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Former U.S. Administrator Says Rich Should Pay For Iraq; East Coast Clean Up After Hurrican Isabel; Two Income Families Are Finding It Harder To Stay Afloat

Aired September 20, 2003 - 13:00   ET


SUSAN LISOVICZ, GUEST HOST: Welcome to IN THE MONEY. I'm Susan Lisovicz sitting in for Jack Cafferty.
Coming up on today's program, fiscal fire power. A former U.S. labor secretary thinks America's wealthy ought to pick up most of the tab in Iraq. We'll ask Robert Reich to make this case.

Plus, run for your life as east coast cleans up after Hurricane Isabel. Well, look at how tough it is to get out of town if danger strikes. See if America's ready to evacuate from bad weather or a terror strike.

And frock stars coming off fashion week in New York, find out about going from rags to riches from a hot designer Narciso Rodriguez.

And joining me this, a couple of IN THE MONEY regulars, Andy Serwer "Fortune" magazine editor at large, and also with us from "Fortune," senior writer Shawn Tully.

Gentlemen, everybody was talking about the hurricane roaring up the East Coast, but then that earthquake that struck Wall Street this week.

ANDY SERWER, "FORTUNE MAGAZINE": Your talking about Dick Grasso. Your talking about Dick Grasso leaving. I guess it was inevitable. Still a shocking fall of a Wall Street giant. But you know what, but it was sort of every CEO's nightmare. He left and then the next day, the stock exchange roared ahead.

LISOVICZ: Triple digit rally.

SERWER: Coincidence, I don't know -- Shawn.

SHAWN TULLY, "FORTUNE MAGAZINE": Well, the amazing thing sheer that the same people who gave him that enormous package are the people who fired him for taking that package. Now what's going to happen with this board and how many directors will be forced to resign?

LISOVICZ: I was on the floor the day after that resignation. It was as if the devil you know may be better than the devil you don't know. Because so many changes are imminent at the New York Stock Exchange and they could really be profound. We'll talk about it a little later on in the program.

Meanwhile, another hot issue. President Bush this week asked Congress for an $87 billion transfusion for the U.S. mission in Iraq. Even if he gets it, that chunk of cash is expected to last, oh, a little bit longer than an I cube on a Baghdad sidewalk.

Scott Lily, a Democrat, who's the staff director of the House Appropriations Committee, reportedly says this $87 billion is really just a down payment. Let's find out what your tax dollars are doing in Iraq as we go to Walt Rogers in Baghdad. Hi, Walt.

WALTER RODGERS, SENIOR INTL. CORRESPONDENT: Hello, Susan. I've been trying to find out where the tax dollars are going. And there are some interesting examples here. But Iraq overall looks like something of a black hole for the U.S. Treasury. Look at the Iraqi wheat crop. Two-thirds of it was inedible. U.S. Army paid for all of it, reimbursing Iraqi farmers. There are private contractors here, for example, making a lot of money. DHL services all the U.S. Soldiers in terms of mail and parcel delivery. They have a good contract. Vice president Cheney's former firm Halliburton is feeding all the U.S. Soldiers, and they bring in low-priced labor from Sri Lanka to come in and do the food processing and serving here. There's supposed to be a fair amount of money in that contract. It might take a Congressional investigation to see where it's all going. Some of that food, my colleague, Jason Bellini, returned from staying at U.S. soldiers in Tikrit and said the food was almost inevitable. It may be to early to charge war profiteering, but the money's going all over the place here.

Many of the times U.S. Soldiers are being gouged, they go to a village and say, do you need a well? And they know good and well there's a very good well that brings up drinking water there, but all the Iraqis know the Americans are rich. So they're trying to gouge them as well. One interesting thing Senator Ted Kennedy this week noted, that the Congressional Budget Office said Americans are spending $4 billion a month, and Senator Kennedy said $1.5 billion of that $4 billion each month can't be accounted for. Kennedy said the U.S. Is -- that is the Bush administration, is bribing foreign countries to make it appear that this is a coalition of the willing sending troops in -- Susan.

LISOVICZ: Walt, you talk about more profiteering. You're raced a lot of issues there. Talk about the price gouging. How rampant is it and is there a sense that could come under control?

RODGERS: Well, what it really does is, it falls under the jurisdiction and good judgment of any U.S. Army lieutenant in any Iraqi village. He goes out, there assesses the needs of the village. Health clinic, school, water pump system, irrigation system. And most of the soldiers with whom I spoke, and these are bright young men, saying, they're trying to gouge us. Sometimes they do have legitimate needs, but they always try to squeeze more money out of the Americans than is perhaps necessary. I heard this complaint over and over again with young officers in the 101st Airborne Division, particularly in northwestern Iraq -- Susan.

LISOVICZ: Walt Rodgers in Baghdad. Thanks, Walt.

Former U.S. Secretary of Labor Robert Reich has an idea of his own for funding security and rebuilding work in Iraq. He wants a war tax on the rich. Let's get the details from the man himself.

Mr. Reich joins us now from Boston. Welcome.


LISOVICZ: I'm fine, thank you. It's an interesting art. One that you say actually has historical basis, but it's not only pragmatic in your view, it's really patriotic?

REICH: Not only patriotic, Susan, you don't have to raise taxes on people earning over half a million a year. All you have to do is postpone the tax cut they're due to get, enacted in 2001, 2002, 2003. That phased tax reduction, if you simply postpone it for next year, for the top 1 percent, you're going to have enough money to pay that $87 billion extra tab.

TULLY: Mr. Secretary, why is it patriotic for one segment of society to foot the bill, the entire bill, for this increase in spending in Iraq, when all Americans are benefiting from the extra security it's bringing us?

REICH: Obviously, they're not footing the entire bill, Shawn, and there is a lot of precedent here going all the way back to Abraham Lincoln through Dwight Eisenhower for a special war tax during time of national emergency to be paid especially by the wealthy. In this case, again my recommendation is simply that the tax cut scheduled for the top 1 percent be delayed. They're the ones getting the bulk of the tax cut benefits anyway.

SERWER: Robert, Andy Serwer here. Isn't this kind of a dangerous precedent? You have the wealthy paying for the war in Iraq. The next step will be, well, let's have them pay for education. Let's have them pay for health care. Let's have them pay for a new football stadium. I mean, isn't this dangerous to segment the economy and the population like that?

REICH: Well, Andy, first of all, again I want to emphasize that you know as well as I do, 40 percent of the benefits of the tax cut have gone to the top 1 percent anyway. So, we're not talking about segmentation. Talking about a national emergency here. If the people who are best positioned to pay for this are not willing to, somebody has to pay. The middle class is already overtaxed. This budget deficit is way out of control. The Republicans don't seem to have any clues to get it back into control. The Congressional Budget Office and the Republican Congress is saying that we're seeing budget deficits 10 years from now $400 billion as far as the eye can see.

SERWER: During wartime, don't you have to bite the bullet and spend that kind of money? I mean, during World War II, we spent more than GDP. Don't we have to do things like that now?

REICH: We absolutely do. During World War II, the marginal tax rate on the highest income earners was 90 percent. I'm not suggesting anything like that. But the point is during war, extra expenditures, we raise the margin's income tax on the very wealthy. And I'm not suggesting raising the marginal income tax on the wealthy, I am saying just keep it where it is now. Don't give them the tax break that is scheduled, at least for next year so that we can pay the $87 billion.

LISOVICZ: Mr. Secretary, you are, of course, a political veteran. So you know that the Bush administration, if anything, is trying to shift the tax burden away from the richest Americans by, say, for instance, cutting dividends -- cutting tax on dividends. Phasing out the estate tax. Do you have any support -- does this idea have any support at all on Capitol Hill?

REICH: Well, yes. Senator Joe Biden has proposed something similar. Almost every Democratic candidate has suggested that we suspend the Bush tax cuts, at least for the top 2 percent of income earners for a variety of reasons. Mainly, to get some control over the budget deficit. So, I'm not saying anything that is particularly different from what most other Democrats are saying. But I am raising it in the context of a war tax which historically has been something that America has done again and again. And interestingly, Republican presidents have been the ones to deliver the news.

TULLY: Mr. Secretary, since that glorious tax reform act of 1986 under Reagan, where marginal rates went way down, we've just seen this tax system turn into kind of a swiss cheese. Just a lot the marginal rates and complexity the system has just gone up and up and up. People are kind of sick of it. And also, when you raise marginal tax rates, it can be counterproductive. Americans want to get more of that last dollar of extra earnings that they aspired to achieve. Sometimes you collect less money by raising marginal tax rates.

Is it healthy to keep doing that?

REICH: No. I don't think it's healthy to keep doing it. Again, don't get me wrong here. I'm suggesting we not raise marginal tax rates on the wealthy. Suspend, postpone the tax cut that the wealthy are going to get next year to pay for the war. And if the war emergency cost, we may have to suspend the tax cut again. The notion that we need this tax cut to stimulate the economy is absolutely facetious. Nobody believes it, the Congressional Budget Office, Alan Greenspan. The wealthy are not going to spend more money that they get out of this tax cut. Being that, you know, the definition of being wealthy is you already have as much money to spend assess you need.

SERWER: All right. We're going to have to leave it at that. Thank you very much, Robert Reich, former U.S. Secretary labor joining us from Boston. We'll talk about a football financing stadium hopefully at some point down the road.

REICH: Good. Bye-bye.

SERWER: Bye-bye.

Ahead in on IN THE MONEY, getting out while the getting's good. From hurricanes to terrorist attacks, all kinds of threats can make us head for the hills. Find out whether you'd be safe if you had to evacuate.

Also ahead, crushed by a fat paycheck. Dick Grasso has cleaned out his desk at the big board, but there could be more changes afoot. We'll look at what might come next for the big board and its investors.

And, putting on the glitz! Designer Narciso Rodriguez is a fashion world hot shot. We'll ask how a great design can mean a great profit.


SERWER: Isabel a question mark onshore, she's a dollar sign. Hurricanes cost money in damage and insurance payout and they move money as people stock up for the stock market or get out of the way. For more about evacuation, how it works and how it sometimes doesn't, we're joined by Jay Baker, a professor of geography at Florida State University and an expert on the human response to hurricanes and evacuation orders.

Welcome, Jay, nice to see you.


SERWER: First of all, did you get blasted by storm at all?

BAKER: Not at all in Tallahassee.

SERWER: Good, you were too far away. Anyway, talk to us a little about what sort of plans there are and how efficient evacuations from hurricanes are today.

BAKER: Well, in general, evacuations go well, because the plans are pretty good. Over the past 20 or 25 years, there have been plans developed for virtually all of coast of the United States, and the plans include what are called hazard analysis to determine the areas that would need to be evacuated if a storm hit those areas, transportation analyses to determine how long it would take evacuate people, shelter analyses to determine where to have shelters, how much space you need, and a behavioral analysis which helps determine what people are going to do. So that public officials will know what to anticipate in terms of public response. Put all four of those together with the forecast information provided by the National Hurricane Center, and most evacuations go relatively well, but not quite perfectly.

TULLY: Now, Jay, I know that you've spoken in the past about some times the authorities are a little bit alarmist about some of these hurricanes and you get big traffic jams. Are they overstating the dangers in some of these hurricanes, and should they be more measures in what they're saying?

All public officials don't want to have a major disaster on their hands that was not anticipated, but are they going too far in creating problems that otherwise would not be created?

BAKER: Yes. I don't think I've ever said that officials were alarmists, but what we might need to do sometimes, though, is smooth out the evacuation, and not have everyone leave at the same time. Sometimes that leads to some of the congestion that occurs on the roadways, where you have too many people loading on to the road at the same time, and the traffic backs up, and it takes everyone longer to get out. One of the things that probably can be done is to phase the evacuation a bit more. And we can manage that a little bit better in terms of public information, too.

The other things that we can do in terms of public information is making the evacuations go better are to tell some people that they don't need to evacuate. They're safe staying where they are and ask them to shelter themselves in place, unless they're willing to leave early. And the other thing is to tell some evacuees they don't need to go as far as they sometimes go. Tell them go to the point where they would be out of the area being told to evacuate, and if they can find someone to stay with there, they'd be safe.

LISOVICZ: Jay, it must be a great year for those people who sell transistor radios and bottled water between homeland security, the big blackout, the hurricanes and tropical storm. Just because there is such a heightened sense of security now can you tell us, are there great similarities in evacuation and in preparing large groups of people for terror? Any sort of terror attack, and for mother nature's fury?

BAKER: Well, there's some similarities, but every hazard has its differences, too. The thing about terrorism in terms of evacuation, though, is you have to have a warning before the event, in order to have an evacuation before the event. So far, to my knowledge, our evacuations involving terrorism have been more logistical in terms of getting people out after the fact rather than convincing people to leave and having them behave in a way you'd like for them to behave.

SERWER: Jay, last quick question here. Do you do a cost/benefit analysis? We must have spent millions and millions and millions of dollars evacuating people for Isabel.

I mean, the question is, is it worth it?

BAKER: Yes. For an individual hurricane, you can't say whether it was worth it or not, because a storm might even curve away and not hit land at all, but statistically, if you do it over the long term, I've seen numbers that suggest that evacuations may cost as much as $400 million. But the benefits in terms of lives that are saved are much more than that, and I believe, if I remember correctly, the only benefit cost ratio I saw was something like three to one in favor benefits over cost of evacuation.

LISOVICZ: And you can't always put a price tag, certainly on lives saved, that's for sure.

Jay Baker, Professor at Florida State University, thanks for joining us.

Coming up on IN THE MONEY, big board roulette. Dick Grasso is gone and there will be more changes ahead. We'll look at the shakeup and what it means for American investors.

Plus the big three get smaller. We'll go behind the numbers for the real picture on Detroit's car makers.

And high fashion meets high finance. Learn about the big money side of the clothing business as we talk with design whiz Narciso Rodriguez.


SERWER: Time now to look at the week's top stories in our "Money Minute."

Three former Merrill Lynch bankers pleaded not guilty to helping Enron report phony profits. Federal prosecutors say Daniel Bayly, Robert Furst and James Brown made a $12 million loan to Enron. Look like a profitmaking sale. Prosecutors also say Merrill made about $750,000 in return for doing Enron's fuzzy math.

The post-Labor Day job cuts are rolling in, sad to say. R.J. Reynolds Tobacco cutting 40 percent of its workers, about 2,600 employees. They say sales are hurt by all the generic cigarettes on the market.

And if we all look a little leaner and little meaner today, it may be because we've lost the AOL from our parent company's AOL-Time Warner name. CEO Richard Parsons (ph) made the announcement Thursday saying going back to the old Time Warner name better represented the company's assets. Here, here!

The big story, though, was Dick Grasso's decision to step down as chairman of the New York Stock Exchange. And based on your e-mails, not many of you are shedding a tear. Last week we asked you if you thought Grasso should step down and/or return at least some of that $140 million pay package. The results were staggering, 78 percent of you said Grasso should go. Well, good stuff. Just 22 percent said he should stick around.

LISOVICZ: And Jack Cafferty wasn't even here to vote.

And joining us for more on Grasso's resignation and what's next for the NYSE board is CNN financial news correspondent Chris Huntington.

What a week, Chris, and more changes ahead undoubtedly.

CHRIS HUNTINGTON, CNNfn CORRESPONDENT: Susan undoubtedly. Of course, there are huge calling for the heads of the board of directors to start rolling. This is not going to end any time soon. Carl McCall in a press conference said he wants to restore credibility. He told floor traders he want to move forward. That engendered the response, moving forward to Carl, seems to sounds like sweeping things under the rug. There certainly -- if McCall wants to restore credibility at the Exchange, he'll have to heed the warning put out by the big pension funds earlier in the week.


SEAN HARRIGAN, PRESIDENT, CALPERS: Today we're trying to pull the pig away from the trough. The next step, is to figure who filled up the trough.


HUNTINGTON: Seriously. They're going to have to, McCall will have to make clear which board members are serious about reform. We're hearing talk among the board members that they want to tone down the dominance of the big securities firms at the New York Stock Exchange and McCall confirms that's indeed where the governance reforms are going. There are a couple of board meetings, one Friday, also next week. We'll begin to hear about these change, but if we don't see some resignations from the board, I don't think the criticism is going to die down.

LISOVICZ: You know, Chris, there's so many changes that are under discussion. For instance, whether the New York Stock Exchange will lose its regulatory status. What will happen to the board. The fact that nobody wants to step in to replace Dick Grasso right now. Some of the best and brightest have already turned it down, including former Treasury Secretary Robert Rubin, Silicon Valley lawyer, Larry Mancini (ph). Donald Marron formerly of Paine Webber.

What is that telling you?

HUNTINGTON: Well, not the least of the problem, they know they will get paid a whole lot less than their predecessor. It's a hot potato position right now. As witnessed by the fact even board couldn't figure out who would be interim director. And that fell back in the lap of Carl McCall. Clearly, their first priority is to come up with some kind of a transition plan. And McCall made it clear, that's what they would work on. But you need a high-level person who is above reproach and just able to just sort of walk in instantly cast an air of credibility over an institution that is very much tarnish right now.

LISOVICZ: It will take an icon to do that right now. That's for sure. To meet everybody's demands.

Chris Huntington, thanks for joining us.


LISOVICZ: One of the things, Shawn, I know that you have pointed out out, a lot of people saying, why should I care?

All right, so yet another big fat cat resigned. But the fact is, anyone who invests in stocks should care.

TULLY: Yes. Because they're paying his salary, and his bonus. In effect. People are paying -- by way of the fees that are being collected by the specialists on the floor, that it's a very inefficient system. The system at the New York Stock Exchange involves having specialist whose actually take orders then place the orders. It's a slow system. It costs a lot of money. The fees that they charge, which we pay indirectly, go to pay the salary and this huge $140 million bonus through our brokers. And one of the big issues, whether the New York Stock Exchange should have it's regulatory authority stripped away from it, and also be deregulated to the point where it's on equal footing with the electronics system, which are much quicker and much lower cost.

SERWER: Think about the history of the exchange. What is the history of the exchange?

It's a club. It's a bunch of guys, 200 years ago, who got together to form an organization to control and trade stocks. Now, what happened over time is, it also evolved into a regulatory body. So the club was regulating itself. That's nice work if you can get it. That's what Shawn's talking about. Separating it. I think may go public. That would be a way of taking it away from the market regulating activities. But you are going to see very big changes coming down.

LISOVICZ: That's for sure. When we are talking about stocks, let's talk about the stock market. It's been a good week in what is traditionally a very bad month. This week, General Motors became the last of the big three automakers to wrap up a tentative labor deal with the United Auto Workers. But union issues weren't a major problem for the company, that was once the world's largest corporation. The big challenge for GM these days is getting people to buy new cars in a market that may be tapped out after posting so many big sales numbers in the last few years. Looking at GM shares, you can see they're not far off the year high. But what the chart doesn't show you is the fact GM shares are more than 50 percent down from where they were about 3 1/2 years ago. GM, our stock of week.

SERWER: Interesting, actually, the stock. I was surprised. Went back and look. It hasn't done that badly over the past five years. It's gone from about $40 to $40, but that's what the stock market's done. No, I mean, seriously, it hasn't done that badly. But this company is a huge American giant that has been struggling for years. Big in trucks, about advocated, of course, the whole sedan market. The way the rest of Detroit is Toyota is going to making the number one sedan in the United States this year for the first time ever. It's going to be around for a long time, but what kind of company will it be 20 years from now?

TULLY: Another problem, the mortgage market has fallen off a cliff. That business, too. Therefore, all of the analysts are saying that the earnings will drop substantially from $5 to $3.50 because of the big decrease in mortgage originations and the new car sales market is flat.

LISOVICZ: I think the interesting thing, the big three was able to reach concessions with its workers so quickly.

And why is that, had they reached higher sense of enlightenment?

No. It's really, they had come to terms with the common enemy, which is not management or the labor unions. It's the cheap competition overseas.

SERWER: Well, that's right. Both of them weren't negotiating from a position of strength. The unions had no leverage and the car companies had no leverage. And you're right, let's get together and work this out. It was the smoothest negotiations ever with those big three and also with the auto parts makers.

LISOVICZ: Shawn, I know that you're so demure and laid back. Tell me would you buy GM stock right?

SERWER: Would I buy?

I wouldn't buy. Shawn, I am sorry. What would you do, Shawn.

TULLY: I would not buy it.


SERWER: No, I wouldn't buy it. I'll stick with my gut. I just don't think it's really going to go anywhere for a very long time.

Anyway, coming up -- next on IN THE MONEY, double trouble. More and more couples have two jobs, and one hard time making ends meet. Find out why when we speak with the author of the "Two Income Trap."

Also ahead, business models. Yes. Fashion turns life into theater and people will pay big money for the right costume. We'll get a designer's eye view of the industry from Narsiso Rodriguez. Stay tuned.



SERWER: For a lot of American families, two incomes are too little to keep up with the cost of a middle-class life. To help us figure out what's behind that trend, we're joined from Watertown, Massachusetts, by Elizabeth Warren. She's a professor at Harvard Law School and the co-author of a new book called "The Two Income Trap: Why Middle Class Mothers And Fathers Are Going Broke." Welcome, Elizabeth.


SERWER: I want to ask you -- you've run numbers that are fascinating. It showed that one income 30 years ago did better, or does better, than two incomes do today. Now, can you explain -- there are the numbers up there. It's unbelievable and depressing maybe. Can you explain why that's the case?

WARREN: Well, we thought that this was going to be a story about over consumption. When we discovered that families with children are about three times more likely to file for bankruptcy than their childless counterparts we thought it meant they were spending too much money on Gameboys and trips to the mall.

So we actually dug into unpublished government data and we compared the family of the early 1970s with the family of the year 2000 to figure out the differences in spending. Of course, these numbers are adjusted for inflation. What we discovered is that today's two-income family is spending it on the basics. Mortgage, health insurance, a second car so mom can get to work. Paying tuition or preschool for the little ones, or college, if they're at the other end of the age spectrum, and, of course, they're in a higher tax bracket. And those core expenses, the ones they really can't get around once they've committed to them, those are the ones that are pushing families to the wall financially.

TULLY: Now, Elizabeth, one of the things I found fascinating reading stories about your book is that you ascribe a lot of these problems to the educational system and specifically, people who want to move to towns that have good schools. And they are bidding up the prices of houses to the point where their mortgage payments probably adjusted for inflation are much higher than this family you were talking about from the '70s.

WARREN: In fact, let tell you how much they're mortgage payments have grown. Today's median income family's mortgage payment has grown 70 times faster than a father's wages. In other words, families, in order to get into decent school districts are spending, spending, spending on the mortgage.

And I want to be clear here. We're not talking about families at the top end who are trying to get only into the fanciest school district in the entire area. We're talking about families under economic pressure, up and down the line, who believe that the only way they can provide a decent education for their children is to stretch up the line in terms of that housing purchase.

LISOVICZ: That's a really profound finding. And I bet a lot of our viewers are thinking, yes, I've done that, or they know people who have done it. I certainly was thinking that when reading stories about your book.

But, Elizabeth is there something that these people can do? In other words, we've got interest rates at 45-year lows. This shouldn't be happening. Is it the way these people finance their homes as well that is getting them in trouble? In other words, are they taking on too much debt, for instance?

WARREN: Well, we try to do two things in this book. We interviewed more than 2,000 families for putting together the stories, and we used that to supplement all of the federal data that we looked at. But what we do is, we try to give analysis for individual families about what they can do.

And we have to split it off here. Families that are not yet in financial trouble, who are making those initial decisions to purchase, and families that are already in terrible financial trouble.

For families who are not in financial trouble, we recommend that the same way that they check the smoke detectors and get rid the oily rags before the house is filled with smoke, they need to do the same thing about their family budgets. They need to take a financial fire drill. And we try to lay out how to do that. And the insight of this book is that, virtually, every financial planning book tries to focus families on discretionary consumer spending. Do you know how expensive it is if you go out to dinner, take your children to the movies? What our data shows is that's not why families are going broke. So what we try to do is focus families on those basic expenses. Those fixed expenses. Those expenses that will get you into real trouble, if someone loses a job or someone gets sick, because they can't be cut by 20 percent or miss a payment.

SERWER: Right. Okay, Elizabeth Warren. Thank you very much from the Harvard Law School. The co-author of "The Two Income Trap: Why Middle Class Mothers And Fathers Are Going Broke." Thanks very much.

WARREN Thanks for having me.

SERWER: And this is the perfect time to ask our email question of the week, "could you and your family still make it with only one income?" Email your answers to

LISOVICZ: Some of us who only live on one paycheck. Right, John?

Just a ahead on in the money, the models are all still too beautiful and thin, but the fashion business is changing. We'll talk about that with a top designer.

And for crafty criminal out there, it's take the money and haul! We'll have the details on a unique ATM heist.


LISOVICZ: We heard the word fabulous said a lot more this week. We saw a lot of air kissing too. Of course, it's fashion week in New York. And despite a sluggish economy, business for the top designers couldn't be better. According to a new report, women's high-end designer labels grew by nearly 3 percent in 2002 while sales from the apparel industry overall have been declining steadily.

So what's the secret? Joining us today to talk more about this is one of America's hottest designers, Narciso Rodriguez, who was recently named designer of the year for the second time in a row.

Congratulations. It should be said that's never happened, even with some of the great...

TULLY: That's a first?

LISOVICZ: It's a first. And maybe it will be a third. But, you know, when we think about the great icons in fashion you know, Calvin, for instance we think of this elegance and simplicity. We think of Ralph this updated classics. When we think of Rodriguez, Narciso Rodriguez what kind of look comes to mind? What are you known for?

NARCISO RODRIGUEZ, FASHION DESIGNER: Tailoring. Feminine clothing. I like to think that what I represent is something based in quality, luxurious materials. A great fit.

SERWER: Narciso, I'm not going to ask what do you think about Susan's look here, but if you want to comment, you can.

RODRIGUEZ: She looks very nice.

SERWER: She looks...

LISOVICZ: Diplomatic.

SERWER: I'm a business guy, right? Do fashions follow or reflect what's going on in society and the economy and our culture? How does that work?

RODRIGUEZ: I believe so. I think certainly after September 11, the collection that I wanted to present was a collection that was more positive. Something happier. Something to, you know, bring a little joy to the world. You know, and the -- it rocked the fashion industry, as many industries, but we were very hard-hit. Especially the smaller companies because it happened during show week.

SERWER: Everything now, though, what are things saying now about the world, do you think?

RODRIGUEZ: I think now is, you know, it's been -- I don't think that feeling has changed. I think people are looking for color. People are looking for quality. People are looking for good things, and I think that's why we've seen high-end designer go up, while the other markets haven't.

TULLY: So what you're saying, that in tough economic times like we have now, people are interested in clothes that last longer, that are more durable and better made?

RODRIGUEZ: Absolutely. I think it's -- they want quality. And they're -- they don't have problem spending more for it, because they know it's going to be something that endures longer.

LISOVICZ: How can you explain the success of, say, somebody like Isaac Mizrahi, who used to do high-end work as well, now at Target, and you see this cheap chic, which has really taken hold in the last decade?

RODRIGUEZ: I think everybody wants to own a piece of fashion. Whether you can buy a designer's fragrance and not afford it.

LISOVICZ: Which you're also doing, I should say. For her.

RODRIGUEZ: Yes, for her. or if you can afford the actual code or dress, or you want a piece of a designer's look. And -- and everybody at our levels wants to be stylish and have some fashion in their life.

SERWER: Do you follow this thing where it says that higher hemlines mean the economy's going well or -- do you guys -- people on Wall Street talk about that. Do people in the fashion industry ever talk about that? RODRIGUEZ: No. I think that's sort of antiquated, I this.

SERWER: Or a myth.

LISOVICZ: Where are the hemlines right now? Just straighten us out on that.

RODRIGUEZ: Fashion today is so -- so open. I think it's about offering women choices, and a woman can wear a short skirt, a knee- length skirt or long skirt and not be incorrect.

LISOVICZ: Speaking of women, you have some of the most fashionable women who wear your clothing, Sarah Jessica Parker, "Vogue's" editor-in-chief, Anna Wintour. What would you on the map was Carolyn Bassett Kennedy. You designed her wedding dress. Everybody in the world wanted to do her dress. How important was that to really launch yourself on the world stage?

RODRIGUEZ: I think firstly, it was a very personal project for me, because Carolyn was a great friend. But it brought so much media attention to -- unexpected media attention, while I was working in Paris. It was very important.

LISOVICZ: It was a beautiful dress.

RODRIGUEZ: There were, I think, 3 million kiosks around the world with a huge cover of one of the magazines of her and John and her dress. So it was very important. I didn't expect it, though.

SERWER: All right. Interesting stuff, Narciso Rodriguez, fashion designer. Thank you very much.

RODRIGEZ: Thank you so much.

SERWER: Coming up, more on an enterprising thief in Georgia who stole an entire ATM. But first, take a listen to my latest fortune fundamentals lesson on life cycle funds.


SERWER: One problem about investing is that to do it right involves a boat load of work. Example, your objectives and goals as an investors different when you are 25 from when you are 55.

Early on in life, you want to be more aggressive and own more growth stocks. Later in life you want to be more conservative and own bonds. And now there is some new mutual funds that manage this transition for you. They're called life cycle funds, and in many ways they appear to make good sense.

Here's how they work. These funds start off with a target retirement date, say, 2010, 2020, 2030. Then over time the funds mix of assets is gradually adjusted, selling stocks and be buying bonds, or money market funds, as retirement gets closer.

A typical fund might begin with a mix of 90 percent stocks and 10 percent bonds. But as your retirement date nears, the fund shifts to 20 percent stock, 75 percent bonds and 5 percent cash. A couple of things to be aware of, make sure the life cycle fund has low fees. Don't jump in and out of these funds. That ruins the whole point. And remember that these funds are somewhat cookie cutter and may not be right for you, say, if you have six kids.

Even with life cycle funds, investing right still means a lot of work.



LISOVICZ: We don't want to praise criminals, but you have to give credit to the person behind this crime in Georgia. Police in Snellville say someone used a backhoe to rip an entire ATM right out of a gas station early Wednesday morning. That's pretty graphic evidence. The thief or thieves got away with about $2,500. But that doesn't include the $15,000 worth of damage to the gas station wall. Police say they don't have any suspects so far, but they should be looking for a battered backhoe.

SERWER: When they catch this guy, they've got to give him points for creativity. Three to five years, give them five to seven. And you can build a new wing in the prison with that expertise.

LISOVICZ: CSI, Andy Serwer.

And thanks for joining us on IN THE MONEY. Thanks to "Fortune" magazine editor-at-large, Andy Serwer and to "Fortune" magazine senior writer, Shawn Tully.

Join us tomorrow, 3:00 pm Easter when we look at Syria's role in the post-Iraq war era. Is Syria staying out of it, or is quietly helping terrorists carry out attacks against Americans?

That's on IN THE MONEY tomorrow. Thanks for joining us.



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