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CNN IN THE MONEY

Is Iraq Turning Into a Quagmire?; Mutual Fund Makes Virtue Out of Vice; New 'Harry Potter' Book Hits Stores

Aired June 22, 2003 - 15:00   ET

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

ANNOUNCER: From New York City, America's financial capital, this is IN THE MONEY.
JACK CAFFERTY, HOST: Good afternoon. I'm Jack Cafferty, welcome to the program. Coming up on today's edition of IN THE MONEY:

In deep and under the gun, the big battles are over in Iraq, but U.S. troops still fighting and dying on a daily basis. We'll look whether desert sand is turning into quicksand for the Pentagon and the administration.

Plus the wages of sin, we'll look at a mutual fund that specializes in making money off consumers who don't mind breaking the rules or two.

Also ahead, the caped persuader, Harry Potter's magic to make greenbacks appear out of nowhere, millions of them. With the latest book on the series hitting the stores, find out why the publishers are watching Hollywood and taking some notes.

Co-hosts for today's program, as per usual, my friend, CNN correspondent, Susan Lisovicz and my other friend, back from vacation this weekend, "Fortune" magazine editor at large, Andy Serwer.

I hope the weather for your vacation was better than the weather we're having in this big town and all up and down the East Cost, particularly up in the Northeast. It's been a tough spring.

ANDREW SERWER, "FORTUNE" MAGAZINE: Yes, I was down in Virginia, I happened to have three good days, I was really lucky, but you're right, you guys, I mean, it's horrible. Golf courses, beaches, all sorts of businesses really hurt by this stuff.

SUSAN LISOVICZ, CNN FINANCIAL NEWS CORRESPONDENT: Well, you know, I was struck because this is what they call "confession season" on Wall Street and Clorox, right, it warned the other day. Not because bleach sales are off, because it's charcoal briquettes are off..

SERWER: Kingsford, "King of the Coals."

LISOVICZ: Exactly.

SERWER: They also own the K.C. and Masterpiece barbecue sauces, too. (CROSSTALK)

LISOVICZ: Sales are down, people aren't barbecuing.

SERWER: They have barbecue sauces, too.

LISOVICZ: Well, there you go.

(CROSSTALK)

CAFFERTY: Do they put Clorox into the barbecue sauce -- no.

SERWER: They've got Armor-all, also the stuff you clean your cars with. That's hurting them...

(CROSSTALK)

LISOVICZ: And Wal-Mart, of course, the king of the road in retail has already said, seasonal items like beach umbrellas, shorts, sandals -- they're all off.

CAFFERTY: Sure.

SERWER: Yeah, but rain umbrellas' doing well, the movie business doing well, also canoes and those water backs. See, there's some businesses doing well with all this lousy weather.

(LAUGHTER)

CAFFERTY: And you made the point, it's a good weekend to stay in and read a book and there happens to be a pretty good one coming out this weekend.

LISOVICZ: Harry Potter, 900 pages, though. Though it -- you can stay indoors.

SERWER: Tell the kids -- go home and read.

CAFFERTY: All right, fair enough, so all the kids are home reading and -- yeah, read a book.

What the Pentagon calls the major fighting in Iraq, officially ended around the 1st of May, but the shooting and the violence and the dying haven't stopped, not by a long shot. U.S. soldiers continue to come under attack daily, and that's putting pressure on the Bush administration as Washington spends ten of billions of dollars to try to rebuild the country. The Pentagon has scored some notable successes since May, including the capture, this week, of the number two adviser to Saddam Hussein -- actually number one after his son sons, Iraqi General Abid Hamid Mahmud al-Tikriti. He was the ace of diamonds in that notorious U.S. deck of wanted Iraqi officials, and as I said, the top adviser outside the two boys, to Saddam Hussein.

Much of the country remains out of control, though. And for more on the situation in Iraq, we're joined from Baghdad by Ben Wedeman. Ben, thanks for being with us today. Operation Desert Scorpion is what the United States has dubbed this effort to try to put down these hit and run, almost guerrilla-like attacks on American forces. How much success are they having? What's going on?

BEN WEDEMAN, CNN CORRESPONDENT: Well, they're having mixed success at best, Jack. Basically they -- their original focus, in the last few days, was around the town of Tikrit, that's Saddam's hometown, Rimedi (ph) and Fallujah, but we've had -- despite that, three Americans killed in a week in Baghdad.

So, they seem to be putting pressure on certain areas and having some success as we've seen in the last few days around Tikrit, but in discovering that in Baghdad they have problems. So, it seems no matter where they're going, something pops up elsewhere and you have, really, the bigger -- the wider question of how to run this very big, very complicated question. And from the viewpoint of the many Iraqis that we speak to on a daily basis, they give the Americans somewhere between an "F" and a "D" on how they're running the place, even people who really welcomed the Americans are now saying, what can they do right? They'll tell you that the Americans were fantastic in conducting a war and eliminating the regime of Saddam Hussein, but they've really been something of a failure, a real model of incompetence at running this country, at getting this country back on its feet -- Jack.

CAFFERTY: What was the major miscalculation, in your opinion, and the opinion of the people over there? Where did they go wrong in trying to figure out what was going to be needed after the fighting subsided?

WEDEMAN: Well, Jack, really just talking to Iraqis and also people who've lived here very -- for a very long time, really the problem was the Americans made fantastic plans for conducting a lightning war in destroying the regime, but most people think the Americans had no idea how to run the country afterwards.

Now I -- for instance, this evening I was speaking to an old Iraqi friend, a man very well educated, he said that he's happy he can finally breathe oxygen, but the Americans are polluting that oxygen with their inability, for instance, immediately after the fall of Saddam Hussein to control the looters, the destruction, the wanton destruction of almost every government institution, so basically the Americans have taken over a wasteland in terms of the infrastructure, the administrative infrastructure that ran this country, for good or for bad, from 50 years. It has been destroyed, and they say you must do something to put this country back on its feet and I think the real blame is being put, not on the military, these are soldiers, after all, they're professional fighting men who have been given the job of running the country. The Iraqis say bring in the bureaucrats, the engineers, the technicians and make this country run again.

The Army cannot run Iraq, they need civilians, and the civilians are very far and few between -- few and few between, excuse me -- Jack. CAFFERTY: And it's a matter of time, I would guess before this becomes an increasing liability for the Bush administration and we do have an election coming up next year. Ben Wedeman joining us from Baghdad. Thank you very much. Appreciate it.

LISOVICZ: For more about the U.S. military's efforts to make Iraq secure and how it's playing back home, we're joined by Ken Pollack. He comes to us from Washington, where he serves as director of research at the Brookings Institution the Saban Center for Middle East Policies. Good to see you, Ken.

KENNETH POLLACK, CNN IRAQ ANALYST: Good to see you, Susan, thanks for having me.

LISOVICZ: The statistics are grim. Looking at the total number of U.S. casualties, 195 U.S. men and servicewomen killed since the war in Iraq began, 55 since the conventional war ended. What does that tell you?

POLLACK: Well, what it says, I think what ever Iraq expert knew, which was that the war itself was actually going to be the easy part of the entire operation, and that if fact the reconstruction of Iraq, putting this country back together, securing the country so that humanitarian efforts can come in and start to help the Iraqi people and then getting it on its feet, both politically and economically, were always going to be the hardest part of this whole process.

SERWER: Ken, let me ask you a question. Why won't anyone from the Bush administration stand up and say -- okay, this is the date we're going to hold elections, we're going to get parties being developed now, this is when the police force is happening. Do they simply not know, or are they not telling us?

POLLACK: You know, it's a great question. I don't think any of us knows exactly what's going on inside the Bush administration. It's very clear that what happened in Iraq didn't go according to the script that the administration had laid out before the war. I'll tell you, I find that very surprising, because I think that actually most of the Iraq experts inside the government, outside the government, had a pretty good read on exactly what was going to happen, and it has pretty much gone according to our script. But the administration convinced itself that this was going to be very easy, that in particular the Iraqi bureaucracy was going to fall into our hands intact and that would mean that the process would be much smoother. They got caught off guard they got wrong-footed by what actually happened, and they have been scrambling for two months to try to figure out what's going on.

Now, the best thing that's happened was Jerry Bremer, L. Paul Bremer, the man that the president picked to actually lead the effort is, kind of, systematically gathering the reins of power in his hands. He's coordinating the efforts, he seems to have a much better sentence of what needs to happen and the decisions that he's made in just the last two or three weeks have been very good discussions, but I am also waiting for the administration to come forward, for Bremer in particular to come forward with the new U.N. representative, Sergio de Mello, and say -- all right, here's how it's going to work, this is what the interim authority is going to look like, here is what it's going to do, and here is how we're going to help the Iraqis to set up their own government.

CAFFERTY: Ken, this is Jack Cafferty. How much time do they have? We have a soldier a day-plus dying every 24 hours in that country, words like "quagmire" are beginning to be heard, not being spoken loudly or often, but whispered periodically. There are pictures in the newspapers of American troops with fixed bayonets standing against crowds of angry Iraqis. How much time is there before this whole thing begins to have a real bad aroma to it?

POLLACK: Well, I think the aroma's already starting to creep up, as you're suggesting. I think they still do have some time, but it is quickly running out. You know, the problem is, as I suggested, they made some big mistakes early on. They weren't prepared for what was going to happen and this is one of those situations where getting it right, early is much easier than getting it right later on. Having taken some misstep it's now going to be much harder for them to correct the situation. The little things like the mistake in decision, I believe, to disband the Iraqi Army. That is going to be very hard to correct, now.

They have ticked off a whole bunch of Iraqis, former soldiers, their families, those people will be angry even if the United States comes around and say -- all right, we realize we made a mistake, we're going to now pay you people, we're going to give you training in new jobs so that when you go back out on to the economy, you'll actually have something to do. If they can get their act together, and in particular, if Bremer and de Mello can elaborate on what the plan is going to be, I think that will help an enormous amount, because a lot of what we're hearing from the Iraqis fear and anger that the United States doesn't know what it's doing.

LISOVICZ: Well, but ambassador Bremer has been in his position for several weeks, and yes, okay, there's a realization that post-war Iraq, much more difficult than fighting Iraq, but the other day there was a demonstration by Iraqi soldiers, a couple of Iraqis died, and one of the reasons cited is that U.S. soldiers did not have non-lethal ways to quell this ugly demonstration. Why is that?

POLLACK: I think this goes back to the fact that the administration was just fundamentally unprepared for the post-war scenario that they got. There was an expectation, I felt it always, an unrealistic expectation, that the invasion was going to go very smoothly, that what would happen was we would be effectively conducting a surgical military operation involving 250,000 American troops that would basically just lop off the very top of the Iraqi leadership, leaving their bureaucracy and their military largely intact, and therefore the U.S. could simply use the intact Iraqi bureaucracy to run the country. As a result, there was no real expectation that we were going to have this degree of security problems, this degree of humanitarian problems, this degree of political problems throughout the country, and when those problems did manifest themselves, because the administration had not planned for it, because all of those items that you just mentioned weren't pre- positioned, in place, waiting to go into Iraq, they've had to scramble.

CAFFERTY: Ken, we're going to have to leave it there. It's very interesting and increasingly, I guess, important that we get more answers to these questions, as the time drags on and our troops remain, for want of a better phrase, kind of pinned down over there in Iraq. Thank you very much for being with us.

Ken Pollack, CNN Iraq analyst, director of research for the Saban Center for Middle East Policies at the Brookings Institution joining us from Washington, D.C.

For more on what it will take to eventually get the United States out of the Iraq, we invite you to tune into the special presentation "The Road to Baghdad" tonight at 8:00 Eastern Time, right here on CNN.

Coming up on IN THE MONEY, as we continue, why bad behavior could be a smart bet. We'll tell you about a mutual fund that makes a virtue out of vice.

Plus, how to make a hotter Potter. The latest Harry Potter book is hyped, heavy, and finally here. We'll look at whether the publishing business is taking a lead from Hollywood's playbook as we continue.

(COMMERCIAL BREAK)

CAFFERTY: Well, everybody's always looking for a new way to make some money. How about a fund that bets on bad behavior? Investors now have the option in putting money in what is called a "Vice Fund," where gambling, smoking, drinking are not problems, but profit makers. The fund invests only in companies that are involved in gambling, alcohol, tobacco, and defense. And the fund is up more than 10 percent year-to-date.

From Dallas, now, we're joined by Dan Ahrens, who's the co- portfolio manager of the Vice Fund.

Dan, a future in investing, I guess, in people's weaknesses. How is defense for a part of this? It accounts for like, 23 percent of the fund. Explain how defense is a vice. I'm not getting that connection.

DAN AHRENS, VICE FUND: Well, it's not really a vice, we know that, but our fund wouldn't exist if it wasn't for the existence of all these socially responsible so-called funds, and defense is one of the primary areas that they screen against and that's screening out all the aerospace companies, which we think are very good corporations and should be owned.

CAFFERTY: There you go. Now, Pfizer's out there week with news of a pill to help people stop smoking and of course, we've been on a national crusade against the cigarette smoker for a number of years now in this country. The tobacco companies have traditional paid one of the richest dividends to investors, so even if the stock doesn't appreciate, you buy a company like Philip Morris and I think the dividend's up around 5 to 6 percent, that you could look forward to, given the current rate of interest that's payable in bank CDs, money market funds, a 5 or 6 percent dividend is gold. But, what about the pharmaceutical companies developing things that are going to potentially, over time, cut into the profits of the tobacco companies. Does that concern you at all?

AHRENS: Not really, if you're a long-term investor. If someone wants to quit smoking, they should quit smoking and if there's a pill to help them do that -- great. But, most smokers don't want to quit smoking. It's been around for centuries, they enjoy it, but I think many U.S. investors don't realize the huge worldwide market for tobacco. They hear a lot of the negativity in the U.S.

LISOVICZ: Right, and they hear a lot of negativity in the U.S., Dan, because of all the litigation that's holding back tobacco to some degree, so does that give you second thoughts about putting tobacco in your fund?

AHRENS: Well, not at all, once again, with all the negativity, yes, it's caused by litigation, it's caused by regulation, but companies like Philip Morris, now Altria, have been maligned so much in the public eye for the last few years, that the average person has no idea that it's outperformed the market for the last two years, three years, four years.

LISOVICZ: Dan Ahrens, co-portfolio manager of the Vice Fund. Thank you for joining us.

CAFFERTY: Still ahead as we continue on IN THE MONEY, investing in investment, we'll look at why the rising fortunes of the stock market could make Charles Schwab the right place to give your money a workout.

And it takes a villages to make a best-seller, with Hillary Clinton's autobiography, among the summer's hottest titles. We'll find out what the book industry is doing right.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: As a matter of fact, we are planning on getting back in. I know a lot of people who lost a lot of money on the stock market, and I'm glad we didn't decide to invest then, because we were in the process of doing that.

(END VIDEO CLIP)

CAFFERTY: 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, invest some money down there on Wall Street?

We heard from John in Norfolk, Virginia who wrote, "Yup, it sure has. Now if you can get Ken Lay and Bernie Ebbers to give me back the money they stole, I'd be happy to re-invest 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, towards 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 a big volume on either a buy or sell session, it indicates that institutional players are coming in and so that certainly behooves players like...

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

LISOVICZ: Individual investors.

(CROSSTALK)

CAFFERTY: A lot of -- a lot of their source people walk in right off the street, buy 100 shares of this, sell 50 shares of that. And the last 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, we saw it how the way...

SERWER: Yes, people don't want to get left behind. So, you know what's interesting to me about this company, I mean there are so many brokers -- online brokers who got started up during the dot-com era and a lot of them have gone away. I mean, Charles Schwab is for real, Charles Schwab is a giant in the business, Dave Potrick running the company, this company's a real company, it has gotten beating down badly, but, you know, when the market comes back, it will be right there, again, going against Merrill Lynch and maybe this is a good time to get out of the stock market...

(CROSSTALK)

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 is that...

SERWER: Oh, 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 sideline of this stock market, $2 trillion 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)

LISOVICZ: And you're not making anything in the money market.

CAFFERTY: If you're here to buy Charles Schwab stock, then you got to be betting that eventually some -- a big piece of that money's going to come off the sidelines and go back into...

SERWER: 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's 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: Well, you know -- I want to say that history says that the third year of a presidential term is a good one for stocks and -- and, you know, the president, he's only been talking about the economy.

CAFFERTY: Yes, unlike his father, who was a one-term officeholder for that very reason.

(CROSSTALK)

LISOVICZ: And, he remembers that, and he remembers that example very well.

CAFFERTY: And this president's cutting taxes while his dad was doing that -- read my lips thing, they raising taxes -- remember that going into history?

LISOVICZ: We certainly do, and while taking about money, let's talk about the "Money Minute."

The number the CEOs on their way to prison has doubled to two, and that's 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 drugstore 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 security's fraud case to begin on January 12th, 2004. Stewart 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 decision also faces a rough road in the full House and Senate, where the critics say the new rules would allow just a few companies to control most of what Americans see, hear, and read.

CAFFERTY: Yes, and the critics are saying the big guys are big enough -- right? 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, hits toward our shores, we'll look at the new rules of the publishing game.

Plus, lock, stock, and board boardroom, with more and more CEOs looking at possible jail time, we're going to do the who's who of corporate wrongdoing with humorous 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, and "Fortune" magazine editor at large Andy Serwer. Join us next weekend, 1:00 Eastern, Saturday, 3:00 Sunday. They say if we do real well with this, someday we'll be on at the same time on both days, but we are a long way away from that. And you can catch us on "AMERICAN MORNING," Andy and me, on weekdays beginning at 7:00 Eastern time, if you're up early and have like little windows of opportunity in your morning schedule. Until then, thanks for being with us. Have a good week and we will see you down the road.

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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