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Iranian Mullahs Stash Millions As Their People Struggle To Survive; Imclone Founder Sam Waksal Enters Prison; Drugs, Sex, And Illegal Labor Drive American Underground Economy.

Aired July 27, 2003 - 15:00   ET

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

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


ANNOUNCER: From New York City America's financial capital, this is "IN THE MONEY."
JACK CAFFERTY, HOST: Welcome to the program, I'm Jack Cafferty. On today's edition of IN THE MONEY, mullahs with moola, we will tell you about the Iranian religious leaders sitting on a fortune as their people struggle to make ends meet.

Plus, the seven-year hitch. Imclone founder, Sam Waksal, enters federal prison on charges of insider trading, find out whether he's in a country club or a hellhole.

And waiting to inhale: pot, porn, and cheap labor drive America's huge underground economy. We'll speak with a journalist who has shined a bright light on America's black market.

Playing couch jockey today with -- along with me are our two IN THE MONEY regulars, Andy Serwer, editor at large, "Fortune" magazine. Writers got a little carried away this week

ANDY SERWER, "FORTUNE" MAGAZINE: Yeah.

CAFFERTY: And, also from "Fortune" our buddy, senior writer Shawn Tully.

So, they come out with this September 11th report, and not unexpected, they said, well, the intelligence services could have done a better job of sharing information and we had some clues that if you look back we might have been able to connect the dots. The big thing, to me, that just reeks in this thing -- why did they blank out all those pages that had to do with Saudi Arabia? What in the hell are they hiding, there?

SERWER: It's just extremely impolitic. I mean, if you're going to have a secret part, have it secret, don't tell people about it, obviously, as soon as they let people know there were parts they couldn't read, especially to family members, it was a lightning rod and everyone said I want to read that, particularly, as you said, it's about Saudi Arabia. Everyone's been pointing their fingers there for a long time.

CAFFERTY: I mean, all those people who crashed their planes into the Trade Center and the Pentagon were carrying Saudi passports, they were Saudi citizens. What's going on and why doesn't our government level with us? SHAWN TULLY, FORTUNE MAGAZINE: I think people really want to know -- what is the contact between these people and the Saudi royal family? Are they -- the Saudi royal family is keeping its privileges and has been for a long time essentially from paying off terrorists. So, that's the suspicion that's out there unless we get all the facts out, that's what people are going to assume.

SERWER: And, it's sort of like the government saying, "We're not going to tell you about the most important part," right?

(CROSSTALK)

SERWER: ...to the critical part.

CAFFERTY: We're -- the taxpayers are funding this huge military effort in Afghanistan and Iraq, in the war on terror. We're funding this Department of Homeland Security. This is all -- this is our money that's paying for all this, and you're not going to tell us what's in the damn report about what role Saudi Arabia played in all this? I think that's terrible. It's inexcusable.

SERWER: Yes, you wonder what the end game is with Saudi Arabia and our relationship, and where's this going to be in five or ten years? What's the Saudi royal family going to be looking like? I mean, that to me is really one of the very, very biggest issues in the Middle East.

CAFFERTY: Well, I guess we're not going to get the answer to that.

SERWER: Not this week.

CAFFERTY: A drama is playing out in Iran, and you might call it "lifestyles of the rich and religious." Most of Iran's wealthiest people are also that country's most powerful. The Mullahs, or Shi'ite leaders who rule Iran. That concentration of cash at the very top is one reason why a lot of Iranians want a new government.

For a look at the millionaire Mullahs and where their money comes from, we're joined now by Paul Klebnikov, a senior editor at "Forbes" magazine, here in New York.

Paul, it's nice to have you with us.

My pleasure.

CAFFERTY: Tell us a little about how the government structure works in Iran. We hear that it's a democratic government, that the young people are agitating for a big change, and yet it sounds like based on this lead and the work you've done the guys at the top with the power and the money are not going to just arbitrarily get up and go look for someplace else to live, are they?

PAUL KLEBNIKOV, "FORBES" MAGAZINE: No, certainly not.

Well, first of all, it's not a democratic government. They have democratic institutions and free elections to a certain extent and have had for a long time. But, those democratic institutions function purely on the allowance of the religious authorities who have a right to vet all candidates for public office. They have a right to veto any piece of legislation without any recourse. In other words, power is firmly in the hands of the religious hierarchy.

Now, the interesting thing about Iran is it is a dictatorship. It's a very ruthless and cruel dictatorship. But, it's not like Saddam Hussein's Iraq. There's no one person who controls, sort of, a whole chain of command beneath him. It's more like a kind of racket, a gangster racket where you have sort of a family, if you will, a network of old boys -- of good old boys who are basically accumulating private fortunes and enforcing their power through these shadowy enforcers who use murder and beat people up exactly as you would in a kind of gangster-infested city, if you will. Which makes the whole thing a little more complicated than, let's say, a straight out dictatorship.

TULLY: One of the most interesting things in your story was the description of these foundations, these quasi-religious foundations, that are headed by the clerics that were set up originally to essentially nationalize the -- a lot of the western-owned properties and return them to the poor people of Iran. And, now they've been made into kind of these big monopolies that are skimming enormous amounts of money. Can you talk a little about those foundations and how their original purpose has been completely perverted?

KLEBNIKOV: Oh, yes, absolutely. They were set up on the express decree of Ayatollah Homani. And again, Iran today, is a very sort of soviet-style economy in many ways. In other words, the private -- the commanding heights of the economy, if you will, are not privately owned. But, the difference between this kind of communistic arrangement of the economy and the Iranian model is that a lot of the property that was expropriated by the wealthy during the 1979 revolution and from foreign investors did not end up being nationalized per se. They ended up in these religious foundations, and theoretically they were supposed to be, as you mentioned, they were supposed to be a vehicle as to redistribute it for the poor and suffering masses, if you will.

But, what happened is that they essentially became rudderless organizations, they became giant slush funds. And, they function today without any oversight at all. They function without -- they are not accountable to the state bank, to the ministry of finance, to any other government institution. They're not even accountable to the religious authorities.

So effectively, the people who manage these, what are effectively giant conglomerates, some of the largest commercial enterprises in Iran, second only to the National Iranian Oil Company, get to run them as they want. And so they use some of the money, some of these huge profits that come out of these conglomerates to pay off their political supporters and other parts of the profits they stash abroad in their own private bank accounts.

SERWER: Paul, you mentioned the Ayatollah, and of course before him was the Shah. I mean, what sort of political tradition does Iran have? Aren't we really just banging our head against the wall, here, trying to impose our sensibility and our institutions on Iran? Of course, this might apply to Iraq as well. I mean, wouldn't you agree with that?

KLEBNIKOV: No. I think they -- look, Iran is unlike Iraq, has been an independent country and a sort of -- a power, not a great power, but at least a power in its own right for 2,500 years. They were conquered once -- occasionally by other people, but they have a tradition of a functioning state, and independence.

SERWER: Isn't it totalitarian, though?

KLEBNIKOV: No. No, no, no. Before that it was just a traditional monarchy, if you will and then -- but they have had a parliament since 1906. Granted, the parliament hasn't had all that much power, but -- off and on, but they have that tradition.

Now, I believe -- I happen to believe after having seen the demise of the sort of ideological, fanatical Islamic fundamentalism, that we see in Iran today, I believe that the great Islamic reformation that we're all waiting for will begin exactly in Iran.

It is a-- it is the birthplace of contemporary Islamic fundamentalism in many ways -- the 1979 Iranian revolution. It's the world's first Islamic theocracy, and now it's falling apart, it's becoming a, sort of, corrupt racket. The vast majority of the population hates the limitations to freedom, they despise the corruption of their supposed spiritual leaders, and they're ready for change. And, I believe the change is coming and it will be the Iranian people who are well educated, who have a long tradition of commerce and craftsmanship and industriousness. They will be the ones to make this happen and this will be the first transition that we see from a traditional Islamic state to a modern country that combines religion and modern economics and global culture in a, sort of, workable way.

CAFFERTY: I've got 20 seconds. When's all that going to happen?

KLEBNIKOV: I'd say within three years.

CAFFERTY: Really?

KLEBNIKOV: Yeah.

CAFFERTY: That's fascinating. Paul, thank you very much. It's most interesting stuff. Paul Klebnikov, senior editor at "Forbes" magazine.

Coming up on "IN THE MONEY" as we continue: The big shot in the big house. Imclone founder Sam Waksal sitting in federal prison. We'll take a look at whether or not he's getting VIP treatment, there.

Plus, air superiority: Southwest racking up profits while the competition continues to struggle. Find out what this carrier knows that the other guys don't, but would like to. Also ahead, burning issues: Pot, just one of the pillars holding up America's underground economy. We'll hear from a journalist who pulled the veil off the black market of drugs, pornography, and illegal immigrants who fill a huge labor void in this country. Stay with us.

(COMMERCIAL BREAK)

CAFFERTY: Mention the word "CEO" and federal prison in the same sentence and it's likely conjure up a couple of other words like, "country club." Former Imclone cief executive, Sam Waksal went to federal prison this week for a seven year plus sentence, convicted of insider trading. For a look at Sam's new life and whether it's more a Salisbury steak or filet mignon, we're joined by senior correspondent Allan Chernoff.

Allan, I have a real strong suspicion it's neither.

ALLAN CHERNOFF, SENIOR CORRESPONDENT: Well, Jack, the price that they spend on food at the Schuylkill federal prison, per prisoner is $2.74 a day. So, at that price I don't think we're talking filet mignon. I can tell you, however, that there is a vegetable garden at the prison and Sam Waksal may be growing his own vegetables.

He's come down from the high life, as you can see; he's living in a dormitory, now. This is the kind of bunk bed that he slept in last night. And, his workday is going to begin at 7:30 in the morning, go all the way till 3:30 in the afternoon. He'll be paid as little as 12 cents an hour, and among the possible jobs that he'll have: cleaning pots and pans, mowing grass, mopping the floors.

He actually hasn't been assigned just yet because he's still going through orientation; it's kind of like freshman week in college. But, he did arrive on Wednesday, and in his final moments of freedom he offered an apology.

(BEGIN VIDEO CLIP)

SAM WAKSAL, FRMR IMCLONE CEO: I deeply regret the mistakes I've made that have brought me here today, and I'm ready to pay for those mistakes, and I only hope that right now I can go on and continue contributing after this in a positive way for society and in the kinds of ways that help bring Erbitux to people. Thank you very much.

(END VIDEO CLIP)

CHERNOFF: Erbitux is a cancer drug that he had been promoting. Two years ago he was on top of the world, promising that Erbitux would be out in a matter of months. It still has not gotten approval from the Food and Drug Administration, and of course today, Jack, he's sitting in a federal prison.

CAFFERTY: Thank you, Allan. CNN senior correspondent, Allan Chernoff.

For the CEO has trading in life behind a desk for life behind bars we wanted to offer some tips on how to stay out of trouble, and for that we turn it to our next guest, Jeffrey Ian Ross. He is the author of the book "Behind Bars, Surviving Prison." he's also a criminologist at the University of Baltimore in Maryland.

Welcome. Nice to have you with us.

JEFFREY IAN ROSS, CRIMINOLOGIST: Thank you very much.

CAFFERTY: For someone like Sam Waksal who's used to flying around in private jets and dining on caviar and drinking the finest champagne, what's the most difficult adjustment he faces as he walks into a federal prison for the first time?

ROSS: Well, loss of privacy. He's going to be in a room probably with 200 other people, a dormitory-type setting, maybe it's double bunked. He's going to have to deal with getting up at the time that the institution wants him to get up at, having lights off at the time the institution wants the lights off. He's not going to be able to choose what he wants to eat, or with some minor variations -- you know, at meal-time.

So really, what he has is almost total control over his -- the time that he is there. And, I guess one of the misconceptions that we often hear is that at a federal prison camp that it's something like, you know, a country club facility. And obviously, the security is less there, freedom of movement is a little bit greater than you would have at a medium security prison or a maximum security prison, but, it's no picnic. And he has to deal with the snorers and the smells of his bunk mate or the person below him or above him.

He doesn't have the privacy that he may have with -- in a cell, where he has his own space or only just one cellmate. So, those are some of the difficulties that he needs to adjust to immediately. The best thing for him to do is keep his mouth shut as much as possible, go with the flow, and try to pick up on the subtle cues and not so subtle cues as the day moves on.

SERWER: Now, Jeff, let me ask you, I mean, you talk about the hardship. But I mean, compared to a maximum security prison, I mean, this is a picnic, it is a country club. And I wonder why we have these prisons because if you think about it, I mean, you've got to believe that if you saw some black kid who gets arrested for dealing drugs who isn't particularly violent, he's not -- or is not violent at all, he's not going to end up in that place.

ROSS: That's true.

SERWER: So why is that? Why is that? Why do we have this difference in our society at all?

ROSS: I think that we have different levels of security to deal with different types of crime, particularly -- we don't want somebody like Waksal to get away with a slap on the wrist. I'm not sure that a prison sentence is the most effective type of sanction for a lot of offenders, particularly non-violent offenders. But, I think what it does do is it serves as a wake-up call to many people out there, white-collar criminals, similar types of individuals, that the long arm of the law will come down and descend upon you and actually put you in prison if you do some sort of illegal action.

TULLY: What does the evidence say about how many white-collar criminals who go to these kinds of facilities, which are obviously the lifestyles are a little bit easier on them, do they tend to commit the same crimes again and go back into prison, or is there some sort of rehabilitation that is better than what you would get in a maximum security facility?

ROSS: That's a great question. There really is no empirical evidence that exists on what happens after an individual who's been convicted of a white-collar crime, what happens when they get out of prison. I don't think that they're necessarily rehabilitated. I think one of two things happens, they're either better at concealing their crimes or they just sort of cease and desist.

You know, many are bankrupt after the fact. Alternatively -- you know, all prisons are great places for informal education. So, they will learn some techniques from other like-minded individuals on how to run their businesses either in a more efficient manner or in a manner so they can, sort of, fly below the radar screen of the federal government. But, you know, do not think for a chance that the federal government will not be looking at folks like Waksal and others who get out of prison to see -- make -- to make sure that they -- their activities are on the up and up, so...

CAFFERTY: One of the recent results of prison overcrowding in this country is that violent criminals in maximum security prisons, as they near perhaps the end of a sentence, are often transferred to these less secure facilities, where they mingle with the CEOs and the white-collar criminals like a Sam Waksal. What are the implications of that? Are these federal prison camps violent places because of that? What sort of effect does that have?

ROSS: Rarely. Those are rarely -- violence is more prevalent in a maximum security prison, less prevalent in a medium security prison, as they are, say, in a minimum security prison. What -- by the time a guy is let out and moves down the system, a lot of the violence is out of him, so to speak. But, a smart convict will realize that they have more to gain by having a friendly-type relationship with, say, Waksal than a conflictual one.

Why, is because, I think, probably Waksal has a greater chance of helping the individual when he is out than what might transpire inside. The convict may learn of certain business practices, certain stock type practices that a violent or so-called violent prisoner never knew about. So, it can be a very win-win situation. And your conversations, your question sort of reminds me of the movie -- you know, that movie "Out of Sight" with Jennifer Lopez, Albert Brooks...

CAFFERTY: Right.

ROSS: Where Brooks is incarcerated and George Clooney is there to save his butt. And when he gets out, he goes to Brooks and asks him for a job, and you never know, when Waksal is out he might very well be able to employ the so-called violent criminal.

CAFFERTY: Good point. Jeffrey, thank you for being with us, today. I appreciate it. It's interesting stuff.

ROSS: My pleasure.

CAFFERTY: We hope none of our viewers has to read this book out of necessity, but it's a fascinating look at what goes on on the inside. Jeffrey Ian Ross, criminologist at the University of Baltimore, and author of "Behind Bars, Surviving Prison."

Coming up next on "IN THE MONEY": Hot wings. Southwest flying high while the competition is flapping and struggling. Find out what's making a difference for the budget airline.

And later on, up in smoke. America's black market pulls in a fortune from drug deals and more. Besides, we'll tell about the secret sector of the U.S. economy and why it should be a concern to all of us.

Plus, putting your money into dividend stocks: Find out if they really pay off in what is arguably a shaky stock market.

(COMMERCIAL BREAK)

SERWER: Now, let's take a look at some of the top stories from this week in our "Money Minute." Mixed news from our parent company, AOL Time Warner, the company posted a better than expected quarterly profit of 12 cents a share thanks to the movie "Matrix: Reloaded," and the settlement with Microsoft. But, the company also says its troubled online unit lost another 800,000-plus subscribers.

The long slide in mortgage rates may be over. The average rate on a 30-year loan rose to 5.72%, the highest level since April.

And Harlan Waksal has resigned from Imclone, the company he and his brother Sam built. Harlan had been the company's chief science officer, and he walks away with a stake in the company worth over $90 million. Harlan used some of his newfound free time to give his brother Sam a lift to prison.

CAFFERTY: What a nice guy.

On now to our stock of the week. Southwest Airlines announced another strong quarterly profit this week. And while, as you well know, most of the major airlines are barely making it, Southwest's still expanding. They plan to buy another 30 new airplanes over the next couple of years. A look at Southwest's stock chart over the past year shows the airline's shares are pretty much on an upswing and not far off their 52-week high. That is our stock of the week. And these people have consistently outperformed the sector. What's the secret?

SERWER: Well, the question I have about this company, Jack, is -- was this a cult of personality? There was a guy named Herb Kelleher who built this thing with his bare hands. He has retired a while back, and the company seems to -- could be able to continue moving on. The question is can they keep it up -- you know, year after year -- Shawn.

TULLY: Well, this company now, with a market cap of around $13 billion is worth the rest of the entire industry.

SERWER: Well...

CAFFERTY: Is that right?

TULLY: Yeah. If you add up United and American...

SERWER: Well, the other ones were bankrupt.

TULLY: Yeah, and the ones that were bankrupt, which will sell for something. This company is worth the whole industry. So, they definitely have the formula down right. And, it's going to be -- the world is going to go to the discounters. No question. The major airlines are going to have to get their costs in line with the discounters, having 30 percent higher costs, as American is aiming for, is just not going to be enough. They have to level with their employees and seriously go after the costs. They're just too high.

SERWER: But, this company is the only one, Jack, that's still profitable since 911. I mean, that is truly amazing. They're still ordering airplanes from Boeing. Truly amazing. The rest of them are cutting back. It is expanding its business. The other ones are contracting. For instance, it may expand into St. Louis, where American Airlines is pulling back. So, you know, that -- this company and JetBlue, they are the wave of the future, but we had Gordon Bethune from Continental on a couple weeks ago, and he said, "Well, you know, but we can't do what they do because they fly these routes point to point, they don't go overseas." So they are a little bit different.

CAFFERTY: What is it about the patriarch, for want of a better word, of a company like Southwest Airlines? They seem to be doing fine even though the founder is gone. A company like General Electric, you could make the argument, is not the same company under a Jeffrey Immelt as it was under a Jack Welch. What's the secret to perpetuating the success of a company that relied so heavily -- Sandy Weill at Citibank -- on the charisma and personality of the top guy?

SERWER: Well, I mean, I think for one thing this airline, this company, Southwest, is so focused. You look at some of those other companies you mentioned, GE, they've got so many different businesses. I mean, Southwest flies Boeing airplanes from one city to the next with fixed fares. That's their business. So, it's not that complicated, maybe a guy can fill his shoes.

CAFFERTY: Do you agree with that?

TULLY: Yeah, I do. I think that the -- and also just all of the systems that were put in place, actually by Jack Welch also, were very effective. But, Jack Welch really had the wind at his back during a terrific stock market.

CAFFERTY: That's true. TULLY: There was a lot of luck in GE's performance, and Immelt has been much less lucky.

SERWER: And, last point about this company. I went back and checked, it's stock has split 13 times since 1978. Amazing.

CAFFERTY: We should have gotten in.

SERWER: We should have gotten in.

CAFFERTY: For $13 billion, that's the most astonishing -- more than the whole rest of the airline industry combined. That's stunning.

We had another big response for our e-mail question of the week, as we do each and every week here on this fine little program. Last week we asked whether the states should consider the financial costs when deciding whether to pursue the death penalty.

Tracy wrote in, "I'm still in high school and I consistently hear about tight budgets for schools. A number of schools in my district were recently shut down for lack of funds. If they can close schools because they're too expensive, they should think about the costs of capital punishment, too."

Dean in Florida had a different view, he wrote this, "I question the figures that say it costs more to kill a prisoner tan to keep him alive. Has it really cost less to deep Charles Manson alive since 1969? What about the rising costs of food? What about the costs of parole hearings?"

What about all those uniforms he wore out?

And, Danny from West Virginia writes, "When it comes to issues like capital punishment we should do whatever would hurt the layers and judges the most. Persecutors, defense lawyers, and judges are all making money cycling people endlessly through the legal system."

We'll read more of your e-mails a little later on in the program and we will have the e-mail question for this week coming up a bit later. Our e-mail address, if you're so inclined to get in touch, inthemoney@CNN.com. And, we do so look forward to hearing from you.

Coming up, we'll shed some light on the marijuana trade in this country. And, some of America's other secretive, illegal, and highly profitable businesses, as well. We'll talk more about America's huge underground economy.

And, you can weigh in on all the topics we've covered today or anything else that's on your little old mind, inthemoney@CNN.com. And, we have a producer, Jake Novak, who sits in a basement closet and answers each and every letter. We don't let him go to lunch until he's all finished.

(NEWS BREAK) CAFFERTY: The old saying is money talks, unless, of course, you keep it quiet. And keeping it quiet is what America's black market economy is all about. It is driven by desire and need for things such as drugs, pornography, and workers that are too low cost to be legal. By one estimate, traffic in those areas alone constitute about 10 percent of GDP, the overall economy in the America.

Journalist Eric Schlosser looks at the some of the busiest sectors of the underground empire in his new book. It's called, "Reefer Madness: Sex, Drugs, and Cheap Labor in the American Market." He is also the author of the best-selling, "Fast Food Nation." We are delighted to have Eric with us today on IN The MONEY. Welcome.

ERIC SCHLOSSER, AUTHOR: Thanks for having me.

CAFFERTY: How big a problem is this if, in fact, it is a problem, and I assume it is, and why should Andy or myself or you care?

SCHLOSSER: I think it's a big problem. The United States is a modern industrialized nation, and the sort of economic activity we are seeing is much more common in third world and developing nations. Those are the places we find a big, booming black market. Most economists agree the black market in the United States has been growing over the last 20 years. I think it's a very bad thing.

SERWER: Eric, let me -- first of all congratulations on the title of that book. That's a good one. That's got to be flying off the shelves.

CAFFERTY: Absolutely.

SERWER: But I'm interested, you said the economy, the black market economy, has been growing. I mean, is that really the case? I mean, didn't we have a big black market economy in the 19th century or the early part of this century, number one? And if, in fact, it is growing, as you say, why is that?

SCHLOSSER: Well, economists agree that it's growing, and they disagree over why. There have been other periods where we had a booming black market, prohibition. The illegal sale of alcohol was about 5 percent of GDP.

After World War II -- during World War II, when there was rationing of gasoline and meat, people were trading in ration books, a very big black market. It then declined.

Now, economists on the right believe that as tax rates get high, people try to evade taxes, don't report economic activity. That's why they think the underground has been growing the last 20 years. On the left, they argue that when wages are stagnant, when ordinary people aren't doing well, they turn to all kinds of black market activities to supplement their income.

The third cause would be the rise in illegal immigration. In the book, I talk about the growing roll of illegal immigrants in our economy, and that's black market labor. I think it is a very disturbing thing.

TULLY: Why isn't the solution -- and this is what libertarians have been arguing for years -- just legalize drugs? Go beyond marijuana. Milton Friedman was arguing way back in the 1950s, and just, let freedom ring, open it up and tax the receipts and decriminalize it that way because the criminals love that it's illegal because it keeps the margins really high.

Every time you take drugs off the market, the price goes back up again. So, more come on the market. That's why this whole war on drugs has been so futile over the years. Plus these guys are in favor of free immigration, also. What's wrong with that solution?

SCHLOSSER: Well, you make some interesting points. I write about marijuana. Marijuana is a weed. It grows wild. It has very little value. But with the laws against marijuana that we have, a lot of it is worth more per ounce than gold. It's also true that a lot of conservative Republicans are big opponents for the war on drugs for the reasons that you mentioned.

Personally, I am not so sure about legalizing drugs. Right now in this country, we have life sentences for marijuana, and if you went tomorrow to being able to market it on TV just like Budweiser, that's such a wild swing.

But I think decriminalizing marijuana is a very rational step. Canada is about to do it. They have done it in Italy, Spain, Portugal, the Netherlands, Ohio, and those places haven't collapsed. So, I think we need to move toward a common sense solution to a lot of these issues.

CAFFERTY: Address the hypocrisy, if you will. Talking about limiting immigration, tightening the borders, holding down the number of foreigners who can come here -- when, in fact, huge parts of this economy are absolutely dependent on migrant workers who come into this country illegally and work for 10 cents on what the American worker's dollar pays.

SCHLOSSER: There's enormous hypocrisy and migrant workers have been in, for example, California agriculture, for 100 years. The disturbing trend in the last 20 years is to have illegal immigrants meat packing, in construction, in hotels and restaurants, and really filtering into the main treatment economy.

And there's enormous hypocrisy in the way that illegal immigrants are being demonized and scapegoated, and yet at the same time, very powerful interests and very powerful industries are recruiting them and profiting from them.

SERWER: Eric, you ticked off some of the reasons why you think these things -- why the black market has gone up, but one reason why maybe is people don't agree with the laws. I mean, that's what prohibition was all about. So getting back to marijuana and reefer, you talk about wanting to decriminalize it, I mean, isn't that sort of a namby-pamby half step? I mean, why not make it legal? SCHLOSSER: You know, it's a first step. I don't think that -- again, I don't think you can go overnight. Right now you can get the death penalty under federal law for a first-time nonviolent marijuana offense. And I know of many people who are serving life sentences for marijuana. If next week you made it legal, could it be marketed like tobacco has been marketed? Could it be sold like alcohol?

So eventually, philosophically, that libertarian view is very attractive to me, but when you look at what other countries are doing -- what they are doing is they are moving away from a criminal justice approach to drug abuse and moving into a much more public health model, and that's why not punishing users with prison is a good first step.

TULLY: And isn't the reason why our prisons have filled up so much because of the huge epidemic of drug charges?

SCHLOSSER: Well, you know, my next book is on prisons. And what I found is that about 70-80 percent of the inmates are substance abusers. They are not all there for a drug charge, but if they are there for armed robbery, it's because they were going to buy drugs.

What happens in prison is they are brutalized. They receive no drug treatment. They are back on the streets. On average, you know, two-thirds of them are back in prison. So, we have a very expensive and irrational system right now.

CAFFERTY: We are going to have to leave it there. The book, as Andy pointed out, great title, "Reefer Madness: Sex, Drugs and Cheap Labor in the American Market." Eric Schlosser, the author. Thank you very much for being here.

SCHLOSSER: Thanks for having me.

CAFFERTY: He also writes for "Atlantic Monthly," which is not a half bad publication.

Still ahead on IN THE MONEY as we continue, a sure thing in a shaky market. Dividend stocks deliver returns whether the bulls are running or not. Find out whether tax changes make them a good idea for your portfolio.

You have heard of blessing your animals. Well, out in California, they bless their cars. But you probably knew that, didn't you?

Straight ahead we will have that story and some other stuff. Stick around.

(COMMERCIAL BREAK)

SERWER: The experts tell us investing in stocks that pay steady dividends is the way to go these days. The logic is that with uncertain markets and low interest rates, investors should be flocking to the stocks where they at least get some income. But are they really doing that? Let's look a close look at this chart now for one of those steady dividend paying stocks like Pfizer. As you can see, it's up and down over the past year. Meanwhile, nondividend-paying Amazon is through the roof in the past 52 weeks. These kinds of stats suggest most investors aren't going dividend crazy just yet. The question is, should you?

Joining us now to talk about dividend stocks is CNN/"Money" senior writer Justin Lahart. So, Justin, what about it? Shouldn't people be buying stocks that pay dividends?

JUSTIN LAHART, SENIOR WRITER, CNN/"MONEY": Yes, I think only we would say that, people should be buying stocks in companies, good companies, and it just turns out that a lot of times, good companies with sold earnings prospects are companies that are paying out dividends, but in the market right, that just isn't what people are interested in.

TULLY: Justin, for a long time, companies have been retaining most of their earnings, mostly tech companies, and they have been squandering all that cash on lousy acquisitions that have driven down their stock prices. Isn't it better for them to return? Doesn't it impose more discipline on management to give that money back to the shareholders?

LAHART: Yes, absolutely. And there are some guys that have done some great work on this, a guy named Cliff Avness (ph) and Rob Arnett (ph). I know you guys have talked to them over at "Fortune." And they have done some work that has shown that when companies raise dividends, earnings get -- earnings grow after that and that when they lower dividends, earnings don't do so well.

This flies in the face where a lot of theories that Wall Streeters had for a long time. A lot of people said, well, you know, you get these fast growing companies. They can reinvest so that their earnings, instead of paying it out to shareholders, and they are going to grow like the dickens, and that just hasn't been the case.

CAFFERTY: It would seem to the casual observer there are a couple of very powerful incentives to buy dividend stocks these days. One of them is the recent changes in the tax laws, cutting back the taxes on dividends. The other one is you can't make any money in fixed income these days. You go out and buy CDs at the bank, or you put a money market and you make one percent. A lot of these dividend paying companies pay a dividend of three, four, even more percent per year. So, why aren't people buying the dividend stocks? What is it they are chasing?

LAHART: I think, well, they are really -- they are chasing low quality stocks right now, and those aren't stocks that are going to be paying out a dividend. And, you know, what's the theory behind that?

Well, if you remember, you know, back in October when we thought the world was going to end, we also thought that a lot of companies were going to go away. Those companies that we thought were going to go away weren't companies that were paying out dividends, right? They were trying to -- they were heavily indebted. They had better things to do with their cash or they just simply couldn't pay out a dividend. So those same companies -- now suddenly, the chances of their survival are just, you know, phenomenally better.

So, it's almost like they were an option, rather than a stock. And people say hey, you know, this company -- I thought it was going to go away. Now I think it's going to survive. It goes through the roof with the stock price.

SERWER: Yes, but isn't it too late to go after these things. I mean, "Ask Jeeves" has gone from one buck to 18 bucks this Spring. I mean, these things have really through the roof, whereas the banks, like Bank of America, Citi, and Wells, have raised their yields. Wells' yield is over three percent now, right? Isn't that where it's the place to go?

LAHART: It does seem that, you know, at some point, we are going to have to see a shift from these growth stocks. I mean -- and it really does seem like people have gone to these growth stocks way too early. They are just flying.

I mean, we saw this week, monster.com, right? They were on, you know, the Monster job board. It went up on the weekly jobs number -- it went up like 15 percent because the weekly jobs number was good. I mean, come on, this company is supposed to be losing revenues for like the next year. And it was just, you know -- maybe a good company, maybe the futures can be great, but it just seemed a little bit ridiculous.

CAFFERTY: It's a little scary to watch people bidding up the same kinds of companies that fueled the internet bubble that blew up in everybody's face about four years ago. We are going to have to leave it there. Thank you for coming on the show. We have had you here before. It's always a pleasure. Justin Lahart, senior writer for money.com.

Just ahead, you may have insurance, but you may need another kind of more spiritual coverage for the family flimmer (ph). Details are coming up.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

SERWER: Mortgage rates at a 40-year low, and that has millions of Americans out buying homes and refinancing their mortgages. Refinancing simply means replacing your current high-interest loan, let's say eight percent, with a lower-interest loan, say 6 percent. That can save you all kinds of money on your mortgage payments.

So, what's the catch? Well, there really isn't any, but there are some things you should be aware of. First you have to pay the bank fees to refinance. The rule of thumb is you should be to pay back the re-fi fees with savings of your mortgage in one year. Two, if you have been paying your mortgage for 10 years and you refinance with a 30-year loan, you are back to square one in terms of paying off your house. And three, be careful of special language that prohibits you from prepaying your new mortgage.

So, just make sure to check those things out before you refinance.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

CAFFERTY: If you love your car, I mean really love your car, then you may want to take it out to L.A. to the suburbs. The have a very special weekend event there. It is the 10th annual Blessing of the Cars. This event begins with a mass morning blessing done by a Catholic priest who then goes from car to car to offer individual blessings to each vehicle. Some owners even ask for the priest to put holy water in their radiators. We laugh, but this event attracted like 10,000 people last year. Hey, it's in California. Cars a big deal out there.

TULLY: You'd think these cars were Seabiscuit, Jack. They are so beloved.

SERWER: Yes, can you say, "West Coast phenomenon?" I mean, you know, the next thing they are going to do is bless your toothbrush. I tell you the only thing you should pray for is your family's well being. I mean, the same thing with the people who do this at sporting events. I pray that our team will win. Can't we just -- you have to separate this stuff out in your lives, people. I mean, right, don't you think.

CAFFERTY: The religious instruction here on IN THE MONEY courtesy of Father Sewer.

SERWER: All right, maybe I am overstepping my bounds perhaps.

CAFFERTY: Time to check the e-mail again. Richard from California had this to say that the announcement from the National Bureau of Economic Research that the recession officially ended in November of 2001. He writes, "It's nice to know the recession ended. Perhaps someone can explain to me why I lost my job in December and haven't been able to find work since. These guys in Washington should get out and see the real world."

Cliff in Los Angeles wrote about our piece on North Korea's secret slush fund for weapons, quote, "We know that South Korea gave the North $200 million a few years back. Meanwhile, the South resists our attempts to discipline the North. I think the two nations may actually be working together." Unquote.

And Craig in Kentucky had this to say about the cost of the Jessica Lynch homecoming. "Who forked out the greenbacks for the Blackhawk chopper ride Lynch received? She deserves a hero's welcome, but should the taxpayers have signed that check?"

And now it's time to ask you our e-mail question of the week. We talked earlier in the program about the huge money the marijuana business brings in, and with that in mind, the question is this, should the United States legalize drugs like marijuana and tax the revenues that would result from doing that?" You can e-mail your thoughts at inthemoney@cnn.com.

That's all for this edition of IN THE MONEY. We thank you for watching. As always, thanks to our regular contributors, Shawn Tully of "Fortune" magazine, and Andy Serwer -- that's Andy -- Shawn is sitting next to him. They both work at "Fortune," and they're both regular contributors here on this program.

Join us next week, 1:00 Eastern on Saturday, and 3:00 on Sunday. Or, if you want to have even more fun, Andy and I appear regularly each weekday morning on "AMERICAN MORNING" from 7:00 to 10:00 East Coast time. And never mind "The Today Show" and "Good Morning America." They are both inferior products.

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





Survive; Imclone Founder Sam Waksal Enters Prison; Drugs, Sex, And Illegal Labor Drive American Underground Economy.>


Aired July 27, 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: Welcome to the program, I'm Jack Cafferty. On today's edition of IN THE MONEY, mullahs with moola, we will tell you about the Iranian religious leaders sitting on a fortune as their people struggle to make ends meet.

Plus, the seven-year hitch. Imclone founder, Sam Waksal, enters federal prison on charges of insider trading, find out whether he's in a country club or a hellhole.

And waiting to inhale: pot, porn, and cheap labor drive America's huge underground economy. We'll speak with a journalist who has shined a bright light on America's black market.

Playing couch jockey today with -- along with me are our two IN THE MONEY regulars, Andy Serwer, editor at large, "Fortune" magazine. Writers got a little carried away this week

ANDY SERWER, "FORTUNE" MAGAZINE: Yeah.

CAFFERTY: And, also from "Fortune" our buddy, senior writer Shawn Tully.

So, they come out with this September 11th report, and not unexpected, they said, well, the intelligence services could have done a better job of sharing information and we had some clues that if you look back we might have been able to connect the dots. The big thing, to me, that just reeks in this thing -- why did they blank out all those pages that had to do with Saudi Arabia? What in the hell are they hiding, there?

SERWER: It's just extremely impolitic. I mean, if you're going to have a secret part, have it secret, don't tell people about it, obviously, as soon as they let people know there were parts they couldn't read, especially to family members, it was a lightning rod and everyone said I want to read that, particularly, as you said, it's about Saudi Arabia. Everyone's been pointing their fingers there for a long time.

CAFFERTY: I mean, all those people who crashed their planes into the Trade Center and the Pentagon were carrying Saudi passports, they were Saudi citizens. What's going on and why doesn't our government level with us? SHAWN TULLY, FORTUNE MAGAZINE: I think people really want to know -- what is the contact between these people and the Saudi royal family? Are they -- the Saudi royal family is keeping its privileges and has been for a long time essentially from paying off terrorists. So, that's the suspicion that's out there unless we get all the facts out, that's what people are going to assume.

SERWER: And, it's sort of like the government saying, "We're not going to tell you about the most important part," right?

(CROSSTALK)

SERWER: ...to the critical part.

CAFFERTY: We're -- the taxpayers are funding this huge military effort in Afghanistan and Iraq, in the war on terror. We're funding this Department of Homeland Security. This is all -- this is our money that's paying for all this, and you're not going to tell us what's in the damn report about what role Saudi Arabia played in all this? I think that's terrible. It's inexcusable.

SERWER: Yes, you wonder what the end game is with Saudi Arabia and our relationship, and where's this going to be in five or ten years? What's the Saudi royal family going to be looking like? I mean, that to me is really one of the very, very biggest issues in the Middle East.

CAFFERTY: Well, I guess we're not going to get the answer to that.

SERWER: Not this week.

CAFFERTY: A drama is playing out in Iran, and you might call it "lifestyles of the rich and religious." Most of Iran's wealthiest people are also that country's most powerful. The Mullahs, or Shi'ite leaders who rule Iran. That concentration of cash at the very top is one reason why a lot of Iranians want a new government.

For a look at the millionaire Mullahs and where their money comes from, we're joined now by Paul Klebnikov, a senior editor at "Forbes" magazine, here in New York.

Paul, it's nice to have you with us.

My pleasure.

CAFFERTY: Tell us a little about how the government structure works in Iran. We hear that it's a democratic government, that the young people are agitating for a big change, and yet it sounds like based on this lead and the work you've done the guys at the top with the power and the money are not going to just arbitrarily get up and go look for someplace else to live, are they?

PAUL KLEBNIKOV, "FORBES" MAGAZINE: No, certainly not.

Well, first of all, it's not a democratic government. They have democratic institutions and free elections to a certain extent and have had for a long time. But, those democratic institutions function purely on the allowance of the religious authorities who have a right to vet all candidates for public office. They have a right to veto any piece of legislation without any recourse. In other words, power is firmly in the hands of the religious hierarchy.

Now, the interesting thing about Iran is it is a dictatorship. It's a very ruthless and cruel dictatorship. But, it's not like Saddam Hussein's Iraq. There's no one person who controls, sort of, a whole chain of command beneath him. It's more like a kind of racket, a gangster racket where you have sort of a family, if you will, a network of old boys -- of good old boys who are basically accumulating private fortunes and enforcing their power through these shadowy enforcers who use murder and beat people up exactly as you would in a kind of gangster-infested city, if you will. Which makes the whole thing a little more complicated than, let's say, a straight out dictatorship.

TULLY: One of the most interesting things in your story was the description of these foundations, these quasi-religious foundations, that are headed by the clerics that were set up originally to essentially nationalize the -- a lot of the western-owned properties and return them to the poor people of Iran. And, now they've been made into kind of these big monopolies that are skimming enormous amounts of money. Can you talk a little about those foundations and how their original purpose has been completely perverted?

KLEBNIKOV: Oh, yes, absolutely. They were set up on the express decree of Ayatollah Homani. And again, Iran today, is a very sort of soviet-style economy in many ways. In other words, the private -- the commanding heights of the economy, if you will, are not privately owned. But, the difference between this kind of communistic arrangement of the economy and the Iranian model is that a lot of the property that was expropriated by the wealthy during the 1979 revolution and from foreign investors did not end up being nationalized per se. They ended up in these religious foundations, and theoretically they were supposed to be, as you mentioned, they were supposed to be a vehicle as to redistribute it for the poor and suffering masses, if you will.

But, what happened is that they essentially became rudderless organizations, they became giant slush funds. And, they function today without any oversight at all. They function without -- they are not accountable to the state bank, to the ministry of finance, to any other government institution. They're not even accountable to the religious authorities.

So effectively, the people who manage these, what are effectively giant conglomerates, some of the largest commercial enterprises in Iran, second only to the National Iranian Oil Company, get to run them as they want. And so they use some of the money, some of these huge profits that come out of these conglomerates to pay off their political supporters and other parts of the profits they stash abroad in their own private bank accounts.

SERWER: Paul, you mentioned the Ayatollah, and of course before him was the Shah. I mean, what sort of political tradition does Iran have? Aren't we really just banging our head against the wall, here, trying to impose our sensibility and our institutions on Iran? Of course, this might apply to Iraq as well. I mean, wouldn't you agree with that?

KLEBNIKOV: No. I think they -- look, Iran is unlike Iraq, has been an independent country and a sort of -- a power, not a great power, but at least a power in its own right for 2,500 years. They were conquered once -- occasionally by other people, but they have a tradition of a functioning state, and independence.

SERWER: Isn't it totalitarian, though?

KLEBNIKOV: No. No, no, no. Before that it was just a traditional monarchy, if you will and then -- but they have had a parliament since 1906. Granted, the parliament hasn't had all that much power, but -- off and on, but they have that tradition.

Now, I believe -- I happen to believe after having seen the demise of the sort of ideological, fanatical Islamic fundamentalism, that we see in Iran today, I believe that the great Islamic reformation that we're all waiting for will begin exactly in Iran.

It is a-- it is the birthplace of contemporary Islamic fundamentalism in many ways -- the 1979 Iranian revolution. It's the world's first Islamic theocracy, and now it's falling apart, it's becoming a, sort of, corrupt racket. The vast majority of the population hates the limitations to freedom, they despise the corruption of their supposed spiritual leaders, and they're ready for change. And, I believe the change is coming and it will be the Iranian people who are well educated, who have a long tradition of commerce and craftsmanship and industriousness. They will be the ones to make this happen and this will be the first transition that we see from a traditional Islamic state to a modern country that combines religion and modern economics and global culture in a, sort of, workable way.

CAFFERTY: I've got 20 seconds. When's all that going to happen?

KLEBNIKOV: I'd say within three years.

CAFFERTY: Really?

KLEBNIKOV: Yeah.

CAFFERTY: That's fascinating. Paul, thank you very much. It's most interesting stuff. Paul Klebnikov, senior editor at "Forbes" magazine.

Coming up on "IN THE MONEY" as we continue: The big shot in the big house. Imclone founder Sam Waksal sitting in federal prison. We'll take a look at whether or not he's getting VIP treatment, there.

Plus, air superiority: Southwest racking up profits while the competition continues to struggle. Find out what this carrier knows that the other guys don't, but would like to. Also ahead, burning issues: Pot, just one of the pillars holding up America's underground economy. We'll hear from a journalist who pulled the veil off the black market of drugs, pornography, and illegal immigrants who fill a huge labor void in this country. Stay with us.

(COMMERCIAL BREAK)

CAFFERTY: Mention the word "CEO" and federal prison in the same sentence and it's likely conjure up a couple of other words like, "country club." Former Imclone cief executive, Sam Waksal went to federal prison this week for a seven year plus sentence, convicted of insider trading. For a look at Sam's new life and whether it's more a Salisbury steak or filet mignon, we're joined by senior correspondent Allan Chernoff.

Allan, I have a real strong suspicion it's neither.

ALLAN CHERNOFF, SENIOR CORRESPONDENT: Well, Jack, the price that they spend on food at the Schuylkill federal prison, per prisoner is $2.74 a day. So, at that price I don't think we're talking filet mignon. I can tell you, however, that there is a vegetable garden at the prison and Sam Waksal may be growing his own vegetables.

He's come down from the high life, as you can see; he's living in a dormitory, now. This is the kind of bunk bed that he slept in last night. And, his workday is going to begin at 7:30 in the morning, go all the way till 3:30 in the afternoon. He'll be paid as little as 12 cents an hour, and among the possible jobs that he'll have: cleaning pots and pans, mowing grass, mopping the floors.

He actually hasn't been assigned just yet because he's still going through orientation; it's kind of like freshman week in college. But, he did arrive on Wednesday, and in his final moments of freedom he offered an apology.

(BEGIN VIDEO CLIP)

SAM WAKSAL, FRMR IMCLONE CEO: I deeply regret the mistakes I've made that have brought me here today, and I'm ready to pay for those mistakes, and I only hope that right now I can go on and continue contributing after this in a positive way for society and in the kinds of ways that help bring Erbitux to people. Thank you very much.

(END VIDEO CLIP)

CHERNOFF: Erbitux is a cancer drug that he had been promoting. Two years ago he was on top of the world, promising that Erbitux would be out in a matter of months. It still has not gotten approval from the Food and Drug Administration, and of course today, Jack, he's sitting in a federal prison.

CAFFERTY: Thank you, Allan. CNN senior correspondent, Allan Chernoff.

For the CEO has trading in life behind a desk for life behind bars we wanted to offer some tips on how to stay out of trouble, and for that we turn it to our next guest, Jeffrey Ian Ross. He is the author of the book "Behind Bars, Surviving Prison." he's also a criminologist at the University of Baltimore in Maryland.

Welcome. Nice to have you with us.

JEFFREY IAN ROSS, CRIMINOLOGIST: Thank you very much.

CAFFERTY: For someone like Sam Waksal who's used to flying around in private jets and dining on caviar and drinking the finest champagne, what's the most difficult adjustment he faces as he walks into a federal prison for the first time?

ROSS: Well, loss of privacy. He's going to be in a room probably with 200 other people, a dormitory-type setting, maybe it's double bunked. He's going to have to deal with getting up at the time that the institution wants him to get up at, having lights off at the time the institution wants the lights off. He's not going to be able to choose what he wants to eat, or with some minor variations -- you know, at meal-time.

So really, what he has is almost total control over his -- the time that he is there. And, I guess one of the misconceptions that we often hear is that at a federal prison camp that it's something like, you know, a country club facility. And obviously, the security is less there, freedom of movement is a little bit greater than you would have at a medium security prison or a maximum security prison, but, it's no picnic. And he has to deal with the snorers and the smells of his bunk mate or the person below him or above him.

He doesn't have the privacy that he may have with -- in a cell, where he has his own space or only just one cellmate. So, those are some of the difficulties that he needs to adjust to immediately. The best thing for him to do is keep his mouth shut as much as possible, go with the flow, and try to pick up on the subtle cues and not so subtle cues as the day moves on.

SERWER: Now, Jeff, let me ask you, I mean, you talk about the hardship. But I mean, compared to a maximum security prison, I mean, this is a picnic, it is a country club. And I wonder why we have these prisons because if you think about it, I mean, you've got to believe that if you saw some black kid who gets arrested for dealing drugs who isn't particularly violent, he's not -- or is not violent at all, he's not going to end up in that place.

ROSS: That's true.

SERWER: So why is that? Why is that? Why do we have this difference in our society at all?

ROSS: I think that we have different levels of security to deal with different types of crime, particularly -- we don't want somebody like Waksal to get away with a slap on the wrist. I'm not sure that a prison sentence is the most effective type of sanction for a lot of offenders, particularly non-violent offenders. But, I think what it does do is it serves as a wake-up call to many people out there, white-collar criminals, similar types of individuals, that the long arm of the law will come down and descend upon you and actually put you in prison if you do some sort of illegal action.

TULLY: What does the evidence say about how many white-collar criminals who go to these kinds of facilities, which are obviously the lifestyles are a little bit easier on them, do they tend to commit the same crimes again and go back into prison, or is there some sort of rehabilitation that is better than what you would get in a maximum security facility?

ROSS: That's a great question. There really is no empirical evidence that exists on what happens after an individual who's been convicted of a white-collar crime, what happens when they get out of prison. I don't think that they're necessarily rehabilitated. I think one of two things happens, they're either better at concealing their crimes or they just sort of cease and desist.

You know, many are bankrupt after the fact. Alternatively -- you know, all prisons are great places for informal education. So, they will learn some techniques from other like-minded individuals on how to run their businesses either in a more efficient manner or in a manner so they can, sort of, fly below the radar screen of the federal government. But, you know, do not think for a chance that the federal government will not be looking at folks like Waksal and others who get out of prison to see -- make -- to make sure that they -- their activities are on the up and up, so...

CAFFERTY: One of the recent results of prison overcrowding in this country is that violent criminals in maximum security prisons, as they near perhaps the end of a sentence, are often transferred to these less secure facilities, where they mingle with the CEOs and the white-collar criminals like a Sam Waksal. What are the implications of that? Are these federal prison camps violent places because of that? What sort of effect does that have?

ROSS: Rarely. Those are rarely -- violence is more prevalent in a maximum security prison, less prevalent in a medium security prison, as they are, say, in a minimum security prison. What -- by the time a guy is let out and moves down the system, a lot of the violence is out of him, so to speak. But, a smart convict will realize that they have more to gain by having a friendly-type relationship with, say, Waksal than a conflictual one.

Why, is because, I think, probably Waksal has a greater chance of helping the individual when he is out than what might transpire inside. The convict may learn of certain business practices, certain stock type practices that a violent or so-called violent prisoner never knew about. So, it can be a very win-win situation. And your conversations, your question sort of reminds me of the movie -- you know, that movie "Out of Sight" with Jennifer Lopez, Albert Brooks...

CAFFERTY: Right.

ROSS: Where Brooks is incarcerated and George Clooney is there to save his butt. And when he gets out, he goes to Brooks and asks him for a job, and you never know, when Waksal is out he might very well be able to employ the so-called violent criminal.

CAFFERTY: Good point. Jeffrey, thank you for being with us, today. I appreciate it. It's interesting stuff.

ROSS: My pleasure.

CAFFERTY: We hope none of our viewers has to read this book out of necessity, but it's a fascinating look at what goes on on the inside. Jeffrey Ian Ross, criminologist at the University of Baltimore, and author of "Behind Bars, Surviving Prison."

Coming up next on "IN THE MONEY": Hot wings. Southwest flying high while the competition is flapping and struggling. Find out what's making a difference for the budget airline.

And later on, up in smoke. America's black market pulls in a fortune from drug deals and more. Besides, we'll tell about the secret sector of the U.S. economy and why it should be a concern to all of us.

Plus, putting your money into dividend stocks: Find out if they really pay off in what is arguably a shaky stock market.

(COMMERCIAL BREAK)

SERWER: Now, let's take a look at some of the top stories from this week in our "Money Minute." Mixed news from our parent company, AOL Time Warner, the company posted a better than expected quarterly profit of 12 cents a share thanks to the movie "Matrix: Reloaded," and the settlement with Microsoft. But, the company also says its troubled online unit lost another 800,000-plus subscribers.

The long slide in mortgage rates may be over. The average rate on a 30-year loan rose to 5.72%, the highest level since April.

And Harlan Waksal has resigned from Imclone, the company he and his brother Sam built. Harlan had been the company's chief science officer, and he walks away with a stake in the company worth over $90 million. Harlan used some of his newfound free time to give his brother Sam a lift to prison.

CAFFERTY: What a nice guy.

On now to our stock of the week. Southwest Airlines announced another strong quarterly profit this week. And while, as you well know, most of the major airlines are barely making it, Southwest's still expanding. They plan to buy another 30 new airplanes over the next couple of years. A look at Southwest's stock chart over the past year shows the airline's shares are pretty much on an upswing and not far off their 52-week high. That is our stock of the week. And these people have consistently outperformed the sector. What's the secret?

SERWER: Well, the question I have about this company, Jack, is -- was this a cult of personality? There was a guy named Herb Kelleher who built this thing with his bare hands. He has retired a while back, and the company seems to -- could be able to continue moving on. The question is can they keep it up -- you know, year after year -- Shawn.

TULLY: Well, this company now, with a market cap of around $13 billion is worth the rest of the entire industry.

SERWER: Well...

CAFFERTY: Is that right?

TULLY: Yeah. If you add up United and American...

SERWER: Well, the other ones were bankrupt.

TULLY: Yeah, and the ones that were bankrupt, which will sell for something. This company is worth the whole industry. So, they definitely have the formula down right. And, it's going to be -- the world is going to go to the discounters. No question. The major airlines are going to have to get their costs in line with the discounters, having 30 percent higher costs, as American is aiming for, is just not going to be enough. They have to level with their employees and seriously go after the costs. They're just too high.

SERWER: But, this company is the only one, Jack, that's still profitable since 911. I mean, that is truly amazing. They're still ordering airplanes from Boeing. Truly amazing. The rest of them are cutting back. It is expanding its business. The other ones are contracting. For instance, it may expand into St. Louis, where American Airlines is pulling back. So, you know, that -- this company and JetBlue, they are the wave of the future, but we had Gordon Bethune from Continental on a couple weeks ago, and he said, "Well, you know, but we can't do what they do because they fly these routes point to point, they don't go overseas." So they are a little bit different.

CAFFERTY: What is it about the patriarch, for want of a better word, of a company like Southwest Airlines? They seem to be doing fine even though the founder is gone. A company like General Electric, you could make the argument, is not the same company under a Jeffrey Immelt as it was under a Jack Welch. What's the secret to perpetuating the success of a company that relied so heavily -- Sandy Weill at Citibank -- on the charisma and personality of the top guy?

SERWER: Well, I mean, I think for one thing this airline, this company, Southwest, is so focused. You look at some of those other companies you mentioned, GE, they've got so many different businesses. I mean, Southwest flies Boeing airplanes from one city to the next with fixed fares. That's their business. So, it's not that complicated, maybe a guy can fill his shoes.

CAFFERTY: Do you agree with that?

TULLY: Yeah, I do. I think that the -- and also just all of the systems that were put in place, actually by Jack Welch also, were very effective. But, Jack Welch really had the wind at his back during a terrific stock market.

CAFFERTY: That's true. TULLY: There was a lot of luck in GE's performance, and Immelt has been much less lucky.

SERWER: And, last point about this company. I went back and checked, it's stock has split 13 times since 1978. Amazing.

CAFFERTY: We should have gotten in.

SERWER: We should have gotten in.

CAFFERTY: For $13 billion, that's the most astonishing -- more than the whole rest of the airline industry combined. That's stunning.

We had another big response for our e-mail question of the week, as we do each and every week here on this fine little program. Last week we asked whether the states should consider the financial costs when deciding whether to pursue the death penalty.

Tracy wrote in, "I'm still in high school and I consistently hear about tight budgets for schools. A number of schools in my district were recently shut down for lack of funds. If they can close schools because they're too expensive, they should think about the costs of capital punishment, too."

Dean in Florida had a different view, he wrote this, "I question the figures that say it costs more to kill a prisoner tan to keep him alive. Has it really cost less to deep Charles Manson alive since 1969? What about the rising costs of food? What about the costs of parole hearings?"

What about all those uniforms he wore out?

And, Danny from West Virginia writes, "When it comes to issues like capital punishment we should do whatever would hurt the layers and judges the most. Persecutors, defense lawyers, and judges are all making money cycling people endlessly through the legal system."

We'll read more of your e-mails a little later on in the program and we will have the e-mail question for this week coming up a bit later. Our e-mail address, if you're so inclined to get in touch, inthemoney@CNN.com. And, we do so look forward to hearing from you.

Coming up, we'll shed some light on the marijuana trade in this country. And, some of America's other secretive, illegal, and highly profitable businesses, as well. We'll talk more about America's huge underground economy.

And, you can weigh in on all the topics we've covered today or anything else that's on your little old mind, inthemoney@CNN.com. And, we have a producer, Jake Novak, who sits in a basement closet and answers each and every letter. We don't let him go to lunch until he's all finished.

(NEWS BREAK) CAFFERTY: The old saying is money talks, unless, of course, you keep it quiet. And keeping it quiet is what America's black market economy is all about. It is driven by desire and need for things such as drugs, pornography, and workers that are too low cost to be legal. By one estimate, traffic in those areas alone constitute about 10 percent of GDP, the overall economy in the America.

Journalist Eric Schlosser looks at the some of the busiest sectors of the underground empire in his new book. It's called, "Reefer Madness: Sex, Drugs, and Cheap Labor in the American Market." He is also the author of the best-selling, "Fast Food Nation." We are delighted to have Eric with us today on IN The MONEY. Welcome.

ERIC SCHLOSSER, AUTHOR: Thanks for having me.

CAFFERTY: How big a problem is this if, in fact, it is a problem, and I assume it is, and why should Andy or myself or you care?

SCHLOSSER: I think it's a big problem. The United States is a modern industrialized nation, and the sort of economic activity we are seeing is much more common in third world and developing nations. Those are the places we find a big, booming black market. Most economists agree the black market in the United States has been growing over the last 20 years. I think it's a very bad thing.

SERWER: Eric, let me -- first of all congratulations on the title of that book. That's a good one. That's got to be flying off the shelves.

CAFFERTY: Absolutely.

SERWER: But I'm interested, you said the economy, the black market economy, has been growing. I mean, is that really the case? I mean, didn't we have a big black market economy in the 19th century or the early part of this century, number one? And if, in fact, it is growing, as you say, why is that?

SCHLOSSER: Well, economists agree that it's growing, and they disagree over why. There have been other periods where we had a booming black market, prohibition. The illegal sale of alcohol was about 5 percent of GDP.

After World War II -- during World War II, when there was rationing of gasoline and meat, people were trading in ration books, a very big black market. It then declined.

Now, economists on the right believe that as tax rates get high, people try to evade taxes, don't report economic activity. That's why they think the underground has been growing the last 20 years. On the left, they argue that when wages are stagnant, when ordinary people aren't doing well, they turn to all kinds of black market activities to supplement their income.

The third cause would be the rise in illegal immigration. In the book, I talk about the growing roll of illegal immigrants in our economy, and that's black market labor. I think it is a very disturbing thing.

TULLY: Why isn't the solution -- and this is what libertarians have been arguing for years -- just legalize drugs? Go beyond marijuana. Milton Friedman was arguing way back in the 1950s, and just, let freedom ring, open it up and tax the receipts and decriminalize it that way because the criminals love that it's illegal because it keeps the margins really high.

Every time you take drugs off the market, the price goes back up again. So, more come on the market. That's why this whole war on drugs has been so futile over the years. Plus these guys are in favor of free immigration, also. What's wrong with that solution?

SCHLOSSER: Well, you make some interesting points. I write about marijuana. Marijuana is a weed. It grows wild. It has very little value. But with the laws against marijuana that we have, a lot of it is worth more per ounce than gold. It's also true that a lot of conservative Republicans are big opponents for the war on drugs for the reasons that you mentioned.

Personally, I am not so sure about legalizing drugs. Right now in this country, we have life sentences for marijuana, and if you went tomorrow to being able to market it on TV just like Budweiser, that's such a wild swing.

But I think decriminalizing marijuana is a very rational step. Canada is about to do it. They have done it in Italy, Spain, Portugal, the Netherlands, Ohio, and those places haven't collapsed. So, I think we need to move toward a common sense solution to a lot of these issues.

CAFFERTY: Address the hypocrisy, if you will. Talking about limiting immigration, tightening the borders, holding down the number of foreigners who can come here -- when, in fact, huge parts of this economy are absolutely dependent on migrant workers who come into this country illegally and work for 10 cents on what the American worker's dollar pays.

SCHLOSSER: There's enormous hypocrisy and migrant workers have been in, for example, California agriculture, for 100 years. The disturbing trend in the last 20 years is to have illegal immigrants meat packing, in construction, in hotels and restaurants, and really filtering into the main treatment economy.

And there's enormous hypocrisy in the way that illegal immigrants are being demonized and scapegoated, and yet at the same time, very powerful interests and very powerful industries are recruiting them and profiting from them.

SERWER: Eric, you ticked off some of the reasons why you think these things -- why the black market has gone up, but one reason why maybe is people don't agree with the laws. I mean, that's what prohibition was all about. So getting back to marijuana and reefer, you talk about wanting to decriminalize it, I mean, isn't that sort of a namby-pamby half step? I mean, why not make it legal? SCHLOSSER: You know, it's a first step. I don't think that -- again, I don't think you can go overnight. Right now you can get the death penalty under federal law for a first-time nonviolent marijuana offense. And I know of many people who are serving life sentences for marijuana. If next week you made it legal, could it be marketed like tobacco has been marketed? Could it be sold like alcohol?

So eventually, philosophically, that libertarian view is very attractive to me, but when you look at what other countries are doing -- what they are doing is they are moving away from a criminal justice approach to drug abuse and moving into a much more public health model, and that's why not punishing users with prison is a good first step.

TULLY: And isn't the reason why our prisons have filled up so much because of the huge epidemic of drug charges?

SCHLOSSER: Well, you know, my next book is on prisons. And what I found is that about 70-80 percent of the inmates are substance abusers. They are not all there for a drug charge, but if they are there for armed robbery, it's because they were going to buy drugs.

What happens in prison is they are brutalized. They receive no drug treatment. They are back on the streets. On average, you know, two-thirds of them are back in prison. So, we have a very expensive and irrational system right now.

CAFFERTY: We are going to have to leave it there. The book, as Andy pointed out, great title, "Reefer Madness: Sex, Drugs and Cheap Labor in the American Market." Eric Schlosser, the author. Thank you very much for being here.

SCHLOSSER: Thanks for having me.

CAFFERTY: He also writes for "Atlantic Monthly," which is not a half bad publication.

Still ahead on IN THE MONEY as we continue, a sure thing in a shaky market. Dividend stocks deliver returns whether the bulls are running or not. Find out whether tax changes make them a good idea for your portfolio.

You have heard of blessing your animals. Well, out in California, they bless their cars. But you probably knew that, didn't you?

Straight ahead we will have that story and some other stuff. Stick around.

(COMMERCIAL BREAK)

SERWER: The experts tell us investing in stocks that pay steady dividends is the way to go these days. The logic is that with uncertain markets and low interest rates, investors should be flocking to the stocks where they at least get some income. But are they really doing that? Let's look a close look at this chart now for one of those steady dividend paying stocks like Pfizer. As you can see, it's up and down over the past year. Meanwhile, nondividend-paying Amazon is through the roof in the past 52 weeks. These kinds of stats suggest most investors aren't going dividend crazy just yet. The question is, should you?

Joining us now to talk about dividend stocks is CNN/"Money" senior writer Justin Lahart. So, Justin, what about it? Shouldn't people be buying stocks that pay dividends?

JUSTIN LAHART, SENIOR WRITER, CNN/"MONEY": Yes, I think only we would say that, people should be buying stocks in companies, good companies, and it just turns out that a lot of times, good companies with sold earnings prospects are companies that are paying out dividends, but in the market right, that just isn't what people are interested in.

TULLY: Justin, for a long time, companies have been retaining most of their earnings, mostly tech companies, and they have been squandering all that cash on lousy acquisitions that have driven down their stock prices. Isn't it better for them to return? Doesn't it impose more discipline on management to give that money back to the shareholders?

LAHART: Yes, absolutely. And there are some guys that have done some great work on this, a guy named Cliff Avness (ph) and Rob Arnett (ph). I know you guys have talked to them over at "Fortune." And they have done some work that has shown that when companies raise dividends, earnings get -- earnings grow after that and that when they lower dividends, earnings don't do so well.

This flies in the face where a lot of theories that Wall Streeters had for a long time. A lot of people said, well, you know, you get these fast growing companies. They can reinvest so that their earnings, instead of paying it out to shareholders, and they are going to grow like the dickens, and that just hasn't been the case.

CAFFERTY: It would seem to the casual observer there are a couple of very powerful incentives to buy dividend stocks these days. One of them is the recent changes in the tax laws, cutting back the taxes on dividends. The other one is you can't make any money in fixed income these days. You go out and buy CDs at the bank, or you put a money market and you make one percent. A lot of these dividend paying companies pay a dividend of three, four, even more percent per year. So, why aren't people buying the dividend stocks? What is it they are chasing?

LAHART: I think, well, they are really -- they are chasing low quality stocks right now, and those aren't stocks that are going to be paying out a dividend. And, you know, what's the theory behind that?

Well, if you remember, you know, back in October when we thought the world was going to end, we also thought that a lot of companies were going to go away. Those companies that we thought were going to go away weren't companies that were paying out dividends, right? They were trying to -- they were heavily indebted. They had better things to do with their cash or they just simply couldn't pay out a dividend. So those same companies -- now suddenly, the chances of their survival are just, you know, phenomenally better.

So, it's almost like they were an option, rather than a stock. And people say hey, you know, this company -- I thought it was going to go away. Now I think it's going to survive. It goes through the roof with the stock price.

SERWER: Yes, but isn't it too late to go after these things. I mean, "Ask Jeeves" has gone from one buck to 18 bucks this Spring. I mean, these things have really through the roof, whereas the banks, like Bank of America, Citi, and Wells, have raised their yields. Wells' yield is over three percent now, right? Isn't that where it's the place to go?

LAHART: It does seem that, you know, at some point, we are going to have to see a shift from these growth stocks. I mean -- and it really does seem like people have gone to these growth stocks way too early. They are just flying.

I mean, we saw this week, monster.com, right? They were on, you know, the Monster job board. It went up on the weekly jobs number -- it went up like 15 percent because the weekly jobs number was good. I mean, come on, this company is supposed to be losing revenues for like the next year. And it was just, you know -- maybe a good company, maybe the futures can be great, but it just seemed a little bit ridiculous.

CAFFERTY: It's a little scary to watch people bidding up the same kinds of companies that fueled the internet bubble that blew up in everybody's face about four years ago. We are going to have to leave it there. Thank you for coming on the show. We have had you here before. It's always a pleasure. Justin Lahart, senior writer for money.com.

Just ahead, you may have insurance, but you may need another kind of more spiritual coverage for the family flimmer (ph). Details are coming up.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

SERWER: Mortgage rates at a 40-year low, and that has millions of Americans out buying homes and refinancing their mortgages. Refinancing simply means replacing your current high-interest loan, let's say eight percent, with a lower-interest loan, say 6 percent. That can save you all kinds of money on your mortgage payments.

So, what's the catch? Well, there really isn't any, but there are some things you should be aware of. First you have to pay the bank fees to refinance. The rule of thumb is you should be to pay back the re-fi fees with savings of your mortgage in one year. Two, if you have been paying your mortgage for 10 years and you refinance with a 30-year loan, you are back to square one in terms of paying off your house. And three, be careful of special language that prohibits you from prepaying your new mortgage.

So, just make sure to check those things out before you refinance.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

CAFFERTY: If you love your car, I mean really love your car, then you may want to take it out to L.A. to the suburbs. The have a very special weekend event there. It is the 10th annual Blessing of the Cars. This event begins with a mass morning blessing done by a Catholic priest who then goes from car to car to offer individual blessings to each vehicle. Some owners even ask for the priest to put holy water in their radiators. We laugh, but this event attracted like 10,000 people last year. Hey, it's in California. Cars a big deal out there.

TULLY: You'd think these cars were Seabiscuit, Jack. They are so beloved.

SERWER: Yes, can you say, "West Coast phenomenon?" I mean, you know, the next thing they are going to do is bless your toothbrush. I tell you the only thing you should pray for is your family's well being. I mean, the same thing with the people who do this at sporting events. I pray that our team will win. Can't we just -- you have to separate this stuff out in your lives, people. I mean, right, don't you think.

CAFFERTY: The religious instruction here on IN THE MONEY courtesy of Father Sewer.

SERWER: All right, maybe I am overstepping my bounds perhaps.

CAFFERTY: Time to check the e-mail again. Richard from California had this to say that the announcement from the National Bureau of Economic Research that the recession officially ended in November of 2001. He writes, "It's nice to know the recession ended. Perhaps someone can explain to me why I lost my job in December and haven't been able to find work since. These guys in Washington should get out and see the real world."

Cliff in Los Angeles wrote about our piece on North Korea's secret slush fund for weapons, quote, "We know that South Korea gave the North $200 million a few years back. Meanwhile, the South resists our attempts to discipline the North. I think the two nations may actually be working together." Unquote.

And Craig in Kentucky had this to say about the cost of the Jessica Lynch homecoming. "Who forked out the greenbacks for the Blackhawk chopper ride Lynch received? She deserves a hero's welcome, but should the taxpayers have signed that check?"

And now it's time to ask you our e-mail question of the week. We talked earlier in the program about the huge money the marijuana business brings in, and with that in mind, the question is this, should the United States legalize drugs like marijuana and tax the revenues that would result from doing that?" You can e-mail your thoughts at inthemoney@cnn.com.

That's all for this edition of IN THE MONEY. We thank you for watching. As always, thanks to our regular contributors, Shawn Tully of "Fortune" magazine, and Andy Serwer -- that's Andy -- Shawn is sitting next to him. They both work at "Fortune," and they're both regular contributors here on this program.

Join us next week, 1:00 Eastern on Saturday, and 3:00 on Sunday. Or, if you want to have even more fun, Andy and I appear regularly each weekday morning on "AMERICAN MORNING" from 7:00 to 10:00 East Coast time. And never mind "The Today Show" and "Good Morning America." They are both inferior products.

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Survive; Imclone Founder Sam Waksal Enters Prison; Drugs, Sex, And Illegal Labor Drive American Underground Economy.>