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CNN IN THE MONEY

Where Does Funding for Hamas Come From?; Some Companies Push Workers to Lose Weight; New 'Harry Potter' Book Gets Blockbuster Treatment

Aired June 21, 2003 - 13:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JACK CAFFERTY, HOST: Welcome to IN THE MONEY. I'm Jack Cafferty. Coming up on today's program, we're going to talk about blood money. Money is the biggest part of what keeps terrorism operating in the Middle East. And terrorism is the major roadblock on the road map to peace. We're going to find out where the cash that funds Hamas is coming from and talk to a man who knows how to maybe go about cutting it off.
Plus, heavy lifting. Some top companies out to cut costs, boast productivity by pushing workers to lose weight. We'll check on the price tag of those extra pounds. Plus green magic. The kid wizard Harry Potter turns books into billions with the latest Potter installment getting the blockbuster treatment. We'll find out whether publishers are going Hollywood.

Good afternoon. Welcome to the program. For the next hour or so, my friend, Susan Lisovicz, from CNN Financial News will be here along with Andy Serwer, "Fortune" magazine editor at large. And before we plunge into the menu of today's events, the Fed meeting next week, two days, a lot of speculation on not whether they're going to cut rates. That seems to be a foregone conclusion, but how much they're going to cut.

Why is there a debate. And after 12 rate cuts, why does there have to be another one?

ANDY SERWER, FORTUNE MAGAZINE: Well, the fed's concerned, Jack, about whether the economy is really picking up or not. I mean, we do seem to have some movement here. You have to believe that the economy looks stronger now than it did six months ago. But is it strong enough?

Then you have the fact of the election coming up. The Bush administration concerned about that.

SUSAN LISOVICZ, CNN FINANCIAL NEWS CORRESPONDENT: This is a very nervous time right now in the economy. There's this whole leap of faith rally that's been taking place for the last three months. It's completely contingent on the economy improving in the second half. Everybody's trying to do everything they can to make that, in fact, a fact.

I think the federal cut -- I'm going to go on the record as saying a quarter. CAFFERTY: I have to agree with Susan. I hate to not have a debate here, but I'm saying because you've got the limbo economy here, you know, how low can it go, I think they want to save a little powder for next time.

What about you?

SERWER: Well, we'll have a debate. I think they'll cut 50. And the reason I think they'll cut 50 is the three month rally on Wall Street you talked about predicated on the fact that once the war in Iraq was over, and that uncertainty was cleared up, the economy would take off like a bottle rocket.

Well, it hasn't. It's still staggering and stumbling and kind of sputtering forward. Yes, it's getting better. But not perhaps at this point better fast enough to justify the kind of gains we've seen in the stock market in the last 90 days. And there's a guy at 1600 Pennsylvania Avenue who doesn't want to see those gains go anywhere but higher. So I bet they cut 50 basis points.

LISOVICZ: And the markets want it. They certainly hope...

SERWER: Yes. That's the other thing.

LISOVICZ: ... (UNINTELLIGIBLE) comes true.

SERWER: The markets, I think, expect it, right?

CAFFERTY: Yes.

SERWER: So if they'd only cut 25, you might wind up with a big sell off on the streets.

CAFFERTY: Well, that's true.

SERWER: Yes.

CAFFERTY: All right. Well, we shall see. A two day meeting they'll announce on Wednesday, two o'clock.

LISOVICZ: Two fifteen.

CAFFERTY: All right. One of the biggest challenges on the road map to peace in the Middle East is what to do about the ongoing suicide bombing attacks. The words were hardly out of the mouths of Messers. Sharon, Abbas and Bush that they were going to agree to do some cooperating when Hamas, the terrorist group, said it's not going to happen. There'll be no peace. We fully intend to continue to kill Jews. And they have.

Wolf Blitzer joins us now from Jerusalem with an update on where the talk of a possible truce, a possible cease fire stands and what Colin Powell is thought to have accomplished on his visit there.

Hi, Wolf. Thanks for being with us. WOLF BLITZER, CNN ANCHOR: Hi. Thanks very much, Jack. So far, not much at least on the surface, not much that we can see. The prime minister of the Palestinian Authority, Mahmoud Abbas saying he's still highly confident he can find some sort of truce or cease fire arrangement with Hamas, with the Islamic Jihad, with the Al-Aqsa Martyrs' Brigade. But that hasn't happened yet despite three days of this personal negotiations with them in Gaza, despite two days earlier top Egyptian mediators had gone into Gaza. A lot of effort underway, but still no bottom line, still no truce, still no cease fire. These groups still demanding the right to go after Israeli civilians, Israeli targets. So we'll see if something happens.

In the meantime, there seems to be a readiness on the part of the Israelis even in advance of some sort of cease fire to withdraw from at least a portion of Northern Gaza, perhaps a part of the area around Bethlehem and give the Palestinian Authority their security services an opportunity to show that they can control the situation there, they can get the job done. But a lot of this is so tenuous. And as you correctly point out, there are enemies of peace who will do whatever they can to undermine the so-called road map that President Bush has put forward.

CAFFERTY: All right, Wolf. Appreciate you joining us. Thanks very much.

Wolf Blitzer joining us from Jerusalem.

LISOVICZ: By most accounts, cracking down on Hamas is key to peace efforts in the Middle East. But it's not going to be easy. Not only is the group ruthless, but Hamas is also rich. The Council on Foreign Relations estimates that Hamas has an annual budget of $70 million. And while Hamas claims the bulk of that money pays for hospitals and schools, the U.S. government says a lot of the cash goes to fund terror operations.

CAFFERTY: To help us understand where the money comes from, we're joined now from Washington by Matthew Levitt. He is a former FBI analyst and currently a senior fellow at the Washington Institute for Near East Policy. And he's the author of the book, "Targeting Terror."

Matthew, nice to have you with us. Thanks for joining us.

MATTHEW LEVITT, WASHINGTON INSTITUTE FOR NEAR EAST POLICY: Pleasure.

CAFFERTY: We'll start at the beginning. Where do they get the money?

LEVITT: They get the money from three main sources. The first is from Iran. But unlike Hezbollah and Palestinian Islamic Jihad, which get almost all their money from Iran, Hamas likes to remain independent. It only gets a few million dollars from Iran, let's say 10 to 20.

CAFFERTY: Where does the rest of it come from? LEVITT: The second source is Saudi Arabia, both official government sources and Saudi charities and members of the Saudi elite who are allowed and tolerated to fund Hamas and other terrorist groups. And there, too, we're talking about the low tens of millions of dollars.

And the third source is charities operating internationally, in the Middle East as well, but primarily in Western Europe and the United States, which are perceived as cash cows. In the United States, the government has shut down the Holy Land Foundation for Relief and Development back in December, 2001. In its last year of operation, it alone raised $13 million for Hamas.

CAFFERTY: Matthew, I want to ask you to take a step back and answer a question that I've always wanted to have answered. And that is how out in the open is Hamas? Where is Hamas headquarters? Is there a building that has the name Hamas on it? You know, can they be tracked down? Where are these people?

LEVITT: Hamas is very open. But the question is which part of Hamas. Hamas does have a military wing and a political wing and a social welfare wing. Now arguing that these are disparate wings is sophistry. Each of these wings feed the terrorist operations that Hamas conducts. There's no office that says Izzedine al-Kassem brigades, which is the name of the military or terrorist wing. But everybody knows where the Hamas offices are in Damascus. Everybody knows where the Hamas institutions are in the West Bank and Gaza.

It's difficult to knock on a door and find the covert infrastructure that is training suicide bombers and building bombs. When the Israelis had that information, they used to pass it on to the Palestinians who every so often would act on it. And now, when the Palestinians aren't, they usually send an Apache helicopter and send in a bomb to take out the bomb factory or sometimes the operative.

LISOVICZ: One of the huge problems, Matthew, though, with Hamas is that it does good stuff for the Palestinian people. So is one of the answers more aid for the Palestinians to make Hamas' good work less relevant?

LEVITT: That's a great point. You know, the Palestinians live in dire circumstances. But when Hamas or any other organization muddies the waters by combining support for terrorism with otherwise good works, they delegitimize what is otherwise an important and legitimate function.

The international community, together with Salam Fayad, the new Palestinian Finance Minister, need to get together and provide with oversight and financial oversight, provide for the needs of the Palestinian people. The fact that there's such a need, and that the Palestinian Authority since 1993 has been so corrupt and simply not able and willing to provide these services has provided Hamas an opportunity that it eagerly exploits.

I'd say that approximately 80 or more percent of the people who when polled say that they support Hamas really don't support Hamas' theology. They support the fact that Hamas feeds them and puts shoes on their children's feet, gives their children a place to go to school and gives them free health care.

CAFFERTY: Let me ask you a question about President Bush's road map to peace in the Middle East. One of the things that he insists that the newly elected Palestinian Prime Minister Mahmoud Abbas must do is crack down on Hamas and stop the violence.

LEVITT: Yes.

CAFFERTY: Now if you know that Iran and Saudi Arabia are funneling tens of millions of dollars to the terrorist group Hamas, presumably the White House also knows it. Put this statement in context when the president stands there and lays all the responsibility for stopping the problems between the Israelis and the Palestinians at the feet of Mahmoud Abbas, the newly elected prime minister who by all definitions has very limited power, particularly when it comes to terrorist groups.

LEVITT: You raise a great point. Hamas is not the only problem. The new prime minister in the Palestinian Authority is competing with Yasser Arafat who is not making his life any easier. The fact is that the U.S. administration, however, recognizes that these finances are coming in from all these different areas and has taken very aggressive action to stop it. The administration has demolished half of Europe over the past week, getting France in particular to recognize that Hamas is what needs to be shut down, not just the Kassem Brigades.

CAFFERTY: Does France give money to Hamas, too?

LEVITT: It's not that France gives money to Hamas. But France does not recognize the social welfare wing of Hamas as a terrorist entity. And therefore, when Hamas fronts organizations in France or elsewhere in Europe -- because for the European Union to take action, it has to be unanimous. When these front organization funnel money to a charity committee in the West Bank that the United States and the European Union and the Israelis and others have tied to Hamas, France and much of the European Union won't take action against them.

You know, several European countries joined the United States about two weeks ago in shutting down the Al-Aqsa International Foundation which was a front organization for Hamas. Individual European countries did, not the European Union, because the European Union only lists the Izzedine al-Kassem Brigades, not the rest of Hamas.

CAFFERTY: I don't mean this to sound cynical, and I'm almost out of time, but is it realistic to expect these people can be stopped? I mean, this sounds like a tremendously complex situation with all kinds of political people involved. And I'm beginning to wonder if just based on what I'm hearing you say if it's doable.

LEVITT: It is absolutely doable. We just have to get proactive. We need to shut down the financing to create a situation on the ground when Abbas and others can start providing for Palestinians. The Israelis can start coming through on their responsibilities in the road map as well. And this 80 percent or more of the people that are currently supporting Hamas suddenly will stop. This is imminently doable.

CAFFERTY: It's fascinating stuff, Matthew. Thank you very much for joining us today on IN THE MONEY. I appreciate it.

LEVITT: My pleasure.

CAFFERTY: Matthew Levitt, senior fellow of the Washington Institute for Near East Policy and the author of the book, "Targeting Terror," joining us from Washington, D.C.

Coming up, companies where less is more. Some top firms are teaming up to get their workers to lose a few pounds. Find out why your boss may soon be watching your weight. And paging Hillary Clinton. The former first lady's autobiography is one of the summer's smash hits. Who'd have thunk it?

We'll look at how the publishing business is using blockbuster marketing to get you to go into the bookstore. And from CEO to convict with some of America's top executives out to dodge some time behind bars. Humorist Andy Borowitz will be along to look at greed, cunning and plain old fashioned stupidity. Now you don't want to miss that.

(COMMERCIAL BREAK)

CAFFERTY: Some of America's top companies are announcing the battle of the bulge. Companies like Ford, Pepsico and General Mills announcing programs to try to combat obesity among members of their workforce. Here's the thinking. Heavy, overweight employees tend to suffer more health problems than normal sized employees. And health problems cost the companies money. Ergo there is some pressure now going to be applied to employees or incentives, if you will, to try to get them to lose weight and therefore, in the long run, cut some of these corporate health benefit costs.

Helen Darling is the President and CEO of a Washington based business group on health whose institute on the costs and health effects of obesity launched this move. And she joins us now from Washington, D.C.

It's nice to have you with us. Welcome.

HELEN DARLING, WASHINGTON BUSINESS GROUP ON HEALTH: Thank you very much. It's nice to be here.

CAFFERTY: So do my bosses here at CNN have the right to pick up the phone and say, hey, Cafferty, you better drop about 20 pounds, we don't like the way you're looking these days? I mean, they probably don't like the way I'm looking. But do they have the right to tell me to lose weight?

DARLING: Well, that's not what this program is about. This program is really aimed at trying to help all employees and their families, their loved ones to understand the severe disease consequences of serious overweight or obesity so that they can have a higher quality of life, especially as they get older.

So this is about making information available and helping employees in the work place. For example, if there's a cafeteria, the vending machines, to make certain that there are healthy choices in the cafeteria, that things are done like opening up the stairwells internal to buildings so people -- if they go to a meeting, they walk up the stairs instead of getting on the elevator as a choice. And it'd be something like a sign on the elevator, did you think about walking. And the elevator may be -- I'm sorry. The stairs may be painted, and there may be music so that you go to the meeting, and you have a different attitude and different feeling because you've come up a couple of flights. You feel better. You've had a little bit of a positive feeling listening to the music. And you go the meeting, and you feel better.

SERWER: Helen, let me jump in here. Of course, everyone is concerned about obesity and thinks America needs to shape up. But aren't you concerned programs like yours are just going to aid and abet trial lawyers who seem to have jumped on this issue and are trying to go after companies that make anything sweet or anything fattening? You know, is fat the next tobacco? Are you concerned about that?

DARLING: No, not really. I mean, what we're trying to do is to get information in people's hands as fast as possible. Such things as one out of three children born in the year 2000, according to the Centers for Disease Control, will develop diabetes unless they change their eating habits and their exercise, how physically fit they are.

So we're trying to send a positive message. We believe that organizations will respond by giving positive choices and information. And that the American people will actually change how much they exercise and how much they walk and do all sorts of things and what they choose to eat. And we'll see companies competing on providing healthy choices. That's the American way.

LISOVICZ: Helen, a lot of your suggestions make a lot of sense. You know, better food in the cafeterias, encourage employees to walk up the stairs instead of the elevators. But health care costs, one of the biggest issues that divide employers and employees -- do you suggest at all that people who are chronically overweight and don't really try to do anything to shape up pay more in terms of their health care costs?

DARLING: Well, I think that over time it's possible that just as we have a smoking differential on life insurance premiums, and some companies have it on a health insurance premium, that that might become possible, that there would be some relationship. But it's more likely that in the short-term -- and by that, I mean in the next five years -- we will be offering collectively programs on a voluntary basis. When people understand the devastating impact of obesity on themselves and on their loved ones and what will happen when they're older especially that they will want to voluntarily participate in programs. For example, getting health risk appraisals that give them information about what their problems are, their medical problems and provide them with incentives and health coaches. And a lot of programs that are aimed at making them have a much better quality of life.

CAFFERTY: OK. Helen, let me ask you this. If I habitually violate company safety rules and thereby put my fellow workers at risk, the company has every right to fire me. If I refuse to lose weight and thereby I'm one of those who incur exaggerated health care costs putting the financial security of my fellow employees at risk, why shouldn't the company be able to fire me after a certain period of time if I refuse to lose the weight and come into compliance with some sort of guidelines?

DARLING: Well, it's interesting. I haven't heard anybody from our world, health benefits or health care talk about things like that or even think about it. We have just discovered essentially that we have an epidemic of obesity. The intent is -- and that's why these companies have come together to say if we provide information, and if we provide people with options, and we make it easier for them to change their lifestyle, then, in fact, this will have a positive effect. And nothing like that would ever have to happen.

CAFFERTY: All right. Well, it'll be interesting to see as time goes on how intense the battle becomes. In the meantime, I appreciate you joining us here on In The Money. Interesting stuff. Thank you.

DARLING: Thank you.

CAFFERTY: Helen Darling, president and CEO of Washington Business Group on Health.

Coming up, in the market for a profit? Well, who isn't? More and more investors heading back to Wall Street. We were talking about a three month long stock rally. Find out whether you can bring cash into your own bank account by betting on one of the investment houses, like, for example, Schwab. And later, the making of a blockbuster. From Hillary Clinton to Harry Potter, we'll look at how the publishing industry is change the way America reads.

Plus welcome to the executive suite. With more and more CEOs in trouble with the law, we will ask Andy Borowitz for a guided tour of America's corporate scandals and see if he knows which of them might fare well when they go to the big house. Stay with us.

(COMMERCIAL BREAK)

Welcome back to IN THE MONEY. That was the e-mail question for the week. Has the recent run up in the stock market convinced you that it's time to get back in and invest some money down there on Wall Street?

We heard from John in Norfolk, Virginia, who wrote, "yes, it sure has. Now if you can get Ken Lay and Bernie Ebbers to give me back all the money they stole, I'd be happy to reinvest it."

Terry from North Carolina writes this. "A wise man once said, fool me once, screw you. I'll buy stock when the 100th corporate executive has his cell door slammed." Those are just a couple that we were allowed to bring you here on the program. One was close. We'll tell you what the e-mail question for next week is a bit later. The address is on your screen there, inthemoney@cnn.com. A little anger out there toward some of these corporate shenanigans that have been going on, Andy.

SERWER: That's right. Well, there are a lot of skeptics out there, Jack. But a lot of people think the market is coming back. Discount broker, Charles Schwab reporting the trading activity is picking up. Of course, the stock of this discount giant got really beaten down over the past three years. But maybe it will start to perk back up again if the market keeps going up and if people keep on trading stocks. So that's what makes Charles Schwab our stock of the week.

So what do you guys think?

LISOVICZ: Well, I mean, clearly, I mean, there are a lot more investors coming into the market. And you can see it from the volume. When you have big volume on either a buy or sell session, it indicates that institutional players are coming in. And so, that's certainly behooves players like...

CAFFERTY: Well, with a company like Charles Schwab, they tend to serve the retail investor, right?

(CROSSTALK)

CAFFERTY: A lot of their stores people walk in right off the street, buy 100 shares of this, sell 50 shares of that. And the last time I looked, this rally was not being fueled by the small investor. They haven't gotten the stomach yet to get back into this thing.

LISOVICZ: But there's a certain herd mentality to Wall Street.

SERWER: People don't want to get left behind.

LISOVICZ: We see it on the way down...

SERWER: But you know what's interesting to me about this company? I mean, there were so many brokers, online brokers that got started up during the dot-com era. And a lot of them have gone away. I mean, Charles Schwab is for real. Chuck Schwab is a giant in the business, Dave Pottruck running the company. This company is a real company. It has gotten beaten down badly. But, you know, when the market comes back, it's going to be right there again going against Merrill Lynch. And maybe this is a good time to (UNINTELLIGIBLE) stock, I'm thinking.

LISOVICZ: And there are some people who think the market has come back. One analyst was talking the other day about a buying panic. You hear about the selling panic. A buying panic. People don't want to miss out.

And there have been, you know, one of the reasons why I think the Fed will only knock interest rates down a quarter...

SERWER: Here she goes again with that, Jack.

LISOVICZ: ... is because we've gotten some encouraging economic news this past week on the leading economic indicators, that New York state manufacturing report. There are some signs of life out there.

CAFFERTY: The experts are talking about $2 trillion on the sidelines of this stock market. Two trillion dollars in things like money market accounts that potentially would be in the stock market had not everybody gotten so badly burned when the bubble blew up.

(CROSSTALK)

CAFFERTY: If you're going to buy Charles Schwab stock, then you've got to be betting that eventually a big piece of that money is going to come off the sidelines and go back in (UNINTELLIGIBLE).

SERWER: But isn't the real thing here, though, you guys -- I mean, come on. OK? The market's down for three years. We're going to pick up a little bit here. But what do you think is over the next hill? I mean, I'm sorry to be kind of downbeat here. But you've got to think perhaps this is just a little blip up into another period of softness. I mean, I know that's very bearish, but...

LISOVICZ: But you know? I just want to say that history says that the third year of a presidential term is a good one for stocks.

SERWER: Right.

LISOVICZ: And you know the president. He's only been talking about the economy.

CAFFERTY: Yes. Unlike his father, who was the one term office holder for that very reason.

LISOVICZ: And he remembers.

CAFFERTY: And he missed that point.

LISOVICZ: And he remembers that example.

CAFFERTY: And this president's cutting taxes while his dad was doing that "read my lips" thing. They were raising taxes. Remember that? Going into his (UNINTELLIGIBLE).

LISOVICZ: We certainly do. And while we're talking about money, let's talk about the money minute. The number of CEO's on their way to prison has doubled to two. And that topping our money minute.

Former Rite Aid CEO Martin Grass will soon join Sam Waksal behind bars. Grass pleaded guilty this week to two conspiracy counts in the massive accounting fraud at the drug store chain. Grass could go to prison for as long as eight years. He'll be sentenced later.

We'll have to wait until next year for the big Martha Stewart trial. A federal judge scheduled Stewart's securities fraud case to begin on January 12, 2004. Steward could get a heavy prison term and up to $2 million in fines if she's convicted. And a Senate committee voted to reinstate some of the media ownership rules the FCC moved to eliminate earlier this month. The FCC's decision also faces a rough road in the full House and Senate where critics say the new rules would allow just a few companies to control most of what Americans see, hear and read.

CAFFERTY: You know, the critics are saying the big guys are big enough. Right?

LISOVICZ: Yes.

CAFFERTY: OK. Thanks, Susan.

Still ahead on IN THE MONEY as we continue, publishing's title fight. Books aren't just books anymore. They have become marketing platforms for billions of dollars in sales of all kinds of things. As Hurricane Harry, as in Harry Potter, heads toward our shores, we'll look at the new rules of the publishing game.

Plus lock, stock and boardroom. With more and more CEO's looking at possible jail time, we're going to do the who's who of corporate wrongdoing with humorist Andy Borowitz. We'll be back.

(COMMERCIAL BREAK)

LISOVICZ: The power of magic and the magic of power are the big draws behind the two hottest books so far this summer. "Harry Potter and the Order of the Phoenix" came out this week, all 8.5 million copies of it, the largest first printing ever. Earlier this month, of course, Hillary Clinton's autobiographical "Living History" blew away expectations, setting a one-day nonfiction sales record at Barnes & Noble. Greg Clarkin is at Manhattan's Toys "R" Us for a kid's eye view of the Harry Potter phenomenon. Hi, Greg.

GREG CLARKIN, CNN FINANCIAL NEWS CORRESPONDENT: Hi, Susan. We are here at Toys "R" Us Times Square, really looking at the overall business of the Harry Potter franchise, really, Potter, Inc., if you will.

Now this obviously is a book that has a tremendous impact on the book selling business, but also a big, big ripple effect on a number of other industries. Let's start with the book. As you mentioned, 8.5 million copies being printed. That dwarfs any other kind of big anticipated book out there. If you see a big name author, they might come out with 2.5, 3.5 million copies, again Potter, about 8.5 million copies being printed in this initial press run.

Those four previous books, they have been read, or the number of copies been sold is about 190 million. They have rung up about $200 million in sales.

But again, there's a lot more to the Potter franchise. There are a number of marketing opportunities for the toy companies, the merchandise companies, the video game manufacturers. Here at Toys "R" Us, you see a number of toys related to Harry Potter, and depending on who you speak to, they say this business is anywhere from a $500 million to a $1 billion business, and that's when you take into account all the games, all the video games, all the t-shirts and other merchandising opportunities.

And Susan, don't forget, you have those movies. There's been two Harry Potter movies out so far. Combined, they have taken in on a worldwide box office gross basis, $1.9 billion. So this, again, is a franchise that spans books, movies and toys among other items. And again, this latest release from the Potter series, the fifth installment, fans have been snapping it up and it's expected to be a runaway best-seller -- Susan.

LISOVICZ: Greg, I know you are the father of two, I hope you have reserved your Harry 5 first edition copies.

CLARKIN: Indeed we have.

LISOVICZ: Greg Clarkin joining us live from Times Square. Thanks, Greg.

CAFFERTY: All right. Books like the latest Harry Potter one are getting the blockbuster movie treatment these days -- big money, big marketing and a lot of tie-ins and merchandising. To look at whether publishing is a new Hollywood, we are joined now by "New York Times" media reporter, David Kirkpatrick. David, nice to have you with us.

DAVID D. KIRKPATRICK, THE NEW YORK TIMES: Good to be here.

CAFFERTY: Book publishing is show business. A new phenomenon? And what does it say about the future of the nonblockbuster hard cover books, like literature? We all remember literature, there used to be some around.

KIRKPATRICK: Well, I wouldn't get too worried about that just yet. The "New York Times," I believe, was editorializing against the Hollywood takeover of the book business as long ago as the 1960s. In 1981, there was a monograph written about it, so it's something that comes up again and again. And there's a certain kernel of truth to it, that books do open more and more and more like movies every year, for a lot of reasons that have to do with the way they are sold and bought.

But if you are a publisher, literature is still important to you. Recently, the AOL Times Warner books group was on the market, and nobody bought it. And it's interesting to note that the reason nobody bought it wasn't because they didn't have enough best-sellers, it's because they had too many best sellers. They rely very heavily on the best-sellers, and they don't after an archive of previously published books that will go on sale year after year after year. For a publisher, there's really nothing better than "Catcher in the Rye," because you are just collecting checks every summer when kids go out and buy their summer reading, and the same is true for Fitzgerald or Hemingway, or Philip Roth or a contemporary writer like that.

CAFFERTY: Good point.

SERWER: So, David, I'm confused. Is the book business in lousy shape or good shape? Do they rely too much on the stars (ph)? I went to Amazon.com. There were 366 books, editions, versions of the Harry Potter book, 366! They have got a special edition, $42 copy of the latest book that sold out. I mean, so do these books get the star treatment and does that leave the business in bad shape?

KIRKPATRICK: Well, nobody is going to say the business is in great shape. Overtime, book sales are pretty much flat. There was a little bit of a bump in the '90s, when the online book sellers were basically selling stock and using that money to subsidize the sale of discount books, but that's over now. Book sales aren't growing year to year. But what is growing are sales of best-sellers. And that's because more chains like Barnes & Nobles, and Borders, but especially Wal-Mart and Costco are selling a narrow selection of titles with really steep discounts. So what you see is all books basically flat; best sellers going through the roof. And that hurts the sales of every other book.

LISOVICZ: And because, David, because of the fact that there are the Wal-Marts and the Targets and the Costcos that are selling this narrow selection, that's where it really hurts the unknowns, the fledgling authors, right, because there's a sense that a rising tide lifts all boats, that if there is one big breakthrough book and you go into a bookstore that you'll see maybe some others while you're waiting to go to the cash register, but a Wal-Mart, if it only offers 10 selections, is a different story.

KIRKPATRICK: Yes, I think that's quite true. I mean, it's true that a lot of people will go in to buy Harry Potter and they'll buy other books. And so there will be a little bit of an uptick, but the people who go to Wal-Mart to get their Harry Potter -- and I think -- I believe that most copies of the Harry Potter have been shipped to non-bookstores. Or at least that would be consistent with the pattern. Most books are now sold outside of bookstores in places like Wal-Mart and Costco. And when you go into a Wal-Mart, you go in for your Harry Potter, but you don't buy another book; you buy a Harry Potter toy or you buy some gizmo for your kids.

SERWER: And that's what I wanted to ask you, this whole synergy question. You know, we saw this tie-in thing with Greg's piece. Movies, toys, books. I mean, you know, I hate to sound like someone jumping on a high horse here, but does this mean that we are all sort of going to the lowest common denominator, the junkification of the book business, if you will?

KIRKPATRICK: I am not going to argue with you.

(LAUGHTER)

CAFFERTY: You are sitting here on a television show asking that question?

(CROSSTALK)

KIRKPATRICK: With Harry Potter, right now I would say it's true that it's the movies that are driving the book sales. More people have bought a Harry Potter book since the last one came out than before. It was a big jump right after the first movie appeared. So a lot of people, believe it or not, there were people who hadn't heard of Harry Potter before the movies, they haven't read the books, and they went out and read them after that.

CAFFERTY: There was a story around last week about the offer that Viacom, through its various CBS properties and movie studios, et cetera, was making to Private Lynch, for the first interview. They included hosting MTV's "Total Request Live," and spots on the "CBS Evening News With Dan" -- where this is going is these large, vertically integrated multimedia companies like a Viacom, AOL Time Warner, have the ability with all of the companies and the tools at their disposal to create something out of what might be considered mediocrity on the level playing field, but they have got so many ways to merchandise and market and sell and expose a Private Lynch or a Harry Potter that they can actually create something almost out of nothing.

KIRKPATRICK: Well, I wouldn't go that far. You can lead a horse to water but you can't make them drink. Nobody but J.K. Rowling could invent Harry Potter. AOL Time Warner couldn't cook it up in a lab someplace and then force everyone to go out and buy the toys. There's something about those books that just makes people want to have Harry Potter around.

CAFFERTY: But are there not other examples of mediocre books that have entered into these kinds of merchandising things and wound up being perhaps larger than they ever deserved to be, because of the kind of thing we are talking about?

KIRKPATRICK: Or more to the point, is sometimes something that starts out as a toy will now become a book?

CAFFERTY: Right. And a movie, and a mini series, and you know, and a t-shirt.

LISOVICZ: Maybe we should merchandise IN THE MONEY.

SERWER: Yes, a movie.

(CROSSTALK)

SERWER: I'd buy a Serwer doll. I like that.

(CROSSTALK)

SERWER: No pins, Jack. No pins.

CAFFERTY: David, thank you for your time. I appreciate it. David D. Kirkpatrick of "The New York Times." Still ahead on IN THE MONEY as we continue, a few words of advice for Sam Waksal. With the former ImClone CEO on his way to the joint on an insider trading rap, we are out to make the experience a little easier for him. Coming up, Andy Borowitz, the author of "Who Moved My Soap: The CEO's Guide to Surviving Prison," will tell us all about how Sam and some of the others might find it when they get to that house with the bars on the windows. Plus another tale of high crimes in the business world. Find out why the police cracked down on a kid with a lemonade stand. Hint: It was all because of a nosy neighbor. Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I think they should all go to jail for a long time, commensurate with the amount of money that they misappropriated. Make the same standard as though you walked into the bank and stole $600 million.

(END VIDEO CLIP)

CAFFERTY: Well, just because we here on IN THE MONEY are happy about guys like Sam Waksal going away to prison for a long while, doesn't mean that we are really that cold-hearted. Well, maybe it does. We're not about to let Sam and the others like him fend for themselves, nay, nay. That's why we brought in our next guest, Andy Borowitz, he's an author of the new book, "Who Moved My Soap: The CEO's Guide to Surviving in Prison," and Andy is here to give a little guidance to the CEO who is no longer going to have the corner office, but rather the cell somewhere in the middle of the row. How are you doing.

ANDY BOROWITZ, AUTHOR: Well, the corner cell, though.

(CROSSTALK)

CAFFERTY: How does a guy like Sam Waksal is going to make out in one of these joints?

BOROWITZ: I would not use the word "make out."

(CROSSTALK)

BOROWITZ: I think, you know, I think you have to be very careful. The one thing that I think all these CEOs have to worry about is to make sure that none of their fellow inmates know what company they ran, because some of these guys may have lost their 401(k)s, so really...

SERWER: I remember that. We had those investing club thing with those felons from New Jersey who invested in Tyco and they knew about the skullduggery going on around there, and they said they didn't care.

(CROSSTALK)

CAFFERTY: Who is that guy in New Jersey, he's doing time, used to fly around in a helicopter on those TV commercials all the time. What was his name?

SERWER: Brennan (ph), was it perhaps?

CAFFERTY: Brennan (ph).

SERWER: Yes, it was.

CAFFERTY: He's off in (UNINTELLIGIBLE), making little ones out of big ones now.

BOROWITZ: That's the message of the book, you know, this is not the end of something, it's the beginning of something. It really is. And it could be a great thing for your business (UNINTELLIGIBLE).

LISOVICZ: People used to say that the age of irony is dead, and I am so glad that you, Andy Borowitz, have made a very successful living out of it. You know, as a female in the corporate world, I am glad that you devoted one of your chapters to female CEOs breaking through the concrete ceiling.

BOROWITZ: You know, that's a very interesting point, because you know, there's this sort of double standard. There is a double standard about female CEOs, because if you are a successful man in business, you are considered tough, and if you are a successful woman, of course you are considered a bitch. But the good news is, in prison everyone's a bitch.

(CROSSTALK)

SERWER: The best one is Martha Stewart in jail, I mean, with the curtains and stuff, can you get into that, how she's going to decorate her cell and how she's going to get along with her colleagues and all that?

LISOVICZ: That's another chapter.

BOROWITZ: Well, you know, there's been so much talk about Martha Stewart. I almost feel -- first of all, she's innocent until proven guilty, but you know.

SERWER: Oh, that. That whole thing. Sure.

BOROWITZ: But I think Martha -- I think she will do fine. The only thing I would say to Martha is just do not tell your cell mates that horizontal stripes make her look fat. That's the only advice I can give her. But I think she is innocent until proven guilty.

CAFFERTY: They had an encounter, (UNINTELLIGIBLE) court last week when they set the trial date. She's going to go to trial I guess in January, unless her lawyers can get a pushback again, which I'm sure they'll try to do, and she seemed quite chatty and at ease and was talking to the courtroom sketch artist and making little jokes. The woman is facing up to 30 years, hard time. I mean, does she not understand what's going on here?

BOROWITZ: Well, there was an interesting story in the "New York Times" last week, because they said that the majority of Americans have a negative impression of Martha Stewart. That's quite a breaking story that they got in "Times."

CAFFERTY: Yes, this just in.

BOROWITZ: Shows that they are getting their footing again back at the "Times."

SERWER: What about in Texas? I mean, is there a jail big enough for all the guys down there? What's that going to be like? I mean, you have got Enron, you've got all those other energy companies going on.

BOROWITZ: But you don't want to go into prison with a nickname Kenny Boy.

(CROSSTALK)

SERWER: Kenny Boy Lay.

CAFFERTY: That's even worse.

LISOVICZ: Well, why don't you tell us about the seven habits of highly effective prisoners. Tell us.

BOROWITZ: Well, one of them is just be proactive. It's so important. A lot of CEOs, in the corporate world, they are used to having things done for them, and they get into prison and they suddenly have things done to them. And I think that what they have to do is be proactive, don't get caught in the middle of a riot. Start the riot yourselves, on your schedule, on your terms.

CAFFERTY: Try not to get caught in the middle of anything.

BOROWITZ: Absolutely.

CAFFERTY: You did a survey of the dining rooms at the various federal penitentiaries...

(CROSSTALK)

CAFFERTY: And what the haute cuisine is at the big house, right?

BOROWITZ: Absolutely.

CAFFERTY: (UNINTELLIGIBLE) did his time, died of throat cancer, but it wasn't the food.

BOROWITZ: No, it was not the food. There's a lot of good eating, and apparently drinking in prison. There's a homemade wine called pruno, which is very exciting. I mean, these CEOs are really just trading one gated community for another. It's really not...

CAFFERTY: Touche.

BOROWITZ: ... it's really going to be that bad, I don't think.

LISOVICZ: And tell us about your merchandising.

BOROWITZ: Well, yes, this is the "Who Moved My Soap" soap. So important to bring this with you to prison, because it's the one soap you can't drop.

SERWER: Soap on a rope.

BOROWITZ: It's soap on a rope, and I've got to say, Susan, that is not even available on Ebay, although I guess it will be after the show.

LISOVICZ: That's why I'm holding tightly on it.

(CROSSTALK)

BOROWITZ: The book is already through three printings. It's been out for two weeks. And I assume that's because (UNINTELLIGIBLE).

LISOVICZ: I believe it's one trillion copies sold, but subject to an accounting investigation.

BOROWITZ: Yes, there is -- it is sort of under investigation. But no, we're off to a great start. I think there are so many CEOs -- I am predicting 100,000 CEOs will go to prison within the next year.

CAFFERTY: Andy, nice to see you. Thank you for being with us. And good look with the soap on a rope.

SERWER: Stay out of jail.

BOROWITZ: Absolutely.

CAFFERTY: Andy Borowitz, author of "Who Moved My Soap: The CEO's Guide to Surviving in Prison."

Still ahead, another corporate scandal to tell you about. This time the culprit is a little girl, who was turned in by a nosy neighbor for not running her lemonade stand properly.

And you can tell us what's on your mind by e-mailing us. The address is inthemoney@cnn.com. We would love to hear from you.

(COMMERCIAL BREAK)

CAFFERTY: Well, once again, it's comforting to know that the police are on the job, making things tough on small business, and we mean really small business. This boggles my mind. Cops in Ft. Myers, Florida this week shut down a little girl's lemonade stand, because she didn't have a temporary business permit.

SERWER: Oh, come on.

CAFFERTY: Turns out one of the girl's neighbors ratted her out to the police. Things did end well, however. The little girl got her permit and she's back in business. One of the cops who shut her down even bought a cup of lemonade from her in the end.

The next time that neighbor calls, go arrest her for meddling in a little girl's effort to make a dollar for herself. That's who should have been arrested, the nosy neighbor who stuck her face into something where it didn't belong. Why would the cops be doing that to a little child? That's awful.

SERWER: Snitching is an American tradition. Right?

LISOVICZ: It's not the same as whistle-blowing, Andy.

SERWER: Linda Tripp snitched, Andy Loensberg (ph) snitched.

CAFFERTY: And how did the neighbor know she didn't have a permit? What did she, walk to ask the kid, let me see your permit? I mean, that's awful. What kind of neighbors? I'd move.

(CROSSTALK)

CAFFERTY: I'd put my house on the market and move.

LISOVICZ: There was a happy ending, making lemonade out of lemons. I bet the publicity for this girl means that she will do quadruple business.

CAFFERTY: Yes. And if you have and lemons left over, throw them at the house of the neighbor that turned you into the police.

All right. Onto the e-mails. A number of you e-mailed us about our segment last week on the shrinking number of white collar jobs in America. One viewer wrote -- "Exporting U.S. jobs will make us fall from superpower to a second rate power. I hope that China, India and Mexico are successful enough to send us foreign aid. Of course if they won't, maybe our good ally France might." Ooh.

And our segment on making affirmative action financially and not racially centered also brought out a big reaction. Rick from Atlanta wrote this, quote: "We already have many middle class families lying on their financial aid applications. This would move that up a notch. The only way to achieve a cross-section of America in the college classroom is to make significant changes to schooling from K-12."

And now it's time for our e-mail question of the week: What should happen to the nosy -- no, that's not it. The government says inflation is not a problem these days, and there's even a concern about falling prices or deflation. But is that the case in your own life? The question is this: Are your expenses rising, falling, or staying mostly the same? And you can answer us by e-mailing us at inthemoney@cnn.com.

That's it for this week's edition of IN THE MONEY. My thanks to my buddies here, CNN financial correspondent Susan Lisovicz, "Fortune" magazine editor at large Andy Serwer, back from vacation. Join us tomorrow, 3:00 Eastern time. We'll look at the renewed violence in Iraq and how long American soldiers will be targets, as the United States continues to struggle to try to bring order to that country. That's tomorrow, 3:00 Eastern. We will be taking roll, so try to be on time and in your seats. See you then.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com



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