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Lou Dobbs Moneyline
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Aired January 30, 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, Congress battles President Bush over Enron. This fight could make history.
The Federal Reserve leaves interest rates unchanged, as the economy shows more signs of recovery.
Wall Street reacts to the Fed news with a triple-digit rally, and the heaviest trading volume of the year.
This is Lou Dobbs MONEYLINE for Wednesday, January 30th. Here now, Lou Dobbs.
LOU DOBBS, MONEYLINE ANCHOR: Good evening everyone. Tonight, fighting words from President Bush. Congress has threatened to sue the White House over Enron. Investigators want to know who attended the meetings that helped shape energy policy. President Bush responded to the threat by saying, "bring it on."
If a lawsuit is filed, it would be the first time that Congress has pursued the White House. White House Correspondent Kelly Wallace now has the story for us. Kelly.
KELLY WALLACE, CNN WHITE HOUSE CORRESPONDENT: Hello to you, Lou. Well, we are looking at the possibility of an unprecedented court battle between this White House and Congress' investigative arm, the General Accounting Office.
As you noted, the President's message really "bring it on," the White House maintaining that confidence and defiance saying, "if the General Accounting Office, or the GAO as it is known, is willing or wants to sue, well it should simply file a lawsuit and get this matter in court.
The GAO in fact sent this letter to members of Congress, and also notifying the White House of its intent to sue. In that letter, the GAO says: "This will be the first time that the GAO has filed suit to enforce our access rights against a Federal official. We hope it is the last time that we will have to do so."
Now really at issue here, the GAO wanting lists of who the Vice President's Energy Task Force met with, the dates and locations and subject of those meetings, and also the cost incurred. We saw the President and the Vice President earlier today. Neither talked at all about this issue. They were, in fact, celebrating the Vice President's 61st birthday. But the two certainly have spoken out, how they believe this is really about protecting the power of this Presidency and future Presidencies.
Here's one of the Vice President's top advisers, Mary Matalin.
(BEGIN VIDEO CLIP)
MARY MATALIN, COUNSELOR TO THE VICE PRESIDENT: We were ready in August to go to court, and we're anxious and feel obligated to protect this critical Constitutional principle. We want to get more firmly established that the President and the Vice President must be able to get confidential and unvarnished information to make good policy.
(END VIDEO CLIP)
WALLACE: And also, Lou, some senior White House officials suggesting that politics might be at work here. They believe that Congressional democrats are really pushing this issue, especially after the emergence of Enron as an issue.
As we already know from the White House, the Vice President's Energy Task Force met with Enron executives six times last year. White House officials have said that at no time was Enron's financial situation ever discussed.
Well to all that, Democrats say this is not about politics. They believe it's really a public right to know issue, that the public has a right to know who this task force met with, when they met, to see if any company such as Enron had any undue influence.
So the message from the White House is, see you in court. The GAO says it's really sorry that it might have to take this unprecedented step. Lou.
DOBBS: Kelly, as you've reported, all of this in terms of this engagement between the GAO, the non-partisan arm of Congress against the White House, all of this took place well before we knew anything about Enron. So it preceded these events.
And as you say, politics will certainly play a role, but what does the White House say when the public right to know, which is sort of overshadowed in the possible legal contest here, is asserted? This seems to so many observers to be precisely what happened with the Clinton White House and the Health Security Act of 1993, which created a huge uproar. It seems absolutely no different.
WALLACE: Well, Lou, you know the White House officials we talk to say a couple of things. Number one, they say this is very, very different from Hillary Clinton's Healthcare Task Force. So they say that task force involved private employees, non-government employees doing governmental work to develop policy.
They say in this case, this was government employees, all government employees, and they firmly believe looking at what the White House lawyers are telling them, that the GAO simply doesn't have the Constitutional authority for this information.
That being said, White House officials feel that they were talking with the GAO back in August, that they felt like at that time, they were working together. They said to the GAO, look if you want to file suit, go ahead file suit, that the GAO never did.
The GAO says, well look that was September 10th. Obviously we know we have September 11th, the terrorist attacks. The GAO felt it would be irresponsible to move forward. Then of course, you had the Enron situation, Congressional Democrats pushing it. Again, the GAO says this is not about politics, and White House aides say they believe they have the legal basis to prevail. Lou.
DOBBS: OK, as they say, we will see. Kelly Wallace, thank you very much.
WALLACE: Sure.
DOBBS: This unprecedented legal showdown with the White House followed the President today as he traveled. The President hit the road, pressing plans outlined in his State of the Union Address directly with voters.
But questions about Enron and the GAO lawsuit, potential lawsuit against the White House, dominating the discussion on the trip. White House Correspondent Major Garrett traveling with the President and joining us now with the story. Major.
MAJOR GARRETT, CNN WHITE HOUSE CORRESPONDENT: Hello, Lou. As Kelly accurately pointed out, the White House is confident and defiant. But late today, it was also reactive, knowing that the Enron story was gaining velocity and that an earlier comment from the White House Press Secretary Ari Fleischer to print reporters, not on camera, would have to be reassessed.
White House advisers at the most senior level got together late this afternoon, decided to put Mr. Fleischer out before the cameras, so television networks like ours could put the President's spin, or the President's presentation of this issue before the cameras.
Here's what Ari Fleischer said about this potential legal battle with the General Accounting Office.
(BEGIN VIDEOTAPE)
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The President will stand strong on principle, fighting for his right and the right of all future Presidents, to receive advice without it being turned into a virtual news release.
The President will fight for this right in a court of law, and the White House expects to prevail because our case is strong, our policy is sound, and principle is on our side.
(END VIDEOTAPE)
GARRETT: Now White House advisers like to say, Lou, that this is a pure Washington story. There's nobody outside the beltway really cares about this legal conflict that may arise between the GAO and the Vice President's Office.
And it felt that way here in Winston-Salem. The President got a rousing welcome here, as he brought sort of a victory lap of his State of the Union message to folks here.
A very partisan, very enthusiastic Republican crowd, delighted to see the President, roared at his message about the War on Terrorism, and also his domestic agenda. And nevertheless, Enron, at least within the confines of talking about personal responsibility, filtered through the President's remarks.
Some of it wasn't just personal responsibility the President was talking about. He also made a direct reference to corporate responsibility, an indirect reference of course to Enron.
(BEGIN VIDEOTAPE)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Part of our responsibility is corporate responsibility, and corporate America must be open about its books and accounting systems, so that shareholders and employees know the full truth about what's going on on balance sheets.
(END VIDEOTAPE)
GARRETT: Now, Lou, the White House says of course the President is going to be serious about this issue of corporation responsibility, transparency of accounting records, and true facts being presented to shareholders.
That, they say, is a very important issue and that the President's focusing on it in no way reflects any anxiety about the conflict with the GAO that may come. Nevertheless, in the minds of many, it may all get rolled together. The White House, many advisers can see, has a very complicated communication message to convey in the coming days. Lou.
DOBBS: Major, as you say, a complicated message particularly as the President is on the stump, exercising the bully puppet to talk about the openness in corporate America's books and its balance sheets, while remaining closed to the idea that the American people have a right to know who is advising the President in these matters. It seems like an extraordinarily difficult message to convey.
GARRETT: Especially when the White House advisers acknowledge that they are basically swimming upstream, at least right now. It's a very important legal argument, they say. But in our experience, Lou, yours and mine, legal arguments have a hard time fighting against set public perceptions. The White House isn't quite sure if public perceptions are entirely set on this matter, but they know they have to swim against that. What they're saying is, they're not asserting executive privilege here. All they're asserting is that the GAO simply doesn't have jurisdiction to go after this information and, if it goes to court, the White House will prevail and Enron will all disappear from public conversation. Lou.
DOBBS: So, could we infer reasonably, Major, as you talk with the White House, that if they were not pressed in law to divulge who was talking with the Vice President and the Energy Task Force that they would willingly share that with the American people?
GARRETT: White House advisers have said in oblique and indirect ways that, if a suitable Congressional committee with appropriate jurisdiction were to make the same request, the White House reserves the right to review that request and possibly respond. That's one potential exit route here, Lou.
Another potential exit route is if, in fact, the GAO is limiting its request simply to dates, names and places and cost. The White House has said it will not divulge contents of meetings because they believe that would basically trample on the right of a President or Vice President, any Constitutional officer to receive open and candid assessments on policy from anyone they choose to deal with.
If in fact it's a more narrow request from the GAO, that might prove to be another exit ramp. But I, capitalize might, and I put it in italics, because right now both sides appear to be very entrenched, very dug in. We'll watch how it proceeds. Lou.
DOBBS: We can add the brackets and the parenthesis or about when as well as the possibility. Major thank you very much for carrying us through the punctuation and the organization. Thanks. Major Garrett.
This fight with Congress has a familiar echo to many observers. A battle in the Clinton Administration involved closed-door meetings of the Healthcare Task Force, then First Lady Hillary Rodham Clinton and a demand for public information. Allan Dodds Frank reports.
(BEGIN VIDEOTAPE)
ALLAN DODDS FRANK, CNN CORRESPONDENT: The General Accounting Office's proposed lawsuit against the Vice President, if indeed it goes forward, will be the first in the 80-year history of the Congressional agency.
Yet, the current dispute involving Vice President Cheney's National Energy Policy Group reminds many of the controversy surrounding the 1993 Healthcare Task Force chaired by then First Lady Hillary Clinton.
A private lawsuit pressured the Clintons to release information and ultimately, after the Clinton healthcare proposals failed in 1994, the White House released information voluntarily.
SAMUEL ISSACHAROFF, COLUMBIA LAW SCHOOL: They remember Hillary Clinton was not an elected official, was not formally a part of the Executive Branch, and so none of these defenses available to the Executive Branch against the legislature applied. So that's the big difference. So, we don't really have a direct precedent for this type of request by the GAO.
FRANK: The GAO insists it has limited its document requests, but added failure to provide the information we are seeking, serves to undercut the important principles of transparency and accountability in government.
So far, the Bush Administration has not asserted so-called Executive Privilege, the principle that inflamed relations between Congress and the Nixon Administration over Watergate. The political issue here is Enron's dealings with Cheney's group.
MARK TUSHNET, GEORGETOWN UNIVERSITY LAW SCHOOL: The more the President resists, or the Vice President resists disclosure, the more suspicion there will be that there's something that's being hidden.
FRANK: Judicial Watch, a conservative watchdog group that repeatedly sued the Clinton Administration, also is suing the Bush Administration over this one.
LARRY KLAYMAN, JUDICIAL WATCH: The Bush Administration has learned ironically from the Clinton Administration that when you force legal proceedings because of the delay, that by the time the courts actually get around to ordering the documents be produced, the scandal may effectively be over.
(END VIDEOTAPE)
FRANK (on camera): Some Constitutional law professors predict the threatened lawsuit will, in fact, force a compromise with some sort of limited release of documents.
But if that does not happen, these experts say, Congress itself might have to issue subpoenas as part of an investigation to improve the legal grounds for forcing disclosure. By the way, Lou, the head of the GAO is a former Arthur Andersen partner.
DOBBS: Well, a lot of wonderful people work at Andersen now, and formerly Arthur Andersen, so that in no way surprises me even his credentials. But what does astonish me here is that the issue is basically the public right to know and this fear of a precedent.
It would seem to me reasonable for us all to consider, do we really want a precedent that says, we don't know who is advising our highest government officials?
FRANK: That's a very good question, and it goes even further to the duties of a Vice President, which actually aren't very well defined, except presiding over the Senate and taking over in case the President is incapacitated.
So the legal professors tell me that figuring out exactly what the Vice President is doing and who he is meeting with, should be part of the public's right to know. DOBBS: And it is all about, they tell me in Washington, the people's business. I think both parties refer to that. Great. Thank you very much, Allan.
In today's other top story, the Federal Reserve ending one of its most aggressive interest rate cutting campaigns ever. The Fed, as expected, left interest rates unchanged. The reason central bankers saying that the economy is improving. Kathleen Hays is here and has a look at the Fed's decision, its action or inaction.
KATHLEEN HAYS, CNN CORRESPONDENT: Exactly. Interesting how sometimes doing nothing can have such a powerful impact, and what a difference from last year as Lou just mentioned. Of course this was no surprise. Mr. Greenspan has been on Capitol Hill recently, giving us a hint that he thought the economy was looking a bit better, along with other Federal Reserve officials. But it is a big difference from last year.
Look at how much the Federal Funds Rate, the Fed's key short-term rate was cut, from a peak at six and a half percent down to one and three-quarters percent. That's where it stayed today. It's one of the most aggressive rate-cutting moves in history.
We were in a recession. The economy needed it. What has changed now. Mr. Greenspan and his colleagues sounding more optimistic in the Fed's closely watched policy statement that accompanied the rate decision, again today a non-decision.
So what's going on there? Weakness in demand appears to be abating. He says economic activity looks like its beginning to firm, so the outlook for recovery grows more promising.
The Fed voiced some worries in this statement as well. The strength of business and consumer spending remains uncertain; therefore, risks remain weighted toward weakness in the economy. But in a sense, this is good news.
This leaves the door open, economists say, to further rate cuts if the economy should need it, and it probably should diminish a worry that's out that, that as soon as the Fed sees some signs of recovery, it's going to start raising interest rates.
And in fact, Lou, one of the things I'm hearing a lot, two things actually, as long as unemployment is rising, don't expect the Fed to start raising rates, number one. And that in past recoveries, the Fed has sometimes even kept cutting rates a bit, even when they saw the recovery starting to grow. I guess sort of like they see a little flame growing, you give it some air to make sure it becomes a big fire.
DOBBS: We're about to start a campfire here tonight. I should have looked this up. Perhaps you did. Is this the strongest rally since the Fed has met, it's FOMC meetings, is this the strongest response to one of those?
HAYS: Certainly. We've had some very non-response days. Of course, yesterday we had a big sell off.
DOBBS: I think this is curious. This may well be the strongest up move in the market on the day in which the Fed decided to do nothing.
HAYS: Because it makes people feel the Fed thinks what a lot of people on Wall Street think that maybe we're not roaring yet, but we started to turn the corner. So I think it validates those views that however long it takes, we're going to get there.
DOBBS: And we're going to get more air on those embers.
HAYS: More air, that's right with the whatchamakalit, the monetary -
DOBBS: What in the world do you call those?
HAYS: What do you call those things, bellows?
DOBBS: Bellows, that's it.
HAYS: Bellows, there you go.
DOBBS: Great. Well before I start bellowing, and our producer starts bellowing even louder, perhaps we should move on. Kathleen, thank you.
A solid rally on Wall Street today, as Kathleen just reported. Stocks rebounded following yesterday's brutal sell off, not recovering all of that lost ground. Blue chips trading in almost a 250 point range today, finishing the day however solidly higher. The Dow up 144 points on the day, the Nasdaq up 20 points, the S & P 500 rose 12, Christine Romans at the New York Exchange, Greg Clarkin at the Nasdaq Market Site. Greg, tell us all about it.
GREG CLARKIN, CNN CORRESPONDENT: Well I'll tell you, Lou, that decision by the Fed really pumped some life into these tech stocks, but it was very, very late in the session when we saw it translate to the technology sector. It was actually moments before the closing bell when the Nasdaq really rose to its best levels, up about 20 points or one percent, to close at 1913.
Most of the big name technology shares did rise on the day. The chip group was the best performing group. If you take a look at shares of Intel, you see they had a nice pop today. They're up about 3.6 percent. So Intel shares gained very nicely on the day, as did Microsoft.
Now moving on the strength in the chip stocks, you could trace that right to applied materials. About midday or so, the company presenting a technology conference, said that the second half of the year they expect to see an increase in spending, capital spending for their chip equipment, and that gave a nice pop to applied materials, as well as other chip equipment companies, such as Novellus.
WorldCom back in the news today, sliding for a second straight day. This time it was on worries over the company's debt level. It has about $27 billion in debt outstanding. Also, earnings are out next week from WorldCom. There's a fear that the company may have some write-downs in that earning report and that stock was down again today.
Now Level 3 Communications, the fiber optic network building company, for a second straight day, big losses there. Today, the news out of Level 3 was that they took charge of about $3.2 billion and that reflects the drop in the book value of their telecommunications assets. So that stock really being hammered over the last two trading sessions.
But all in all, Lou, a really positive day. It ended on a very nice note, right at session highs from Nasdaq.
DOBBS: And the advanced decline line?
CLARKIN: Advanced decline line was about two to one throughout the day. It finished up, it narrowed significantly. It was about six to five, advancing stocks moving ahead of declining issues, again in about the last half hour of trading.
DOBBS: Ebullience everywhere. All right. Thank you, Greg. Let's turn to Christine Romans over at the Big Board. Christine.
CHRISTINE ROMANS, CNN CORRESPONDENT: Hi there, Lou. A powerful turnaround for Tyco shares, that helped lift the spirits on Wall Street here today, and Tyco setting a one-day volume record, 186 million shares.
On Wall Street they respect nothing more than putting your money where your mouth is. The CFO and CEO of Tyco said they're each going to buy 500,000 shares of Tyco with their own money, and that stock moved up nicely after a big route early on.
Also we saw AOL Time Warner suffer here today. Now it's shaved some of its losses, but overall there was some pessimism about this one after it just met Wall Street's revised lower expectations for its numbers. And Cendant, this is a travel giant, real estate giant down 47 cents on the day in very active trading. Rumors continue to swirl there about corporate credibility. That didn't go away for some stocks here today.
Take a look at some of the other ones we watched, AT & T this was an earnings-related story as well, this one moving down about 36 cents, about two percent really. It's profits fell sharply in the quarter. Analysts were saying it's probably going to be a tough year ahead for this one.
Elan, the pharmaceutical company, regained half of its early losses, but down sharply, scrutiny abounding there over its more than 50 R&D joint ventures and how it accounts for profits and revenues there.
And Viacom, this one is a boardroom drama, or at least Wall Street's speculation of a boardroom drama. Lots to talk about now (inaudible) and whether there might be some tension there. Watch this face. Wall Street is enamored with this idea. Lou.
DOBBS: Which comes down to basically good old corporate gossip.
ROMANS: Corporate gossip, yes.
DOBBS: All right. Christine, thank you very much. Christine Romans from the Big Board. Coming up next here, Enron's new interim Chief Executive Officer promises Enron will survive. We'll tell you what it's future might be.
The theory is that investors have the cash. They're sitting on the sidelines, the savants tell us. They're just waiting to get back into the markets. We may have a surprise for both you and then, that story coming up.
Corporate accounting for major conglomerates receiving much closer scrutiny these days, our next guest says General Electric is no Enron.
(COMMERCIAL BREAK)
DOBBS: Vince Farrell says we should treat the recent run-up in stock prices with caution. Joining us now, fund manager Vince Farrell. Vince, good to have you here.
VINCE FARRELL, CHAIRMAN, VICTORY CAPITAL MANAGEMENT: Thanks, Lou.
DOBBS: Well, all our problems are over. There was a crisis of confidence amongst investors yesterday. The Fed doesn't do anything. Tyco's rating agency comes out and says they're reaffirming what they said before, and the market moves up triple digits. It's all behind us and it's all glory from here, is that right?
FARRELL: Absolutely, all glory from here. I think the market trading about 20 times earnings at the very high end of what would be a normal valuation range, when you have a five percent ten-year government bond. Those two equate kind of OK.
DOBBS: A really healthy bull market.
FARRELL: Yes, and what we have here is not a crisis in confidence, but we certainly have a diminution in confidence is what the numbers really are.
If you want to take some of the really big guys, GE, IBM, General Motors, they're saying that their pension plans are going to earn between nine and a half and ten percent, and because of that, they're taking some pension accounting gains into earnings.
In the last three years, the S & P is off one percent on average, and in fact, if the S & P gained ten percent this year, the three-year number would be a negative four percent, because you'd drop off the bigger number.
So if you're going to get a negative four percent and say they experienced the market, but you're assuming ten percent. Well sooner or later, you're going to have to reverse the pension accounting gain and maybe even put some money into those old pension plans, which would bring the earnings down a bit. Now it's not a big deal.
DOBBS: Pension accounting almost reflects, in some ways, the philosophy of marking to market.
FARRELL: Almost, but it's over a longer period of time, because you don't want to have the pension fund necessarily every quarter try to adjust itself, so you take a longer term view.
But what are the earnings really going to be? It's very hard to say. This company makes widgets. I know what they sell them for and I know what the earnings are. It gets so complicated, and this pension accounting I think is going to become an issue in the months ahead.
DOBBS: Just about every part of the accounting model it seems is going to be under scrutiny and question.
FARRELL: As it should be, too.
DOBBS: Kozlowski at Tyco today said he understands that the market is skeptical of corporate management, and particularly Tyco management. He said it out loud. It's obviously there. Should investors be skeptical of corporate management right now?
FARRELL: Well, can you trust management? Can you trust the auditors? Can you trust the investment bankers? Can you trust the analysts, because so much has been missed?
If you boil it down and try to approach it very simplistically, if you take a company like Tyco that has businesses, that are otherwise fairly mundane, well managed but look at the other competitors they have, they're not growing earnings 20 percent, so how does Tyco manage to do it? And that's a fair question to ask.
DOBBS: And the answer is?
FARRELL: Well, I think what they've done is they've marked down their acquisitions before they've taken them in, so that the corresponding comparisons look pretty good.
DOBBS: GE...
FARRELL: Perfectly legal.
DOBBS: Well, legal but at the same time worth examination. GE hammered here in the last couple of weeks, the biggest, best managed company in the country. It's obviously getting some considerable doubt on the part of many investors. Should it?
FARRELL: So much of GE's earnings come from the financial subsidiary, GE Capital, which is very difficult to dive into and figure out exactly how they're earning their money. If you take it on faith, because Jack Welsh was a guy that you could trust, are you going to transfer all that trust in this new environment? Well, maybe not.
I think that GE is a very well managed company, but I couldn't tell you how GE Capital really generates the consistency in earnings that it does generate.
DOBBS: Well, we're going to take a look at that issue with a little greater care here later in the broadcast, talking with one of the best analysts on Wall Street. But the fact is, this market moving up today, is it a time for people to relax a bit or should they remain absolutely vigilant here?
FARRELL: I think very vigilant here. I'm very glad it did move up today. I'm glad that it responded, which I would have guessed, ex all this accounting stuff that it would do well the day the Fed did not cut interest rates, because then the Fed's telling you the economy's OK.
But I still think there's a risk that we're going to test those old September lows. I've never seen a bottom where you had that incredible v-shape off that didn't get tested. Now a test isn't going back and spending a whole vacation with it. It could be like a one- half to two-thirds retracement of the subsequent gain. That's not that far from here.
But what I think you're going to have is a saw tooth pattern, dictated by emotion, and if you have a significant move up, I'd be inclined to sell into it.
DOBBS: OK.
FARRELL: OK.
DOBBS: From Vince Farrell.
FARRELL: All right.
DOBBS: We appreciate it.
FARRELL: Thanks, Lou.
DOBBS: Stephen Cooper took over as Enron's interim CEO yesterday. His first message to employees, Enron will survive its bankruptcy. But as Allan Chernoff reports, Enron has been selling huge chunks of the company.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice over): Creditors met with Enron executives in Houston this afternoon, demanding to know what's happening to the money from assets Enron is unloading? The creditors are trying to insure the cash is set aside for them, not spent.
DAVID BENNETT, ATTORNEY FOR ENRON CREDITORS: The overall concern is how much money is being collected by Enron and where's the money going. CHERNOFF: The company Tuesday sold Enron metals, the largest trader on the London Metals Exchange to Sefra (ph) Energy for $145 million. The deal to transfer Enron's energy trading operations to UBS Warburg should close within the next several days.
Separately, Enron is settling its trading book, outstanding energy contracts that creditors believe could be worth billions of dollars. And Enron has a deal to sell utility, Portland General Electric, for about $1.8 billion, plus the assumption of debt to Northwest Natural Gas. Enron has also agreed to sell the Northern Natural Gas Pipeline to Dynegy, though it could challenge the deal in court. Creditors' attorney James Brownlee.
DAVID BROWNLEE, CLEARY BOTTLIEB STEEN & HAMILTON: But there are some people that would like to just get the money and get out. But like I said, those who are further down the line would rather take equity in a reorganized company.
CHERNOFF: But Enron has more to sell before it reorganizes. The profitable wind turbine business, known as Enron Wind, is on the auction block, expected to fetch at least $300 million.
And newspaper ads in India are advertising the sale of Enron's troubled Debold Power Plant, 150 miles south of Bombay. It's been idle since June because of a fight over the cost of its energy, and the company has said it plans to unload other assets in Asia and South America.
(END VIDEOTAPE)
CHERNOFF (on camera): If Enron ever does emerge from Chapter 11 Bankruptcy, it will be a small shadow of its former self, some pipelines and power plants. The bulk of Enron's old assets will likely be in the hands of other companies.
Now on a conference call moments ago, Mr. Cooper said Enron has about $40 billion of debt, $30 billion of which is unsecured. He said at this time, he has no idea how much creditors will receive on the dollar. Lou.
DOBBS: About $40 billion, that's the number?
CHERNOFF: I think that's it.
DOBBS: And I think our most recent analysis suggested about $8.5 billion of assets against that, much of that encumbered as you point out. Allan, thank you very much. Allan Chernoff.
The Enron scandal has focused attention on corporate accounting. Conglomerates with a lot of divisions, such as General Electric, are now facing increasing scrutiny about their accounting methods.
But our next guest says Enron and GE are quite different stories. Joining us now is Michael Regan. He's GE analyst with Credit Suisse First Boston. Good to have you here.
MICHAEL REGAN, CREDIT SUISSE FIRST BOSTON: Thanks, Lou.
DOBBS: Let's start out, GE -- we just heard Vincent Farrell say that there's still some concerns about GE that's been expressed by investors over the last couple of weeks. What's your best take?
REGAN: Well, let's start with two premises, Lou. No. 1: cash is fact; accounting is opinion.
(LAUGHTER)
DOBBS: I like that.
REGAN: And let's start with something that Vince said, that investors are taking GE on faith in Jack Welch.
DOBBS: Right.
REGAN: The fact is, Lou, that in 2001, GE generated over $17 billion in free cash flow in one year. The fact is that in three cumulative years, Enron generated less than $1 billion in free cash flow, 2000, '99 and '98. Cash is fact. Accounting it opinion.
DOBBS: And in terms of how they're driving those earnings, Michael, tell us how are they doing it?
REGAN: They're in a group of market leading, global winning, diverse businesses that benefit from upcycles in businesses like GE Power and aircraft engines and that offset downcycles in businesses like NBC and lighting. And while we expect that the power business has probably peaked here, and will start to see declines in '03 and '04, that's when we expect the economy to get better and businesses like NBC, lighting, plastics, pick up the slack.
DOBBS: Let's talk about what is amongst the whispers right now amongst some on Wall Street. One is, pension fund accounting, how important is it in anyway to GE's success?
REGAN: Well in 2001, on $1.41 of reporting earnings, pension added 12 cents.
DOBBS: In terms of its acquisitions, what does its contribution to growth in terms of earnings and what is the impact, should that be impaired by a lower stock price or some other event?
REGAN: Well, I have to finish on the pension accounting.
DOBBS: Oh, sure.
REGAN: It added 12 cents but no cash. So remember, we're talking about cash flow.
DOBBS: Right.
REGAN: Pension accounting doesn't affect cash flow. So while it was 12 cents of earnings, it's actually a negative relative to free cash flow at a net income. Now, let's talk about acquisitions. GE has got over $10 billion of cash on the industrial balance sheet right now, $10 billion of net cash, ex-debt. So plenty of firepower to make acquisitions. And at these levels, I'd be surprised in the absence of a seller saying we have to have GE stock, that they use the stock here?
DOBBS: And in terms of the other issue, Jack Welch, a legend of both in business and in leadership of any organization, trust put in him by investors for two decades. One would sense that there should be at least some logical basis to accept the transference of at least the preponderance of that faith to the man he selected to run the company, Jeffrey Immelt.
REGAN: Well, two things, Lou. No. 1, I think Jack would argue he only got investors' trust for the last decade. The first decade he spent fighting things like (UNINTELLIGIBLE). You know, Jack spent the first 10 years creating the culture, really sharpening the culture that will last long beyond Jeff Immelt within GE.
And the second point is is that, you know, Jack Welch spent seven years with his board and senior executives finding the best executive to carry on at GE. And Jack's legacy is more tied how GE does five years after he retires than he how it did in his last year at the helm.
DOBBS: Jack is -- I'm sure in pretty good shape either way. I was looking at more in terms of the trust of investors and the man he selected to succeed him. Credit Suisse First Boston, you don't hold any GE stock, do you there?
REGAN: At First Boston, we're not allowed to own stocks that we cover.
DOBBS: And at this point, would you recommend investors buy the stock?
REGAN: I would. We have a buy rating on GE. We have a $54 price target. And, you know, I think you have addressed many of the issues that are concerning investors right now. And again, cash is fact and the cash is there.
DOBBS: That cash, it just has a great ring to it, doesn't it?
REGAN: Especially when it's $17 billion, Lou.
DOBBS: You got it. Michael Regan, thank you very much.
REGAN: Have a good day.
DOBBS: You too.
One prevailing argument on Wall Street is that there is a lot of cash out there waiting on the sidelines to move into the market. That theory suggests this mountain of liquidity is just waiting for the right time to flood back into the markets. But some on Wall Street are beginning to challenge that view. Kitty Pilgrim has the story. (BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): When Wall Street talks about sidelines, they're not talking football. Cash on the sidelines, tons of it, just waiting to get back into the game. That's the theory.
ART HOGAN, JEFFERIES & CO.: I definitely think that there's a lot of pent-up buying, if you will, which cash represents on the sidelines.
PILGRIM: There is $2.36 trillion of money market funds sitting on the sidelines, not invested in equities. Of that, $1.26 trillion by institutions and $1.1 trillion by retail investors.
TOBIAS LEVKOVICH, SALOMON SMITH BARNEY: Of that $2.36 trillion in money market fund cash, about $1.2 trillion of it is sitting in the hands of institutions that don't necessarily have to put that into equities. The $1.1 trillion that's owned by retail investors, they're the ones who can move their money into stocks if they choose to, but they have got to get the confidence.
PILGRIM: Merrill Lynch looks at the cash to assets ratio for mutual funds. The lower line on this chart shows they are at low levels. Dick McCabe at Merrill Lynch says the current level of 5.5 percent is the lowest in years and not the level to bring back markets rapidly.
RICHARD MCCABE, MERRILL LYNCH: Typically at most major bottoms, it's up around eight to 10 percent or higher. I hear a lot of talk about massive amounts of institutional sideline cash, for example, ready to come rushing into the market at the first sign of any improvement in the economy. I think there are cash reserves, but I think they're moderate to low, not exceedingly high.
PILGRIM: How much cash is recommended by Wall Street? Merrill Lynch's model portfolio as of mid-January stands at 50 percent stocks, 30 percent bonds and 20 percent cash.
(END VIDEOTAPE)
(on camera): Now even those who debunk the cash on the sidelines theory say with the Fed decision to leave interest rates unchanged, the market will go back to an earnings-driven market and then investors will come back slowly as the market regains their confidence -- Lou.
DOBBS: It sounds all very orderly and possible.
PILGRIM: It sounds very credible to me.
DOBBS: And I hope that the markets sort of depart from past performance, become very orderly.
PILGRIM: One would hope.
DOBBS: All right. Kitty, thanks.
Coming up next here, the president's axis of evil. We'll assess the new background in the war against terror.
ANNOUNCER: Next, Lou speaks with CNN military analyst and retired U.S. Army general David Grange.
(COMMERCIAL BREAK)
DOBBS: Joining us now for analysis of where the war against terror is headed, retired Army general, CNN military analyst, David Grange. General, good to have you here.
RETIRED GENERAL DAVID GRANGE, CNN MILITARY ANALYST: Good evening, Lou.
DOBBS: An axis of evil, the president enunciating a rather clear statement to those countries that harbor and perpetuate terrorism. Is the military ready to engage on that broad a front?
GRANGE: Well, that's a broad front. It just depends if it's of course simultaneous action or it's sequential. But, you know, up until last night, it wasn't a lot of loud rhetoric about taking on these particular countries, and probably because the fragile alliances that have been put in place out of convenience for us in a war with Afghanistan. But, you know, you can't hide the fact that Iran, Iraq, North Korea is deep in this stuff.
DOBBS: And today, the reports that Iran moving terrorists across the border, western Afghanistan. Is there sufficient resources and manpower on the part of the Afghans or the United States to deal with the issue and how directly will the issue be dealt with?
GRANGE: Well, it's a challenge. There's no doubt about it. And I would personally believe the reports. If you look at what the Hezbollah, supported by Iran, Marine barracks, I think in '83 in Beirut, the Khobar towers in Saudi Arabia in '96, a Palestinian arms shipment. It's a lot -- that we have on Iran right now.
So what do you do about it? Do you go to war? Do you just try to stop, interdict, this movement of al Qaeda and other agents along the western border of Afghanistan and Iraq? It's tough, and I think it will be a combination of Special Forces and other means, some not military, to initiate this campaign.
DOBBS: And of course, the detainees at Guantanamo Bay, a great flap between Secretary of State Colin Powell, the Pentagon and the White House, everyone trying to smooth that over right now, but the issue of POW status, Geneva Conventions, trying on the part of the joint chiefs of staff to protect our men in uniform who are in hostile territory without uniform. What's your feeling?
GRANGE: You know, that's a good point. And sometimes, if you take special operating forces to blend in with the environment, with the cultures of the different places you operate, you wear a little bit of the native garb. But you have to be careful how far you take that, because again, it could be used as an excuse with our adversaries if they capture some of our people. So once you get established and you start working around cities like Kabul and Kandahar, don't take that too far, get in uniform.
DOBBS: And this concern about the Geneva Conventions and the treatment -- apparently, this is the feeling of the joint chiefs, that it would be putting our men and women at risk in special operations. What about the idea of simply doing, as you say, keep them -- if you will, under the colors?
GRANGE: Yeah. It's -- the thing about taking our prisoners, some of the people that we fight, the sad thing about it is our people are going to be treated badly. That's why we go through extensive training in the United States military on survival, evasion, resistance and escape, because most of the people we fight don't honor Geneva Conventions. And even though these detainees in Cuba are not considered POWs but battlefield combatants, to give us the flexibility for future prosecution or whatever course of action we decide to do, our people would still be treated badly. So that doesn't matter.
DOBBS: So you don't believe, general, that these people should be declared under in any way under the Geneva Convention as prisoners of war?
GRANGE: Not right away. Now, there may be some of the people -- some of the Taliban that are considered after the interrogations and investigations are completed down a road a bit. But right now, I think we want that flexibility, and by international law, the people I've talked to, to include several in the United Kingdom, support the decisions that our government has made.
DOBBS: Good. General, as always, thanks for being here to cast light on these subjects sometimes obfuscated by altogether too much heat. General David Grange, thank you.
GRANGE: Thank you.
DOBBS: Coming up next, another airport scare today. Security screeners detect explosive residue on a man's shoes. Then they lose track of him. We'll tell you all about that.
Kidnappers in Pakistan are now threatening to kill an American journalist. We'll have that report for you.
And Enron shareholders are suing the company, but if history is any indicator they could be even more disappointed. Stay with us.
(COMMERCIAL BREAK)
DOBBS: In Afghanistan today, fighting broke out between two rival factions. It happened in the eastern part of the country, near Gardez. It comes as Afghanistan's interim leader, Hamid Karzai, in New York to ask the U.N. Security Counsel to expand the role and the number of peacekeeping forces in Afghanistan. Karzai later visited ground zero. He was there with New York's Governor George Pataki. They placed a wreath at a memorial wall. An apparent security breach at San Francisco Airport caused delays for thousands of passengers. It happened after screening devices detected residue on a man's shoes at a terminal predominately used by United Airlines. The shoes were returned to the man, but he left the area before he could be questioned further. In all of that confusion, the terminal was evacuated, but the suspect was never found. Argenbright Security is responsible for screening at United Airlines. Yes, you've heard of Argenbright Security before. They were thrown out of Logan International Airport, more than $1 million in fines a year ago -- and yes, they're still in business, doing business their way.
The company has been on watch during other security lapses, including one at Chicago O'Hare International Airport in October. In that incident, a man slipped by a security checkpoint carrying knives and a stun gun.
Well, still ahead here on MONEYLINE, former Enron shareholders are suing, trying to recover some of what they lost. We'll take a look at why those investors could be disappointed.
And New York City welcomes the World Economic Forum, but the cost of protecting the forum is in the minds of some outweighing any possible gain. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Enron shareholders lost millions of dollars when the company went bankrupt, of course. Now, they're suing to retrieve some of what they lost, but as Brooks Jackson reports, those investors will likely be disappointed.
(BEGIN VIDEOTAPE)
BROOKS JACKSON, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Enron isn't the first company accused of pulling a fast one. Racing Champions Corporation, marketer of NASCAR memorabilia, was flying high back in 1999. But when it let out some unexpected bad news, the stock plunged 60 percent in a single day, down $10.19 a share. Shareholders sued, and after two years, won a settlement. How much? Twenty-five cents per share, as estimated by the very lawyers who won.
But wait, that's before expenses. Take away legal fees and lawyer's expenses, which they estimate to be a total 12 cents a share, that leaves 13 cents a share for shareholders. Will Enron shareholders fare any better?
DONALD LANGEVOORT, GEORGETOWN UNIVERSITY LAW CENTER: They are not going to get much. Any investor ought to expect some, a check will come, but far less than what he or she thinks he lost.
JACKSON: But lawyers could get millions. Look what happened to Boeing back in 1997. From $60 a share in July, Boeing skidded to as low as $43 within a week of announcing the company's first quarterly loss in 28 years -- a price drop of $17 a share. Shareholders accused Boeing of covering up the bad news. And, after five years of litigation, Boeing settled. But not for $17 a share, for 65 cents -- 65 cents minus estimated attorney fees of 13 cents, minus other legal expenses of two cents, leaving 50 cents a share for shareholders.
Meanwhile, the winning lawyers are seeking 30 percent of the settlement, nearly $28 million in legal fees. And Boeing shareholders are faring better than most. A comprehensive study of securities class action settlements dating back to 1991 found this: There had been 483 suits in which company stock lost at least $100 million in market value. And in those, the largest cases, the average settlement amounted to just over 2.5 percent of the share value that was lost, and about a third of that would go to fees and expenses.
(END VIDEOTAPE)
JACKSON: And Enron shareholders might fare even worse than that. Even if they win, for one thing Enron's in bankruptcy, so there's not much money there, and for another, Congress changed the law in 1995, making it harder to bring shareholder suits. And since that law, they have been going on longer than ever -- Lou.
DOBBS: Which has added benefit of raising those attorney fees.
JACKSON: I suppose that's right.
DOBBS: Brooks, if I did the math right, the attorneys and fees out of the 65 cents in the case of Boeing, that's just about 20 percent of that, and now want 30 percent of the overall. Is that correct?
JACKSON: The fees -- attorney fees tend to run about 30 percent on average, and frequently there are big expenses. In that Boeing case, $5 million in legal expenses. A lot of it went to expert testimony.
DOBBS: Well, one thing we do know, the popular wisdom in this turns out to be pretty wise and pretty right. The lawyers do always make out. Thank you very much, Brooks. An enlightening report. Brooks Jackson.
Well, "WOLF BLITZER REPORTS" begins in just a few minutes. Let's go to Wolf now in Washington to tell us all about it -- Wolf.
WOLF BLITZER, HOST, "WOLF BLITZER REPORTS": Thank you very much, Lou. We'll have the latest on the kidnapped American journalist Daniel Pearl. His wife appeals for his release. We'll also hear from her. We'll also go live to Karachi, Pakistan and our Ben Wedeman.
Also, what does President Bush have in mind for Iran, Iraq and North Korea? We'll get analysis. And I'll talk live with a member of the Iraqi opposition.
It's all at the top of the hour -- Lou.
DOBBS: Wolf, thanks. Looking forward to it.
Coming up next here, we'll take a look at what to expect tomorrow, and we want you to stay with us. Please do.
(COMMERCIAL BREAK)
ANNOUNCER: Tomorrow on LOU DOBBS MONEYLINE, continuing coverage on the collapse of Enron. We return to the epicenter on the unfolding scandal to bring you the very latest developments. Live from Houston, Texas, tomorrow on LOU DOBBS MONEYLINE.
(COMMERCIAL BREAK)
DOBBS: Big day for earnings tomorrow. Procter & Gamble, Walt Disney and Delta Air Lines all to report their quarterly earnings.
Well, the World Economic Forum in New York City, the event expected to raise between $13 and $19 million. But the need for massive security will likely diminish those gains. Four thousand police, hundreds of Secret Service and FBI agents are in New York City to protect the government and corporate leaders attending the forum. Police overtime alone will amount to about $11 million.
Well, winter weather has been about as predictable as the stock market lately. The normally chilly Northeast has been experiencing record highs, in New York City and in Washington, D.C. temperatures moving into the 60s at the end of January. Out West, an altogether different picture. Snow falling in Malibu and the San Francisco area. And Tucson, Arizona -- well, people there saw their first snowfall in almost a decade. Snow and sleet is also causing problems through the Midwest. Freezing rain has been falling in Kansas City since yesterday afternoon. Several airlines are canceling flights at Kansas City International Airport. Kansas' Governor Bill Graves closing state offices and schools.
Well, finally tonight, a new edition to the MONEYLINE staff. Producer Elizabeth Huskaitis (ph) gave birth to a baby boy just about 1:30 this morning. Koa Joseph Loermar (ph) weighed in at more than eight pounds. Mom, baby and father Dan all doing well, and our congratulations and best wishes to them all.
And that's MONEYLINE for this Wednesday evening. Thanks for being with us. I'm Lou Dobbs. Good night from New York. "WOLF BLITZER REPORTS" begins right now.
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