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Can Democracy Flourish in Middle East; Real Estate Bubble Discussed

Aired March 05, 2005 - 13:00   ET

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

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


ANDREA KOPPEL, CNN CORRESPONDENT: Hello. I'm Andrea Koppel at the CNN center in Atlanta. IN THE MONEY begins in a moment. But first here are the headlines now in the news.
Syrian President Bashar al Assad told his country's parliament that Syria would eventually redeploy all its troops to the Syrian Lebanon border. He also asked the United Nations to address the issue of an immediate withdrawal, cautioning that a quick pullout could hurt Lebanon's stability. There have been protests in Lebanon calling for Syrian troops to leave after the assassination of the Lebanese former prime minister. Assad today called the death of Rafik Hariri an attack on the unity of Lebanon as well as Syria.

There are exclusive new images of one of the most wanted men in the world. CNN recently obtained new pictures of terrorist leader Abu Musab al Zarqawi, a top lieutenant in Osama bin Laden's al Qaeda network. The U.S. claims Zarqawi masterminded and carried out countless attacks on Iraqi and American troops. While sources tell CNN the man in these photographers is, in fact, al Zarqawi, it is unclear how recently the photos were taken. Still, they appear to have happened at the same time and place. In the pictures, Zarqawi is bearded and well groomed and appears relaxed.

We'll have another check of the headlines at the bottom of the hour. IN THE MONEY begins right now.

JACK CAFFERTY, CNN ANCHOR, IN THE MONEY: Welcome to the program. I'm Jack Cafferty. Coming up today's edition of IN THE MONEY, something to shout about. In some key Middle Eastern countries, democracy is suddenly blooming. We'll look at whether that political system can take root and grow over there.

Also ahead, putting a stamp on the future, changing Social Security is the cornerstone of President Bush's domestic agenda. We'll look at whether that and his other plans are on course at this time.

And politics gets kinky, Kinky Friedman, country singer, mystery writer running for governor of Texas. He'll join us on the program and tell us what he plans to do if he plans to do if he wins. Joining me today, a couple of IN THE MONEY veterans, LOU DOBBS TONIGHT correspondent Christine Romans, "Fortune" magazine editor at large Andy Serwer. A bit of an anomaly in the bit jobs report that was out last Friday, huge number of jobs created. The unemployment rate went up. ANDREW SERWER, "FORTUNE" MAGAZINE: This is the bane of my existence, have to explain this on live television. How come if we created all these jobs, the unemployment rate goes up? The reason it is is because it means more people went out looking for jobs than jobs were created. The 262,000 number for February was higher than expected. Economists were looking for 220. It's good news. I think that Wall Street will be focusing on the job creation, rather than the up tick in the unemployment rate.

CHRISTINE ROMANS, CNN CORRESPONDENT: Many more people are out there, encouraged to get new jobs at the beginning of this year and that's why the unemployment rate ticked up, what 5.4 percent it ticked up.

SERWER: Yes, from 5.2 to 5.4.

ROMANS: And there were jobs were in a lot of different areas, including if I'm not mistaken manufacturing.

CAFFERTY: Right, which has been lacking, sorely lacking. But it is a little tough. You tell people the unemployment rate went up and that's a good thing, but in a way it is a god thing. It means people have confidence in the ability of the conditions that are out there to maybe provide employment.

SERWER: I think you said it best at the top, though. Is it an anomaly? I mean is this a blip? We have seen things get a little bit better. I mean no question it's better than when there was job loss.

(CROSSTALK)

ROMANS: So it is consistency, at least, a couple of months of pretty strong jobs growth.

SERWER: So the trend is Chris' friend.

CAFFERTY: The trend is your friend.

SERWER: Yes.

CAFFERTY: All right. All of a sudden, democracy is on the map in the Middle East. It seems like it's about everywhere. In Iraq they used democracy to elect a government recently, elections that were hailed as turning out much better than perhaps almost anyone expected. In other countries they've begun talking about democracy as well which is one thing the Bush administration had hoped for when it invaded Iraq in the first place.

This week Syria is making noises about loosening its grip on Lebanon. They are under intense pressure from the United States, from France, from Russia, and the voices are growing ever louder. Get out of Lebanon. Egyptian President Hozni Mubarek floating the idea of multi-candidate elections in Egypt. We'll look at how far this trend could go. We're joined by Victor Davis Hanson, who's a senior fellow with the Hoover Institute at Stanford University out there in Fresno, California. Mr. Hanson, nice to have you with us. VICTOR DAVIS HANSON, HOOVER INSTITUTE: Thank you for having me.

CAFFERTY: Are we talking about democracy in the Middle East or are we talking about the spread of instability?

HANSON: Well, it won't look like Carmel, but just because it's perfect doesn't mean it can't be good. We got to be careful of utopian demands. It will be very good, because it will end the old pathology where autocratic leaders deflect popular frustration against themselves in the devil's bargain with Islamists to blame the United States. That's what we're after to end that old pathology that led to September 11.

SERWER: Excuse me Victor. Over the past couple decades, we've seen some tremendous transformations take place in nations like the Philippines and South Africa. We saw a relatively bloodless transition to democracy but is it realistic to expect those kinds of transitions in the Middle East?

HANSON: I think it for a couple of reasons. Actually force is usually the precursor to democracy, whether that's in Argentina or central America or the threat of force in eastern Europe or our own history. And second, there are literally millions of Muslims in the world in India and Indonesia and Turkey who do not send their youth to New York to blow us up. So we know that consensual government has a venting process and it's not incompatible with Islam. What the great question is, in the Arab world, is Islam compatible with democracy? And as we saw in Iraq on January 30, I don't think it is.

ROMANS: Let's talk a little bit about the events of this week. In your view, just how momentous they might have been. We saw even Saudi Arabia giving Damascus some serious things to think about in terms of pulling troops out of Lebanon. Hozni Mubarak, as Jack pointed out, a multi party or multi candidate elections likely there. There's some really big changes all in one week. Were the elections in Iraq the precursor to all of this or would it have happened anyway? Was it just a pressure cooker in the Middle East and the people bound to start getting some move toward democracy at some point?

HANSON: There was a lot of precursors, one, was the elections in Afghanistan, the forcible removal and humiliation of Saddam Hussein, elections in Iraq, the Syrian involvement perhaps in the assassination of former Prime Minister Hariri in Lebanon, the isolation and humiliation of Yasser Arafat before he died so he was not a messianic figure, the withdrawal of troops from Saudi Arabia. So the Bush administration has done a lot of unheralded steps that set the stage that in an explosion could ignite a change. That's what we're seeing today.

CAFFERTY: The silence has been almost deafening from the left of the political spectrum here in the United States along the lines of, gee, maybe President Bush was on to something. Are they making a mistake by sort of ignoring what looks like it could be a big success for this administration in that part of the world?

HANSON: Well, they made a mistake in the last three years. This was the party, remember, of Harry Truman and FDR and John Kennedy who believed in muscular engagement in the world to promote freedom and the Republicans used to be the isolationists. Now we're topsy turvy and the Democratic party establishment has either sat out or actively opposed this and now the train's leaving the station and they better get on or they're going to suffer the wages of humiliation. It's historic to watch the silence. It's almost as if people are disappointed in the success that we're witnessing because it tends to, oh, make the prior support rather ridiculous.

SERWER: Victor, I want to follow up on this notion of partisan politics. Obviously you're from the Hoover Institute which is a conservative think tank. I think that's fair to say. But in defense of Republicanism, I mean Nixon goes to China. Reagan defeats communism. Boy, isn't it the case, it's hard to argue -- not argue that the Democrats have really struck out over the past couple of decades isn't it. I'm pitching you a softball aren't I?

HANSON: Yeah, well, Sharon withdrew went to, Sharon was the one that withdrew from Gaza as well. You make a good point. It's almost as if Republicans can run up deficits and nobody will criticize them, but Democrats can go to war and nobody criticizes them. If you have a Republican that goes to war, a Democrat that runs a deficit, then you get popular outrage. In this case the Democrats really have to get on board and get out of this 24-hour news cycle where we predicate our support or oppositions depending on the pulse of the battle field and instead say removing Fascists like the Taliban and Saddam Hussein and supporting democratic reform in the Middle East are always good now and in the future.

ROMANS: So Victor, do you think we're going to see a rash of columns and appearances by pundits who are going to say, oh, we were wrong. Look, there can be democracy in the Middle East.

SERWER: They do that all the time.

ROMANS: Sure.

HANSON: No, no. All you're going to see, the extent of the remorse you're going to see is something like the recent "New York Times" editorial where it says some opposed President Bush and he seems to deserve partial credit. Those some that opposed him were in fact people that wrote the editorials for the "New York Times." Too many people have invested too much intellectual capital and political capital in thinking this whole thing was going to fail. So don't expect any mea culpas from any of them.

CAFFERTY: On the other hand, it's a little early to declare a victory. They're a long way from a democratic and open society in Iraq. They had some elections. They've got a government in place of sorts. There's no constitution yet; that's coming and there are a lot of people who say that they want nothing to do with a secular government in Iraq and if fundamentalist Islam gets a hold of that country, I'm not so sure that democracy has anything to celebrate. Do you?

HANSON: No, but all of the worries that you expressed were the same things we heard about why we should stick with Gorbachev and not Yeltsin, why eastern Europe, who had no history of parliamentary democracy, like western Europe, could flip suddenly, why Latin America would always be under the control of strong men and democracy is contagious. And we're not talking that it has to look like America. It may end up more analogous to European democracy. But change is in the air and we can't stop now. We've got keep pressing Egypt, Saudi Arabia and Pakistan to look at the choices before them. It's either to go like the shah and get an Islamic reaction or it's to have a transitional figurehead like Juan Carlos where they usher in democracy and they can stay in the society and enjoy it.

CAFFERTY: Fair enough. Good stuff, Victor Davis Hanson, senior fellow at the Hoover Institute at Stanford. Thank you for being with us.

HANSON: Thank you for having me.

CAFFERTY: You bet you. When we come back, making change. President Bush is out to transform Social Security and a lot of other things too. We'll find out how his second term domestic agenda is shaping up.

Plus, bubble or bust. Wherever the real estate market is headed, there is a way you can make some money on it and we'll get some tips on how to do that as we continue. Plus, the Schwarzenegger Ventura school of political science. Kinky Friedman's another entertainer with his eye on the governor's mansion. We'll ask him why he's bothering. He says, hey, how tough can it be?

(COMMERCIAL BREAK)

CAFFERTY: You'd have to be pretty hard of hearing to not know how important Social Security reform is to President George W. Bush and for that matter, for a lot of people in this country. But his plan to push a bill through Congress isn't going so smoothly at this point and some on Capitol Hill, even those within his own Republican party are doubtful that legislation will reach the floor by the next of this year. So what's a second-term president to do? Let's find out from Larry Sabato, who's with the University of Virginia Center for Politics and has been on this program before. Larry, nice to see you.

LARRY SABATO, UNIVERSITY OF VIRGINIA: Thank you so much. Nice to be here.

CAFFERTY: Is Social Security reform dead in the water?

SABATO: It's dead in the water right now, but, you know, like a good speed boat, you turn on the motor and it might get moving again, but I doubt in the current form.

ROMANS: How can you get it moving again? The Democrats have been pretty successful in pushing the status quo on this without really giving any real promises to how to fix it down the line. It just doesn't look as though it can be revived. How could it be revived?

SABATO: It can be revived by taking private accounts out of the fundamental part of Social Security reform and making it an ad on. In other words, you do other things to secure Social Security for the future, whether it's raising the level of income on which Social Security taxes are paid, something like that. And you have separate private accounts. That's a possibility. It's pretty clear President Bush is not going to get what he thought he was going to get a few months ago.

SERWER: Larry, let me ask you a question though. This is maybe a radical idea, but should Social Security be fixed? I would argue that maybe you let things go for a while longer. I know this is heresy, but you can make big mistakes trying to solve problems that are too far out over the horizon. In other words, you misidentify the problem. You provide the wrong solutions. Shouldn't we wait until the problem is closer?

SABATO: You may be a heretic, but you have a good chance to become a tenured faculty member.

SERWER: Just what I wanted Larry, thank you at UVA maybe?

SABATO: Yeah, UVA sure. Write me. I'll be happy to get you a job.

SERWER: Thank you.

SABATO: Look, the key here and I think you made a good argument, frankly. When we rush into reform, often we find that we don't know what we're doing. Look at the Medicare prescription drug costs. Look at that reform that was passed prior to the 2004 election. We're talking now about literally hundreds of billions of dollars more than we thought in the beginning. So I'm not necessarily opposed to what you've just suggested. Sell that to the president though.

CAFFERTY: You mentioned the possibility of resuscitating Social Security reform through, perhaps, introducing the idea of private accounts outside Social Security. Aren't those calls IRAs and Roth IRAs and 401(k)s? I mean don't we have that stuff now?

SABATO: You have some of it but you can expand those programs or you can establish a separate account just for Social Security. Look, the savings rate in the United States is miserable. It's one of our basic economic problems. My view is the more the merrier.

ROMANS: Is this the Social Security plus that people, Republicans have been whispering about and saying that they can make it look like Social Security reform even though it's not exactly what the president started out to do in the beginning?

SABATO: The greatest advantage President Bush has is he controls pretty substantially both houses of Congress. They can make losses look like victories. That's the advantage of controlling Congress. So I think they're going to have to do it. It's going to be PR work but they're going to have to do it before it's over.

SERWER: Larry, I usually hate this inside the beltway stuff, but didn't the president sort of botch this one in terms of understanding the issue, understanding how to present it, framing the debate, as they say?

SABATO: Yes. This president's had a lot of successes. He's probably going to go down in history as one of the more successful ones, but not on this issue. People don't even understand what the reform is. I can't explain it to you fully and I follow it daily.

CAFFERTY: The majority leader of the Senate, Bill Frist said publicly a week or so ago, it ain't going to happen. It may happen in 2006. You and I and everybody watching this program know that in an election year, no one in his right mind who's up for re-election is going to suggest tampering with Social Security, unless you're looking for a second career perhaps doing weekend financial programs on CNN or working down there at the university where you are. I mean he's got one of the top guys in his own party saying publicly, this is going nowhere.

SABATO: Well, Bill Frist is running for president and he's got his own agenda there. And of course they got to him quickly and got him to reverse course and say we're going to do it this year. Believe me, his first comment was the accurate comment. It's not going to happen.

ROMANS: Do you think that President Bush has the same kind of priorities in mind for this country as the average American does? Poll out this week that showed quite a few Americans have different priorities than the president has been pushing here.

SABATO: I'm going to tell you something. Again it will be controversial, appropriate for a tenured academic. The greatest presidents in American history have almost always had a different set of priorities than the American public. Temporary public opinion should not guide national policy.

SERWER: OK. I think we're going to leave it at that, Larry. Larry Sabato is a director from the University of Virginia Center for Politics. Thank you coming back on the program.

SABATO: Thanks a lot, enjoyed it.

ROMANS: Coming up right after the break, the mega deal that could change the way you shop. See if investors are buying Federated's move to build a retail powerhouse.

Plus, if you build it, will they come? We'll get some tips on making money off real estate, whether the housing market is up or down.

And big business. One woman cashes in on her brush with the law in a very personal way.

(COMMERCIAL BREAK)

ROMANS: Now let's take a look at the week's top stories in our money minute. Martha Stewart is a free woman sort of. Stewart got out of Federal prison Friday but she will now serve five months of house arrest at her home in suburban New York. Share prices for Martha Stewart Living Omnimedia are way up since last year and now she's going to start her own prime time reality show on NBC.

Fed Chairman Alan Greenspan took his case for tax reform to Capitol Hill this week. Greenspan urged Congress to simplify the tax code and start considering shifting the focus from income taxes to sales taxes. But no change in the tax code is likely to help aeronautics and telecom businessman Walter Anderson. The IRS charged him with about $210 million worth of tax evasion, the most ever by one person. Prosecutors say he illegally hid money in Panama and Holland. The indictment also says that in 1998, he paid less than $500 in income taxes.

SERWER: Another big story this week was Federated's decision to buy department store rival May for about $11 billion. The deal combines Macy's and Bloomingdale's with Lord & Taylor and Marshall Field's. Industry watchers say the consolidation shows just how much discounters like Wal-Mart and Target have taken from the retail department stores. Federated shares are trading near five-year highs, but some critics say the deal is like reinventing the wheel for the Model T because the retail department store sector is way past its prime.

That makes Federated department stores our stock of the week. It is a bad business model in the sense that it's so long in the tooth. I mean this goes back to the 19th century. But interestingly, I went back and checked. Federated stocks since 1992 point in time, has tripled in those 13 years, beating the market, which suggests that the Federated people must know a little bit about what they're doing. One thing they've done is to roll up this business, buy all these chains all across the country.

ROMANS: Then there goes all those regional brand names. We talk about this a lot where everything is so national now, Wal-Mart, Sam's.

SERWER: Bed, Bath & Beyond.

ROMANS: Bed, Bath & Beyond. Federated department stores really now Macy's will now be the big name all across the country. What about the little regional department stores that have been bought up?

SERWER: She's getting all sentimental.

CAFFERTY: You mean like Woolworth's, the five and dime? One of the things this will do though and one of the keys to the success of companies like Wal-Mart is, they squeeze the suppliers. They squeeze them hard on prices. Federated is going to going to be able to do the same thing by incorporating this additional bunch of stores under their brand name when they go to buy drapes or nightgowns or whatever it is they're going to sell, they can say to the suppliers, we're basically the only outlet in town for certain of these products. You've got to give us a better price.

ROMANS: You know what that means eventually. You'll go down the food chain. It means that the stuff comes in cheap from someplace else and U.S. manufacturers really get hurt.

CAFFERTY: But for the shareholders, I mean it would fit Federated's plan.

SERWER: I'm not sure this whole notion of changing all the names to Macy's, for instance. In fact this Sunday, Federated is going to be changing the name of Bon Marche, Riches, Burdines, Lazarus and Goldsmiths. All across the country, we all know those stores in all these cities to Macy's. A lot of people are bemoaning that. I'm not sure who this really helps. I mean they think that Wall Street likes this by having one name and then they can go to these conferences and say we've got one name across the country. I don't think people like it. I don't think customers like it at all.

ROMANS: I think you're right.

SERWER: So, it will be interesting to see if they can make this work. They are the big kahuna. They're really the only game left in town.

CAFFERTY: And as you pointed out, Federated stock price tripled in the last few years. So they're making that part of the business work. Do you buy the stock or not?

SERWER: You know, I wouldn't.

ROMANS: Sell the news.

SERWER: I think at this point it's gone up a lot and I could be wrong, and I hope I am for all you Federated shareholders out there.

CAFFERTY: Coming up?

SERWER: Yeah, coming up on IN THE MONEY, thinking smarter about the housing market. Learn about some ways to profit off real estate whether the business is hot or not.

Plus, kinky and proud of it. We'll ask country star Kinky Friedman why he's running for governor of Texas.

And taking it to the bank. See what could lie ahead for Carly Fiorina after getting pushed out at Hewlett-Packard.

(COMMERCIAL BREAK)

ANDREA KOPPEL, CNN CORRESPONDENT: Hello. I'm Andrea Koppel at CNN center in Atlanta. IN THE MONEY continues in a moment. But first, here are the headlines now in the news. These are exclusive new images of one of the most wanted men until the world. CNN recently obtained new pictures of terrorist leader Abu Musab al Zarqawi, a top lieutenant in Osama bin Laden's network. The U.S. claims al Zarqawi master minded and carried out countless attacks on Iraqis and American troops. Sources tell CNN the man in these photographs is, in fact, al Zarqawi, it is unclear how recently the photos were taken, but they appear to have happened at about the same time and place. In the pictures, al Zarqawi is bearded and well groomed and appears relaxed.

An Italian journalist held hostage by Iraqi kidnappers is back in Rome. Giuliana Sgrena is undergoing treatment for shrapnel wounds inflicted by U.S. troops as her car sped to the Baghdad airport. The man who helped negotiate her freedom was killed in the attack. President Bush has promised a full investigation. The military says the vehicle carrying Sgrena refused to stop at a checkpoint. I'll have all the day's news for you at the top of the next hour. Now back to IN THE MONEY at CNN.

CHRISTINE ROMANS, CNN CORRESPONDENT: Is there a bubble in the real estate market or isn't there? It's a question many investors are trying to answer as prices continue to rise in many parts of the country. My next guest says who cares? Whether you're more Pollyanna or Chicken Little about the market, he says there's money to be made no matter what. Michael Copeland, senior writer of "Business 2.0" joins me with a look at some innovative ways to cash in, no matter which way the real estate market goes. And with the real estate market up oh, what like 50 some percent since 1997, there are a lot of people out there who are saying the sky is falling. You say it doesn't matter. It doesn't matter because there are real important ways you can still make money. The first one you point out is location, location, location. Tell us about that.

MICHAEL COPELAND, BUSINESS 2.0: I will. This is not what you might expect. This is about house moving. It's sort of an arbitrage between houses that are cheap in one location and locations that are very expensive to buy houses in. And so we've talked to Ducky Johnson, who's a house mover in Florida who's got a booming business moving houses from places like Alabama to sort of coastal panhandle Florida and what you want to think about is the price of the house. You can pick one up cheap say for $17,000 in some sort of less desirable location and put it on a truck, move it 50 miles or so and double your money. It's cheaper to move wood houses because they flex a little I guess on the road and a little more expensive to move brick houses, but you can move them for $15 to $30,000 for 50 miles. So you need to think about that arbitrage and what your costs are and what you're going to get on either side.

SERWER: Old ducky must really have quite some business down there. Good stuff. Listen, I want to just take a step back though Michael and ask you about the real estate market before we go through some of your tips.

COPELAND: Sure.

SERWER: Come on, this is really getting frothy. I'm reading the paper every day, oh, we bought this vacation condo in Florida. Then we flipped it two months later made and 100 percent on our money. Come on. Things are really out of control in a lot of markets now aren't they?

COPELAND: Froth is a good word and yet it keeps going up. I would say the sort of condo -- speculative condo flipping that you see in places like Florida, Arizona, Las Vegas, as soon as there's a pullback in the market, those kind of deals are going to get crushed. You're going to see values drop on those things pretty quickly. But the question is when? We've been saying that for the last couple of years and things just keep going up. SERWER: Keep on keeping on.

COPELAND: Yeah. Even the bubble people are sort of now kind of figuring out what we meant by a bubble.

SERWER: But that's always worst time when the bubble people say there's not a bubble anymore. Anyway, Jack you were going to ask them something weren't you?

CAFFERTY: I want to know more about Ducky Johnson and, you know -- go ahead.

COPELAND: I'm just saying, if you want to get into the house- moving business, Ducky Johnson was one of 18 kids or something like that. So you need a lot of people to move these houses.

CAFFERTY: I'd be afraid to find out what the other 17 are named. The bubble will burst. Trees don't grow to the sky. What happens when all of a sudden, you know, we get a sharp decline in the dollar, which is a possibility that triggers a big spike in interest rates and suddenly you can't find a 5 percent mortgage anywhere to be found and they go to 7, 8 percent. God forbid, but it could happen. And you're stuck with, you know, yourself mortgaged up to your eyeballs in real estate that you planned to turn for a profit. How do you make moan if the market suddenly turns and goes south?

COPELAND: Well, what you're going to do is, you're not going to be looking so hard at residential real estate like that. I agree that when - if interest rates spike and hopefully the economy keeps on a sort of an up tick, but if the economy heads south, we're going to have a lot of people who can't afford their mortgages, especially those who jumped into adjustable mortgages and were sort of assuming their payment was going to be a certain place for a certain period of time, which they will, but they're going to be in trouble.

There's another area that we looked at, self-storage, which is kind of as one guy who's in the business describes it as a barge and it just sort of chugs along no matter what the market is doing and the returns are never great, but they again they don't get killed when the market heads south. And that's because, when times are good, people have plenty of stuff that they need to store and when times are bad, people have to move out of office buildings or homes, there's stuff that they want to store. So self-storage is one of those a place that just, in real estate that if you can get in and lease it up and once these things are leased up, they stay sort of 85 to 90 percent leased. You can weather things like this.

ROMANS: Let's talk about weathering it a little bit too, because Robert Shiller (ph) of course at Yale is famous for his book "Irrational Exuberance," essentially saying that the stock market was going to hit a peak and that was back in 2000 and boy, he was right. He's been banging the drum a little bit about the housing market lately, although he and a lot of other people point out that housing market is much less liquid than the stock market, so a bubble can take a lot longer to burst. But he has some interesting ideas on how to hedge financial instruments to actually hedge a decline in the prices of housing. Tell us about that.

COPELAND: Well, you've described it well. I think it's exactly. It's a financial instrument where you can -- if I just bought a house in Berkeley, California, say. And I'm worried that what you say might come true, that interest rates spike and the housing market just collapses, I can buy a financial instrument that is basically insurance against that. So I pay a certain amount to buy that insurance. If my house falls in price below a certain amount, I sort of collect on that insurance. He's trying to build that market now to provide those financial instruments. You know, you need somebody else to take the other side of that, but to date, you know, a homeowner, all you can do is buy your house and, you know, the market did what it did. If it went up, you were happy. If it went down, there was not much you could do about it but sell it for a loss. This allows you to protect yourself a little bit against a loss. And Frankly, Bob Shiller is obviously a proponent of it because he thinks it's about time for something like this and I would agree.

ROMANS: Michael Copeland, senior writer at "Business 2.0" and Ducky Johnson in Florida, thanks so much for everything. Talk to you soon.

There's lots more to come here on IN THE MONEY. Up next, spot the candidate for governor of Texas. Country star Kinky Friedman says he wants to land the extra closet space in the governor's mansion. We'll ask him what else is on his agenda.

And later on the block, a woman's personal offering is causing quite a stir on eBay. We'll take a closer look.

(COMMERCIAL BREAK)

SERWER: He's made a name for himself through his songs like get this, "They Ain't Making Jews Like Jesus Anymore" and how about this one, "Get your Biscuits in the Oven and your Buns in the Bedroom." But these days Texan Kinky Friedman is singing a different tune. The musician and mystery novelist has thrown his cowboy hat in the ring, running for governor of the Lone Star state under the slogan, why the hell not? Kinky Friedman joins us now from San Antonio, Texas. Kinky, welcome to the program. We're delighted to have you here.

KINKY FRIEDMAN, TEXAS GUBERNATORIAL CANDIDATE: Great to be here.

SERWER: I guess - there we go, nice cigar. I guess the big question is why would such a well-grounded individual as yourself want to dip his cowboy boot into the ooze of partisan politics?

FRIEDMAN: Well, aside that from what you've already mentioned, that I do need the closet space, there is something perhaps more important. I've achieved many of my dreams in my life and I'd like to see other people be able to achieve some of theirs, especially younger Texans.

ROMANS: Younger Texans. Do you think you can be a role model perhaps for some real class in politics for once. Is that what you think? FRIEDMAN: Well, I think that I won't be really involved with politics. I'm looking for a place that's above politics. What some people are missing about this campaign or revolution or rodeo or whatever it is, is that it's not a political thing. It's a spiritual calling. It's not a political campaign. I'm a Judeo Christian and Jesus and Moses are both in my heart and I would point out that both of them were independents.

CAFFERTY: You got an Arab running your campaign, too, right?

FRIEDMAN: That's right. I'm a Jew running for governor of Texas and the campaign chairman is a Palestinian, Farouk Shami (ph). So there's the ultimate peace ticket right there.

CAFFERTY: How did you get on the ballot down there?

FRIEDMAN: It's like jumping through hoops of fire. A year from now, right after the primaries in '06, we have to collect 50,000 signatures for a petition drive to get on the ballot. Nobody who voted in either primary, Democrat or Republican, can sign the petition. So it's like these career politicians are not sending the elevator down to the rest of us. In fact, they've cut the cables if they could.

SERWER: Kinky, you got a lot of great friends down there. I know Willie Nelson is one of your buddies. I think you've suggested he would be a good energy adviser. Wouldn't he make a better tax commissioner for the state of Texas? Come on!

FRIEDMAN: That's a good idea. Willie is actually my energy adviser, handling a thing called bio diesel and if you haven't heard of it, look it up when you get home, because this is going to be the new thing. Bio diesel, it fuels Willie Nelson's tour bus and it can fuel any diesel engine and it costs about 80 cents less than regular gasoline. It's totally biodegradable and that's what we're going to be pushing. Texas led the country in gas and oil exploration. Now Willie and I are going to see that Texas leads the country in bio diesel.

ROMANS: You also point out that Texas leads the country in executions and is 49th in education and you point out that, didn't anybody learn anything from the execution of Jesus Christ? What are you going to do about flipping those two numbers around?

FRIEDMAN: Well, my spiritual adviser, Billy Joe Shaver, who is a musician -- of course, what I'm trying to do is get the state run by musicians, instead of politicians. What Texas doesn't have a life without the possibility of parole. All we have is eject or inject, you know? I'm going to be watching that one carefully. I'm not anti- death penalty, but I'm damn sure anti the wrong guy getting executed.

CAFFERTY: You're also out to prevent something called the wussification of Texas. In your humble view, Texas is all that stands between ruination of this great nation and political correctness through all 50 states. What's in jeopardy in Texas? What is the wussification of Texas consist of? FRIEDMAN: Well, it may not be the easy way, but it's the cowboy way, which is to protect the image of the cowboy. For one thing, it's being used as a derogatory word in some quarters. The cowboy has always been a knight, a knight out of time. Remember when people were ashamed to say Merry Christmas? As a Jew, people would really be embarrassed when they slipped and they'd say "Merry Christmas" Kinky and oh, my God. I'm so sorry. This is wussification. Austin is the live music capital of the world and Austin, the smoking regulations are killing them. I want to bring back nondenominational prayer in the public schools. What's wrong with a kid believing in something? I'm going to fight this wussification if I got to do is one wuss at a time.

SERWER: Hey, Kinky is there any way you can change the rules so that out of staters who aren't residents can vote for you?

FRIEDMAN: We're working on that. We'll see what we can do.

SERWER: I want to vote for you.

FRIEDMAN: We welcome Texans and spiritual Texans all over the world because Texans are my special interest group. I have no -- no one owns me, no strings attached. And this will be a very interesting experiment, to have somebody in there that's neither plastic nor paper, but is a real person.

ROMANS: Where do these politicians come from Kinky? That's my question. Musicians seem more like real people than some of these guys we got in office.

FRIEDMAN: There's no question that I'm more in tune with real Texans than any politician out there. This is something they've done since 1859, when Sam Houston was our first governor. There has not been an independent on the ballot. This is the first time and I'm running in the spirit of Sea Biscuit and I don't want to place or show. I plan to win this race.

ROMANS: Kinky "Sea Biscuit" Friedman. Thank you so much for joining us. Best of luck to you, sir.

FRIEDMAN: Thank you very much.

ROMANS: All right. Coming up, filling the corner office. We'll tell you about one possible candidate to run the World Bank and the high stakes job she just lost. If you want to weigh in on that or any other story we're running this week, drop us a line. The address is inthemoney@cnn.com.

(COMMERCIAL BREAK)

CAFFERTY: Allen Wastler joins us now with the story of what two women are doing after they both suffered losses of a very different kind. He has that and, of course, the fun site of the week. How are you doing?

ALLEN WASTLER, MONEY.COM: I'm doing fine Jack. This is sort of - well, this week we had two extremes of news. First, Carly Fiorina just lost her job at HP, looking around. She suddenly surfaced as a contender for the top job at the World Bank because the head there, Mr. Wolfeson (ph) is stepping down. So they're thinking hey, this could work.

Now, everybody could start making the jokes and, in fact, they did. OK, you wrecked HP. Now take on the world economy. I think that's kind of unfair. When you think about the World Bank job, first of all, even though if you're the top dog there, the prez, you don't really control it. It's controlled by all of the members.

SERWER: That might be a good for her then. Sorry.

WASTLER: Also the big thing you do in that Andy, is you go around glad handing most of the time. You're traveling, visiting and that was one of the big complaints about her at HP is, she's going glad handing around all the time.

SERWER: So she's perfect for the job.

WASTLER: Perfect, perfect. So you got Carly at one end. Here's at the other end we have Tawny Peaks. Do you remember Tawny Peaks Jack?

CAFFERTY: I remember the name but I can't tell you...

WASTLER: She was the stripper, 64hh.

ROMANS: I remember the name, he says.

WASTLER: She knocked a guy out doing her act. Apparently she hit him with said assets of her act.

ROMANS: Her maracas.

WASTLER: Her maracas, very good Chris.

SERWER: She can say that. We can't.

WASTLER: He sued, wanting damages, claiming whiplash and that they were like big cement bricks that sort of hit him and stuff like that. It went to the people's court. Ed Koch was the arbitrator.

SERWER: Roll tape please.

CAFFERTY: Neil Cavuto doesn't do this material.

WASTLER: Anyway, Tawny Peaks has retired, but she has one of the implants. She had the implants removed, decided to become a homemaker. She has one of the implants. She put it on eBay this week. In the space of one day, the bids on that bad boy went over 11 grand. Can you believe it?

ROMANS: No!

WASTLER: Yepper! (CROSSTALK)

WASTLER: So there you have a high profile woman.

CAFFERTY: And then another high-profile woman.

SERWER: I see how they're connected.

WASTLER: So you see, it comes together. We're better than PBS aren't we?

CAFFERTY: We're different from PBS. Let's go to the fun site of the week.

WASTLER: You had Kinky Friedman on this one, right. Did you know that one of his big hits was up against the wall redneck. So in honor of that redneck thing and I apologize to my cousins (INAUDIBLE). We have some red neck photos for you here. The first one, the redneck SUV. There you go. Now we're talking music here. How about the redneck wind chime? You got to love it.

ROMANS: Oh, yeah!

WASTLER: We have a fine collection of redneck photos on the show page for in the money. Please, go check it out.

CAFFERTY: All right. Thanks, Allen. Coming up next on IN THE MONEY, it's time to hear from you as we read some of your e-mails from the past week. You can send us an e-mail right now. We're at inthemoney@cnn.com.

(COMMERCIAL BREAK)

CAFFERTY: All right. Time now to read your answers to our question of the week about whether the United States should negotiate with the insurgents in Iraq. JoJo wrote, why not? We've tried bombing, shooting and even so torture at Abu Ghraib and it didn't accomplish anything. Talking with insurgents is OK by me if it gets our best and brightest home.

David wrote, if the insurgents are simply the remnants of Saddam's army, then talking with them may accomplish something. But if they're just religious zealots, then we shouldn't both.

And Felina (ph) wrote from Alabama, forget about talking with them. The best way to deal with the insurgents is to close the Iraq/Iran border and kick out the news media, so the Marines can get the job done.

Now for next week's e-mail question of the week it's this. Should President Bush and the Republicans give up their fight to change Social Security? Send your answers to inthemoney@cnn.com. And you should also visit our show page at money.com/inthemoney which is where you'll find the address for our fun site of the week. No insult toward rednecks intended. It's just for the yucks. Thanks for joining us for this edition of IN THE MONEY. My thanks -- there's that music. My thanks to Lou Dobbs correspondent Christine Romans, "Fortune" magazine editor at large Andy Serwer and money.com managing editor Allen Wastler. And thank you Kinky. Join us tomorrow at 3:00 Eastern. We'll look at how series the direct connection between Osama bin Laden and Abu Musab al-Zarqawi might be. That's tomorrow afternoon 3:00 Eastern time. Hope to see you then.

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


Aired March 5, 2005 - 13:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANDREA KOPPEL, CNN CORRESPONDENT: Hello. I'm Andrea Koppel at the CNN center in Atlanta. IN THE MONEY begins in a moment. But first here are the headlines now in the news.
Syrian President Bashar al Assad told his country's parliament that Syria would eventually redeploy all its troops to the Syrian Lebanon border. He also asked the United Nations to address the issue of an immediate withdrawal, cautioning that a quick pullout could hurt Lebanon's stability. There have been protests in Lebanon calling for Syrian troops to leave after the assassination of the Lebanese former prime minister. Assad today called the death of Rafik Hariri an attack on the unity of Lebanon as well as Syria.

There are exclusive new images of one of the most wanted men in the world. CNN recently obtained new pictures of terrorist leader Abu Musab al Zarqawi, a top lieutenant in Osama bin Laden's al Qaeda network. The U.S. claims Zarqawi masterminded and carried out countless attacks on Iraqi and American troops. While sources tell CNN the man in these photographers is, in fact, al Zarqawi, it is unclear how recently the photos were taken. Still, they appear to have happened at the same time and place. In the pictures, Zarqawi is bearded and well groomed and appears relaxed.

We'll have another check of the headlines at the bottom of the hour. IN THE MONEY begins right now.

JACK CAFFERTY, CNN ANCHOR, IN THE MONEY: Welcome to the program. I'm Jack Cafferty. Coming up today's edition of IN THE MONEY, something to shout about. In some key Middle Eastern countries, democracy is suddenly blooming. We'll look at whether that political system can take root and grow over there.

Also ahead, putting a stamp on the future, changing Social Security is the cornerstone of President Bush's domestic agenda. We'll look at whether that and his other plans are on course at this time.

And politics gets kinky, Kinky Friedman, country singer, mystery writer running for governor of Texas. He'll join us on the program and tell us what he plans to do if he plans to do if he wins. Joining me today, a couple of IN THE MONEY veterans, LOU DOBBS TONIGHT correspondent Christine Romans, "Fortune" magazine editor at large Andy Serwer. A bit of an anomaly in the bit jobs report that was out last Friday, huge number of jobs created. The unemployment rate went up. ANDREW SERWER, "FORTUNE" MAGAZINE: This is the bane of my existence, have to explain this on live television. How come if we created all these jobs, the unemployment rate goes up? The reason it is is because it means more people went out looking for jobs than jobs were created. The 262,000 number for February was higher than expected. Economists were looking for 220. It's good news. I think that Wall Street will be focusing on the job creation, rather than the up tick in the unemployment rate.

CHRISTINE ROMANS, CNN CORRESPONDENT: Many more people are out there, encouraged to get new jobs at the beginning of this year and that's why the unemployment rate ticked up, what 5.4 percent it ticked up.

SERWER: Yes, from 5.2 to 5.4.

ROMANS: And there were jobs were in a lot of different areas, including if I'm not mistaken manufacturing.

CAFFERTY: Right, which has been lacking, sorely lacking. But it is a little tough. You tell people the unemployment rate went up and that's a good thing, but in a way it is a god thing. It means people have confidence in the ability of the conditions that are out there to maybe provide employment.

SERWER: I think you said it best at the top, though. Is it an anomaly? I mean is this a blip? We have seen things get a little bit better. I mean no question it's better than when there was job loss.

(CROSSTALK)

ROMANS: So it is consistency, at least, a couple of months of pretty strong jobs growth.

SERWER: So the trend is Chris' friend.

CAFFERTY: The trend is your friend.

SERWER: Yes.

CAFFERTY: All right. All of a sudden, democracy is on the map in the Middle East. It seems like it's about everywhere. In Iraq they used democracy to elect a government recently, elections that were hailed as turning out much better than perhaps almost anyone expected. In other countries they've begun talking about democracy as well which is one thing the Bush administration had hoped for when it invaded Iraq in the first place.

This week Syria is making noises about loosening its grip on Lebanon. They are under intense pressure from the United States, from France, from Russia, and the voices are growing ever louder. Get out of Lebanon. Egyptian President Hozni Mubarek floating the idea of multi-candidate elections in Egypt. We'll look at how far this trend could go. We're joined by Victor Davis Hanson, who's a senior fellow with the Hoover Institute at Stanford University out there in Fresno, California. Mr. Hanson, nice to have you with us. VICTOR DAVIS HANSON, HOOVER INSTITUTE: Thank you for having me.

CAFFERTY: Are we talking about democracy in the Middle East or are we talking about the spread of instability?

HANSON: Well, it won't look like Carmel, but just because it's perfect doesn't mean it can't be good. We got to be careful of utopian demands. It will be very good, because it will end the old pathology where autocratic leaders deflect popular frustration against themselves in the devil's bargain with Islamists to blame the United States. That's what we're after to end that old pathology that led to September 11.

SERWER: Excuse me Victor. Over the past couple decades, we've seen some tremendous transformations take place in nations like the Philippines and South Africa. We saw a relatively bloodless transition to democracy but is it realistic to expect those kinds of transitions in the Middle East?

HANSON: I think it for a couple of reasons. Actually force is usually the precursor to democracy, whether that's in Argentina or central America or the threat of force in eastern Europe or our own history. And second, there are literally millions of Muslims in the world in India and Indonesia and Turkey who do not send their youth to New York to blow us up. So we know that consensual government has a venting process and it's not incompatible with Islam. What the great question is, in the Arab world, is Islam compatible with democracy? And as we saw in Iraq on January 30, I don't think it is.

ROMANS: Let's talk a little bit about the events of this week. In your view, just how momentous they might have been. We saw even Saudi Arabia giving Damascus some serious things to think about in terms of pulling troops out of Lebanon. Hozni Mubarak, as Jack pointed out, a multi party or multi candidate elections likely there. There's some really big changes all in one week. Were the elections in Iraq the precursor to all of this or would it have happened anyway? Was it just a pressure cooker in the Middle East and the people bound to start getting some move toward democracy at some point?

HANSON: There was a lot of precursors, one, was the elections in Afghanistan, the forcible removal and humiliation of Saddam Hussein, elections in Iraq, the Syrian involvement perhaps in the assassination of former Prime Minister Hariri in Lebanon, the isolation and humiliation of Yasser Arafat before he died so he was not a messianic figure, the withdrawal of troops from Saudi Arabia. So the Bush administration has done a lot of unheralded steps that set the stage that in an explosion could ignite a change. That's what we're seeing today.

CAFFERTY: The silence has been almost deafening from the left of the political spectrum here in the United States along the lines of, gee, maybe President Bush was on to something. Are they making a mistake by sort of ignoring what looks like it could be a big success for this administration in that part of the world?

HANSON: Well, they made a mistake in the last three years. This was the party, remember, of Harry Truman and FDR and John Kennedy who believed in muscular engagement in the world to promote freedom and the Republicans used to be the isolationists. Now we're topsy turvy and the Democratic party establishment has either sat out or actively opposed this and now the train's leaving the station and they better get on or they're going to suffer the wages of humiliation. It's historic to watch the silence. It's almost as if people are disappointed in the success that we're witnessing because it tends to, oh, make the prior support rather ridiculous.

SERWER: Victor, I want to follow up on this notion of partisan politics. Obviously you're from the Hoover Institute which is a conservative think tank. I think that's fair to say. But in defense of Republicanism, I mean Nixon goes to China. Reagan defeats communism. Boy, isn't it the case, it's hard to argue -- not argue that the Democrats have really struck out over the past couple of decades isn't it. I'm pitching you a softball aren't I?

HANSON: Yeah, well, Sharon withdrew went to, Sharon was the one that withdrew from Gaza as well. You make a good point. It's almost as if Republicans can run up deficits and nobody will criticize them, but Democrats can go to war and nobody criticizes them. If you have a Republican that goes to war, a Democrat that runs a deficit, then you get popular outrage. In this case the Democrats really have to get on board and get out of this 24-hour news cycle where we predicate our support or oppositions depending on the pulse of the battle field and instead say removing Fascists like the Taliban and Saddam Hussein and supporting democratic reform in the Middle East are always good now and in the future.

ROMANS: So Victor, do you think we're going to see a rash of columns and appearances by pundits who are going to say, oh, we were wrong. Look, there can be democracy in the Middle East.

SERWER: They do that all the time.

ROMANS: Sure.

HANSON: No, no. All you're going to see, the extent of the remorse you're going to see is something like the recent "New York Times" editorial where it says some opposed President Bush and he seems to deserve partial credit. Those some that opposed him were in fact people that wrote the editorials for the "New York Times." Too many people have invested too much intellectual capital and political capital in thinking this whole thing was going to fail. So don't expect any mea culpas from any of them.

CAFFERTY: On the other hand, it's a little early to declare a victory. They're a long way from a democratic and open society in Iraq. They had some elections. They've got a government in place of sorts. There's no constitution yet; that's coming and there are a lot of people who say that they want nothing to do with a secular government in Iraq and if fundamentalist Islam gets a hold of that country, I'm not so sure that democracy has anything to celebrate. Do you?

HANSON: No, but all of the worries that you expressed were the same things we heard about why we should stick with Gorbachev and not Yeltsin, why eastern Europe, who had no history of parliamentary democracy, like western Europe, could flip suddenly, why Latin America would always be under the control of strong men and democracy is contagious. And we're not talking that it has to look like America. It may end up more analogous to European democracy. But change is in the air and we can't stop now. We've got keep pressing Egypt, Saudi Arabia and Pakistan to look at the choices before them. It's either to go like the shah and get an Islamic reaction or it's to have a transitional figurehead like Juan Carlos where they usher in democracy and they can stay in the society and enjoy it.

CAFFERTY: Fair enough. Good stuff, Victor Davis Hanson, senior fellow at the Hoover Institute at Stanford. Thank you for being with us.

HANSON: Thank you for having me.

CAFFERTY: You bet you. When we come back, making change. President Bush is out to transform Social Security and a lot of other things too. We'll find out how his second term domestic agenda is shaping up.

Plus, bubble or bust. Wherever the real estate market is headed, there is a way you can make some money on it and we'll get some tips on how to do that as we continue. Plus, the Schwarzenegger Ventura school of political science. Kinky Friedman's another entertainer with his eye on the governor's mansion. We'll ask him why he's bothering. He says, hey, how tough can it be?

(COMMERCIAL BREAK)

CAFFERTY: You'd have to be pretty hard of hearing to not know how important Social Security reform is to President George W. Bush and for that matter, for a lot of people in this country. But his plan to push a bill through Congress isn't going so smoothly at this point and some on Capitol Hill, even those within his own Republican party are doubtful that legislation will reach the floor by the next of this year. So what's a second-term president to do? Let's find out from Larry Sabato, who's with the University of Virginia Center for Politics and has been on this program before. Larry, nice to see you.

LARRY SABATO, UNIVERSITY OF VIRGINIA: Thank you so much. Nice to be here.

CAFFERTY: Is Social Security reform dead in the water?

SABATO: It's dead in the water right now, but, you know, like a good speed boat, you turn on the motor and it might get moving again, but I doubt in the current form.

ROMANS: How can you get it moving again? The Democrats have been pretty successful in pushing the status quo on this without really giving any real promises to how to fix it down the line. It just doesn't look as though it can be revived. How could it be revived?

SABATO: It can be revived by taking private accounts out of the fundamental part of Social Security reform and making it an ad on. In other words, you do other things to secure Social Security for the future, whether it's raising the level of income on which Social Security taxes are paid, something like that. And you have separate private accounts. That's a possibility. It's pretty clear President Bush is not going to get what he thought he was going to get a few months ago.

SERWER: Larry, let me ask you a question though. This is maybe a radical idea, but should Social Security be fixed? I would argue that maybe you let things go for a while longer. I know this is heresy, but you can make big mistakes trying to solve problems that are too far out over the horizon. In other words, you misidentify the problem. You provide the wrong solutions. Shouldn't we wait until the problem is closer?

SABATO: You may be a heretic, but you have a good chance to become a tenured faculty member.

SERWER: Just what I wanted Larry, thank you at UVA maybe?

SABATO: Yeah, UVA sure. Write me. I'll be happy to get you a job.

SERWER: Thank you.

SABATO: Look, the key here and I think you made a good argument, frankly. When we rush into reform, often we find that we don't know what we're doing. Look at the Medicare prescription drug costs. Look at that reform that was passed prior to the 2004 election. We're talking now about literally hundreds of billions of dollars more than we thought in the beginning. So I'm not necessarily opposed to what you've just suggested. Sell that to the president though.

CAFFERTY: You mentioned the possibility of resuscitating Social Security reform through, perhaps, introducing the idea of private accounts outside Social Security. Aren't those calls IRAs and Roth IRAs and 401(k)s? I mean don't we have that stuff now?

SABATO: You have some of it but you can expand those programs or you can establish a separate account just for Social Security. Look, the savings rate in the United States is miserable. It's one of our basic economic problems. My view is the more the merrier.

ROMANS: Is this the Social Security plus that people, Republicans have been whispering about and saying that they can make it look like Social Security reform even though it's not exactly what the president started out to do in the beginning?

SABATO: The greatest advantage President Bush has is he controls pretty substantially both houses of Congress. They can make losses look like victories. That's the advantage of controlling Congress. So I think they're going to have to do it. It's going to be PR work but they're going to have to do it before it's over.

SERWER: Larry, I usually hate this inside the beltway stuff, but didn't the president sort of botch this one in terms of understanding the issue, understanding how to present it, framing the debate, as they say?

SABATO: Yes. This president's had a lot of successes. He's probably going to go down in history as one of the more successful ones, but not on this issue. People don't even understand what the reform is. I can't explain it to you fully and I follow it daily.

CAFFERTY: The majority leader of the Senate, Bill Frist said publicly a week or so ago, it ain't going to happen. It may happen in 2006. You and I and everybody watching this program know that in an election year, no one in his right mind who's up for re-election is going to suggest tampering with Social Security, unless you're looking for a second career perhaps doing weekend financial programs on CNN or working down there at the university where you are. I mean he's got one of the top guys in his own party saying publicly, this is going nowhere.

SABATO: Well, Bill Frist is running for president and he's got his own agenda there. And of course they got to him quickly and got him to reverse course and say we're going to do it this year. Believe me, his first comment was the accurate comment. It's not going to happen.

ROMANS: Do you think that President Bush has the same kind of priorities in mind for this country as the average American does? Poll out this week that showed quite a few Americans have different priorities than the president has been pushing here.

SABATO: I'm going to tell you something. Again it will be controversial, appropriate for a tenured academic. The greatest presidents in American history have almost always had a different set of priorities than the American public. Temporary public opinion should not guide national policy.

SERWER: OK. I think we're going to leave it at that, Larry. Larry Sabato is a director from the University of Virginia Center for Politics. Thank you coming back on the program.

SABATO: Thanks a lot, enjoyed it.

ROMANS: Coming up right after the break, the mega deal that could change the way you shop. See if investors are buying Federated's move to build a retail powerhouse.

Plus, if you build it, will they come? We'll get some tips on making money off real estate, whether the housing market is up or down.

And big business. One woman cashes in on her brush with the law in a very personal way.

(COMMERCIAL BREAK)

ROMANS: Now let's take a look at the week's top stories in our money minute. Martha Stewart is a free woman sort of. Stewart got out of Federal prison Friday but she will now serve five months of house arrest at her home in suburban New York. Share prices for Martha Stewart Living Omnimedia are way up since last year and now she's going to start her own prime time reality show on NBC.

Fed Chairman Alan Greenspan took his case for tax reform to Capitol Hill this week. Greenspan urged Congress to simplify the tax code and start considering shifting the focus from income taxes to sales taxes. But no change in the tax code is likely to help aeronautics and telecom businessman Walter Anderson. The IRS charged him with about $210 million worth of tax evasion, the most ever by one person. Prosecutors say he illegally hid money in Panama and Holland. The indictment also says that in 1998, he paid less than $500 in income taxes.

SERWER: Another big story this week was Federated's decision to buy department store rival May for about $11 billion. The deal combines Macy's and Bloomingdale's with Lord & Taylor and Marshall Field's. Industry watchers say the consolidation shows just how much discounters like Wal-Mart and Target have taken from the retail department stores. Federated shares are trading near five-year highs, but some critics say the deal is like reinventing the wheel for the Model T because the retail department store sector is way past its prime.

That makes Federated department stores our stock of the week. It is a bad business model in the sense that it's so long in the tooth. I mean this goes back to the 19th century. But interestingly, I went back and checked. Federated stocks since 1992 point in time, has tripled in those 13 years, beating the market, which suggests that the Federated people must know a little bit about what they're doing. One thing they've done is to roll up this business, buy all these chains all across the country.

ROMANS: Then there goes all those regional brand names. We talk about this a lot where everything is so national now, Wal-Mart, Sam's.

SERWER: Bed, Bath & Beyond.

ROMANS: Bed, Bath & Beyond. Federated department stores really now Macy's will now be the big name all across the country. What about the little regional department stores that have been bought up?

SERWER: She's getting all sentimental.

CAFFERTY: You mean like Woolworth's, the five and dime? One of the things this will do though and one of the keys to the success of companies like Wal-Mart is, they squeeze the suppliers. They squeeze them hard on prices. Federated is going to going to be able to do the same thing by incorporating this additional bunch of stores under their brand name when they go to buy drapes or nightgowns or whatever it is they're going to sell, they can say to the suppliers, we're basically the only outlet in town for certain of these products. You've got to give us a better price.

ROMANS: You know what that means eventually. You'll go down the food chain. It means that the stuff comes in cheap from someplace else and U.S. manufacturers really get hurt.

CAFFERTY: But for the shareholders, I mean it would fit Federated's plan.

SERWER: I'm not sure this whole notion of changing all the names to Macy's, for instance. In fact this Sunday, Federated is going to be changing the name of Bon Marche, Riches, Burdines, Lazarus and Goldsmiths. All across the country, we all know those stores in all these cities to Macy's. A lot of people are bemoaning that. I'm not sure who this really helps. I mean they think that Wall Street likes this by having one name and then they can go to these conferences and say we've got one name across the country. I don't think people like it. I don't think customers like it at all.

ROMANS: I think you're right.

SERWER: So, it will be interesting to see if they can make this work. They are the big kahuna. They're really the only game left in town.

CAFFERTY: And as you pointed out, Federated stock price tripled in the last few years. So they're making that part of the business work. Do you buy the stock or not?

SERWER: You know, I wouldn't.

ROMANS: Sell the news.

SERWER: I think at this point it's gone up a lot and I could be wrong, and I hope I am for all you Federated shareholders out there.

CAFFERTY: Coming up?

SERWER: Yeah, coming up on IN THE MONEY, thinking smarter about the housing market. Learn about some ways to profit off real estate whether the business is hot or not.

Plus, kinky and proud of it. We'll ask country star Kinky Friedman why he's running for governor of Texas.

And taking it to the bank. See what could lie ahead for Carly Fiorina after getting pushed out at Hewlett-Packard.

(COMMERCIAL BREAK)

ANDREA KOPPEL, CNN CORRESPONDENT: Hello. I'm Andrea Koppel at CNN center in Atlanta. IN THE MONEY continues in a moment. But first, here are the headlines now in the news. These are exclusive new images of one of the most wanted men until the world. CNN recently obtained new pictures of terrorist leader Abu Musab al Zarqawi, a top lieutenant in Osama bin Laden's network. The U.S. claims al Zarqawi master minded and carried out countless attacks on Iraqis and American troops. Sources tell CNN the man in these photographs is, in fact, al Zarqawi, it is unclear how recently the photos were taken, but they appear to have happened at about the same time and place. In the pictures, al Zarqawi is bearded and well groomed and appears relaxed.

An Italian journalist held hostage by Iraqi kidnappers is back in Rome. Giuliana Sgrena is undergoing treatment for shrapnel wounds inflicted by U.S. troops as her car sped to the Baghdad airport. The man who helped negotiate her freedom was killed in the attack. President Bush has promised a full investigation. The military says the vehicle carrying Sgrena refused to stop at a checkpoint. I'll have all the day's news for you at the top of the next hour. Now back to IN THE MONEY at CNN.

CHRISTINE ROMANS, CNN CORRESPONDENT: Is there a bubble in the real estate market or isn't there? It's a question many investors are trying to answer as prices continue to rise in many parts of the country. My next guest says who cares? Whether you're more Pollyanna or Chicken Little about the market, he says there's money to be made no matter what. Michael Copeland, senior writer of "Business 2.0" joins me with a look at some innovative ways to cash in, no matter which way the real estate market goes. And with the real estate market up oh, what like 50 some percent since 1997, there are a lot of people out there who are saying the sky is falling. You say it doesn't matter. It doesn't matter because there are real important ways you can still make money. The first one you point out is location, location, location. Tell us about that.

MICHAEL COPELAND, BUSINESS 2.0: I will. This is not what you might expect. This is about house moving. It's sort of an arbitrage between houses that are cheap in one location and locations that are very expensive to buy houses in. And so we've talked to Ducky Johnson, who's a house mover in Florida who's got a booming business moving houses from places like Alabama to sort of coastal panhandle Florida and what you want to think about is the price of the house. You can pick one up cheap say for $17,000 in some sort of less desirable location and put it on a truck, move it 50 miles or so and double your money. It's cheaper to move wood houses because they flex a little I guess on the road and a little more expensive to move brick houses, but you can move them for $15 to $30,000 for 50 miles. So you need to think about that arbitrage and what your costs are and what you're going to get on either side.

SERWER: Old ducky must really have quite some business down there. Good stuff. Listen, I want to just take a step back though Michael and ask you about the real estate market before we go through some of your tips.

COPELAND: Sure.

SERWER: Come on, this is really getting frothy. I'm reading the paper every day, oh, we bought this vacation condo in Florida. Then we flipped it two months later made and 100 percent on our money. Come on. Things are really out of control in a lot of markets now aren't they?

COPELAND: Froth is a good word and yet it keeps going up. I would say the sort of condo -- speculative condo flipping that you see in places like Florida, Arizona, Las Vegas, as soon as there's a pullback in the market, those kind of deals are going to get crushed. You're going to see values drop on those things pretty quickly. But the question is when? We've been saying that for the last couple of years and things just keep going up. SERWER: Keep on keeping on.

COPELAND: Yeah. Even the bubble people are sort of now kind of figuring out what we meant by a bubble.

SERWER: But that's always worst time when the bubble people say there's not a bubble anymore. Anyway, Jack you were going to ask them something weren't you?

CAFFERTY: I want to know more about Ducky Johnson and, you know -- go ahead.

COPELAND: I'm just saying, if you want to get into the house- moving business, Ducky Johnson was one of 18 kids or something like that. So you need a lot of people to move these houses.

CAFFERTY: I'd be afraid to find out what the other 17 are named. The bubble will burst. Trees don't grow to the sky. What happens when all of a sudden, you know, we get a sharp decline in the dollar, which is a possibility that triggers a big spike in interest rates and suddenly you can't find a 5 percent mortgage anywhere to be found and they go to 7, 8 percent. God forbid, but it could happen. And you're stuck with, you know, yourself mortgaged up to your eyeballs in real estate that you planned to turn for a profit. How do you make moan if the market suddenly turns and goes south?

COPELAND: Well, what you're going to do is, you're not going to be looking so hard at residential real estate like that. I agree that when - if interest rates spike and hopefully the economy keeps on a sort of an up tick, but if the economy heads south, we're going to have a lot of people who can't afford their mortgages, especially those who jumped into adjustable mortgages and were sort of assuming their payment was going to be a certain place for a certain period of time, which they will, but they're going to be in trouble.

There's another area that we looked at, self-storage, which is kind of as one guy who's in the business describes it as a barge and it just sort of chugs along no matter what the market is doing and the returns are never great, but they again they don't get killed when the market heads south. And that's because, when times are good, people have plenty of stuff that they need to store and when times are bad, people have to move out of office buildings or homes, there's stuff that they want to store. So self-storage is one of those a place that just, in real estate that if you can get in and lease it up and once these things are leased up, they stay sort of 85 to 90 percent leased. You can weather things like this.

ROMANS: Let's talk about weathering it a little bit too, because Robert Shiller (ph) of course at Yale is famous for his book "Irrational Exuberance," essentially saying that the stock market was going to hit a peak and that was back in 2000 and boy, he was right. He's been banging the drum a little bit about the housing market lately, although he and a lot of other people point out that housing market is much less liquid than the stock market, so a bubble can take a lot longer to burst. But he has some interesting ideas on how to hedge financial instruments to actually hedge a decline in the prices of housing. Tell us about that.

COPELAND: Well, you've described it well. I think it's exactly. It's a financial instrument where you can -- if I just bought a house in Berkeley, California, say. And I'm worried that what you say might come true, that interest rates spike and the housing market just collapses, I can buy a financial instrument that is basically insurance against that. So I pay a certain amount to buy that insurance. If my house falls in price below a certain amount, I sort of collect on that insurance. He's trying to build that market now to provide those financial instruments. You know, you need somebody else to take the other side of that, but to date, you know, a homeowner, all you can do is buy your house and, you know, the market did what it did. If it went up, you were happy. If it went down, there was not much you could do about it but sell it for a loss. This allows you to protect yourself a little bit against a loss. And Frankly, Bob Shiller is obviously a proponent of it because he thinks it's about time for something like this and I would agree.

ROMANS: Michael Copeland, senior writer at "Business 2.0" and Ducky Johnson in Florida, thanks so much for everything. Talk to you soon.

There's lots more to come here on IN THE MONEY. Up next, spot the candidate for governor of Texas. Country star Kinky Friedman says he wants to land the extra closet space in the governor's mansion. We'll ask him what else is on his agenda.

And later on the block, a woman's personal offering is causing quite a stir on eBay. We'll take a closer look.

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SERWER: He's made a name for himself through his songs like get this, "They Ain't Making Jews Like Jesus Anymore" and how about this one, "Get your Biscuits in the Oven and your Buns in the Bedroom." But these days Texan Kinky Friedman is singing a different tune. The musician and mystery novelist has thrown his cowboy hat in the ring, running for governor of the Lone Star state under the slogan, why the hell not? Kinky Friedman joins us now from San Antonio, Texas. Kinky, welcome to the program. We're delighted to have you here.

KINKY FRIEDMAN, TEXAS GUBERNATORIAL CANDIDATE: Great to be here.

SERWER: I guess - there we go, nice cigar. I guess the big question is why would such a well-grounded individual as yourself want to dip his cowboy boot into the ooze of partisan politics?

FRIEDMAN: Well, aside that from what you've already mentioned, that I do need the closet space, there is something perhaps more important. I've achieved many of my dreams in my life and I'd like to see other people be able to achieve some of theirs, especially younger Texans.

ROMANS: Younger Texans. Do you think you can be a role model perhaps for some real class in politics for once. Is that what you think? FRIEDMAN: Well, I think that I won't be really involved with politics. I'm looking for a place that's above politics. What some people are missing about this campaign or revolution or rodeo or whatever it is, is that it's not a political thing. It's a spiritual calling. It's not a political campaign. I'm a Judeo Christian and Jesus and Moses are both in my heart and I would point out that both of them were independents.

CAFFERTY: You got an Arab running your campaign, too, right?

FRIEDMAN: That's right. I'm a Jew running for governor of Texas and the campaign chairman is a Palestinian, Farouk Shami (ph). So there's the ultimate peace ticket right there.

CAFFERTY: How did you get on the ballot down there?

FRIEDMAN: It's like jumping through hoops of fire. A year from now, right after the primaries in '06, we have to collect 50,000 signatures for a petition drive to get on the ballot. Nobody who voted in either primary, Democrat or Republican, can sign the petition. So it's like these career politicians are not sending the elevator down to the rest of us. In fact, they've cut the cables if they could.

SERWER: Kinky, you got a lot of great friends down there. I know Willie Nelson is one of your buddies. I think you've suggested he would be a good energy adviser. Wouldn't he make a better tax commissioner for the state of Texas? Come on!

FRIEDMAN: That's a good idea. Willie is actually my energy adviser, handling a thing called bio diesel and if you haven't heard of it, look it up when you get home, because this is going to be the new thing. Bio diesel, it fuels Willie Nelson's tour bus and it can fuel any diesel engine and it costs about 80 cents less than regular gasoline. It's totally biodegradable and that's what we're going to be pushing. Texas led the country in gas and oil exploration. Now Willie and I are going to see that Texas leads the country in bio diesel.

ROMANS: You also point out that Texas leads the country in executions and is 49th in education and you point out that, didn't anybody learn anything from the execution of Jesus Christ? What are you going to do about flipping those two numbers around?

FRIEDMAN: Well, my spiritual adviser, Billy Joe Shaver, who is a musician -- of course, what I'm trying to do is get the state run by musicians, instead of politicians. What Texas doesn't have a life without the possibility of parole. All we have is eject or inject, you know? I'm going to be watching that one carefully. I'm not anti- death penalty, but I'm damn sure anti the wrong guy getting executed.

CAFFERTY: You're also out to prevent something called the wussification of Texas. In your humble view, Texas is all that stands between ruination of this great nation and political correctness through all 50 states. What's in jeopardy in Texas? What is the wussification of Texas consist of? FRIEDMAN: Well, it may not be the easy way, but it's the cowboy way, which is to protect the image of the cowboy. For one thing, it's being used as a derogatory word in some quarters. The cowboy has always been a knight, a knight out of time. Remember when people were ashamed to say Merry Christmas? As a Jew, people would really be embarrassed when they slipped and they'd say "Merry Christmas" Kinky and oh, my God. I'm so sorry. This is wussification. Austin is the live music capital of the world and Austin, the smoking regulations are killing them. I want to bring back nondenominational prayer in the public schools. What's wrong with a kid believing in something? I'm going to fight this wussification if I got to do is one wuss at a time.

SERWER: Hey, Kinky is there any way you can change the rules so that out of staters who aren't residents can vote for you?

FRIEDMAN: We're working on that. We'll see what we can do.

SERWER: I want to vote for you.

FRIEDMAN: We welcome Texans and spiritual Texans all over the world because Texans are my special interest group. I have no -- no one owns me, no strings attached. And this will be a very interesting experiment, to have somebody in there that's neither plastic nor paper, but is a real person.

ROMANS: Where do these politicians come from Kinky? That's my question. Musicians seem more like real people than some of these guys we got in office.

FRIEDMAN: There's no question that I'm more in tune with real Texans than any politician out there. This is something they've done since 1859, when Sam Houston was our first governor. There has not been an independent on the ballot. This is the first time and I'm running in the spirit of Sea Biscuit and I don't want to place or show. I plan to win this race.

ROMANS: Kinky "Sea Biscuit" Friedman. Thank you so much for joining us. Best of luck to you, sir.

FRIEDMAN: Thank you very much.

ROMANS: All right. Coming up, filling the corner office. We'll tell you about one possible candidate to run the World Bank and the high stakes job she just lost. If you want to weigh in on that or any other story we're running this week, drop us a line. The address is inthemoney@cnn.com.

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CAFFERTY: Allen Wastler joins us now with the story of what two women are doing after they both suffered losses of a very different kind. He has that and, of course, the fun site of the week. How are you doing?

ALLEN WASTLER, MONEY.COM: I'm doing fine Jack. This is sort of - well, this week we had two extremes of news. First, Carly Fiorina just lost her job at HP, looking around. She suddenly surfaced as a contender for the top job at the World Bank because the head there, Mr. Wolfeson (ph) is stepping down. So they're thinking hey, this could work.

Now, everybody could start making the jokes and, in fact, they did. OK, you wrecked HP. Now take on the world economy. I think that's kind of unfair. When you think about the World Bank job, first of all, even though if you're the top dog there, the prez, you don't really control it. It's controlled by all of the members.

SERWER: That might be a good for her then. Sorry.

WASTLER: Also the big thing you do in that Andy, is you go around glad handing most of the time. You're traveling, visiting and that was one of the big complaints about her at HP is, she's going glad handing around all the time.

SERWER: So she's perfect for the job.

WASTLER: Perfect, perfect. So you got Carly at one end. Here's at the other end we have Tawny Peaks. Do you remember Tawny Peaks Jack?

CAFFERTY: I remember the name but I can't tell you...

WASTLER: She was the stripper, 64hh.

ROMANS: I remember the name, he says.

WASTLER: She knocked a guy out doing her act. Apparently she hit him with said assets of her act.

ROMANS: Her maracas.

WASTLER: Her maracas, very good Chris.

SERWER: She can say that. We can't.

WASTLER: He sued, wanting damages, claiming whiplash and that they were like big cement bricks that sort of hit him and stuff like that. It went to the people's court. Ed Koch was the arbitrator.

SERWER: Roll tape please.

CAFFERTY: Neil Cavuto doesn't do this material.

WASTLER: Anyway, Tawny Peaks has retired, but she has one of the implants. She had the implants removed, decided to become a homemaker. She has one of the implants. She put it on eBay this week. In the space of one day, the bids on that bad boy went over 11 grand. Can you believe it?

ROMANS: No!

WASTLER: Yepper! (CROSSTALK)

WASTLER: So there you have a high profile woman.

CAFFERTY: And then another high-profile woman.

SERWER: I see how they're connected.

WASTLER: So you see, it comes together. We're better than PBS aren't we?

CAFFERTY: We're different from PBS. Let's go to the fun site of the week.

WASTLER: You had Kinky Friedman on this one, right. Did you know that one of his big hits was up against the wall redneck. So in honor of that redneck thing and I apologize to my cousins (INAUDIBLE). We have some red neck photos for you here. The first one, the redneck SUV. There you go. Now we're talking music here. How about the redneck wind chime? You got to love it.

ROMANS: Oh, yeah!

WASTLER: We have a fine collection of redneck photos on the show page for in the money. Please, go check it out.

CAFFERTY: All right. Thanks, Allen. Coming up next on IN THE MONEY, it's time to hear from you as we read some of your e-mails from the past week. You can send us an e-mail right now. We're at inthemoney@cnn.com.

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CAFFERTY: All right. Time now to read your answers to our question of the week about whether the United States should negotiate with the insurgents in Iraq. JoJo wrote, why not? We've tried bombing, shooting and even so torture at Abu Ghraib and it didn't accomplish anything. Talking with insurgents is OK by me if it gets our best and brightest home.

David wrote, if the insurgents are simply the remnants of Saddam's army, then talking with them may accomplish something. But if they're just religious zealots, then we shouldn't both.

And Felina (ph) wrote from Alabama, forget about talking with them. The best way to deal with the insurgents is to close the Iraq/Iran border and kick out the news media, so the Marines can get the job done.

Now for next week's e-mail question of the week it's this. Should President Bush and the Republicans give up their fight to change Social Security? Send your answers to inthemoney@cnn.com. And you should also visit our show page at money.com/inthemoney which is where you'll find the address for our fun site of the week. No insult toward rednecks intended. It's just for the yucks. Thanks for joining us for this edition of IN THE MONEY. My thanks -- there's that music. My thanks to Lou Dobbs correspondent Christine Romans, "Fortune" magazine editor at large Andy Serwer and money.com managing editor Allen Wastler. And thank you Kinky. Join us tomorrow at 3:00 Eastern. We'll look at how series the direct connection between Osama bin Laden and Abu Musab al-Zarqawi might be. That's tomorrow afternoon 3:00 Eastern time. Hope to see you then.

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