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CNN LOU DOBBS MONEYLINE
Dow Surges 149.81 to 9,292.92; Nasdaq Advances 29.87 to 1,459.20
Aired June 27, 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.
LOU DOBBS, HOST: Tonight, Congress demands former and current WorldCom executives appear before Congress on Capitol Hill to explain the WorldCom scandal. I'll be joined tonight by former SEC Chairman Arthur Levitt.
And in our series with the "Economist" magazine, tonight we examine the government's growing debt and the huge cost of fighting a global war. Former Treasury Secretary Robert Rubin joins me.
Firefighters say they are making progress against the largest wildfire in Arizona's history. We'll be going to Arizona for a live report.
The U.S. Supreme Court has ruled that school vouchers for religious schools do not -- do not -- infringe upon the separation of church and state. Former Education Secretary William Bennett is my guest.
And making the Dobbs list, author John Esposito's book "Unholy War -- Terror in the Name of Islam."
ANNOUNCER: This is LOU DOBBS MONEYLINE for Thursday, June 27th. Here now Lou Dobbs.
DOBBS: Good evening.
Tonight, the investigation into the massive scandal at WorldCom is intensifying and widening. Congress has subpoenaed a number of past and present WorldCom executives. The list on those subpoenas includes current CEO John Sidgmore, former CEO Bernie Ebbers, and former financial chief Scott Sullivan.
Congress also wants to hear from Jack Grubman. Jack Grubman is the SalomanSmithBarney analyst who was one of WorldCom's biggest supporters on Wall Street. But Grubman cut his rating the day before the news of the $4 billion scandal erupted.
Steve Young has the report.
(BEGIN VIDEOTAPE)
STEVE YOUNG, CNN CORRESPONDENT (voice-over): With visions of Enron document destruction in its head, the Securities and Exchange Commission has ordered WorldCom to all but pull the plug on its shredders.
HARVEY PITT, SEC CHAIRMAN: In the past, we would never have assumed that documents would be destroyed, but, after the Enron fiasco, we're not taking any chances.
YOUNG: The SEC has also told WorldCom it has until Monday to file under oath details of how it falsely reported itself profitable with earnings it did not have.
The SEC also has visions of past giant payouts to executives in other companies that cross the line, like the close to $25-million severance received by Enron's Kenneth Lay.
The commission is nailing WorldCom golden parachutes to the wall while the company restates its financials for the past five quarters, or, in the drier language of the commission's order, it doesn't want any asset dissipation at any affiliates, current or former officers or directors.
Former WorldCom CEO Bernie Ebbers, for instance, is enjoying a severance of $1.5 million a year for life, so long as he keeps up with the two percent interest payments on his $408 million loan from the company.
The impact of the SEC's order on those goodies is unclear.
Congress's interest is crystal clear. The House Financial Services Committee today issued subpoenas for the fired WorldCom CFO Scott Sullivan, the CEO John Sidgmore, former CEO Ebbers, and controversial Wall Street telecom analyst Jack Grubman of SalomonSmithBarney.
UNIDENTIFIED MALE: One of the reasons we want to have the hearing is to find out in this case what exactly happened. There's apparently -- or at least on the surface, it appears that this is good old-fashioned fraud 101.
(END VIDEOTAPE)
YOUNG: Telecom analyst Grubman has said through a company spokesman he had no inside information when he finally lowered his rating on WorldCom one day before the company blew the whistle on itself. At the hearing, he'll have to say it under oath -- Lou.
DOBBS: And I suspect a few other times as well.
Steve, thanks. Steve Young.
Well, the increasing number of corporate scandals forced President Bush to divert his attention from global issues at the G-8 summit underway in Canada.
Kitty Pilgrim now takes a look at how the president is handling this growing crisis of competence in corporate America.
(BEGIN VIDEOTAPE) KITTY PILGRIM, CNN CORRESPONDENT (voice-over): When it comes to corporate scandal, these days, the pressure is on the president. In very public settings, President Bush finds himself having to address the issue of corporate wrongdoing.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I'm concerned about the economic impact of the fact that there are some corporate leaders who have not upheld their responsibility.
PILGRIM: It would seem by cartoons, the public perceives Wall Street is populated by crooks. This cartoon has a CEO saying "Miss Dalrymple, cancel all my indictments for the rest of the day." Treasury Secretary Paul O'Neill also finds himself having to talk tough about accounting and accountability.
PAUL O'NEILL, TREASURY SECRETARY: Presidents and CEOs and CFOs should certify what is true so that shareholders and employees can't be dumped on their head the way they're now being done at WorldCom.
PILGRIM: How presidents handle financial scandals can become their legacy.
During the depression, President Herbert Hoover was blamed for economic woes. Shantytowns were labeled Hoovervilles.
Yet President Reagan rode out some of the nastiest economic catastrophes, the savings-and-loan scandal, the junk-bond debacle, and the stock market crash of 1987. Reagan managed to manage it all, earning the nickname, the Teflon president.
Presidential historians say Bush is right to take the offensive.
DOUGLAS BRINKLEY, UNIVERSITY OF NEW ORLEANS HISTORY PROFESSOR: It's the president of the United States' job always to reassure the American people that we have financial security and that the stock market is not about to collapse, and you have to do that in many different ways, and one is just simply right now trying to just say that he disapproves of this and is sickened by it.
(END VIDEOTAPE)
PILGRIM: When the Enron scandal erupted, there was some criticism of the speed of investigation. That may have had an impact. It was President Truman who had the sign on his desk "The buck stops here." Today, President Bush said, "We will fully investigate and hold people accountable."
Lou.
DOBBS: You said there was some criticism of the speed of the investigation. How's the speed of the investigation now?
PILGRIM: Oh, apparently, it is not proceeding very rapidly, Lou.
DOBBS: All right. Thank you very much, Kitty.
Well, the scandal engulfing WorldCom has wiped out more than a billion dollars of the value of many state pension funds.
California's fund, in fact, has lost more than half a billion dollars. New York State's loss amounts to $300 million. Michigan's losses total more than a hundred million. Florida's loss amounts to almost a hundred million. Kentucky's lost just under $8 million.
New York's pension fund has sustained huge losses over the past year because of corporate corruption. That includes $75 million lost on Global Crossing, $58 million on Enron, and another $5 million on Adelphia Communications.
There will be more coverage here this evening of corporate corruption, and we'll have a special report as well on the efforts to make CEOs far more accountable.
We'll be hearing from former SEC Chairman Arthur Levitt and his views on these markets and this crisis of confidence.
We'll also hear from former Education Secretary William Bennett on school vouchers and the Pledge of Allegiance.
And tonight, we'll be joined by John Esposito who is the author of "The Unholy War -- Terror in the Name of Islam."
In Arizona tonight, firefighters holding the line on a massive fire that continues to threaten the town of Show Low. David Mattingly is there where that 400,000-acre fire is still burning. There's also a threat tonight of lightning and high winds.
David, what's the latest?
DAVID MATTINGLY, CNN CORRESPONDENT: Lou, everyone in Show Low tonight still breathing easier, even though they might at times be having to breathe through a cloud of smoke. The smoke and the falling ash constant reminders that the fire is out there, and it is still dangerous.
Now we have some new pictures to show you, these from the air today. The enormity of fire is still something that's a little tough to grasp. It's exceeding 640 square miles. One Arizona newspaper calculating it as big as the City of Los Angeles.
No new property damage to report, but the loss of timber and tourism hitting hard, particularly on the White Mountain Apache reservation. The tribe's a major economic player in this region, and, according to a spokesman, the loss of timber alone exceeds $200 million.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Our forest management team will probably go in there and do evaluation and start doing some seeding and doing some replanting, and that will have to be done right away. It's going to probably take like over hundreds of years to see that beautiful Ponderosa stand again.
(END VIDEO CLIP)
MATTINGLY: And through these stories of hardship, constant reminders that people are still trying to make the best of this bad situation. Stories of generosity and of giving. One particular story today, a corporate donation of a thousand teddy bears. This given out by State Farm at the evacuation center in Eagar. That's where President Bush visited a couple days ago.
And I wish it could all be warm and fuzzy, but, for right now, it's just hot and dry.
And, Lou, the wind is kicking up. In fact, take a look at that flag behind me that's flying here at the headquarters. It's really kicking up right now, the wind billowing it out full.
Excuse me. And, of course, the irony in this, as long as the flag is billowing out like that and the wind is blowing, the conditions exist such that it's going to be a very quiet Fourth of July.
I'm sorry I'm losing my voice. It is so dry out here. It's tough to talk without a constant drink of water.
Lou, back to you.
DOBBS: David, get that drink of water, and thanks for that excellent report.
David Mattingly in Show Low.
Well, the fire in Arizona one of only 200 burning across the country this evening. More than two-and-a-half-million acres of land have been burned since the beginning of the year. That's well over twice the average for the same period over the past decade.
Some of the most intense fires, of course, in Colorado where a 70,000-acre blaze near Durango is about 30-percent contained. Firefighters are concerned about the possibility, however, of warmer weather and lightning. Across the state near Denver, the Hayman fire is now all but controlled. That fire has destroyed more than 500 buildings and has cost $28 million.
In California, a car fire started a blaze that has burned nearly 7,000 acres. It shut down the main highway between Los Angeles and Las Vegas, in fact, and cut off power to half a million customers.
The Pentagon could face some severe problems because of the WorldCom scandal. WorldCom handles a third of the unclassified communications traffic for the U.S. military, but the Pentagon says it could transfer that to other companies, should that be necessary.
The WorldCom contracts include participation in a $7 billion project to build the Navy and Marine Corps Intranet, a $4 billion contract for fiber and satellite services to the Middle East, the Caribbean, South America, and the Asia-Pacific region, and a $400 million deal to provide services for the Defense Information Systems Agency.
The government today said al Qaeda computers have been found containing vital information about this country's infrastructure. The type of infrastructure systems possibly at risk, we are reliably told, include the digital devices that control pipelines, dams, and electricity substations.
But law-enforcement officials tell CNN there is nothing to suggest that an actual plan exists or is underway or that the al Qaeda has the capability to carry out an attack.
Investigators are searching for a computer hacker that may have caused a million dollars of damage to NASA. The search is focused on the City of Poznan in western Poland. A local newspaper says a high school graduate is the prime suspect in the hacking. Investigators are examining computers which may have been used by that hacker.
The U.S. Embassy in Warsaw would only say an investigation is underway. NASA declines comment altogether.
Leaders at the Group of Eight summit today agreed to spend $20 billion to stop extremist groups from acquiring nuclear arms. That money will be used to help Russia decommission nuclear facilities and weapons of mass destruction. The leaders also agreed to raise debt relief to poor countries by a billion dollars. The G-8 summit near Calgary, Alberta, concluded today.
Stocks today finished with strong gains. Some upbeat economic news countering concerns about the WorldCom scandal. First quarter GDP growth, in fact, was revised higher to 6.1 percent for the first quarter. That the strongest showing in two years.
The Dow Jones Industrials rose nearly 150 points, the NASDAQ jumped about 30 points, and the S&P 500 adding 17 points. Jan Hopkins will have coverage of the market later here in the broadcast.
And coming up next, the Supreme Court rules that school vouchers for religious schools are constitutional. Former Education Secretary William Bennett will be here to discuss this important ruling.
The SEC has challenged CEOs to stand by their numbers. We'll have a special report. I'll also be joined by former SEC Chairman Arthur Levitt.
And two indictments today involving a Mexican drug cartel. A former Wall Street broker among those facing charges.
All of that and more still ahead. Stay with us.
(COMMERCIAL BREAK)
(INTERRUPTED FOR BREAKING NEWS)
DOBBS: Well, turning to another part of Washington, D.C., a victory today for supporters of school vouchers, choice in the educational system. The U.S. Supreme Court voted today five to four to give parents the right to use vouchers to send their children to private or religious schools. The high court said vouchers do not breach the separation of church and state, so long as parents have a choice of parochial or secular schools.
But the four dissenting justices said public funds would be used to pay for the religious indoctrination of thousands of children.
William Bennett has pushed for school vouchers for years. Bennett says they are needed to help reform and improve the nation's public schools. He is former education secretary and joins us tonight from Washington.
Bill, good to have to here.
WILLIAM BENNETT, K-12 INTERNET-BASED EDUCATION CO.: Thank you, Lou.
DOBBS: You have to feel good about this decision as an advocate of these vouchers. The dissenting justices saying that this will result in indoctrination -- religious indoctrination, as they put it. You're not concerned about that at all?
BENNETT: No, because what happened here in this case is we finally had a decision by the Supreme Court, by the way, which everyone's been waiting for on all sides. It's a monumental decision, a landmark decision. I think probably, Lou, the most important education decision since Brown versus Board of Education.
The reason I'm not worried about what the dissenters said was this money went to parents. Parents were then able to choose among a variety of schools. It wasn't money sent directly to religious institutions. It was sent to parents. They could then make the choice. Many of them chose parochial schools.
Remember what they were facing in Cleveland. Two-thirds of the students who started school did not graduate from high school. In the ninth grade, one in 10 students could pass a proficiency examination. This was total failure.
They tried to come up with something that would work. They came up with something that would work. The court said if the kids get educated, that's what matters.
DOBBS: This was an issue as well in the 2000 presidential election.
BENNETT: Yes.
DOBBS: The fact that the Supreme Court laid out here a pretty clear template for how school districts may proceed, that is to offer a range of secular choices as well as others, that means what, that we're going to see a flood of these programs across the nation?
BENNETT: You will see more, and I think you will see a strong shift in public opinion, which has been about 50-50.
As someone who's been arguing this for 20 years, long before my hair was gray or white, I can tell you that lots of audiences say, Lou, "Well, I'm interested in it, but is it constitutional? Is it constitutional?" Today, the court said yes.
You will see more programs like it. I hope the court will extend it. But, in any case, I think what this court did today was extend its civil-rights thinking on education and say that, if children go to failing schools, they need to have the opportunity to go to a good school, whatever the sponsorship.
DOBBS: The most difficult issue of this, at least from my perspective, Bill, is we want the public school system to work.
I'm the product, the beneficiary of the public school system. My entire family is. Yet the problems of the public school system are so overwhelming that, for those who can afford it, private school is a choice that is being acted upon.
How does this system, which is important to provide those who cannot afford private school -- that choice is important for them. They should have that choice. But how does it help the public school system itself?
BENNETT: Well, I think, Lou, with the audience that you have on this show, people will understand the value of competition, and now I think if really bad, poor public school systems like the one being operated in Cleveland, know they can lose their students to alternatives, they will realize they're going to have to shape up.
In the past, as I said a hundred times, probably started as secretary of education saying it, if people fail in the schools, the only result in the public system now is to get more money. Now there's a different result. The money might go elsewhere.
We want to preserve the great schools. We want to reward the great public schools. But there's got to be an out for the kids who go to terrible schools, and there's got to be an incentive for those bad public schools to get better, and they got one today.
DOBBS: Bill Bennett, thank you very much for being with us.
BENNETT: Thank you, sir.
DOBBS: Tonight's MONEYLINE vote is, of course, about the court's ruling on school vouchers. Our question tonight is: Do you agree with the U.S. Supreme Court ruling today allowing taxpayer money to pay for private and religious school tuition? To cast your vote, log on to our Web site, cnn.com/moneyline -- cnn.com/moneyline. The results coming up later in the broadcast.
Coming up next, the SEC chairman wants chief executive officers to personally certify their company's financial results. For the past 18 months, he's faced something of a lukewarm response, for some reason, from business groups. We'll have that story for you. Former SEC Chairman Arthur Levitt, who is no stranger to lukewarm receptions, on occasion, when he chaired the SEC, will be here to talk about this and other corporate governance issues.
The Caribbean connection in a multimillion-dollar money- laundering indictment which involves a former Lehman Brothers broker and a Mexican politician.
Also tonight, Amtrak and the Department of Transportation have reached a deal to keep the trains rolling, but the deal is being criticized on Capitol Hill. We'll take a look at that deal and what it means to you and me next.
(COMMERCIAL BREAK)
DOBBS: SEC Chairman Harvey Pitt wants CEOs to verify the accuracy of their company's results. The Bush administration wants to enforce strict accountability by making the CEO personally responsible for those financial reports.
Peter Viles has the story.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): It's a big fear for investors, and the Bush administration wants to put it to rest. How many more WorldComs are out there waiting to blow up? How many companies that cook their books and haven't fessed up?
The Bush proposal: Flush out the bad guys by making all CEOs step up and personally certify all the numbers they've reported, not just this year, but going back through all of 2001. In other words, come forward and say your numbers are accurate and have been for 18 months. If they're not, you are on the hook.
STEPHEN RYAN, FORMER FEDERAL PROSECUTOR: Legal liabilities start with -- the worst legal liability is that you could end up in an orange jumpsuit at a federal penitentiary.
VILES: Requiring CEO certification would put an end to the "Don't blame me" defense offered by CEOs like Jeff Skilling.
HARVEY PITT, SEC CHAIRMAN: We have had a situation, at least that I have seen, where some CEOs have said, "I'm too busy. I wasn't focused. I didn't know. I wasn't sure. I thought we did it. I relied on someone else." The purpose of this is to make certain that nobody can make that argument ever again.
VILES: A simple idea, but there is opposition. Former prosecutor Steve Ryan says it's a fine idea going forward but should not apply to last year's numbers.
RYAN: I think there is something inherently distasteful about retroactive application of legal concepts and requiring that somebody now certify something that they didn't know they were going to be asked to certify. VILES: And business lobbies have been lukewarm. The U.S. Chamber of Commerce has no position on CEO certification. The National Association of Manufacturers no comment on the idea of making it retroactive. One group that does support it, the Business Roundtable, the lobbying group for CEOs.
(END VIDEOTAPE)
VILES: I'm not sure whether that lobbying makes any difference at this point. The commission just moments ago, Lou, issued an order that CEOs do have to make these certification statements, although it is not clear from this order which I just read, whether this is retroactive. But, certainly, going forward, they must say, "I believe in these numbers."
DOBBS: An extraordinary and important step and remarkable that the step actually has to be taken.
VILES: Sure. Remarkable that it has to be taken. CEOs will say, "Well, yes, I stand behind these numbers." This makes them stand legally behind the numbers. A big difference.
DOBBS: Or face the prospect of standing somewhere quite different altogether.
Peter Viles, thank you.
Well, while the SEC has called for CEOs to be held accountable for their company's financial statements, the agency itself has come under heavy criticism for not doing a better job by some people.
Joining me now from Stanford, Connecticut, is the former chairman of the SEC Arthur Levitt.
Arthur, it's good to have you here.
ARTHUR LEVITT, FORMER SEC CHAIRMAN: Good to be here again, Lou.
DOBBS: The idea of accountability, testing on the part of the CEO -- do you support that? Do you think it's a great idea?
LEVITT: I think it is terrific, and I think it should be retroactive. Why shouldn't integrity be good going backward as well as going forward? I don't accept the arguments against it. I think Harvey's absolutely right on.
DOBBS: And it would -- at least it is not requiring that the CEO, in fact, take responsibility unless he or she should decide to sign those numbers, and the fact that he or she not -- has decided not to sign it would also be a very strong indication of problems that would save the SEC some investigation, would it not?
LEVITT: Absolutely.
DOBBS: Now let's turn to the issue of this crisis of confidence. You and I have talked a great deal over the years. Have you ever seen a period in which we have seen this wide a problem? We've gone through the insider trading scandals of the '80s, the savings-and-loan crisis. Have you seen anything that approximates the breadth of this?
LEVITT: No, it was different, but I think the kind of turmoil in savings and loan and the turmoil that followed Penn Central and Teapot Dome -- it was pretty similar in terms of public reaction, but I have never seen a period where the corporate community faced the kind of drum beat of general criticism and media criticism that they're experiencing today. This is truly a crisis of confidence.
DOBBS: And in your judgment, what is required to restore that confidence?
LEVITT: I think a number of things. I think, in the first place, the credibility of the numbers has to be absolutely unassailable, and, for that reason, the separation of audit and consulting services, I think, is a step that is long overdue.
But something else is awfully important, and that is to take a good, hard look at the way our accounting standards are set and how that agency, the FASB, is funded. It simply cannot be funded by the very corporate firms that they set standards for.
DOBBS: Harvey Pitt's idea, Arthur, of the Public Accountability Board to replace the old oversight board -- do you think that's a marked improvement as well?
LEVITT: I think it's a marked improvement. It has some aspects that concern me.
DOBBS: Like what?
LEVITT: It doesn't call for the separation of auditing and consulting, and it allows for the participation by accountants who are active in the field. I think you could just as easily have said these should be retired accountants if they wanted to put them on that board.
DOBBS: Is Harvey Pitt doing enough, in your judgment?
LEVITT: I think Harvey Pitt's doing a fine job.
DOBBS: And those who are criticizing him now -- would you -- does it seem to you to be more a partisan in foundation than reality based?
LEVITT: You know, you have to be incredibly lucky in a job like that. Good markets make people look smarter than they are, and bad markets make them look dumber. Harvey's had the misfortune to go through a perfectly dreadful market.
DOBBS: And you and I both know there's nothing dumb about Harvey Pitt.
LEVITT: That's right. He comes from Brooklyn.
DOBBS: We might point out that Mr. Levitt also originates in Brooklyn, with some prejudice on the issue.
The sources -- the resources of the SEC, Arthur, not nearly enough to do the job. This SEC is now going through the financial reports of the 500 largest corporations in the country. In addition to all of the scandals that are before the public now, how big a boost in budget, how much more manpower, in your judgment, should there be?
LEVITT: I think they need more, but I think we've got to realize that this agency, along with other regulatory agencies, have existed in the midst of a deregulatory environment. Every initiative toward investor protection has been frustrated by a combination of business interests and campaign contributions, causing the Congress to stand in the way of some very considerable and substantial reforms to benefit investors.
DOBBS: You obviously -- I infer that you're referring to your recommendation about the separation between consulting and audit work. At the same time, the SEC., Arthur, when you were there, Enron's filings were not examined by the SEC How do we explain that?
LEVITT: In this country, we don't have merit regulation. We have full disclosure. And Enron complied with those disclosure requirements. As far as inspecting the books of Enron, I'm not sure that we would have turned up anything.
Because when fraud is involved -- and here Enron disguised the earnings of subsidiaries that were kept out of the parent company -- we probably would not have picked that up. And that calls for changing the way accounting standards were set.
DOBBS: Does it also call for changing the way in which the SEC reviews those filings? Because it should really, it seems, I would think to many, be more than a pro forma exercise in which you simply turn in some paper to the SEC.
LEVITT: I think we've got to continually see how we can do a better, more thorough job. But I don't think that the process itself is geared toward uncovering that kind of fraud. Most of our cases come from leaks, and many of them come from a variety of sources. But the inspection of the filings merely conform to our strategy, the U.S. securities laws, which call for disclosure.
DOBBS: Do we need more laws, tougher laws?
LEVITT: I think the proposal floating around in the Congress today, the Senate proposal headed by Senator Sarbanes, is a good one, in terms of restoring public confidence in the accounting profession. It calls for separation of auditing and consulting. And I think that's a very useful and important change.
DOBBS: Arthur Levitt, we appreciate you being here. Thank you.
LEVITT: Thank you.
DOBBS: Coming up next, buyers back on Wall Street today, and in better moods than of late. We'll have that story for you. We'll be able to tell you about a rally.
Lawmakers criticize the Amtrak rescue plan of the Bush administration. Those critics say it could worsen the railroad's already dismal financial condition.
And tonight, the "Dobbs List." We'll take an inside look at the growth of radical Islamism. We'll be talking with the author John Esposito.
And in tonight's special report with "The Economist" magazine, I'll be talking with former Treasury Secretary Robert Rubin. All of that and a great deal more still ahead. Stay with us.
(COMMERCIAL BREAK)
DOBBS: We've got good news to talk about on Wall Street today. So let's get to Jan Hopkins as quickly as possible. Jan, tell us all about it.
JAN HOPKINS, CNN FINANCIAL CORRESPONDENT: Definitely a change of mood on Wall Street, Lou.
The strong economy, also tough talk from the SEC and what was perceived to be depressed prices attracted investors today. The Dow closing at its high of the session, up 149 points, 9,269. Nasdaq also closing at a high, up about 30 points to 1,459. And the S&P 500 up 17.
Christine Romans is at the New York Stock Exchange, Greg Clarkin at the Nasdaq Market site -- Christine.
CHRISTINE ROMANS, CNN FINANCIAL NEWS: Jan, American Express and Motorola affirmed targets. That helped, though accounting fears were never too far away here. But Amex rose 4 percent. It will write down its $90 million exposure to WorldCom bonds. Pfizer rallied 5 percent. It may sell its shaving and gum businesses. And it has announced a big share repurchase plan.
Motorola was active on news it will cut 7,000 more jobs. But GM was actually halted here briefly on vague rumors of accounting trouble. GM denying those rumors. And Clear Channel Communications tumbling 13 percent in what analysts are calling an (UNINTELLIGIBLE) backlash. Investors selling stocks with high debt loads. Now to the Nasdaq and Greg.
GREG CLARKIN, CNN FINANCIAL NEWS: And, Christine, it was a day for Wall Street to weigh in on some of the biggest names in technology. Let's start with Sun Microsystems. Sun rose 9 percent after Goldman Sachs said it was making more progress than expected in meeting its quarterly financial targets.
Intel managed a minor gain despite Lehman Brothers cutting earnings estimates on the company. But Lehman Brothers does like the chip stocks overall. They upgraded a number of them, including Conexant. And a day after WorldCom, many of the telecom equipment- related stocks rising. Juniper and Ciena among the winners there. Now, one day to go in the second quarter. One day of trading, that is, to go in the second quarter. For that period, the Nasdaq down 21 percent. Jan, on that note, back to you.
HOPKINS: Thanks, Greg.
But let's go back to today. Not only did the indexes close at highs, volume was heavy and the broader market was positive. In addition let's go back to the Nasdaq. The Nasdaq returned to where it closed the session after Monday's rally. Definitely a strong performance, given the horrendous news delivered by WorldCom on Tuesday.
And back to the end of the quarter, tomorrow is the end of the quarter. Performance for the quarter, as Greg was saying, is terrible. We're on track for the third worst, second quarter in the S&P 500 ever -- a loss of 13.7 percent. That's better than the Nasdaq loss, but the third worst ever.
DOBBS: Well, I don't think we have to repeat the bad news.
HOPKINS: Sorry. It was a good day today.
(LAUGHTER)
DOBBS: Jan, thank you very much.
Now a reminder to vote in our MONEYLINE quick vote tonight. The question is: Do you agree with the Supreme Court decision that allows taxpayer money to pay for private and religious school tuition? To cast your vote log on to our Web site, cnn.com/moneyline. We'll have the results of that poll coming right up.
The government has come up with a rescue plan for Amtrak. Transportation Secretary Norman Mineta says the government will loan Amtrak $100 million to keep trains running. That should work for several weeks.
Then Congress will be asked to help keep the rail operations running through the end of September. Key Democratic lawmakers, however, say that plan will only worsen Amtrak's dismal financial condition.
Turning now to what's next, the "Dobbs List." One of the West's leading experts on Islam. I'll be joined by John Esposito. He'll tell us about his new book, "Unholy War: Terror in the Name of Islam," the newest edition to the "Dobbs List."
In tonight's MONEYLINE "Economist" magazine special report I'll be joined by Treasury Secretary Robert Rubin. We'll be talking about the challenge of financing war while the government's budget deficit is rising. That story and more still ahead. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Now to the "Dobbs List." It's my opportunity to share some thoughts with you about recently published books that I believe makes compelling reading. Tonight we're taking a look at "Unholy War: Terror in the Name of Islam." I found the book a fascinating insight into Islamism and the threats of the radical Islamists and also the challenges for the West in understanding those threats and how there could be coexistence.
Its author is John Esposito. He's one of the leading western authorities on Islam. He's the director of Georgetown University Center for Muslim Christian Understanding and joins me tonight from Washington.
First of all, thank you for being here. And my compliments on your book.
JOHN ESPOSITO, AUTHOR, "UNHOLY WAR": Thanks very much.
DOBBS: Throughout, John, before we get to a number of the other questions, I saw you struggling. You began with the issues that arise from September 11th. Your focus, obviously, your career focused on Islam.
Now, you struggled mightily at nearly every turn in trying to come to terms, in the exposition, to explain Islam to a Western audience. Is that a fair way to put it?
ESPOSITO: Yes. I mean, I think part of the challenge is, how do you speak -- how do you address the Osama bin Laden phenomenon? But how do you, for an audience that has no background, try to provide a broader context in which to understand this kind of minority of deadly extremists, and distinguish them from the broader Muslim community?
DOBBS: The broader Muslim community, as you correctly explain to all of us in the book, is diverse. It is not monolithic. It is, while not pluralistic, certainly, in any of its societies, it has a unique strand of thought that runs through nearly all quarters of Islam.
But the fundamentalists, the extremists, as some would call them, or as I have suggested here, the radical Islamists, pose a considerable threat to the West. How do you suggest that the West handle that?
ESPOSITO: Well, I think that we have to realize that they're a minority, but they're a deadly minority. And their primary threat is to their own societies, but secondarily, clearly, to Western societies.
I think that what the United States has to be concerned about and western policymakers have to be concerned about is, how do we formulate our foreign policy in such a way that we, on the one hand, go after the extremists, as we need to do, the Osama bin Ladens of the world, but also formulate a foreign policy that will contain and limit the breeding grounds from which the Osama bin Ladens come forth. And I think that has to do with our policies, with regard to Palestine and Israel, and our policies with regard to many of the Muslim governments that we deal with. DOBBS: Those governments are also diverse in character. We can talk about the secular government of Saddam Hussein, the Islamist government of Iran. A unique government, if you will, in Malaysia. And a government in Indonesia that is altogether different from those.
But throughout, a thread: terror in the name of Islam. How is it that we have reached this point, in your judgment, that so many would come to radical Islamism at the precise point in history that they have, and then take their -- take those actions to U.S. soil?
ESPOSITO: Well, I think that one of the things we have to realize is that until about 20 or 30 years ago, we would have seen extremist groups coming out in the name of, with some of them, in terms of Marxism or of socialism. Many of the governments in the region are governments that are authoritarian, that are repressive, that limit human rights.
And to that extent, particularly to the extent that they don't allow mainstream opposition to exist, the danger is that you not only create extremism, in terms of the extremists in your society, but that those who would normally participate within the system are pushed to the margins -- because they're in prison, they're tortured, they're marginalized.
And the extent to which western powers are seen as propping up these governments, as providing military aid and support, to that extent, the West then becomes a victim in this conflict, whether it was the Iranian revolution or it was the taking of hostages in Lebanon, or September 11th.
DOBBS: You touch upon the issue in your book of the U.S. role, vis-a-vis the Muslim religion and those countries -- principally Arab -- that we have put forward a policy that is, in your view, both hypocritical and not consistent with our democratic values in this country.
But you don't explore why the -- Islam itself has not tried to come to terms with these radical Islamists, and why there has not been greater focus in Islam about what has gone wrong with those countries, in their various forms and structures, and how they could deal with that?
ESPOSITO: Well, I think there are two parts of the phenomenon. I think, on the one hand, you have an extremist group that engages in what I call a theology of hate. And regrettably that theology of hate can be found in Islam among a minority, in Judaism and Christianity.
The problem is, when you look at the majority, in terms of why is there not more action being taken, the majority are often caught between a rock and a hard place. They're caught between the extremists who are small, vocal and deadly on the one hand. And they also exist under authoritarian regimes, and therefore the kinds of conditions and changes that need to be made are virtually impossible to advocate without yourself winding up being imprisoned or silenced.
And I think that that's part of the real issue that exists today. When you have authoritarian governments, you don't have the kind of freedom of speech and freedom of thought that needs to be there in order to address these issues seriously.
DOBBS: And unfortunately, radical Islamists offer not a solution, but simply a counterpoint in their ideology.
ESPOSITO: Exactly.
(CROSSTALK)
DOBBS: ... the methods. So, a very difficult, as you say, and complex issue. We thank you very much, John, for being here. My compliments on a sensitive and terrific read. Thank you very much.
ESPOSITO: Thank you.
DOBBS: Still ahead here, former Treasury Secretary Robert Rubin will join us as part of our continuing series with "The Economist" magazine as we look at American leadership and its new directions. Tonight we'll be talking about the effect on the economy and the cost of war against radical Islamists, and the other demands that suddenly are put upon our society and our system.
Shell companies in the Caribbean at the center of a huge money laundering scandal. It involves a former Lehman Brothers broker and a Mexican politician. Allan Dodds Frank will have that story coming right up. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Well, now to our continuing MONEYLINE "Economist" series on American leadership and new directions. The events of September 11th obviously have led to a huge increase in defense spending for the United States. It's going to rise at least to 4 percent of our gross domestic product.
But the ability of the administration to sustain this level of spending could be threatened by worsening deficits. And this year's deficit could be as high as $160 billion. This and other subjects will be also part of a special issue of "Economist" magazine next week, entitled "America's Role in the World."
I'm joined now by former Treasury Secretary Robert Rubin, who is also chairman of Citigroup's executive committee. Bob, good to have you here.
ROBERT RUBIN, FMR. TREASURY SECRETARY: Good to be with you, Lou.
DOBBS: This is one, after the Clinton administration did something that many people thought would be, if not impossible, extraordinarily difficult, to do -- restore budget surplus, if you will, prudence in fiscal management. With these confrontations, with the threats against this country, budget deficits are rising. What do you see as the principal threats here?
RUBIN: Well, I think you're absolutely right, Lou. I think that the restoration of fiscal discipline was key to the strong economic conditions in the '90s. And then last year that basically has been enormously damaged.
We are not on a sound footing going forward. And I think that's predominantly because of last year's tax cut -- not only the direct cost, which was $1.7 trillion, including debt service.
DOBBS: Right.
RUBIN: But also I think that it undermined the political cohesion around fiscal discipline. And as you correctly say, as we go forward facing terrorism and defense expenditures, I think it is absolutely critical we put ourselves back on a sound fiscal footing, both for our economy and to have the resources to deal with issues you suggested.
DOBBS: So you're suggesting that, given the fact that we are at war against the radical Islamists around the world -- 28 military operations directly targeted at them -- that there should be a tax increase in order to support this higher spending?
RUBIN: No, I put it somewhat differently, Lou. I think this was predictable. When the tax cut was passed last year, there were people, and I was one of them, who were very concerned about the possibility that this would undermine our fiscal position. I think that those who were responsible for putting that tax cut in place really should take responsibility for repairing our fiscal position.
DOBBS: You're not only one of the smartest, if not -- treasury secretaries in the country's history. You're also one of the fairest. As I looked at the numbers, it looks to me as though just about 55 to 60 percent of the deficit now, as I understand it, is a result of the slowing economy.
RUBIN: Well, you're doing this year's deficit.
DOBBS: Correct.
RUBIN: I don't think there's a problem, Lou, in having tax cuts this year and maybe even next year because of the difficult economic conditions. The problem that you have is this enormous tax cut was put in place, which occurs predominantly in the outer years. What we've done is created an unsound long-term fiscal position for the United States government. And that's what needs to be repaired, both to foster good economic conditions and to enable us to deal with the war against terrorism, the Social Security obligations, and a whole host of other needs.
DOBBS: And do you sense that the American taxpaying public is prepared to meet those kinds of responsibilities?
RUBIN: You know, it's interesting, Lou. I'm not a political analyst, but when you look at polls of these issues, I think the American people understand that we need to be on a sound fiscal footing. And I think there could be -- I think there would be broad- based support to getting back on the footing we were on before. DOBBS: You may not style yourself as one, but I thought over the years that you've given a pretty good approximation of one from time to time.
RUBIN: Well, Lloyd Bentsen once said that the best politics is good policy. And I think that if you lead with policy, that ultimately that will work politically.
DOBBS: Well, in terms of a policy conflict, we now are in a position which you recall vividly, a national debt ceiling threatening the markets themselves. We have until the 28th, which is tomorrow. What do you think Treasury Secretary Paul O'Neill should be doing here in the Bush administration?
RUBIN: Well, I don't know that the debt ceiling problem affects the markets particularly. The Senate passed, as you know, a freestanding bill.
DOBBS: Right.
RUBIN: And I think the House should act on that bill. I do think there is...
(AUDIO GAP)
... we should deal with the debt ceiling. But critically, we should restore a sound fiscal position for this...
(CROSSTALK)
DOBBS: Do you find any irony in the fact that it's the conservatives in the House who are creating a problem for the Republican administration?
RUBIN: Life is full of ironies, Lou. And I remember the difficulties they created for me, and I watch this with some interest.
DOBBS: Bob Rubin, as always, good to have you here.
RUBIN: Very nice to be with you.
DOBBS: Thanks.
Two major indictments to tell you about in New York today. Those indictments aimed at Mexican drug cartels. Prosecutors are targeting a Mexican politician who helped those cartels and his former stock broker, in New York City as well.
The broker, who is with Lehman Brothers, is charged with money laundering...
(AUDIO GAP)
... accused of opening brokerage accounts for cocaine deals.
Now the results of our MONEYLINE quick vote. The question tonight: Do you agree with the Supreme Court decision that allows taxpayer money to pay for private and religious school tuition? Forty-one percent of you said yes. Fifty-nine percent said no. Again, as we always say, not a scientific poll, always interesting and reflective of our viewing audience. And we thank you for taking the time to vote.
Still to come, my thoughts on school vouchers and a broken educational system. We'll be right back.
(COMMERCIAL BREAK)
DOBBS: Tonight I want to conclude with just a few thoughts on the Supreme Court decision today on school vouchers. A decision that, while I agree with it, I also regret it. I regret the crying need in our educational system that resulted in this case coming before the court in the first place.
The decision to support vouchers for both religious and private schools will certainly appropriately support choice for those who otherwise would not be able to afford their children the education that they certainly deserve. But it is also a frank and authoritative admission that our public school system is not working.
I worry that this decision will make it less likely, not more likely, that our public school system will improve. I attended public schools, my wife as well, our four children. But next year my daughters will be, at their insistence, at a private school to complete their high school education because they want more discipline in their classrooms, more challenging material, and teachers who can focus on teaching, not trying, usually unsuccessfully, to maintain order.
All of our children deserve better. And while I support my daughters' decision, I regret it. I feel very much the same way tonight about today's Supreme Court decision.
That's MONEYLINE for this Thursday evening. Thanks for being with us. Good night from New York City.
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