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Ideas for Stabilizing Iraq; Immigrants Bolster U.S. Economy; Social Security Time Bomb

Aired May 22, 2004 - 13:00   ET


JACK CAFFERTY, CNN ANCHOR: Coming up on IN THE MONEY: here you drive. The United States getting ready to handover power in Iraq. See if there's a way to turn today's troubles into a sure win.
Plus, cash with wings. A lot of immigrant income goes back home, but a lot more of it stays right here. We'll have some surprising numbers on the immigrant economy.

And money that flows uphill. The young are paying for the elderly as America gets grayer. Find out whether the coffers are running dry. Here's a hint: they will.

We'll have those stories and more. First though, here's a quick check of the headlines.

FREDRICKA WHITFIELD, CNN ANCHOR: A U.S. soldier from the 1st Armored Division was killed in a car bombing south of Baghdad today. Three other American troops were wounded in that attack.

In Baghdad, suicide car bomb exploded today outside the home of Iraq's deputy interior minister. Iraqi police say the bomber killed six Iraqis. At least 10 others were wounded including the deputy interior minister and his wife.

Bad people have parties, too. Those are the words of a U.S. commander in Iraq who says a deadly airstrike that supposedly hit a wedding party actually struck a high-level meeting of foreign fighters. He says weapons like the ones seen were found in the rubble.

The Pentagon is expanding its probe into the prisoner abuse scandal. It's adding eight more criminal investigations into the deaths of detainees. That means 33 investigations in all are under way looking into the deaths of 32 people in Iraq and five detainees who died in Afghanistan.

And I'll be back in 30 minutes with more news. IN THE MONEY begins right now.

CAFFERTY: Welcome to the program. I'm Jack Cafferty. Coming up on today's edition of IN THE MONEY: theater of war. Iraq's gone from scripted to improv and the house is up in arms. We'll look at whether the U.S. campaign is too far gone to fix.

Plus foreign aid, one paycheck at a time. Immigrants send billions of dollars home to families every year. Find out how they're also making America richer in the process.

And beyond words. The 9/11 Commission wants to know what's been learned from those attacks. We'll talk with a widow of that day about what's been said and what's gone missing.

Joining me today, the usual suspects on IN THE MONEY: CNN correspondent Susan Lisovicz; and "Fortune" magazine editor-at-large, Andy Serwer.

Oil prices at or above $40 all week long, and a piece of one of the Friday newspapers that the chances that OPEC's going to crank up production to alleviate our woes are slim at best. Where are we going?

ANDY SERWER, "FORTUNE": We've got some real problems here because I don't think there is a lot of excess capacity out there, meaning I don't think there's a lot OPEC can do about it. I think oil prices will go down at the end of the summer, Jack, or as we get into the summer, as the peak driving months end. But China is booming, India is picking up steam, the U.S. economy is recovering. And you really wonder if we're at a point here where we're hitting peak production for the world.

SUSAN LISOVICZ, CNN FINANCIAL NEWS CORRESPONDENT: Exactly. OPEC ministers meeting this weekend to discuss informally Saudi Arabia's suggestion to increase production. But every oil analyst that you talk to, every single one of them will tell you that OPEC is already cheating, that it's going well above those quotas. So there's one thing we know for sure, oil prices will remain high. The answer we don't know to the second question is what will it do to the U.S. economy and the other economies that have been prospering like China and India, what will it do to them?

CAFFERTY: It may be just time that we have to learn to live with higher gasoline prices like the rest of the world has for years and years.

A little yes than six weeks from now, somebody other than the United States is expected to be running Iraq. We don't know who exactly that is yet. And maybe even the lucky winners don't know who they are. The president is supposed to drop some hints on that come Monday.

In the meantime, the U.S. military is going to be hanging around in Iraq for a while with one hand on the steering wheel. This isn't exactly the way it was supposed to work, and to help us figure it out how we're going to fix it, we're joined now by James -- Jamie Rubin. He's a former U.S. assistant secretary of state and now a foreign policy adviser to the John Kerry campaign.

Jamie, it's nice to see you, thanks for joining us.

JAMES RUBIN, FMR. ASST. U.S. SECY. OF STATE: Nice to be with you.

CAFFERTY: What does John Kerry have to contribute to the eventual solution to the problems in Iraq, if you exclude the idea that he will go out and try and solicit international cooperation? If he were to take the reins today with the situation that exists there, what would he do differently?

RUBIN: Well, obviously he can't take the reins today and won't have a chance until next year. But his advice to the president is to be the president, is to lead. The power of the office of the president we've seen time and time again, can make a difference in international affairs, and what this president hasn't done and must do is to go to the leaders of our major allies, the major powers in the world, and convince them that they have just as big a stake in success in Iraq as we do. They don't need a failed state there. They don't need it taken over by terror.

CAFFERTY: I understand that. And I don't mean to interrupt. But we've been down this road before and heard the dialogue about international allies before. Specifically what I'm looking at is the fact that there is no definite organization set to take power. We've got this prisoner abuse scandal going on. We've got soldiers getting killed over there every day. And there's a growing sense in this country that things are not going as they should in-country. And my question I guess is what do you do about that? Before you get anybody else convinced that it's a good idea to get into this thing, don't you have to clean it up some, and if so, how do you go about doing that?

RUBIN: Well, I think the first solution is to acknowledge the truth. We've mismanaged this war. We haven't had enough troops, we haven't had a real plan for stability. So what President Bush needs to do is change course, instead of saying, stay the course, he needs to change course, whether that means getting rid of the secretary of defense and putting in a team who understand how difficult this is and don't have rosy, naive assumptions how this is all going to be liberation rather than occupation. We need to acknowledge the truth.

When we do that, when we accept this has been mismanaged and change course, then we're going to be in a much better position to get the rest of the world to support us. And we need that support, without the support of the major powers of the world, we're not going be able to get the democracy, get the stability, get the security and get the rule of law that President Bush has promised the people of Iraq that now looks deeply in jeopardy.

LISOVICZ: And Jamie, getting the support of world is one part of the equation, getting the support of Iraqi people is another. We have this whole debacle unfolding with Ahmed Chalabi. We have the horrible assassination recently of Izzedine Salim. It just seems like there's no one that the Iraqi people are gravitating to or is there someone? Have I missed something there?

RUBIN: Well, clearly, Ayatollah Sistani, the Shiite leader, is someone that many of the Shiites are looking to. Clearly, there are other Sunni leaders who people can look to, and the Kurdish region is actually doing quite well. The Chalabi story is a very important story. This is the person who the United States government invested its hopes and in fact, its prayers in, that somehow he could waltz into this country, be perceived as legitimate be and the kind of secular leader that we were looking towards.

The fact he's now been the subject of a search, a gun held to his head, at least figuratively, and possibly providing American intelligence information to the Iranian government, and I think this is probably what this arrest is all about, shows you how we have failed to find any legitimate leaders that will work closely with the United States.

So that's why getting the international community, the United Nations, NATO, the major powers of the world, will help us cultivate the kind of leaders that will be seen as legitimate in Iraq.

SERWER: Well, Jamie, the Chalabi thing is very interesting. And there were a lot of people obviously who thought he was a questionable character to begin with. But following up on something that Jack was asking. Does Senator Kerry have a real road map? You talk about enlisting the rest of the world, does he have a point-by-point plan, if elected?

RUBIN: Absolutely. What Senator Kerry wants George Bush to do, remember, he wants America to succeed now. He doesn't want to take office next year with a bigger and bigger and bigger failure than we have already. His point by point plan is, number one, call a major meeting at presidential level. Get the other major powers in the world, convince them that they have a real stake in this.

Number two, he wants to share decision-making on economic reconstruction and political transition there, so identify an international non-American who works with this new Iraqi government that's going to be selected on June 30, so that other countries have a political and an economic stake in decision-making.

And that leads to number three: have NATO take over the command and control mission. Maybe it's not possible immediately to get NATO countries to provide troops. But the way to begin to change what's going on in Iraq is to get the NATO alliance to take over command and control responsibilities. That will be much easier for countries like Germany, like France and others who have opposed us to accept an immediate NATO deployment of troops.

Those three steps are not going to fix this. This is going to be a long, hard road, the result of serious mismanagement by the Bush administration, genuine incompetence, but at least those three steps will begin to change the course in a way that can help America succeed in Iraq. And that's what he wants to see happen.

CAFFERTY: All right. We're going to have to leave it there. James Rubin, former assistant secretary of state and foreign policy adviser to presidential candidate John Kerry. Thanks for being with us.

RUBIN: Thank you, Jack.

CAFFERTY: All right. You're watching IN THE MONEY. Coming up next, what gets earned here stays here, at least a lot of it does. Immigrants send a lot of money home, but they spend most of what they earn here in the United States. Find out how they're making your life richer in the process.

And America's answer to (UNINTELLIGIBLE). Krispy Kreme Doughnuts facing a shareholder revolt. We'll look at why the dough isn't all that's rising up. I love reading these teasers.


CAFFERTY: And hijacked by grandma. Here's another. The population is getting older and the young are footing the bill. See why one economist calls it the coming generational storm.

Back in a minute.


CAFFERTY: Migrant workers from Latin America are a common sight in this country. They fill all kinds of low-skill, low-paying jobs that most Americans wouldn't dream of taking. The critics say these workers freeload taxpayer-funded services without giving anything back. A new study though says migrant workers provide a huge economic boost to the communities they live in. We're going to talk about that now with Donald Terry who is one of the authors of the study and an expert on just what contribution immigrants make to the economy.

Nice to have you with us, Donald, thanks for joining us.


CAFFERTY: Conventional wisdom is the immigrants who cut the grass or clean the houses or do all of these jobs they were just talking about, when they get paid, the bulk of the money, minus just whatever it is they need to live on a subsistence level, goes home to the families that they left behind in whatever foreign countries they come from. Sort out the misconceptions in that idea for us.

TERRY: Well, the conventional wisdom is certainly wrong. It's true that the money that these people send home to their families is important to those people back home. It's about 50 to 80 percent of the income of the people back home in the families. But the reality is that 90 percent of the money stays here in the United States, contributing to the U.S. economy. And that's the basic fact.

LISOVICZ: Can you break it down a little bit more. We're talking about massive amounts of money here, in 2003, the amount of money coming into Latin America exceeded all of the foreign direct investments combined. Yet, it's not improving the standard of living in those countries. You're saying it helps -- what does stay here in the U.S., helps out those local communities. How so? Give us some examples.

TERRY: Well, here are the numbers. There's about $30 billion a year in remittances that are sent back to Latin America, that's typically, $200, $250, $300 at a time sent typically once a month. There are $16 million or so Latin American immigrants to the United States, adults now living in the United States, and about 60 percent of them are sending money home on a regular basis, about 10 million of them.

But the $30 billion comes out of a total earning base of $450 billion of those people living and working in the United States. So $420 billion, about 93 percent, is staying here. And that money is coming from not just the traditional places of California, Texas and Florida and Illinois and New York. But it's coming really from most of the states of the United States. Our study indicated that there are substantial Latino populations living and working in 37 states plus the District of Columbia.

SERWER: Hey Don, when I hear people complaining about these migrant workers coming in and taking our jobs, I really have to laugh, I've got to tell you, because, you know, when was the last time you ever ran into someone who says, darn, I couldn't get a job as a lettuce picker? Or I really tried to get a job as a chambermaid and I couldn't get one. Or I was looking to wash dishes in this restaurant and I didn't get the job. I mean, what would happen to the U.S. economy if all of these people were suddenly kicked out?

TERRY: Look, these people are heroes, these people are heroes to be coming to the United States and to be taking these jobs, and they're heroes to the people back home where they're sending this much-needed cash. They wouldn't be coming to this country if the jobs weren't here being unfilled by U.S. workers. And so, again, that's the basic facts.

They're not taking jobs from U.S. worker. They're contributing mightily to two societies. They're contributing back home and they're contributing here. In fact, there's a new term for this, it's called transnational families. That's families that are living in two countries, contributing to two economies and contributing to two societies at the same time.

CAFFERTY: There's an old term for them too, many of them, illegal immigrants. How do you square the stuff you're talking about with the fact many of them are in the country illegally, and what that word means, and if you acknowledge that then what do we do about the fact they're illegal? Do we just look the other way? What do we do about that?

TERRY: No, I don't think we look the other way. Although again they're important to the U.S. economy. But let me get to this issue of illegals, undocumented workers. The reality is that most Latin American workers in the United States are here legally, either they're citizens or they have proper papers, but there is a segment.

Estimates run about one-third, according the census numbers, are here without proper papers. Let me give you some context of that if I could. I happen to be Irish-American. My grandparents came to Boston about 100 years ago, and they took jobs as cooks and day laborers, and to tell you the truth, I don't know whether they came here legally or not. But I do know that 100 years ago there are Irish who came into the country illegally coming down through Canada. This was a typical route that was taken. You come through Canada and down through Buffalo and throughout the rest of the United States. When I was a small child, my mother told me... CAFFERTY: Donald, we don't have a whole time for the personal insight. But I'm going to stop you with one other note. I'm also Irish, I have no idea whether my ancestors got here legally or not. And it's probably just as well that I don't know that.

It's nice to have you with us, thank you very much for your perspective, $450 billion a year is a lot of money. And it's comforting to know that this economy benefits from some of that as well as the economies of the countries where these people come from. Manager with the multilateral investment firm Inter-American Development Bank, Donald Terry.

Here's what's cooking on IN THE MONEY, coming up next. Sweet revenge. We'll tell you why some shareholders are out to dunk Krispy Kreme.

And later what you're not hearing about September 11. We'll speak with a 9/11 widow about this week's hearings in New York City and the answers she was looking for that she claims she didn't get.

Plus their life, your money. Find out how you wound up supporting people you've never met.


LISOVICZ: Now let's look at week's top stories in our "Money Minute." Gas price hikes are taking their toll on American business. The big three car makers worrying about SUV sales: GM, Ford and Chrysler are all offering new rebates for their biggest and least fuel efficient models.

And Continental Airlines became the first major carrier to raise fares due to higher gas prices. The airline says they also may have to lay off workers and trim wages.

The Pentagon suspended nearly $160 million in payments to Halliburton as questions remain over the company's bill for feeding U.S. troops. Government auditors say the company's billing system for all of its Iraqi-related contracts is quote "inadequate."

OK. Which man in this picture has more power? You'll probably have a few more years to answer that question if you're not sure, that's because President Bush nominated Alan Greenspan for another full term as Federal Reserve Board chairman. The Senate is expected to quickly confirm the nomination for a fifth four-year term.

SERWER: All right. For years, the doughnut chain Krispy Kreme could do no wrong as the company just kept growing and its earnings kept beating the Street. But Krispy Kreme came out with a profit warning last week and now some shareholders who believe the company misled them about financial health are suing the company.

Krispy Kreme shares are now down almost 60 percent from where they were last August. That makes Krispy Kreme our "Stock of the Week." And first a little mea culpa here from this reporter who wrote a cover story in "Fortune" magazine, saying how this was an amazing brand, it still is an amazing brand, but one thing that I guess I didn't fully grasp is the power of this low-carb, no carb, carb-free society.

But I should say that a lot of these people who are suing the company suggest that there is more to it than just low-carb that's hitting the company. They bought a bread company, they're a little aggressive expanding. So it's unclear exactly how much of their troubles just have to do with the carbs and maybe just because they got a little ahead of themselves.

LISOVICZ: Well, it is a scene that we've seen many times with some really hot retailers like for instance McDonald's, right, as part of its restructuring, it's not opening any new stores. Gap, remember all the problems Gap had, 2 1/2 years of declining comp store sales. Benetton, remember, there's a Benetton on every block. You expand too quickly and you don't think long term. And that's one of the problems that Krispy Kreme has, it's great that shareholders are activists but these are the kind of blips that come with retail.

CAFFERTY: So how come there's a Starbucks on every corner in America?

SERWER: Well, you know, it's interesting you bring that up, because, listen, I want to talk about, because that's a company I've written about, too. And there's a big difference. It's fundamental. Starbucks you can go to every single day. I happen to go there twice a day. Krispy Kreme, you go into Krispy Kreme every day, you've got a problem. That's too much. And so it's purely a matter of frequency and how often you can go there.

And one more note about Krispy Kreme, their earnings are going to be coming out on Tuesday, So that will be a big day for this company. And they're going to do a whole conference call to see if they can handle this crisis, the first crisis really in the company's storied history.

CAFFERTY: Let me ask you this. I mean, earnings warnings aside, they make great doughnuts, they make really good doughnuts. Now do you buy the stock here on this big dip with the idea that they're going to get their expansion plans figured out and they're going to tap into overseas markets and they're not going to quit making these great tasting doughnuts?

LISOVICZ: I'm going to defer to you, Andy.

SERWER: I would wait and see a little bit here because it was a very expensive, very, very, very expensive stock, and now it's only a very expensive stock. So I would wait until after Tuesday. Could be a good time to buy after that, but we'll see.

LISOVICZ: I think you need to revisit company HQ.

SERWER: Yes, all right, we'll see, yes, do another taste test. Just ahead on IN THE MONEY, this week the 9/11 hearings focused on New York City's reaction to the attacks. We'll speak with a widow of one of the victims and get her take on the commission's performance so far.

And retirement's perfect storm. Find out which side of the fast food counter you'll be on when you hit 65. Stick around.


WHITFIELD: Hello, I'm Fredrick Whitfield, IN THE MONEY continues right after a check of the top stories.

Thirty-three separate investigations are under way into the deaths of detainees in Iraq and Afghanistan. The Pentagon added eight more criminal investigations Friday. Investigators are looking into 32 deaths of detainees in Iraq. A separate probe is focusing on five detainee deaths in Afghanistan.

OPEC oil ministers met informally today to talk about rising crude oil prices. OPEC officials say they are concerned about recent increases, but no immediate actions were taken to help lower the prices. The ministers have a formal meeting scheduled in June.

Back in this country, it's a weekend of cleaning up across tornado-damaged parts of Iowa. In the farming town of Bradgate, officials say yesterday's powerful twister touched nearly every building in that small community. At least 15 people were injured.

I'll be back in 30 minutes, now back to more of IN THE MONEY.

CAFFERTY: The 9/11 Commission heard new testimony this week here in New York City, and a lot of it came down to this: people talking to each other about people who are not talking to each other. The panel asked about everything from police and fire radios with communication trouble to police and fire departments with communication trouble.

And some relatives of the victims didn't like the answers they heard. We're joined on IN THE MONEY now by Monica Gabrielle who lost her husband on September 11 at the World Trade Center. She's on the Family Steering Committee of the independent 9/11 Commission, and she's co-chair of the Skyscraper Safety Campaign.

Monica, nice to have you with us, thanks for joining us.

MONICA GABRIELLE, 9/11 WIDOW: Hi, Jack, nice to be here.

CAFFERTY: You have said you were disappointed in the testimony here in New York City over those two days. What bothered you most?

GABRIELLE: Let me clarify some of the misconceptions that might be out there. Number one, yes, we absolutely do blame the terrorists. They started this horrific event and we'd like nothing better than them being brought to justice. Once you acknowledge that, you then have to step away from the issue and ask, what happened? And then you have to look at failures. When we come to New York City, there were clear problems prior to 9/11, including the communications systems issues with the fire department, the fire and police department, Port Authority, fire and police and all these issues at the incident command structure, all these things were already a problem.

What we were treated to instead was a torturous recount of 9/11 on the first day, which we were willing to go through in order to address the issues. And it just didn't happen. I mean, there were many questions that could have been answered, and quite honestly, the mayor has the ultimate responsibility to ensure that these things are fixed and working.

And Mayor Rudy Giuliani was -- his administration was in power prior to 9/11, and should have had these issues repaired. We don't detract from the fact that he was a -- doing a wonderful job of keeping the city calm. This is not about the brave men and women who ran into, toward those buildings on the morning of 9/11. This is about the honor of those men, and protecting those -- that continue to run into buildings to save us in an emergency, to make sure they have 100 percent capability of communicating. And...

SERWER: But Monica, excuse me, what is it exactly, then, that made you unhappy, and what is it that you wanted to hear?

GABRIELLE: I really wanted to hear Mayor Rudy Giuliani and his administration answer the questions about what was known prior to 9/11? What intelligence was given to them from the Joint Terrorism Task Force, the go-to al Qaeda agency in New York, which encompassed FBI and New York City police personnel, and what happened to those threats, the level of threats the summer of 2001.

Why wasn't the radio issue ever addressed? There were communication problems for long time, for many administrations. It has yet to be addressed. Why was there no coordinated incident command structure or plan?

You know, yes, it was horrific. Yes, it was unbelievably destructive and all those things. But we expect those people that we elect into power, and those who they then surround themselves with, to think outside the box, to worst-case scenarios and be prepared; most especially after the '93 bombing, and the other threats that were thwarted before 9/11.

LISOVICZ: Monica, certainly a lot of your work, all the time and the grief that you've had to endure is not only to address what went wrong prior to 9/11, but to make sure it doesn't happen again. And that is the question, what is the situation of the radios, for instance, in New York City, that this vastly populated island where you have so many major figures, so many people gathering on a daily basis? Do you know the answer to that, and do the fire departments and the police departments now work together?

GABRIELLE: Absolutely. The radio communications issue is still not fixed, which is just unacceptable almost three years later from that most horrific event. The communications between agencies is still in question. The incident command structure, although, I think the city is -- and Mayor Bloomberg are trying, it is certainly not something that seems to be workable. It needs to really be fine tuned and honed in.

And these are the issues that should have been discussed at the hearings here in New York. This is what we owe all those men and women who died. Orio Palmer, Chief Orio Palmer, that brave man made it to the 70th floor and was in the process of hopefully helping my husband. The last person my husband potentially saw was that man and the last thought was, gee, I'm getting out of here. It didn't happen. It could have been different. The destruction and death might have been minimized.

CAFFERTY: Realistically, though, and I don't mean to play devil's advocate, but two commercial airliners flying at multi- hundreds of miles an hour, slamming into the Twin Towers of the World Trade Center, is it not realistic to expect that there would have been hundreds if not thousands of casualties in an event like that even if we had had the greatest radio technology on the planet? I mean, something that horrendous -- I just wonder if there's room in the middle of the argument for that point?

GABRIELLE: Absolutely. What -- there would have definitely been death and destruction. What we were looking for were ways to minimize it should it happen again. Do not forget that one thing that came out of those hearings which everyone should be concerned about is that if something happens again, and you're above, say, the 50th floor, and the staircases, the egress means are taken out, you're trapped. The reality is that they're telling you you're going to die.

That's unacceptable. We have to find ways to ensure the safety of people in the city, whether it be first responders going into emergencies with the proper communications, whether it's a city having a workable incident command structure, where there is a person that delegates responsibility and authority and tells people what to do and where to go. We have to have evacuation procedures in place to get out of buildings. These are clear results of the findings that we ourselves have discovered through the horrible events.

CAFFERTY: All right. Monica, I appreciate you coming on the program and sharing your thoughts with us. Thank you for being here.

GABRIELLE: Thank you for having me.

CAFFERTY: All right, Monica Gabrielle, lost her husband September 11. She is on the Family Steering Committee of the 9/11 Commission and co-chair of the Skyscraper Safety Campaign.

Up next, as we continue on IN THE MONEY: the grey tide. The country is getting older, I know this, I'm part of the problem. The young are picking up the tab, that's a good thing for me. Find out what -- I don't mean to make light of this. But it's all going to come crashing down at some point. Find out if you are going to be giving or getting as we continue.

And don't just sit there muttering about the stuff we do here, tell us what you think, or don't, about the stories we're covering and showing you. Our e-mail address is We shall return.


LISOVICZ: There are millions of American Baby Boomers out there stuck in that zone between hip and hip replacement. As our population ages more and more, money tilts in their direction with programs like Medicare, and generations to come get stuck with their bill. All the gory details are in a new book called "The Coming Generational Storm." And we're joined now by its author, Laurence Kotlikoff, who is also an economics professor at Boston University.



LISOVICZ: What a grim read. You talk about...

KOTLIKOFF: It's a fun read, come on.


LISOVICZ: Oh, it's sad, it's sad, because I think I'm going to have to work until I'm about 90, actually. And that's really one of the sad realities, isn't it? That there are so many of us that are going to be getting older, you say it's like a giant pyramid scheme, but you need more workers to be coming in at the bottom to keep the scheme going?

KOTLIKOFF: Yes, we have 77 million Baby Boomers who are going to start collecting Social Security benefits in just four years. By 2030 we're going to have twice the number of old people and only 18 percent more workers. And in 50 years we're going to have enough people over 85 to fill up all of Los Angeles, Chicago, and New York City. We're going to have enough people over 100 to fill up all of Washington, D.C.

SERWER: Hey Laurence, we've seen this for years, we're looking at this thing 100 miles away, we see it coming, we see it coming, we see it coming, what can we do about this, we know it's there?

KOTLIKOFF: Well, our book lays out two very practical, straightforward plans for reforming Social Security and Medicare and Medicaid. They're not simple, they're not, you know, painless, but they are very important and we need to undertake them right away. We also talk in the book about what individuals can do on a personal level to try and -- to deal with what's coming.

CAFFERTY: And what are the ideas? I'm particularly interested in Social Security, which has been described variously as a cruel joke and a myth. There is no trust fund, there is no lockbox. The money that's taken out of my paycheck and yours goes into the general fund and the politicians spend it on anything they want. When it's time to pay the Social Security benefits, the Treasury Department prints a check and sends it out, but there is no batch of money sitting out there for any of us in our old age. And some have suggested that's why no politician is ever going to sign off on the idea of privatizing Social Security because all of a sudden they'd lose this huge income stream from all of us that pay in these FICA deductions on our checks every couple of weeks. True or false?

KOTLIKOFF: Well, true. The overall picture, if you take all the programs, Social Security, Medicare, Medicaid, all the government spending, all the government taxes, according to the actual -- actually, the U.S. Treasury, we're sitting here facing a $51 trillion fiscal gap.

In other words, we need $51 trillion today to deal with what's coming without having to raise taxes or cut spending. And that's an astronomically large number. We would have to raise taxes immediately, federal income taxes by 78 percent today, and keep them 78 percent higher for the rest of time to come up with 51 trillion bucks.

So the country's flat broke. We need to do very radical and difficult reform of Social Security and Medicare and Medicaid. Now on Social Security, what we propose is to pay off what we owe with a federal retail sales tax and to put everybody into an individual account by taking 8 percentage points of their payroll tax and having those funds be contributed to individual accounts and they would be invested in a global stock market and bond market fund of all the securities that are on sale throughout the world. So it would be a fully diversified portfolio you'd be holding.


KOTLIKOFF: So the idea is pay off what you owe, and then put people into a sensible, straightforward, individual fully funded account system.

LISOVICZ: OK. And for Medicaid and Medicare, a voucher to buy health insurance for that year, and it could be vastly different for people of different ages and different health?

KOTLIKOFF: Exactly. In our scheme, everybody would get a voucher, the government would keep tabs on the total amount vouchers in the sense it would cap how much total expenditure would occur under these programs. But then if you're -- the specific voucher that you get would depend on your health status. So if you're 85 and you have pancreatic cancer, you get an $85,000, maybe an $82,000 voucher. If you're perfectly healthy, you might get a $7000 voucher, so the insurance companies would not be able to pick off the healthy and leave the sick to fend for themselves. That's not how it would work. So it's a new idea...

SERWER: Sorry, quick last question here, you had some ideas about investing today in terms of this problem.

KOTLIKOFF: Yes, we have to realize that our government is so behind the eight ball on what's happening here and setting us up for an even bigger disaster than would otherwise occur by cutting taxes and raising spending, and it's not just this administration, previous ones as well, that we need to worry about the government printing money like crazy to pay these bills, generating huge amounts of inflation, indeed hyperinflation, and interest rates going sky high.

So we've got to be very careful about what we invest in. We want to stay away from long-term bonds that are going to be paid back in watered down dollars. We want to think about our taxes being raised and be careful about putting money into a retirement account where you take the money out and then you're -- all of a sudden you're going to be hit with sky high taxes. So there is lots of very practical investing advice in the book.

CAFFERTY: All right, Laurence, we're going to have to leave it there. I appreciate you sharing your thoughts with us. Scary stuff. Laurence Kotlikoff, Larry's book is called "The Coming Generational Storm." He's a professor at Boston University. Thank you for being with us.

KOTLIKOFF: My pleasure.

CAFFERTY: All right. Coming up next on IN THE MONEY, "Shrek 2" is already a hit but it may not be enough to make Dreamworks a dream stock for all investors. We're going to take a look at that.

And send us your thoughts and we'll actually listen. Well, I won't, but somebody will. Our e-mail address is


CAFFERTY: Usually when the Hollywood money types pin their hopes on an ogre, it's means they've hired a new video chief. But these days it's the fortunes of the animated character "Shrek" making Tinseltown and Wall Street sit up and take notice big time.

Web master Allen Wastler has more on that and a delightful "Fun Site of the Week," "Shrek 2" going to make big money.

ALLEN WASTER, MONEY.COM: It's looking like -- going into the weekend, they did like a little release beforehand, got some good cash off that. Now they're going to go big honking release over the weekend, over 4000 theaters it's going to be in.

Of course, the company behind "Shrek" is Dreamworks, it's been privately held, and everybody has been sort of going, hmm, making a lot of movies there, when are you going to like hit Wall Street and start like giving us a piece of the action, maybe do a little IPO and start selling stock.

And a lot of people think "Shrek 2," if it's a big hit, that might be just the platform they want.

LISOVICZ: Good timing.

WASTLER: That they announce -- and they got another one coming out, "Shark Tales," in the fall, so they figure bracket it between two movies, get a lot of buzz, you can have a very successful IPO. Now the company itself hasn't said anything, they're saying, we don't really need money, but you never know, you know, they are sort of playing the field.

LISOVICZ: Well, they really don't when you think about Spielberg...

WASTLER: Yes, when you think about it, they're doing fine. But if they were to do an IPO -- and actually "Business Week" says they've already talked to some investment banks about maybe formulating a plan. If they were to do it, should you buy the stock?

Now, let's say they go public, who are they going to be a lot like? Pixar, right? Pixar has been five for five with its movies: the "Toy Story," "Monsters," "Bug's Life," and then "Nemo," of course. OK? Those were all fantastic movies, and yet if you look at stock in the first few years the company was out, it just languished, languished. Just lately it's been sort of poking up a little bit.

So could Dreamworks duplicate that? Well, look at history of Dreamworks movies. OK? Sure, they had "Shrek." But "Shrek" is far and away their biggest success, if you look -- they had a dud with "El Dorado," right? And then all the other ones, if you look at the production costs versus what they took in, yes, they made a little bit of money, but not like Pixar, you know? Pixar made huge amounts on each and every film. Therefore boom, therefore it's probably not going to be the same. You might want to stay away from it, general idea.

CAFFERTY: Let's go to the "Fun Site of the Week." I know that's a winner.

WASTLER: You're talking movies, got candy bars, right? Name that bar, Jack.

CAFFERTY: Name that bar?

WASTLER: I'm going to throw it up, OK? There you go, upper left.

CAFFERTY: P.J. Clark's?

LISOVICZ: It looks like sushi.

WASTLER: Upper left, that one, that one's easy.

CAFFERTY: That would be an Almond Joy.

WASTLER: Very good, Jack. Upper right?

CAFFERTY: That would be a Mounds.

WASTLER: Jack, you're killing me here.

CAFFERTY: I have such a sweet tooth. I don't know what the other ones are.

WASTLER: Lower left.

SERWER: You know what that one is? That's a Cafferty, it's crunchy on the outside and marshmallow on the inside.

WASTLER: No, lower left is a Kit-Kat. All right? Bottom right, last one, come on. Something falling out of your hands?

SERWER: That's a Butterfinger.

LISOVICZ: That's a Butterfinger.

WASTLER: There you go.

SERWER: "Simpson's."

WASTLER: Those were just four of the favorites. But you can go to our show page. You've got all the candy bars there. They've got many, many more.

LISOVICZ: I'm going straight to my vending machine.

CAFFERTY: All right. Before you reach for another candy bar of your own, send us an e-mail, You'll get a response without a caramel center. Thank you, Allen. Back after this.


CAFFERTY: Time now to get your answers to our question about whether higher gasoline prices are affecting your summer travel plans. Just about everybody who wrote in cracked wise which means our audience is intact.

Maggie (ph) wrote this: "I have no summer travel plans since I've been unemployed for four years and I have no money. Once a week I drive my SUV to buy groceries, so a tank of gas lasts me for two or three months. The last time I filled up, gas was $1.32 a gallon."

Dan (ph), wrote this: "I'm so depressed over the high cost of gas for my SUV, I may have to cut down on my Starbucks chocolate mocha latte mints and cell phone minutes. Even my vacation to Club Med may be cancelled because of fuel-related fare hikes."

And John (ph) in Vandalia (ph), Illinois wrote to us: "Gas prices aren't a big issue for me but my brother may not drive out to visit me this summer because of higher fuel prices. And that will end up saving me big bucks."

Time now for our e-mail question for this week, which is: "Is your city better prepared for a terrorist attack now than it was three years ago?" Send your responses to Also an invitation to visit our show page at which is where you'll find the address of our "Fun Site of the Week" all about those candy bars.

In the meantime, thank you for joining us for this edition of the program IN THE MONEY. Thanks to the gang, CNN correspondent Susan Lisovicz, "Fortune" magazine editor-at-large Andy Serwer, and managing editor Allen Wastler. Join us tomorrow at 3:00 Eastern time. We'll look at President Bush and whether he's doing enough to ensure strong support from conservatives come election time in November. That's tomorrow at 3. Until then, enjoy your weekend.


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