents. But the fact of the matter is I can't wait to see what's next for Tina Brown.
BROWN: Thank you.
DOBBS: Thank you very much, Tina.
"WOLF BLITZER REPORTS: begins in just a few minutes. Let's go to Wolf in Washington to find out what is ahead -- Wolf. WOLF BLITZER, HOST, "WOLF BLITZER REPORTS": Thank you very much, Lou. America's cities, how safe are they? Coming up at the top of the hour. We will take a close look at the first line of defense in the America's war against terrorism. How does your city rate? Among my guests, the mayors of three high-profile cities, Willie Brown of San Francisco, Anthony Williams of Washington D.C. and Rocky Anderson of Salt Lake City, site of next months winter Olympics. It's all next -- Lou.
ENSOR: Wolf, we will be watching. Thank you very much. And coming up here next, a third of the S&P 500 companies will report their earnings this week. We'll tell you all about that and what you can expect tomorrow next. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Tomorrow here, corporate earning will be reported by ExxonMobil, Boeing, DuPont, Merrill Lynch, Caterpillar, and Pfizer. IT is a very busy week for corporate earnings.
Congress is back in session tomorrow after a lengthy break, and that means a lot of news ahead. So stay tuned. That's MONEYLINE for this Tuesday evening. We thank you for being with us. Live from Enron headquarters in Houston, please join us tonight 8:00 p.m. Eastern, our one-hour special program -- an in depth look at the collapse and the scandal of Enron.
"WOLF BLITZER REPORTS" begins right now.
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