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Lou Dobbs Moneyline
Dow Advances 44.01 to 9840.08; Nasdaq Declines 4.88 to 1937.70
Aired January 25, 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, new developments in the Enron scandal. A former executive commits suicide, and former employees sue for their severance.
More violence in the Middle East. Tonight, fresh calls for the U.S. to make a break with Yasser Arafat.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I am disappointed in Yasser Arafat. He must make an full effort to rout out terror in the Middle East. Obviously I'm very disappointed in him.
(END VIDEO CLIP)
ANNOUNCER: Record companies call them pampered pop stars. They say they are indentured servants. A special report on growing discord in the music industry.
This is LOU DOBBS MONEYLINE for Friday, January 25. Sitting in for Lou Dobbs, Kitty Pilgrim.
KITTY PILGRIM, GUEST HOST: Good evening, everyone. Here are the latest developments in the Enron scandal. The White House has ordered a review of all government contracts with Enron and Andersen. Two House Democrats will sue Vice President Dick Cheney next week for information on those energy policy meetings. And a former vice chairman of Enron has apparently committed suicide. Cliff Baxter had been in negotiations to testify before Congress. Allan Chernoff has more on that story.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Baxter was found near his Sugar Land home in a Mercedes Benz sedan on Palm Royale Boulevard. A gun in his hand, a suicide note in the vehicle.
SGT. TRUMAN BODY, SUGAR LAND POLICE DEPT.: At 2:23 a.m., Sugar Land police discovered John C. Baxter located inside his vehicle, an apparent gunshot wound to the head.
CHERNOFF: Baxter, 43, had been a key executive at Enron before resigning last May. He had questioned the company's finances, according to whistle blower Sherron Watkins, who in her memo to Enron Chief Ken Lay wrote, "Cliff Baxter complained mightily to Skilling, Enron's president, and all who would listen about the inappropriateness of our transactions with LJM." That was one of the partnerships that contributed to Enron's demise.
The Watkins memo had congressional investigators wanting to talk with Mr. Baxter. In fact, as late as Friday morning, investigators were trying to arrange a meeting through Baxter's lawyer, unaware that Mr. Baxter had already taken his own life.
A former captain in the Air Force, and valedictorian of Columbia business school's class of '87, Cliff Baxter had been a star at Enron. After joining in 1991, he rose to become chief investment officer in 1997. In 1999, he became CEO of Enron North America, the commodity trading operation that generated the vast majority of Enron's revenues. He moved on to be vice chairman in charge of mergers and acquisitions. Then, suddenly resigned last May.
Before stepping down, Baxter earned nearly $22 million from selling Enron stock. He, along with other officers of Enron, had been sued by stockholders. Enron released a statement: "We are deeply saddened by the tragic loss of our friend and colleague Cliff Baxter. Our thoughts and prayers go out to his family and friends."
(END VIDEOTAPE)
CHERNOFF: Late today, Sherron Watkins' attorney released a statement, saying Ms. Watkins is, quote, "stunned beyond belief," adding that Mr. Baxter had the utmost integrity and she respected him immensely.
CNN reached a former Enron employee who worked closely with Mr. Baxter and spoke with him on Monday. He said Baxter showed no sign of depression or panic or depression and did not seem particularly upset when he discussed the shareholder lawsuit in which he was a defendant -- Kitty.
PILGRIM: Allan, the intense level of pressure that's on these people right now, anyone involved in this, whether they're investigating or whether they're involved, it's incredible.
CHERNOFF: No question about it. I mean, the entire company very uncertain about the future of Enron. And of course, there are the lawsuits against the directors, against a lot of executives there, and the congressional investigations, as well as the SEC, the Justice Department. It's a pressure cooker.
PILGRIM: And also, the public view, everyone who's investigating is under a lot of pressure too to ask the right questions and find the right answers.
CHERNOFF: A lot of spotlight here, yes.
PILGRIM: All right. Thanks very much, Allan Chernoff. Tonight, government agencies are reviewing their contracts with Enron and Andersen. Now, those reviews were ordered by the White House. There are more than 100 such contracts worth more than $70 million. Mitch Daniels, the director of the White House Office of Management and Budget said the review is mandated by law.
Meanwhile, the investigating arm of Congress is threatening to sue Vice President Dick Cheney next week. Kate Snow joins us from Capitol Hill with the details on that -- Kate.
KATE SNOW, CNN CONGRESSIONAL CORRESPONDENT: Well, Kitty, for months now, the Congress' arm of investigations, its investigative arm, called the General Accounting Office, or GAO, has been asking Dick Cheney for some information at the behest of some members of Congress. They've been asking for information about his energy task force that the vice president headed up last year to develop an energy policy for this Bush administration.
They've been asking for, who did that task force meet with, were there top level energy executives who came to meet with Vice President Cheney, when did they have the meeting, where did they have them, and how much did it cost taxpayers. The administration to date has refused to give a lot of detail about any of that, and this afternoon I talked with the GAO's head, David Walker, who says that time is running out. He says that he's now going to file a suit next week if he doesn't get what they're after, in terms of those records and information about that task force.
Here's a quote from David Walker. He said: "I think it's appropriate to provide the administration a few days to reconsider their position. I'm hopeful that they will provide us with the information we're seeking. It is very reasonable and reasoned request. But the fuse is short," says Walker. He tells me that he will wait until after the State of the Union, knowing how busy they are with that right now, before he makes his final decision, but says he is in touch with lawyers, trying to hire a firm to help him pursue this suit against the vice president.
Now, they may have some difficulty getting this information, because sources are telling CNN that just this week Vice President Cheney said he would stick to his guns. He talked to Senate Republicans here on Capitol Hill, and in a private meeting he said he was not going to release any of this information about his energy task force. Why? For the same reasons the administration has been talking about for months now. They say all kinds of people come to Washington to meet with their lawmakers, to meet with the administration. It would be ridiculous to try to give out information about every single one of those consultations and those meeting.
And finally, they say the GAO does not have statutory authority to go after this kind of information. Kitty, back to you.
PILGRIM: Kate, it looks like the week is not ending in Washington, it's just beginning. A busy weekend ahead. Thanks very much, Kate Snow from Washington. Well, when a company like Enron files for bankruptcy, the last people to get paid are usually the employees. They lose severance pay and benefits, and very seldom receive any money. Now some Enron workers are fighting back. Fred Katayama has the report from Houston.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Many Enron workers in the glory days got rich off stock options, but Janice Hollaway doesn't have many options, and we're not talking about the stock kind. When Enron laid her off in November, she says the company offered to double her severance pay to $37,000 if she also signed a waiver, a contract promising she would not sue Enron or file for state unemployment benefits.
But Enron filed for bankruptcy one month later, and she never received her severance pay.
JANICE HOLLAWAY, FORMER ENRON EMPLOYEE: I feel betrayed. I'm angry. I'm upset. I mean, all of the, you know, normal emotions that anyone would feel at being promised something and not getting it. And you know, I signed a contract, and also the contract precludes me from filing for unemployment, and I've been afraid to do that.
KATAYAMA: Instead, she joined a team of ex-Enron employees in a class action suit.
Richard Rathvon was laid off too, but he is taking a rare novel path. He teamed up with 20 other former employees to try to win back millions owed in bonus pay. They're not filing suit, but forming a committee. They want a say in the bankruptcy proceedings, alongside the banks and other bigger creditors.
RICHARD RATHVON, FORMER ENRON EMPLOYEE: The employees are not focused as a group. There is misinformation that is going around by e-mails from one employee to another. Again, setting up a committee would give us a single voice, and it would give us access real-time to accurate and timely information, and that's absolutely critical in our ability to protect our claims.
KATAYAMA: Legal experts say at best, the employees may get pennies on the dollar they're owed. In bankruptcy proceedings, unsecured creditors, like shareholders and employees, are last in line.
But Rathvon's lawyer says a committee is better than a class action suit.
DAVID MCCLAIN, MCCLAIN & SIEGEL: If you're not at the table, you can't negotiate. And at the end of the day, the employees have some of the largest claims that exist in this case, and they are just simply divorced from the process.
KATAYAMA: The committee option worked for 18,000 laid off workers of Ames Department Store. In 1990, they won $24 million in vacation and severance pay. (END VIDEOTAPE)
KATAYAMA: In Enron's case, however, some experts say it may be extremely hard for its former employees to get anything. Enron's debt is so huge and its assets are shrinking so fast that there may be no money left once the bigger creditors like the banks get paid -- Kitty.
PILGRIM: Fred, what's in it for the companies when they sign these sort of severance deals?
KATAYAMA: Well, the reason why some companies may want to encourage their employees to sign these waivers so that they will not file for jobless benefits is that their insurance premiums are tied to it. The fewer jobless benefits claims that are made from employees from a certain company, the lower the insurance premiums are for that company. And so, it's in the company's benefits to try to mitigate or lessen the numbers of jobless claims filed with the state.
PILGRIM: All right. Thanks very much. Fred Katayama, reporting from Houston.
Well, the growing Enron scandal, campaign finance reform. Those are the two hot topics in Washington right now. And here to discuss both issues and their impact is Greg Valliere of the Charles Schwab Washington Research Group. Always a pleasure to see you, Greg.
GREG VALLIERE, CHARLES SCHWAB WASHINGTON RESEARCH: Good to see you.
PILGRIM: Let's start -- and I hate to do this to you -- but the Cheney news is the most recent. Let's start with that, and what's your immediate reaction to something -- this is sort of a blockbuster headline, isn't it?
VALLIERE: It could be. I thought all along, Kitty, that this scandal would be bipartisan. There are plenty of Democrats who have Enron money in their pockets. Even Bob Rubin in a mild way got dragged into this whole thing. So I didn't think this would hurt Bush that much, except for one thing, and that's Cheney. Cheney has not been forthcoming. He's met with a lot of energy officials. And the longer they refuse to disclose who he met with, the more it looks like they are trying to hide something.
PILGRIM: What about the argument that a closed door should continue to be a closed door meeting, or people won't be as forthcoming as they should be?
VALLIERE: Yeah, I think the logic is sound and maybe the law is sound on their side, but it's the appearances that really makes a big difference. And the longer they stonewall, the longer they give the Democrats an issue.
PILGRIM: You know, it isn't all appearances and I'm sure we'll have a heavy weekend of Sunday talk shows and many -- much of the coverage. Maybe there's a good thing that comes out of this -- and I always to look for the optimism in any situation -- but we're getting some really serious discussion on some substantive issues, such as campaign finance reform and protecting shareholders. Things like that.
VALLIERE: I'm an optimist too, and I'd like to think maybe coming out of this is a better way for Wall Street to analyze companies, not the incestuous way they do it now, a better way for the accounting industry to audit companies. I think in particular, you could see legislation curbing how much of a company stock you could have in your 401(k).
PILGRIM: Let's talk about another big event that's coming up, and that's the State of the Union address, and that's on Tuesday. What do you hope -- what would be on your wish list to see in that speech?
VALLIERE: Well, I think two big themes, Kitty. I think first of all you're going to have the president talk a lot about national security, the war on terrorism; and on that, he's got a blank check. I don't see any Democrat of any stature opposing him.
The other big issue -- and he knows from looking at polls it could be a big issue for him -- is the economy. And I think he has to talk about jobs, jobs, jobs, because the unemployment rate may lag the GDP number. Unemployment might keep going up through the spring. Bush has to look very compassionate on that.
PILGRIM: And many economists suggest it could be a jobless recovery. There's no way to tell if it will be or not. And yet, we had Fed Chairman Alan Greenspan weighing in on his thoughts here, and much of Wall Street suggested that that means maybe no more interest rate movements.
VALLIERE: Yeah, I think significantly we probably are at the end of the rate-cutting cycle.
The other thing Greenspan said that was really intriguing was that we might not need a stimulus bill. So they're trying to revive on. Tom Daschle is trying to put it back together again, just when the Fed chairman says we may not even need one.
PILGRIM: How do you deal with that sort of flip-flop when you're trying to view things through the Wall Street glasses?
VALLIERE: Well, through the Wall Street glasses, I think when you see the flipping and flopping and all of posturing we'll get from between now and November 5, the election, I think Wall Street is looking really at gridlock in Washington. No energy bill, no health care bills, very little on the stimulus. For your viewers and most ordinary Americans I think that's sort of a depressing scenario. But for the markets, gridlock is not a bad story at all; it's a good story.
PILGRIM: Nevertheless, we had a fairly moderate week in the markets. Do you think they will trade sideways like this while we have this kind of, as you say, gridlock? VALLIERE: Could be. I think the big wild card of all, maybe something we don't even want to think about as we go into the weekend is, are there anymore Enrons out there? I heard that K-Mart said they might have problems. If there are more accounting irregularities, if this story spreads, it could infect consumer enthusiasm for a lot of stocks.
PILGRIM: Greg, I think the best defense is to keep the TV set on.
VALLIERE: Absolutely.
PILGRIM: Thanks very much for joining us. Greg Valliere of Charles Schwab Washington Research. Thanks, Greg.
Well, a lot has been made about document shredding at Enron and Andersen, but just getting rid of the paper may not destroy the evidence. Now, this data could still be stored on the company's computers. And computer forensics could be used to find it. Bruce Francis has the report.
(BEGIN VIDEOTAPE)
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Enron's secrets, now in shreds. But whatever employees at Enron and Arthur Andersen were trying to destroy may yet be found, thanks to computer forensics.
MARK RASCH, V.P. CYBERCLAW, PREDICTIVE SYSTEMS: So you see, even though they deleted the file, you can still see exactly what was on that file.
FRANCIS: Experts like Mark Rasch can scan computer networks and scour PC hard drives.
RASCH: One of the interesting things about paper documents is virtually every paper document that you have on your desk or that crosses your desk, with the exception of handwritten notes, was either created on, stored on or transmitted through a computer.
FRANCIS: E-mail is particularly easy to recover. Sending a message to a colleague in another office can create as many as four different copies as it moves from your PC, through two servers, to the other PC. Add on multiple recipients, and a single document can be found in dozens of places.
Deleting a document doesn't get rid of it; it just hides it from view. Guidance Software makes the programs that help find deleted data.
UNIDENTIFIED MALE: Recover and unzip the zip files...
FRANCIS: Guidance combines all the data from hundreds, maybe thousands of PCs and servers into one big hard drive that can be searched for the information.
President John Patsakis believes that there's a good chance that investigators will retrieve the information on those shredded documents.
JOHN PATSAKIS, GUIDANCE SOFTWARE: There's a very good possibility that we'll be able to recover those, but even if certain counter measures were taken, there are a lot of tricks that computer forensic experts know to look at different areas of the hard drive, to find temporary backup copies.
(END VIDEOTAPE)
FRANCIS: Time is critical in recovering data. The longer it's been since the files were deleted, the less likely it is that the information can be found. In the case of Enron and Andersen, it's probably just a few months. That's a big advantage for computer forensics experts -- Kitty.
PILGRIM: We're all learning a lot with this investigation.
FRANCIS: We certainly are.
PILGRIM: Thanks very much, Bruce Francis.
Well, still to come, pop stars and record companies fight while record sales fall. We'll tell you what's behind the discord.
More terrorist attacks in the Middle East could cost Yasser Arafat U.S. support. We'll tell you why.
And our next guest says that interest rate cuts are over for now, but lower stock prices are not.
ANNOUNCER: Next, Kitty talks with Hugh Johnson, chief investment officer at First Albany.
(COMMERCIAL BREAK)
PILGRIM: The markets finished the week slightly higher. Today, blue chips added to the week's advance, while technology stocks finished the day slightly lower. So for the week, the Dow gained nearly 1 percent. The Nasdaq and broader S&P 500 were up about 0.5 percent higher. And our Wall Street correspondents, Christine Romans and Greg Clarkin join me now.
Christine, it was a fairly benign week. We had great stability, especially compared to last week, where we had a lot of volatility. What's your take on the way trading is going, and what's factoring into that stability?
CHRISTINE ROMANS, CNN FINANCIAL NEWS CORRESPONDENT: Well, it was the first up week in three. We barely were able to put three days in the row on the upside for the Dow. The traders on the floor are saying this is about the best you can hope for right now. There are some real head winds in this market, and trying to get through it.
Earnings is one of those. We've got seven more Dow components next week. Churning through them this week, the cyclicals are doing well, on the anticipation that the economy is going to start to get a little better. Mr. Greenspan helping the overall mood here. But it's still a real rumor-driven market. Every day, there's a new market rumor that's moving a different group. That shows how nervous and choppy it is right now.
PILGRIM: Well, let's get Greg in on this, because the Nasdaq -- many people are really riveted and look to the Nasdaq. We had pretty good earnings on Wednesday and Thursday, didn't we, Greg?
GREG CLARKIN, CNN FINANCIAL NEWS CORRESPONDENT: Exactly, but it was a really uneven week. We had some more problems today with some companies. So what you're seeing now, the Nasdaq, little change on the week, kind of hope wrestling with reality. The hope is that a lot of these companies have turned a corner. The reality is, not all of them have. You've heard JDS Uniphase giving nothing better than kind of murky guidance for the quarter. That cast a pall over the trading today.
So, it's kind of a stalemate between, you know, the hopeful camps and the realistic camps this week.
PILGRIM: Well, Christine, you bring up the point that the market is a little rumor-driven. And usually in the face of such news, we're in the heavy earnings season, you don't have a rumor-driven market. What's going on?
ROMANS: Well, there's no conviction, there's no follow-through. You get one day of a group advancing, the next day it sells off. It's a roller coaster, yo-yo type of thing. You can see it in the asbestos liability stocks; they're up strongly one day, they're off strongly the next day. They're up today on more rumors that Washington is going to be more friendly to this group. So you've people piling in and out of different groups. The guys on the trading floor are saying they don't think the long-term players are being very aggressive here. They're still waiting for evidence that the economy is starting to turn.
PILGRIM: Greg, we would be absolutely remiss if we did not talk about Amazon. That skyrocket...
CLARKIN: It was quite a story this week.
PILGRIM: What was the latest take on it?
CLARKIN: Well, it was up about 40 percent on the week in just four trading sessions. The company posting the first ever profit on Tuesday. Today, Moody's raising their debt rating, saying that, you know, the cash drain of the company is less than it had been. So, a real good week for Amazon. And it really shows you just the thirst of people, whether they are investors or traders, for some kind of good story in technology.
PILGRIM: All right, very good. Greg Clarkin, Christine Romans, an interesting week definitely in the markets.
Well, Fed chairman Alan Greenspan today says the economy -- or not today -- but he does say the economy is beginning to show signs of a recovery. Now, many on Wall Street believe the Fed will be less likely to cut interest rates when it meets next week. Hugh Johnson of First Albany is one of those. And Hugh joins me now.
Hugh, the Greenspan factor in the markets, how is it playing?
HUGH JOHNSON, FIRST ALBANY SECURITIES: Well, it's pretty important. You remember, Kitty, a couple of weeks ago on January 11, he expressed a lot of doubt that the economy was going to start to recover anytime soon. And as a result, we started to get that selloff in the market.
And I think we stabilized yesterday and today at reasonably good markets because now he's made some fairly upbeat statements, expressed a lot of confidence that the economy is stabilizing as you suggested, and it's going to begin to recover soon. And I think the market simply reflects his statements. So, quite frankly, that's the real issue now. Will the economy and earnings start to recover? His answer is yes and that's buoying spirits on Wall Street.
PILGRIM: What's the change in heart about? I mean, we did have some good economic numbers. Housing starts were up, LEI was up, jobless claims were down. Those are just recent numbers. What's -- that takes more than that to convince Alan Greenspan, doesn't it?
JOHNSON: Well, I'm not so sure it does, especially the leading economic indicators. You know, if you take a look at current economic conditions, if you look at the employment report, if you look at industrial production, it looks like things are still pretty dismal out there.
But leading economic indicators, the index itself as well as jobless claims, consumer expectations, those are important indicators that tell us not where we are, but where we're going. They have been very upbeat and I think that's given him reason to be a little more optimistic. It certainly gives me reason to be optimistic and I think a lot of investors. And that's showing up in a market that is starting to stabilize and starting to look a little bit better after some retrenchment.
PILGRIM: You know, Hugh, one of the stocks that we've been talking about with you is Tyco. And we have news on Tyco that is a little surprising. What do you make of their plans of restructuring that company and what do you think about that stock?
JOHNSON: Well, you know, Kitty, it's a difficult stock, obviously because there's always rumors swirling around about financial irregularities, despite the fact that they said there are none, despite the fact that the SEC has visited the company and more or less given them a clean bill of health.
I thought the stock is, quite frankly, whether it's broken up or not, is a $65 to $70 stock. It's trading a lot less than that now. But obviously, the rumors are going to continue to lean on this stock, hedge funds, and keep the stock depressed for a little bit of time until we clear the table and they get another clean bill of health, which I hope is coming. PILGRIM: All right. Thanks very much for joining us this evening, Hugh Johnson of First Albany Securities. Thanks a lot, Hugh.
JOHNSON: My pleasure.
PILGRIM: Coming up on MONEYLINE, Israel launches retaliatory strikes in Gaza after a Palestinian suicide bomber injures nearly two dozen in Tel Aviv. We have the story.
And a look at the security of our nation's ports. President Bush today stressed the need for additional Coast Guard funding. We'll have the details.
And the execution of a document. Jeanne Moos takes a look at the big business of paper shredding. MONEYLINE will be right back.
(COMMERCIAL BREAK)
PILGRIM: Tonight, Israeli F-16 jets struck Palestinian security targets in Gaza. The attack was in response to another Palestinian suicide bomb explosion in Tel Aviv that injured 22 people. Now the attack is the latest in a string of deadly strikes and counter attacks by Palestinian extremists and Israeli military forces. Israel blames Palestinian president Yasser Arafat for not doing enough to round up terrorists.
The United States is also criticizing Arafat for not doing enough to combat terrorism. And now some top officials are suggesting that the U.S. cut ties with the Palestinian leader. John King is at the White House with more -- John.
JOHN KING, CNN SR. WHITE HOUSE CORRESPONDENT: That's right, Kitty, a full break in relations between the United States and the Palestinian Authority is on the table here at the White House. Other lesser sanctions as well, by closing down the Palestinian office here in Washington, like ending or suspending the mission of the president's new special Mid-East envoy, retired general Anthony Zinni.
All this, we are told, because of rising frustration by the president and others in the administration with Yasser Arafat. U.S. officials say there is compelling evidence that the Palestinian Authority was involved in that arm shipment that Israel seized as it came out of Iran and toward the Middle East earlier this month. Mr. Arafat continues to deny that. The president, we are told, is quite angry about that.
Now the president would not discuss just what he plans to do. He did have a meeting with his national security council here today though to consider his options, and he made clear not long after that meeting that when it comes to Mr. Arafat, he is not happy.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I am disappointed in Yasser Arafat. He must make a full effort to rout out terror in the Middle East. In order for there to be peace, we have got to rout out terror. And ordering up weapons that were intercepted on a boat headed for that part of the world is not part of fighting terror. That's enhancing terror. And obviously I'm very disappointed in him.
(END VIDEO CLIP)
KING: That weapons shipment also noted in letters Mr. Bush has sent in the last week to three moderate Arab leaders, the crown prince of Saudi Arabia, the king of Jordan, the president of Egypt. Mr. Bush urging them to pressure Arafat to crack down on terrorism, to arrest top aides to the Palestinian leader that the United States says are implicated in that arms shipment. Mr. Bush appealing for that help. A rising sense of frustration here at the White House. Administration officials tell us no firm deadline for the president to make that decision on sanctions. But as one official put it earlier tonight -- a senior official said Mr. Arafat, quote, "should not think for a minute that time is on his side" -- Kitty.
PILGRIM: All right. Thanks very much, John King from Washington.
Well, India is defending its decision to test a ballistic missile capable of carrying a nuclear warhead. Its foreign ministry says it is not a provocative measure and that Pakistan was told in advance. Well, the missile was launched from Wheeler's Island off the coast of eastern India. It comes while hundreds of thousands of Indian and Pakistani forces are involved in a tense standoff along their common border. Pakistan says it hopes the international community takes note of India's behavior.
Afghanistan's interim leader took a significant step towards securing a Democratic future for his country. Hamid Karzai today announced a 21-person commission to choose a transitional government. His administration's six-month term expires in June. Karzai made the announcement with visiting U.N. Secretary General Kofi Annan by his side. Annan says he will press the international community to give money promised to the new Afghan leadership.
Some of the detainees held at Guantanamo Bay, Cuba, could be sent back to their native countries. Now that's according to Republican James Inhofe. He was part of a delegation of 11 congressmen who visited the detention center today. For more on the detainees and the military's efforts to build more holding cells, I'm joined by Barbara Starr at the Pentagon -- Barbara.
BARBARA STARR, CNN CORRESPONDENT: Hi, Kitty. Well, the Pentagon announced just a little while ago that Defense Secretary Donald Rumsfeld will be traveling to Guantanamo Bay on Sunday. He will meet with the troops and he will tour Camp X-ray to see the conditions of the detainees for himself.
Pentagon officials are contemplating a number of changes at Camp X-ray. They say it is not due to international pressure, that they just simply have more experience in handling the detainees. One change that they are considering is that the detainees will no longer have to wear goggles to be blindfolded while they're in transit. The Pentagon was doing that, part of the sensory deprivation to keep them a bit confused about where they were going.
Some of the other changes in the works: They are going to paint green arrows on the cells, on the floors of each of the cells so the detainees know which way to kneel and pray towards Mecca at prayer time. And also, of course, a field hospital, a Navy field hospital, is being set up at Camp X-ray. Many of the detainees have been badly wounded back in Afghanistan. Five of them have already undergone surgery at Guantanamo Bay. And of course, a Navy chaplain, a Muslim cleric has been brought in to tend to the religious needs of the detainees.
So far, Kitty, you know, those flights are still held up. No more detainees are on their way. Officials say there won't be any more flights until after Sunday when Rumsfeld returns from his visit -- Kitty.
PILGRIM: Barbara, quick question, when is the Bush administration going to make a decision about what to do with these people?
STARR: Well, we've learned that it's at the White House, all the decision documents, all the papers from the Pentagon. And the White House is said to be very close to making a decision. They are likely not to declare the detainees POWs. They're either going to go to what the White House is going to call military commissions. They will go into the military justice system, into the criminal justice system, or many of them simply may be deported back to their home countries for trial there.
PILGRIM: All right. Thanks very much, Barbara Starr at the Pentagon. Thanks, Barbara.
Law enforcement officials tell CNN they have evidence that proves that Richard Reid had help making explosives that were found inside his shoes. Intelligence sources say palm prints and hair samples discovered in the bombs do not belong to Reid. Now Reid maintains he had no help building the bombs and that he paid $1,500 for explosive materials to a man in Amsterdam. Reid is charged with attempting to blow up an American Airlines flight as it flew from Paris to Miami last month.
President Bush boosted funding for the United States Coast Guard today, drawing attention to their expanded service in the aftermath of September 11. The more than $800 million increase is the largest in the Coast Guard's history, and many say its money sorely needed.
(BEGIN VIDEOTAPE)
(voice-over): They are spreading themselves pretty thin these days, the normal duties of shoreline patrols along 95,000 miles of coastline. They protect 361 major ports. They seized a record 60 tons of cocaine last year and 17 tons since September 11. The U.S. Coast Guard ship, Tahoma, was stationed in New York harbor less than a mile from the World Trade Center disaster. It stayed there more than a month, pressed into service protecting the coast and supervising 30 other vessels. President Bush went aboard the Tahoma today as it was moored in south Portland, Maine. The president says the Coast Guard has been backing up operations overseas.
BUSH: They're working around the globe with the Department of Defense. Today, the Coast Guard is conducting maritime intercept operations in the Persian Gulf and providing waterside security in Guantanamo Bay.
PILGRIM: In terms of funding, the Coast Guard has been the stepchild of the services. At the time of the Trade Center attack, the average Coast Guard cutter was nearly three decades old, And with a force of 35,000, its ranks were the same as in 1967.
COMMANDER JAMES MCPHERSON, U.S. COAST GUARD: We have cutters on patrol off of the Arctic Ocean there that are 58 years old. So we still have old cutters out on patrol, but this new budget is going to help us replace some of these older vessels and help us to restore our readiness.
(END VIDEOTAPE)
PILGRIM (on camera): The Coast Guard says the money will go not only toward personnel, but also for buying some new equipment, which is badly needed.
Well, just ahead tonight, taking the success of unmanned surveillance aircraft to the next step. Fighter jets minus the pilot.
And why the multi-billion dollar music industry is singing the blues.
(COMMERCIAL BREAK)
PILGRIM: The Pentagon today said a Predator unmanned surveillance aircraft crashed yesterday while trying to land in Afghanistan. Now despite the loss, the United States is having great success using these unmanned planes to spot al Qaeda fighters. Now another idea is being developed: jet fighters without pilots.
Steve Young has that story.
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: Issuing go command. Ready? Now.
STEVE YOUNG, CNN CORRESPONDENT (voice-over): The wingspan of Boeing's unmanned combat aerial vehicle is about the same as a $25 million manned jet fighter, but it has no cockpit. So it's a lot shorter. The X-45 can carry the same weapons as a jet fighter for as little as one-third the cost. And it can make human pilots seem puny.
PIERRE CHAO, AEROSPACE ANALYST, CSFB: Having a human being inside the aircraft means you have to make a lot of compromises. There's only so fast you can go. There's only turns that you can make so fast because otherwise, your pilot would end up getting squashed like a bug on the inside.
YOUNG: The potential of the X-45 means a lot to Boeing, which won the Air Force developmental contract after losing the huge joint strike force contract to Lockheed Martin.
While an unmanned cruise missile also destroys enemy targets, it's on a one-way trip. The unmanned combat vehicle returns to base for repeated assignments. Its first test flight is scheduled for the spring. It's supposed to spare combat pilots from trying to lure a ground-launched missile so they can duck and knock out the installation.
MICHAEL HEINZ, VICE PRESIDENT, BOEING UNMANNED SYSTEMS: We don't want to put men in extremely dangerous situations. We do that as necessary today of course in such missions as what we call suppression of enemy air defenses, where the pilot has to fly right into the heart of the air defense in order to take it down.
YOUNG: The company believes by the end of the decade, its pilotless fighter jets along with surveillance drones could be a billion dollar a year business for Boeing with sustainable double- digit revenue growth.
(on camera): And analysts say planes like the X-45 some day could boost homeland defense starting with surveillance runs. Eventually, lethal capability could be added so the plane not only could detect a domestic threat, but also react to it.
Steve Young, CNN Financial News, New York.
(END VIDEOTAPE)
PILGRIM: In tonight's corporate news, the government approved their alliance. But American Airlines and British Airways say they will reject the offer. Now under the agreement, the carriers would have to give up to 200 flights between the United States and London's Heathrow Airport. The airlines have been trying to win approval for the alliance since 1996.
Well, just three days after filing for bankruptcy protection, Kmart is launching an independent investigation on its books. Kmart received an anonymous letter claiming to be from employees questioning the company's accounting practices. The SEC is conducting its own private investigation.
Coming up next, discord in the music industry. We'll tell you what's behind the growing rift between pop stars and record companies, when we return.
ANNOUNCER: After the break, Kitty is joined by Peter Bart, editor-in-chief of "Variety."
(COMMERCIAL BREAK)
PILGRIM: Richard Gere returns to the big screen this weekend in the supernatural thriller, the "Mothman Prophecies." Now, Gere plays a Washington Post reporter investigating his wife's death. The movie is based on events in Point Pleasant, West Virginia, where strange voices warn of impending doom. Well, if it's treachery and vengeance you're looking for, you'll find it in the "Count of Monte Cristo." Guy Pearce and Richard Harris star in this latest film, that's an adaptation of Alexandre Dumas' classic story of an innocent man locked away.
Other new releases this weekend include, Sean Penn in "I am Sam," "A Walk to Remember" and a kung fu parody, "Kung Pow: Enter the Fist."
While the year 2001 was a record year for the film business, it was a very tough year for the music business. CD sales were down for the first time in at least a decade. Record companies also fought hard to stop new technology like Napster from draining their revenue, so far this year isn't looking much better. Casey Wian reports from Los Angeles.
(BEGIN VIDEOTAPE)
CASEY WIAN, CNN CORRESPONDENT: EMI records this week agreed to pay Mariah Carey $28 million to escape its four-year, $80 million contract with the fallen star. Last year, EMI paid another $21 million for Carey's critically and commercially disappointing album, "Glitter." Still, considering production and marketing costs for three more albums, dropping Carey saved EMI's Virgin Records about $50 million.
Record companies are now paying dearly for signing acts to huge multi-year contracts. Most labels lost money last year, while album sales fell for the first time in at least a decade.
MARK MOORDIAN, JUPITER MEDIA METRIX: Stagnant or negative growth in the record industry is never a good thing. That's always when you see big changes happening and executives getting very, very unhappy.
WIAN: Artists are unhappy, too. Several lobbied California lawmakers this week, seeking to overturn a law they say makes musicians indentured servants of record companies.
(on camera): California law allows record companies to sue artists who don't deliver the required number of albums in their contracts, typically five over seven years.
(voice-over): Musicians claim the contracts are impractical because it takes so long to record and promote an album.
DON HENLEY, MUSICIAN: The record companies have been deeply involved in the legislative process for a number of years now, and we simply want a place at the table.
WIAN: Established stars say they're fighting for up-and-comers, but the industry says the effort threatens its billion dollar annual investment in new talent.
CAREY SHERMAN, RECORDING INDUSTRY ASSN.: The implications would be very severe. Nine out of ten artists aren't successful so you only have to rely on that one artist who occasionally succeeds to be able to pay for the investment that record companies make in new artists.
WIAN: While record companies beat Napster in court, they're still losing to music piracy. The industry's global trade group estimates Internet swapping and CD-copying cost it more than $4 billion last year. The IFPI also says as many CDs are now burned or ripped as are purchased. Still, Jupiter Media Metrix estimates on- line music sales will jump five-fold by 2006 to about one-third of U.S. sales, and help revive a struggling industry.
Casey Wian, CNN Financial News, Los Angeles.
PILGRIM: Coming up next Peter Bart the editor of "Variety" on the slightly out of tune music industry. Stay with us.
(COMMERCIAL BREAK)
PILGRIM: Well, joining us now from Los Angeles with a closer look at the entertainment business is Peter Bart. He's the editor-in- chief at "Daily Variety." Peter, nice to see you.
PETER BART, "VARIETY": Good evening.
PILGRIM: Let's talk about the headlines were dominated by Mariah Carey being bought out of her contract. What a buy out, $28 million.
BART: That's right.
PILGRIM: What a contract, $80 million.
BART: But you know an $80 million deal for the company that just lost $80 million in the last six months always sounds a bit ominous, doesn't it?
PILGRIM: Yes. It's a coincidence that number. What do you make of the buy out? And is there any downside risk for the company?
BART: Of course there's -- whenever you see a buyout like that, you know, there's a new management. Alain Levy has come in to run EMI Virgin Records and the new management in any industry always sees everything differently.
But you know this case, Mariah Carey's life reads like a bad pop novel. You know, the unknown, discovered by the company's president, marries the company's president, becomes a superstar, makes an album like "Glitter". And, of course, "Glitter" fizzles and now she is being bought out.
PILGRIM: Well, there's no such thing as bad publicity, I guess, in this business because she certainly generated enough ink this week. What if she makes this comeback? It's such a story. Isn't there a risk?
BART: Well, of course, remember she is going to sing the "National Anthem" at the Super Bowl, so she is not exactly disappearing from the scene. I think the risk is to EMI really because if she comes back and makes a big hit somewhere else, then they look rather foolish, don't they. Of course, these big deals are in style. Whitney Houston has a hundred million dollar deal from Arista. But again, in the music industry, as in film and television, so much is being banked on the superstars, that if the superstars don't perform, the companies look rather silly.
PILGRIM: These numbers are mind boggling. What does it say about the recording industry in general that these numbers exist and yet business is not that good, is it?
BART: Well, the music business is dominated by three giant companies and it's up to them to nurture creative talent because they've really bought out all the independents. And the big question mark is whether these multinationals can nurture new talent. In the music industry, this has not worked. I think overall sales are down five percent from last year. That's a pretty hefty decline when you consider that the movie business has had a tremendous year and is very much counterrecessionary. I mean, business is strongly on the uptake in film.
PILGRIM: And in contrast, film is doing great, right?
BART: It is. And, you know, there's a tremendous boost of activity in Hollywood, just visible in the last two or three weeks. Suddenly, production is at triple the level of only a couple of months ago. The restaurants are full again. The limos are rolling. I mean, there are definite signs of life in the film business.
You know, even at Sundance, where independent films rule, there's a tremendous increase in the deals made by companies. All of a sudden, these companies realize they just don't have enough product for the next six months. So they're on a major buying wave.
PILGRIM: All right. Well, Peter, with the restaurants full again and the limos rolling, try not to have too much fun, OK.
BART: Thank you.
PILGRIM: All right. Thanks very much, Peter Bart of "Variety".
"WOLF BLITZER REPORTS" begins in a few minutes. And for a preview, let's go to Wolf in Washington -- Wolf.
WOLF BLITZER, CNN ANCHOR: Thank you very much, Kitty. Should President Bush sever ties with Yasser Arafat? Would that help or hurt the U.S. war against terrorism? We'll get a live report from our White House correspondent John King. Also, we'll get the very latest from Guantanamo Bay in Cuba. And among by guests, Congressman Darrell Issa. He's just returned from there after seeing the detainees. It's all at the top of the hour -- Kitty, have a nice weekend.
PILGRIM: All right. Thanks, Wolf.
Coming up next, a preview of what to expect next week and the hot business of document shredding.
(COMMERCIAL BREAK) PILGRIM: Next week, we're looking for quarterly earnings from American Express, AT&T, Coca-Cola, Honeywell, Philip Morris and AOL Time Warner.
Fed policy makers hold a two-day meeting to determine interest rates. That's beginning on Tuesday. Economic reports include the advanced copy of fourth quarter GDP, the employment cost index and the employment report. And Monday, Glenn Hubbard, chairman of the Council of Economic Advisors, joins us with his thoughts on the Bush budget, the economy and the president's state of the union address.
Enron's collapse has brought document shredding back into the public spotlight. Now those who shred for a living say scandals like this tend to boost their business. Jeanne Moos shreds some light on the subject.
(BEGIN VIDEOTAPE)
JEANNE MOOS, CNN CORRESPONDENT (voice-over): From a document's point of view, it's execution by guillotine. Only these guillotines come in all sizes.
UNIDENTIFIED MALE: And then it goes into the shredder that way.
MOOS: And the shreds come in all sizes as well. The cost goes up as the size goes down.
UNIDENTIFIED MALE: That's what the CIA and the FBI would use for shredding their documents.
UNIDENTIFIED MALE: Well, this is...
MOOS (on camera): This is Enron-sized.
UNIDENTIFIED MALE: Right.
MOOS (voice-over): The shreds of evidence in the Enron debacle add to the sinister image of shredding. So do movies, from "Boiler Room" to the comedy "Dick," a farcical view of the Nixon White House.
(BEGIN VIDEO CLIP, "DICK")
UNIDENTIFIED MALE: Who the hell are you?
UNIDENTIFIED FEMALE: Why were they shredding all that paper?
UNIDENTIFIED MALE: Paper-mache is a hobby of mine.
(END VIDEO CLIP)
MOOS: Shredding is no hobby for Nick Walsh. His company, Mobile Shredding, makes house calls to clients who want their documents cut up on site. As an auto dealer once told him...
NICK WALSH, MOBILE SHREDDING CORP.: Nick, I went into work early, and my competition was in my dumpster. MOOS: If you're looking for a shredder, Ed Klumpp's company, Ecco, sells all kinds.
(on camera): The paper looks sort of desperate as it goes down.
(voice-over): Some even come with accessories.
UNIDENTIFIED MALE: In case you're in an embassy and the power is cut by the enemy.
MOOS (on camera): The old-fashioned way. We churn it.
(voice-over): All this shredding got us wondering how they make shredded wheat, but the cereal maker told us that's proprietary information, the kind of corporate info they shred.
Hay shredders were what inspired the Germans to develop paper shredders like this one in the late 1930's.
UNIDENTIFIED MALE: It's a collector's item.
MOOS: This sea of shreds is what is generated by the largest shredder in the Northeastern United States.
(on camera): How much can this thing chew up?
UNIDENTIFIED MALE: Twenty tons an hour.
MOOS: And what is that equivalent to?
UNIDENTIFIED MALE: That's a tractor trailer load of bales.
MOOS (voice-over): American Document Security teamed up with an outfit called All Shredding to pick up documents from, for instance, Wall Street firms, and bring them to Brooklyn to chop up. What's shredded is recycled.
(on camera): This could become toilet tissue?
UNIDENTIFIED MALE: Yeah, next week.
MOOS (voice-over): Corporate secrets are safe when they are on a roll, which brings us to the Xeroxed posterior joke on the "Daily Show," inspired by Enron's shredding.
(BEGIN VIDEO CLIP, "THE DAILY SHOW")
JON STEWART, "DAILY SHOW": So far, they have turned up some surprising evidence.
(END VIDEO CLIP)
MOOS: Talk about surprising, a man once hired Mobile Shredding to shred his pornography.
WALSH: He got religion, and he wanted to get rid of all his whole house full of pornography.
MOOS: And Ed Klumpp's company gets bittersweet walk-ins.
ED KLUMPP, ECCO BUSINESS SYSTEMS: People with love letters, people that are 90 years old and want to come in and shred their love letters. We occasionally allow people to come to our showroom and just do that for free because it gives them peace of mind.
MOOS: It's enough to make you shred a tear.
Jeanne Moos, CNN, New York.
(END VIDEOTAPE)
PILGRIM: Now a look at your thoughts. Michael Perry says the apparent illegal behavior at Andersen is not unique to Enron. He writes: "All publicly traded companies who have Arthur Andersen as their accountant should have their financial statements independently reaudited and confirmed as trustworthy."
Well, Joseph Bernheimer suggests term limits for auditors. He writes: "The accounting firms may be quicker at blowing the whistle -- he says -- if they knew someone else would be reviewing their work."
Roy Rutka, referring to Watergate, writes: "It seems every reporter or Capitol Hill is looking for another 18 minutes of missing tape."
Speaking of missing, Thomas writes: "Now we know why Dick Cheney has been hiding out these last four months."
And finally, from a vice president to a colonel, Kanti Shah of Ohio says: "Leaving the investigation of Enron's collapse to congressional committees is like leaving Colonel Sanders to watch over the chickens."
Well, do send us an e-mail, moneyline@cnnfn.com (sic). Please include your name, hometown. We absolutely love hearing from you.
That is MONEYLINE for this Friday evening. Thanks for joining us. I'm Kitty Pilgrim. I'm in for Lou Dobbs. Good night from New York. "WOLF BLITZER REPORTS" begins right now.
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