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CNN IN THE MONEY

Attorney General Elliott Spitzer Sets Sights On Mutual Funds; The Do-Not-Call List, Great Idea Or Going To Cost America Thousands Of Jobs?; Recent Spy Charges On Several Muslim Military Members Have Many Questioning If We Should Monitor Them More.

Aired September 27, 2003 - 13:00   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 IN THE MONEY.
JACK CAFFERTY, HOST: Welcome to the program, I'm Jack Cafferty.

Coming up on todays edition of IN THE MONEY; Muslims and the military. Spy charges against at least one U.S. serviceman and Guantanamo Bay have many asking whether should more be done to monitor American Muslims in the military.

And good schools gone bad according to the president's No Child Left Behind Act. We'll take a look at the problems plaguing our public education system and there are many.

CEOs who should go. Fast company magazine is out with a new list of business bone heads. We'll tell you why the magazine thinks that Michael Eisner among others has overstayed his welcome at the mouse house.

Joining us this week as usually, Susan Lisovicz of CNN Financial News and Andy Serwer, editor at large from "Fortune" magazine, who's taking a break from travels to work a couple days here in New York City.

ANDY SERWER, "FORTUNE": There we go again.

CAFFERTY: There we go again. So, I watched a little of this debate, this cluster whatever you like to refer to it, all these Democratic presidential -- and without exception, they're all talking about taxes and the economy. When it comes to taxes, they're all talking to some degree about rolling back the tax cuts. Some say roll back the tax cuts that the wealthy got. Some say take away all the tax cuts. Isn't that the same as saying raise taxes? Because the taxes now are at this level. If you roll back the cuts, that means they go like this. Let's raise the taxes.

SUSAN LISOVICZ, CNNfn: Are you surprised, Jack? Talking out of both sides of the mouth?

CAFFERTY: Are Democrats suggesting raising taxes?

SERWER: Is semantics, isn't it, Jack?

Listen, someone's going to have to raise taxes at some point. What are we going to do to close up the deficit in the future?

CAFFERTY: How about we cut the spending? Any chance to cut spending?

SERWER: No, no. We can't cut spending. We're going to have to grow the economy.

LISOVICZ: What about the war in Iraq?

A lot of the Democrats supported the president originally. Now you're seeing back pedaling at a furious pace.

CAFFERTY: This deficit came from the economy slipping into recession at the end of Bill Clinton's term in office, at the very beginning when George Bush started. The economy was already headed into recession. We've been there for three years along with the blow up of the stock market bubble. And presumably, when growth reinvigorates itself, revenues will rise, deficits go down and maybe everything will be all right.

LISOVICZ: Washington needs you. Why don't be the 11 Democrat.

SERWER: Unless they keep spending more. Unless they keep spending more. Then the deficit won't go down.

CAFFERTY: Which they no doubt won't.

All right. Well, we got that handled. New concerns this week about Muslim in the Guantanamo Bay, Cuba. Two Muslim-American military men were arrested, one has been charged with espionage and aiding the enemy.

Barbara Starr at Pentagon has the latest for us. It's surprising, Barbara, this could happen, that is arguably one of the most secure military installation in the world these days.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, it is indeed Jack, and that's what the Pentagon want to know.

How did this happen?

Did these people have help?

Were they working evidently?

That's really the focus of the investigation now. Of course, they are looking to see if there are other people involved, but as it now stands, there are indeed two members of the U.S. military under arrest. First is senior airman Ahmad al Halibi, he is a Syrian under arrest and has been charged. He was actually arrested back in July. We only learned of it this week. He is being held at Vandenberg Air Force Base in California facing more than 30 charges, espionage, and aiding the enemy according to documents made available by the air force. That enemy appears to be persons in Syria. He was found to be attempting or actually e-mailing classified information to persons in Syria. No one knows if it was the Syrian Government or just individuals in Syria. We also learned that several months ago, federal agents applied for and got a search warrant to open up a box that he had mailed to himself back in California. When they opened that box they found classified material in that box. They also conducted a secret search of his house. So he is sitting in military jail in Vandenberg Air Force Base. Now, the other gentleman, this is Islamic Army Chaplain Captain James Yee. A Chinese American converted to Islam and became an Islamic army chaplain. He was arrested on September 10, when he returned to the United States from Guantanamo Bay. He has not been charged but is under suspicion for espionage, possibly, also aiding the enemy. He in the brig at Charleston Naval Station in South Carolina. But there are two others, we are told, that are under investigation, have not been detained yet. Someone in the air force. Another person in the U.S. Navy. And sources are telling us this investigation is far from over. More arrests could be coming down the road -- Jack.

CAFFERTY: Barbara Starr at the Pentagon, thank you, appreciate it.

The arrest of air force translator Al Halabi and Chaplain Yee have the Department of Defense and others quite concerned, as you might expect. The fear of course is that there my be other Muslim extremist in the American Military, who's loyalty to Islam and not this country. How big is the threat and more importantly, what can you done about it?

Joining us to talk about that is, Daniel Pipes, who serves on the special task force on terrorism and technology at Department of Defense. Mr. Pipes is also the director of the think tank Middle East forum.

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

DANIEL PIPES, DIRECTOR, MIDDLE EAST FORUM: Thank you.

CAFFERTY: How far can officials in the Defense Department go in monitoring Muslim members of the military before they're accused of trampling on people's rights?

PIPES: Well, That's a good and tough and delicate question, Jack. I think what we see here, not just in the two recent arrests, but also in at least five prior cases of seemingly, apparently, militant Islamic individuals in the U.S. military. We see a pattern of willful blindness. Not wanting to look at this problem.

CAFFERTY: Why?

PIPES: Well, because it is difficult. It's delicate. And because the U.S. Government is focusing on terrorism, and I believe the problem is deeper. It has to do with mindset, and ideology, which I call Militant Islam. So what I think the military and other parts of the government, the prison system and law enforcement and immigration need to do is say, look, are enemy are those people who support Militant Islam. And we must focus on finding them and making sure they are not part of the U.S. Government -- not working for the U.S. Government, and perhaps providing information to the enemy, or working for the enemy in some fashion.

CAFFERTY: Let me get you to clarify something. You talk about it's not a war against terrorism. It's a war against Militant Islam.

PIPES: Right.

Explain to me so I can understand it what you mean by that statement?

Well, terrorism is a tactic. Our enemy, they might use terrorism. They might use bombs, they might use planes, they might use political infiltration. They're not limited to terrorism. Our enemy, as I understand it, in this war are those who support the ideology, the Militant Islamic, in my eye, similar, in form, to fascism and Marxist Leninism.

CAFFERTY: It's an ideology? It's not a behavior?

PIPES: It seeks to change the world. It seeks to conquer the world. It seeks to change what this country is. And one doesn't have to use violence to achieve it. One can use other means. There are organizations and individuals that seek to change this country, via political means.

LISOVICZ: Daniel, you're talking in a very broad sense. Let's narrow it down now to what's happening in Guantanamo Bay. I'm, frankly, surprised there is surprise that there's suspected covert Islamists working there. I mean, you have 660 prisoners, al Qaeda suspects all of them, who've been languishing nearly 200 years. Human rights activists have been screaming for some time. The fact is, you've got a captive audience there. Don't you think there would be a security problem with all of these suspects together, lumped together?

Wouldn't there, in fact, be very likely some sort of conspiracy?

PIPES: Well, that the 660 captives are against the United States is assumed, but that personnel of the air force or army or Marines we're hearing rumors of other suspects, are working with the 660 suspects, that does, in fact, come as a shock. That the U.S. military doctor not have the means, the intelligence, the courage, to look at its Muslim personnel and say, let's make sure that these people are on our side, not their side, that, I must say, is a bit of a shock.

No? Isn't that to you?

LISOVICZ: Right. But you're saying they haven't checked carefully?

Anyone who has any sort of relationship to Islam is automatically suspect?

Wouldn't that, in fact, be a natural tendency for -- if Mr. Yee is in fact an interpreter, he has to have some sort of knowledge of the Islamic world?

PIPES: Right. Mr. Yee actually is the chaplain. Mr. Halabi is the interpreter. But in all cases -- this is a really difficult question, and I'm not in a position to solve is now here for you. But look at this. If our enemy is as I described it, the supporters of Militant Islam, then by definition all the supporters are Militant Islam are Muslims.

CAFFERTY: What Susan might be talking about a little is the Stockholm syndrome. That's one issue. What I want to ask you is broader question having to do with Islam itself. Do you believe that Islam a religion that is inherently pro-violence and seeks to overthrow Western civilization and destroy non-believers?

And isn't it true the overwhelming number of Muslims are not like that?

PIPES: No, I don't think that is the case. I think what we is a radical movement within Islam that is now very powerful that attract a substantial body of people, I would estimate a 100 - 150 million, attracted to Militant Islam and do subscribe to the tenants you just mentioned. They are a minority, fortunately but unfortunately a dynamic minority that is in charge of, well that is in charge of the aggression against us and that we are fighting. I think, it's critical we work with modern Muslims against Militant Muslims. My one sentence summary of the situation is Militant Islamist is the problem and moderate Islam is the solution.

CAFFERTY: Go back and look at every act of terrorism committed against this country and other Western targets in the last 30 years, the group of suspects fits a very narrow profile, they are young, they are male, they are Arabic and Islamic fundamentalists. There are no other people that can be tied with any regularity to any of these incidents of violence. To what degree is our sensitivity over this idea of not treading on people's civil rights allowing the growth of this thing to happen right here in our own country? What I'm asking is, is it time to face the facts about who's doing this stuff and crack down hard on that group of people? Investigate them, integrate them, deport them, do whatever you have to do to get to the bottom of the core group of people that's causing these problems?

PIPES: I basically agree. Just take out the adjective Arabic. As we see here with Mr. Yee, the chaplain, he's a convert. It's not necessarily -- it's not defined by ethnicity. But otherwise, I basically agree. I would put it a little less strongly than you. But there is one population, which is supplying the enemy, that is the -- that among whom the enemy comes from, and it is they that we must watch, and give special attention to. The U.S. Military, the prison system, the immigration, the law enforcement. We must pay special attention to this group. Now, how we do it exactly, I can't tell you, but I think it is critical that we talk about it as we are here and now, and that our government start addressing it, which until this time it's not doing.

CAFFERTY: Daniel, appreciate you joining us. We'll do more of this if you're agreeable. I hope you are. Daniel Pipes, director of the Middle East Forum, author of "Militant Islam Reaches America."

When we return, a class struggle. A growing number of schools in this country failing the Bush's administration education plan. We'll look at whether the no child left behind plan is leaving good school systems in the dust.

Plus hold the phone. A judge is keeping annoying telemarketers on the line. What's next for the nation's "Do Not Call" list.

And show them the door, not money. A closer look at a bunch of CEOs who give new meaning to the phrase "failing up." you're watching IN THE MONEY.

(COMMERCIAL BREAK)

CAFFERTY: President Bush's no child left behind a failing grade. They claim it will take much more than the $22 billion the administration is offering. Others complain that the bill is simply too ambitious and uniform to address the different need of individual schools.

Joining us now from Washington is Sandra Feldman, the president of the American Federation of Teachers. Welcome, Sandra.

SANDRA FELDMAN, AMERICAN FED. OF TEACHERS: Thank you.

CAFFERTY: Let me ask you, what is your problem with this act?

FELDMAN: Let me say, first of all, that this act has very laudable goals. It has a framework that we fully support. High standards, accountability, ongoing assessment, but it also has significant flaws that ultimately will have to be fixed. And there are two major problems. One is the formula for measuring progress is a formula that doesn't really measure progress. So that a school can actually be doing very well and end up on a list, on a state-wide list needing improvement which sets off a whole series of other actions that have to be taken. That's because formula it self is flawed. That's one very big problem. The other problem is that there was an agreement at the time that the law was passed that it would be adequately funded to make sure that when schools get put on a state- wide list, if there are children in those schools that need intervention, there would be money for intervention. There would be money for longer days, for after-school, for summer school, for professional development support for teachers and unfortunately, that promise has been broken. And so that is a very major problem here.

LISOVICZ: Sandra, understand that this program is big, it's ambitious, but it's also, when it comes down to what you're also concerned about, you're concerned about teachers' jobs. And if these school districts get these failing grades two years in a row, we're talking about teachers out on the streets losing their jobs. That's a big concern for you, isn't it?

FELDMAN: No, absolutely not. There is no concern here about teachers losing their jobs. The only problem that we might have is that there may be teachers who can't meet the requirements in time. Requirements that we fully support. One of the very good things about this law is that it requires a qualified teacher in every classroom, and we want that. We may need additional time for many teachers who have been hired without appropriate qualifications to meet those qualifications, but we don't want them kept in the classroom indefinitely. Teachers don't want that. So this isn't really a job issue for teachers. That is just not correct. What is at issue here is whether we're going to be able to provide the schools with the kind of support they need to raise achievement. Whether the progress they are making, and many schools are making tremendous progress, gets measured properly. And we are very much in favor of the overall framework and goals of this law. We want high standards. We're in favor of the accountability. But we also know that you cannot do this on the cheap. And an agreement, an actual agreement was made about how much it was cost, and that agreement is not being kept. That's a big concern for us.

CAFFERTY: Sandra, Jack Cafferty. Talking about money and how much money it takes to run the public schools. We spend, per student in New York City, some exorbitant amount of money per student, in the public schools, and yet the test scores aren't what they should be. The students are graduating four years, somewhere in the neighborhood of 50 percent. The dropout rate is unacceptable. You have janitors in these schools that are making much more than the principals in charge of the kids' education.

Is throwing money at the problem all it takes?

I think the answer, obviously, is not. What I'm leading up to is -- what do you think ought to be done, besides just spending more money, which doesn't seem to work.

FELDMAN: Jack, I'm very familiar with the New York City Schools.

CAFFERTY: I know you are. That's why I asked you about them.

FELDMAN: I spent my life in them. The fact ever the matter, we just had a judge and now supreme court oppose a case brought about the inequities. The kids in New York City who have tremendous needs compared to kids in a lot of school systems right outside the city are not being funded at the rate -- I think funded at like 50 percent of what kids in wealthier school districts are funded at. Now, having said that, having said, that we need more funding for the kids in New York City, I always say, we don't just want to throw money at the schools. We want to spend the money on what works, and we know what works. There are proven programs that work.

We know that children who come in with disadvantages need more time. So you have a longer day. You have a longer year. We had over 100 schools in what was called the chancellor's district since been dismantled I think, unfortunately so, that began to make double digit improvements, because those elements were put in place, and it was an incremental increase. It wasn't a huge bunch of money thrown at the schools. It was money spent on what we know works. Teacher training, a longer day, because the kids need more time instructionally. A longer year, especially for those children who need the time in the summer to make it up.

CAFFERTY: Sure. FELDMAN: And those are the kinds of things we should be spending money on. On quality preschool. We know that poor kids in big urban districts like New York come in behind their more advantaged peers in things like vocabulary, significantly behind. Well, let's have a quality preschool program for them. That enables them to catch up. I proposed bringing kids into kindergarten a couple of months early and keeping them in the summer between kindergarten and 1st grade. We call it kindergarten-plus. It's going to be considered by the Senate shortly.

This is...

CAFFERTY: Sandra...

FELDMAN: These thing does not cost huge amounts of money, but they do cost money and they do work.

CAFFERTY: I apologize for interrupting. I'm up against the clock. I covered your activities as the head of the teachers here in the New York City a good number of years doing local news in the city. The teachers never had at good of leadership, I think, maybe they had when you were here. Thank you for being on IN THE MONEY. I appreciate it. We'll perhaps discuss these issues at a future time.

Sandra Feldman, president of American Federation of Teachers.

Speaking of money, paying bills of our own. We are going to stop for a minute.

When we come back, they've got your number. The nation's telemarketers may be back in business, despite a last minute push on Capitol Hill to keep the "Do Not Call" list, which has 50 million phone numbers on it, trying to keep it alive.

Corporate suite to corporate suite, the age of the imperial CEO is over. But some guys just can't take a hint. Seems we're unnecessarily picking on Michael Eisner of Disney, but there's a magazine out listing a bunch of CEOs who ought to get the hell out.

A new probe shines the light on scams that left investors holding the bag. We'll tell you whether your mutual fund is clean when we return.

You're watching IN THE MONEY.

(COMMERCIAL BREAK)

LISOVICZ: Time now for our "Money Minute."

Interim Stock Exchange Chief John Reed starts work Monday. Reed is taking a $1 salary to avoid any conflict of interest. How refreshing and how rare.

There's still fallout from the Dick Grasso affair. The man who headed the committee that approved Grasso's $140 million salary has resigned. H. Carl McCall stepped down from the New York Stock Exchange Thursday. McCall says Reed and his new team should be able to make their reforms without being "encumbered" by the past.

Just when gas prices were starting to level off, OPEC says it's cutting back on crude oil production by 900,000 barrels a day. OPEC cites the still sluggish global economy as the reason for the cutback.

And here is one way to make up losses in your 401k, work until you're 80! A survey conducted by the American Association of Retired People shows 45 percent of those asked planned to work beyond age 65. It was a given for me. 27 percent plan to work into their 70s, and 18 percent will show up for work even in their 80s, with there walker and all.

CAFFERTY: Talk about OPEC cutting production because they said the world economy is sluggish, baloney. Oil prices fell $6 a barrel in the last two weeks, went into a meeting and said, we can't have this.

LISOVICZ: And what's huge problem for business. Energy prices.

CAFFERTY: Of course.

Just when you thought it was safe eating dinner at home without being disturbed by a clown ringing your phone trying to sell you a vacuum cleaner when you got three in the closet, it may not be. The fate of the "Do Not Call" list aimed at telemarketers is still very much up in the air.

Greg Clarkin joins us with the latest. Greg, nice to have you on the program. We have got 10s of millions are people who said put me on the list. We have two judges saying no, no.

GREG CLARKIN, CNN CORRESPONDENT: Incredible series of events. this list, the "Do Not Call" list was scheduled to take effect on Wednesday October 1. More than 50 million people signed up to be protected from unwanted telemarketing calls. And then all of the sudden a judge out of Oklahoma City, a federal judge, handing down a decision saying that the FTC, the Federal Trade Commission, the folks that created this list, did not have the authority.

Well, that triggered just what has to be described as dizzying speed in Washington. Within 24 hour both the House and Senate drafting then passing legislation to correct it and make it very clear that the FTC does indeed have the authority to create that list. Hours after that happened what we did see was a judge, a federal judge in Denver handing down a decision striking down the list once again on an entirely different grounds. This time around the judge in Denver saying it violates the free speech rights of the commercial folks, the for-profit businesses that want to call you up and sell you a variety of products.

Now what the judge is getting at here, the FTC "Do Not Call" list really does differentiate. What it will do is it will block calls from commercial enterprises, but does allow calls from charities as well as political calls and pollsters. People doing over-the-phone surveys. So what judge is saying, you can't differentiate between the commercial folks try to get through to you, and all the other folks. And that is a violation of the free speech amendment protected under the Constitution. So the question, now is whether or not this list will indeed take effect on October 1 and does, also, this really shift the debate to the courts. And we don't know if we'll see the same speed and rapidity of movement as we did in Congress.

CAFFERTY: Good luck. That won't happen. You what was encouraging, you mentioned it Congress actually can do things.

CLARKIN: Incredible, Jack. Within 24 hours, legislation was drafted, passed over whelming in the House, and then on to the Senate. These guys were celebration, then boom out of Denver comes this other decision.

CAFFERTY: What do you think the courts are going to say about this. I mean, you know the conventional wisdom is hey, the phone is in my house that is a private place. You've got no right to come into my house, whether it's through the front door or telephone line and interrupt my life unless I invite you in. And if I don't want you to come into my house then I put my name on this list and you're not allowed to come in my house. That seems very simple to be, but then I'm just a dumb country boy from Reno, Nevada. You know?

Exactly, Jack.

CAFFERTY: What do you mean, exactly, Jack?

CLARKIN: Who would think that up? That really is a problem. A very smart country boy from Reno, Nevada. Exactly refers to the previous part of your question is that it really does become much more problematic with the do-not-call list. The problem now is you got a much more complicated argument here rather than whether or not the FTC had authority to make the list in the first place. That was cleared up.

Now you're moving this thing to a much more complex debate. Whether or not it is protected by the Constitution. The telemarketers all along said it's an all or nothing debate. Either everybody's barred or nobody is. That's what they're driving at. So far they've got a victory. Believe me, no questions about the fact you are a smart country boy from Reno.

SERWER: I'm against the do-not-call list. I'm Serious. I'm Against it, you know why, because I'm pro jobs. It's going to throw a lot of people out of work. Some of these politicians -- first of all, I'm suspicious of anything that gets through Congress that quickly. Everyone in Congress agrees on it? I'm against it. Serious.

Some of these politicians will wake up Monday and realize they just got rid of 60,000, 70,000, 80,000 jobs in their district and be all upset about that. The other thing is, these people call you up. What's the big deal, you guys? You hang up the phone. I use it to teach my kids phone etiquette. No, no thank you, and click. No thank you, click. It's not a big deal. Just hang up. CLARKIN: Andy, top that one, make it clear. The first part of the statement of this one. Interestingly enough, that's an excellent point about the jobs. Eight folks in the house voted against this. A lot of those were representatives of midwestern cities, Youngstown, Ohio and the like, where a lot of these call centers are located. And these guys are saying, listen, our cities have lost countless of jobs over recent decades.

These call centers provides tens of thousands of jobs. Eight voted the for it in an effort to save jobs. That is an interesting flip side to all this. There are people on the other end of the line, as annoying as they are being employed in this industry. As for phone etiquette, Andy, interesting, you've used that as well.

SERWER: Just call me flip side, Greg.

CLARKIN: You got it.

LISOVICZ: I think this issue clearly touched a nerve.

SERWER: Yes, nerves.

LISOVICZ: Greg Clarkin, from CNN financial news, thank you. We have to hang up on this conversation, unfortunately.

When IN THE MONEY continues, have you seen this man? Thank you. Disney's CEO Michael Eisner used to top the list of the nation's most admired CEOs. Now he's headlining a list of losers, we'll explain shortly.

Plus, funny business in the fund industry. New accusations say some mutual funds favor big investors at the expense of the little guy. We'll take a closer look.

(COMMERCIAL BREAK)

(NEWS BREAK)

CAFFERTY: Once upon a time, boys and girls, CEOs in corporate America had jobs for life, or so it seemed. But it's all changing thanks to companies like Enron, Worldcom and Tyco. Of course, that doesn't mean that every CEO fails to deliver these days, automatically gets the boomm, nay, nay.

In the latest edition "Fast Company" magazine looks at some CEOs who the magazine says have overstayed their welcome. Joining us today with his list of corporate chiefs who should be on the chopping block, "Fast Company's" editor-in-chief John Byrne. John, nice to have you with us.

JOHN BYRNE: "FAST COMPANY" MAGAZINE: Nice to be here.

CAFFERTY: If I understand the rules correctly, these CEOs serve the pleasure of the board of directors? Presumably they know how to read the financial statement too. They can see the declining stock price, the declining profits, yada, yada, yada, the crummy pot (ph) -- why are these guys still running these companies?

BYRNE: Well, you know, it's interesting. If you look at the worst performers over the last five years, 78 percent of those companies, the CEOs are gone. In 22 percent of the cases they're not. And that's where we are really focused like a laser.

And the major reason is, look, the boards are complacent. They're still filled with cronies and friends of the CEO. There are lots of side deals still going on, even after all we've read about Enron and Worldcom and Health South and you just go on and on. Then there are other institutional reasons why there's no change and these guys are Teflon CEOs.

There's the mystique in the founder. In some cases, if you found a company and you're there a long time and you're the heir of the founder, in the case of Chris Galvin who just left Motorola, you're given a second, third, fourth chance.

Other thing is, look, if you were a whiz, like Michael Eisner at Disney in the early days, people are in the board saying, wait a minute. Maybe the magic will come back. Maybe he'll be able to do this after all.

CAFFERTY: Once a whiz doesn't necessarily mean always a whiz. You can become whizless at some point.

LISOVICZ: And his tenure has now been, I think, about 20 years.

BYRNE: Yes, 19 years.

LISOVICZ: So, his glory days are over for now. He had his, according to an article, architect, Sidney Poitier, a friend from the movie studio days.

BYRNE: The principal of the elementary school where his children went were all on his board. He's cleaned up the board a little bit, but the board still deserves an F.

And here's the other thing about Eisner, since 98, which is when he had the biggest payday in the history of business, he collected over $500 million. Basically exercised his stock options. Everything has gone down. Right? He's come out with succession of slumping movies. The ratings at ABC have gone down. He had the ill-timed effort to launch an Internet portal which went nowhere. The Disney stores are going nowhere, and he basically wants to get rid of them.

And you know, we talk about Dick Grasso, right? And everyone is hammering and crying and moaning about the $140 million-plus he collected. Well, you know, Eisner has collected, as CEO, well over $1 billion. That's a lot of money.

SERWER: That's the thing. That's what kills me, John. I don't begrudge someone like Bill Gates or Larry Ellison who makes a ton. They found this great company. They built it up. They own a lot of stocks. It's the people who didn't found the companies who become billionaires, that is just truly amazing. This guy Eisner, by the way, of course, keeps killing his successors, That's the other thing, he keeps getting rid of them. But I want to ask you about shareholders. I mean, that's the big question -- the owners. Where are the owners here? How come they're not ticked off? There's 2 things you could do. Vote by your feet, but what about getting rid of the guy?

BYRNE: I think, that's the other reason why there is some indifference in why these guys are able to stick around. Institutional investor, by and large, are more interested in managing the pension funds of these corporations than they are in performing the fiduciary responsibilities to the people who invest in them.

And they're enacted because of that. It is easier just to walk with your feet and walk away from it, and just buy into another stock. That's what happens.

LISOVICZ: John Byrne, editor-in-chief of "Fast Company." It's a fascinating article and good call. Michael Eisner, No. 1 on this list, but Chris Galvin of Motorola No. 2 and he was sacked just a few days ago. Thanks for joining us.

BYRNE: Thank you.

LISOVICZ: When we come back, Wall Street's Mr. Clean has a new target in his crosshairs. New York Attorney General Elliott Spitzer is now going after mutual funds. Find out if your fund is on his list.

Plus, divided we stand. A new study shows the gap between rich and poor Americans is just what you thought. It's getting bigger. We'll take a look.

First, though, Andy's got this week's edition of "Fortune Fundamentals."

(BEGIN VIDEOTAPE)

SERWER: Do you know exactly what a bond is? Pretty simple, really. Bonds are a way for a company or a government agency to raise money. Company A needs $100 million to build a plant. It doesn't have that much cash in its bank account. On the other hand, it's generating earnings of $25 million a year. So company A sells $100 million of bonds at an interest rate investors find attractive. Let's say 5 percent.

So investors buy the company's $100 million in bonds, meaning they give the company $100 million and in return, the investors are paid 5 percent a year for the life of the bond. An example would be ten years. Every year invest, gelt paid 5 percent of their money by the company, and then in year ten they get all their money back. Makes sense. Right? The company gets its $100 million and the investors, get paid 5 percent for lending the company the money.

The U.S. government does the same thing with treasury bonds and local government sell what are called municipal bonds. Hey, it's how America works.

(COMMERCIAL BREAK)

SERWER: The mutual fund business is a $7 trillion industry and it's seen by many as the best way to level the investment playing field. New York Attorney General Elliott Spitzer now says some funds have been cheating to bolster profits and benefit their largest customers. Here with more on whether your mutual fund is clean is Dan Kadlec, staff writer for "Time" magazine. Dan, welcome.

DAN KADLEC "TIME" MAGAZINE: Good to be here.

SERWER: Here's my question, a lot people are wonder whether the fund businesses are still safe. Morningstar, which monitors mutual funds and rates them came out recently suggesting selling some of the funds under scrutiny. What do you think?

KADLEC: Right. I don't think it's really possible for everyone to just dump mutual funds. Okay? It remains probably the best game in town for the little guy. The issue here is how deep does Spitzer's investigation go, and how egregious were these infractions?

At the margin, people lost some money here in the wrong funds, but this is not a disaster. This is not a disaster. And, besides, there's not a lot you can do. If you sell your mutual funds, what are you going to do? Go to a broker?

SERWER: God forbid!

(LAUGHTER)

LISOVICZ: But you know Dan, some of these funds are huge funds. I mean, Bank of America's, Nations Funds, you've got Janus.

KADLEC: And Strong (ph)...

LISOVICZ: They're giants in the business.

KADLEC: You bet. That's what makes this thing so particularly painful. Is if these funds are doing it, you don't know where the ball stops here. And to his credit, Elliott Spitzer, I don't think he's going to stop until he sees how deep it goes. You know, people are criticizing him for characterizing this thing as systemic, yet not many funds have stepped up and said we are so clean that you don't have to worry about us.

LISOVICZ: Well, one of the problems is it's hedge funds, which, by their very nature, are very secretive, right. They're un -- marginally unregulated?

(CROSSTALK)

KADLEC: Of course, now we see this week, the hedge funds are going to get new scrutiny from the SEC it looks. But it's not really the hedge funds that are the problem here. They're doing their thing. It's the mutual funds that allow the hedge funds this special access to do lay trading.

SERWER: Betting on yesterday's ponies is how Elliott Spitzer put it.

LISOVICZ: I want to get an idea.

KADLEC: You get a 4:00 price at 6:30 it's pretty tough to lose.

CAFFERTY: You mention that people are criticizing Elliott Spitzer. He's embarrassing the hell out of a lot of federal regulatory people who probably should have found this out long before Elliott Spitzer became the attorney general of the state of New York.

KADLEC: Interesting that the SEC and some others have started to quiet criticism of Spitzer, because he's been on the money and he's not going away. I think they decided they better just work with this guy, because he means business and he has embarrassed them.

SERWER: It is true, Dan, of course, this is not under his jurisdiction. I mean, mutual funds, not under his perview, and yet he's taken it upon himself. I want to get back to the systemic thing that you mentioned, I mean it is one hedge fund. What's your take. I mean, how systemic is the problem?

KADLEC: Well, that's a very tough one. Obviously, the stuff isn't a perspective. We don't know how much is going on. We know of at least one other hedge fund that Spitzer's is looking at very closely. He has suggested that are others. He has suggested it's going to go beyond

LISOVICZ: Millennium you're talking about?

KADLEC: Millennium we're talking about. He has suggested it's going beyond the four fund families that he's cited, Strong Nations funds and the others. So we know it's bigger than what is out there. Spitzer is saying it's bigger. I don't think he'd say it without having something forthcoming.

He has been criticized for not bringing the evidence out right away. His point of view is, by talking about it now, he thinks he's maybe eliminating some of the problem.

CAFFERTY: Is there any way to tell how much money a small investor may have lost as a result of this kind of activity? If you took an arbitrary figure, I've got $10,000 in mutual fund X that's accused of doing this, is there any way to know?

KADLEC: It's all ballparking at this point. There are some studies that suggest maybe up to 2 percent of assets is lost to market timers every year on $10,000. What would that be? $200.

SERWER: That's real money though.

KADLEC: Absolutely real money. But that is an estimate. It may be at the high end. We don't know. But there are some crumbs falling off the table. We'd like to keep them, if we can. CAFFERTY: Absolutely. You get enough crumbs, you make a cookie!

SERWER: Give me my crumbs. Bring them back.

LISOVICZ: And that very sweet, indeed. Dan Kadlec, senior writer "Time" magazine. Thanks for stopping by.

KADLEC: Any time.

LISOVICZ: Time for a break, but when we come back, rich man/poor man, the gap between the nation's haves and have nots grows wider. We'll take a look at what's fueling the divide.

And if you have something to say about this fine little program a tidy program in Jack's words, drop us a line. The address, inthemoney@CNN.com.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ERIC SCHURENBERG, DEPUTY EDITOR "BUSINESS 2.0": What works for Innocentive is the Internet. The way it works is, you pay $2,000 to list a question on Innocentive's Web site and then offer a reward for anyone who can solve the particular scientific or research question. You've got.

The rewards might range from $5,000 to $100,000 depending on the complexity of the question. Then researchers from all over the world can have at it. The success rate is 40 percent for solving these problems, which is great. The cost is usually much cheaper than it would be going the regular way, which is calling your own freelancers or outsource research lab to solve the problem.

(END VIDEOTAPE)

(COMMERCAL BREAK)

CAFFERTY: America's rich continue to get richer. And that stretches the gap between them and the poorest Americans. And that's troubling news to many. This is a study done by the Center For Budget and Policy Priorities, a group that lobbies for new tax policies to help the poor.

The center says in the year 2000 the richest 2.8 million Americans had about $950 billion. The poorest, 110 million American, almost 55 times as many, had about $892 billion. Tax cuts and a huge jump in executive pay are getting the blame for the gap, which is the largest between rich and poor since the government began gathering these figures in 1979.

And that brings us back, I guess, to the Democratic debate that I watched a little bit of last week, where they're all talking about rolling back the Bush tax cuts, particular focus on the tax cuts given to people who make more than $200,000 a year. The sense being, that's throwing money away. Those people don't need it and other people at the other end of the spectrum could use it.

SERWER: I don't know, part's it. Look at the whole problem. It's a disturbing trend, unless you're in the upper 1 percent. It's a very disturbing trend, because we don't want to turn this country into a place that becomes polarized. And it leads to a phrase that Americans don't like to use. Redistribution of wealth. People don't like to talk about that, because it means doing all kinds of socialistic monkeying around.

CAFFERTY: Engineering.

SERWER: Exactly. But you ahve to look at other things, like raising the minimum wage. I mean there are other ways to do it that aren't so poisonous, so anti-American, as people would say. It's a lightning rod issue.

LISOVICZ: And it's interesting that, in addition there was a study that found that in 2000, the top 1 percent income group had the largest share of before-tax income for any year since 1929.

SERWER: I got a good idea, though. A way to redistribute the wealth everyone who watches this program gets 10,000 bucks.

CAFFERTY: Yes?

SERWER: What do you think?

CAFFERTY: That's good. Are you going to pay it though?

SERWER: I was going to suggest that Dr. Cafferty, in all of his wisdom.

CAFFERTY: Depending on which week you look at the ratings, you might only be out 50, 60 grand.

SERWER: Oh, get out.

CAFFERTY: Time to look at e-mails. Last week end we asked if your family could survive on one income?

Anite wrote this, "We'd managed to survive just over one year on 1 income after I was downsized but we've had our van reprocessed and we're are at least three months behind on every bill."

Marine Corporal Rory writes, "as young enlisted marine I don't make a lot money. And it's difficult for my wife to get steady work because we're forced to move so much. Now Congress is taking away some of our benefits. We are used to seeing politicians approving pay raises for themselves, but ignoring the military."

Jeff in Vermont writes this, "my wife and I have survived on 1 income on more than a decade. When we wanted something extra, one of us has worked a part-time job instead of using a credit card and paying huge extra charges."

Time to ask our e-mail question of the week for this week. Once again a two-part deal. "Can the public school system be fixed? And if so, how?" There's a little something for you to chew on for the next seven days. E-mail your answers to inthemoney@CNN.com.

LISOVICZ: And your spelling will be graded.

CAFFERTY: Yes. And we'll grade all the letters and send them back to you.

That's it for this edition of IN THE MONEY. My thanks to the regular members of the panel, Andy Serwer and Susan Lisovicz.

Tomorrow, 3:00 Eastern time, rebuilding Iraq. President Bush wants a lot of money to do that job. But there are critics who say, we need a better accounting of where funds are going before we just pump cash into that country. That's tomorrow, 3:00 p.m. Eastern, and we'll take roll at that time. So see you then.

END

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Funds; The Do-Not-Call List, Great Idea Or Going To Cost America Thousands Of Jobs?; Recent Spy Charges On Several Muslim Military Members Have Many Questioning If We Should Monitor Them More.>


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