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CNN IN THE MONEY

A Look At the Last Week in Finance

Aired December 16, 2006 - 13:00   ET

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


FREDRICKA WHITFIELD, CNN CORRESPONDENT: A look at those top stories. Police in Kansas City are investigating a shooting incident this hour. They say a man killed five people, including three of his own children before killing himself. Another child was also shot and critically wounded. More details on this story as they develop.
Search crews are moving up Mt. Hood in Oregon. Still holding out hope for finding three missing climbers alive, about 80 people are participating in today's search taking advantage of a long-awaited break in the weather.

Much of the Pacific Northwest is trying to recover from a wicked storm that cut power to 1.5 million customers. People who rely on the electric heat are coping with bone chilling temperatures. The storm is blamed for the deaths of at least six people.

Palestinian president Mahmoud Abbas says he'll call early elections in a bid to end the mounting violence between his party and the Hamas faction, which controls the legislator. He says the vote will take place within three months. Hamas denounced the move and called on Mr. Abbas to resign.

The latest bid to end Iraq's religious and political term oil a national reconciliation conference, Iraq's Shiite prime minister offered a gesture to Sunni's at the precession of the two-day conference. He proposed constitutional amnesty for members of the Sunni dominated Baath Party who have committed no serious crimes.

We'll update the top stories at the bottom of the hour. Now time for IN THE MONEY.

ALI VELSHI, CNN CORRESPONDENT, IN THE MONEY: Welcome to IN THE MONEY. I'm Ali Velshi sitting in for Jack Cafferty.

Coming up on today's program why Main Street can't touch Wall Street. Top brokerage houses are handing out record year-end bonuses. But the bonus is nearly extinct everywhere else. Where is yours?

Plus, higher education, higher college costs. They're rising. But some students aren't complaining. Find out about the weird attraction of big tuition.

And Scrooge on steroids, America's on a bargain hunting binge and it's more about winning than it is about saving. See how scoring a low price has turned into a competitive sport.

Joining me today a couple of IN THE MONEY veterans and good friends. Jennifer Westhoven and Christine Romans. Boy, this has been a busy, busy week in business news.

CHRISTINE ROMANS, CNN CORRESPONDENT: It certainly has. And the food safety is front and center is a Department of Homeland Security issue and it is also a Wall Street issue.

VELSHI: And it's not the scallions.

ROMANS: It's not the scallions. Which raises some questions about in this modern society where we can track billions of credit card transactions every second, we can't figure out where the food came from and which piece of food actually was tainted. This is going to have some reputation issues for this particular fast food chain. But I think a lot of folks are going to be taking a look at their foods safety,

VELSHI: Did you see the latest? They are they have narrowed it down to either lettuce or ground beef, or cheese, pretty much everything but the taco shell. I wonder what the affect will be. If I were worried about my body being a temple I wouldn't be eating in some of these places in the first place.

JENNIFER WESTHOVEN, "HEADLINE NEWS" CORRESPONDENT:" The Wendy's story about the finger in your chili turned out to be completely bogus but they bounced right back. Presumably if they can clean this up it will bounce right back.

VELSHI: But you are not likely to think that you are going to find more fingers in your chili.

ROMANS: Some people were really sick, I mean 70 people were really sick because of this. The company isn't saying what it's going to mean for sales. Clearly it will mean something for sales. Clearly there will be some sort of quick reputation hit. But they might bounce back, your right. When you talk to people about the health effects of fast food people are like, hey, I know this has got 10,000 calories. That's an exaggeration. But I don't have time or this is why I came here, I came here to have this hamburger.

WESTHOVEN: Well, and Taco Bell says it's going to work with an industry group trying to attack this food contamination and e. coli at the source.

Wall Street is having its biggest year-end bonus season ever with some of the top players picking up as much as $40 million bucks. Just the holiday bonus. For the rest of us, the holiday bonus though is on its way out. Human Resources firm Hewlett Associates says just 34 percent of bosses are giving out bonus this year. That is down from 41 percent last year.

To find out what happened to your piece of the action, we are joined by Brian Drum, president of Drum Associates an executive recruitment firm here in New York. Welcome to the program. First, I want to just make something clear. It's just the holiday bonus that's disappearing, right? We're not talking about performance bonuses, which actually seem to be on the rise. BRIAN DRUM, PRESIDENT, DRUM ASSOCIATES: Right. The holiday bonus is disappearing and certainly the performance bonus is taking its place.

ROMANS: We have to talk with Goldman Sachs. They're giving out some $16 billion in bonuses. We can all just for a second dream that that is part of our world. Although I think a lot of those people are getting those big bonuses worked like a 100 hours a week. Tell us a little bit about the Wall Street bonus this year. They're going to be fantastic, aren't they?

DRUM: Most are. I think that Wall Street had a good year, whether it be equities or fixed income. They had a very strong year and I think they're making a lot of money. I think the bonuses have been very high.

ROMANS: In a weird way the bonuses are little more justifiable than maybe a holiday bonus that is just because you have worked there for a year. Because those bonuses are tied to how well you did for the firm. If the firm made record profits --

VELSHI: You're getting your piece of it.

ROMANS: So people complain about high pay for those sorts of industries. But those in a weird way seem to be tied to some real, real concrete numbers.

DRUM: They certainly are. I mean bonuses are tied to how well the company is doing, or the department you're in, how you do as an individual. Bonuses are being paid on a performance related bases rather than it's just the end of the year.

WESTHOVEN: What happened to the holiday bonus? What's wrong with it?

DRUM: What's happened is over the last 10, 15 years we have gone from materialism to managing bi-metrics. When I started in the business 35 years ago you get a week's salary, two weeks salary and...

VELSHI: Just because you worked there.

DRUM: Just because you worked there.

ROMANS: Corporate contract has changed completely.

DRUM: It has changed completely, right. It's now based more on your ability to perform. You take Wall Street, for instance, they do hire the best of the best. These people work very hard to get where they are. And they are in a situation where you know capital is so important to our economy. They are in the middle of it and they make a lot of money doing it.

VELSHI: Overall, it's not a bad shift to something that is given to you because of merit as opposed to just showing up for work. But we don't have a growth in benefits generally that go to workers. DRUM: Well actually, there's been a decline in benefits. When we think about some of the things that have changed over the last 15 years, like a pension, they're disappearing. Look at health care today. It's being an expensive proposition for the employer and the employee so those are issues that are affecting how businesses pay their bonuses.

VELSHI: In other words, that becomes some of the way that you choose if you want to work for one employer over another the quality of the benefits.

ROMANS: If there's going to be a tight wage market, a tight labor market rather, that's one of the things that you can say we're going to give you a bonus and you are going to get two weeks sick leave or whatever. But that has been changing. Some in the business world would argue that's a good thing because they're nimble, they are moving employers all the time, this is what the market bears. Some say it's the destruction of the middle class job and it is a destruction of loyalty. What do you think?

DRUM: I don't necessarily agree with that. I think what's happened with the performance related bonus, I don't think there is an employer out there whether it be a Wall Street firm or a manufacturing firm or another service firm that would reward an excellent employee. I think they can do now is move it in the form of a performance related bonus.

ROMANS: Just awarding all employees just because it's the month of December is going away.

DRUM: That's absolutely going away. They're paying bonuses in the first quarter, second quarter.

ROMANS: Better for the fiscal year I am sure.

VELSHI: How about a party at the year-end?

WESTHOVEN: A gift card.

VELSHI: Gift cards are interesting. It's small.

DRUM: I think that's a cheap employers way of giving a bonus.

WESTHOVEN: That is like the jelly of the month club.

(CROSS TALK)

WESTHOVEN: Well, I just wanted to check, though. Really do most industries give out performance bonuses, I mean you hear these terrible stories about people getting just stuff that's tacky or a ham and they're a vegetarian. I was making a joke about jelly of the month club that comes from a vacation. I know one year I got this little plastic cardholder. It couldn't have cost a buck. Not while I was working here. Sometimes a bonus can do more harm than good.

ROMANS: It's insult at some point. DRUM: Well, having -- talking about bonuses like that, it used to be you would get the year-end bonus. Today it's measured and it's also an indication of what the future might be. If the bonus is low, it's an indication you're not doing very good and you should move on. Or if the bonus is very high, it's an indication of what you might get next year. So bonuses are being paid you know based on those performance related issues today. One interesting statistic that you may want to think about is, and certainly you didn't do this, in fact, one of the other news programs stated that 80 percent of the companies will be paying a form of performance bonus this year versus the bonuses that are going away. Certainly the year-end holiday bonus is disappearing.

WESTHOVEN: All right. Well, as the president of your own firm, I hope you get a nice bonus this year.

DRUM: I'll try.

WESTHOVEN: For everyone watching, we hope you got a nice bonus, too. Thank you very much for joining us.

DRUM: Thank you.

WESTHOVEN: All right. When we come back, when bigger equals better. See why some people don't mind a fat price tag on a kids' college education. Plus on the money or off the mark? Find out if Wall Street is buying Fed boss Ben Bernanke's take on the economy.

And retail therapy for your inner athlete. We will hear about the competitive urge that kicks that in when you spot a bargain.

(COMMERCIAL BREAK)

ROMANS: If you're one of those people who think cheaper is always better; we have two little words for you, bargain sushi. Yes, there are some things that are worth paying more for and raw fish is just one of them. A college education is another. At least that is what a little Pennsylvania school Ursinus College called after it hiked tuition nearly 18 percent. President John Strassburger is going to tell us how that decision has worked out. He joins us from Philadelphia. Welcome to the program, sir.

JOHN STRASSBURGER, PRESIDENT, URSINUS COLLEGE: Christine thank you. Pleased to be here.

ROMANS: Now tell me you raised tuition. Instead of turning people off, you found more top quality applicants.

STRASSBURGER: That's right. And we think one reason that happened is because it was clear that the changes we had made us more competitive with other schools comparably priced.

ROMANS: It looks as though the top quality applicants were saying if it costs more it puts them in the league with other higher costing schools.

STRASSBURGER: That's right.

ROMANS: But you point out that it can also back fire, there are schools who done this and it has not been as successful as you.

STRASSBURGER: That's also true. And we think one of the things that made it work for us was the money that we now spend for students to study abroad, the private scholarships that we give to enable students to work one on one with facility members, the new facilities and the sciences and the performing arts.

ROMANS: So you have to have the quality to back up the quantity of dollars it's going to take to go to school there.

STRASSBURGER: That's right. I think consumers are actually pretty shrewd when they are looking at colleges and they can figure out what's real and what's not.

ROMANS: But we have seen college tuition soar since 1980. I think it's tripled. Over the past five years, it's up some 30 percent overall. There are those who say raising tuition you are pushing out candidates, middle class, lower middle class, minorities who can't afford to go to schools like yours.

STRASSBURGER: And I understand the argument. That's a great question, Christine. Over 20 percent of our students are on Pell Grants, for instance, which means the family incomes are roughly under $37,000 a year. A third of our students are first generation college students. We've always been an egalitarian institution and we want to stay that way.

ROMANS: Let's talk about the growing cost of college and how you deal with it. When I talked to people at the College Board and folks who were financial planners on this sort of thing, they say you really don't pay the sticker price, if you will, at a lot of places. There are a lot of things that students and parents can do to lower the cost. Is that true the sticker prices that we see aren't exactly what it cost to go to college?

STRASSBURGER: Christine that is exactly true. Over three-fourths of the students that are Ursinus received some financial aid. It's important for people to shop around.

ROMANS: What about the cost of that financial aid? We know the value of Pell Grants is declining even as the cost of colleges is going up. We also know that a lot of the universities are packaging together their student aide with banks, with private banks. You're seeing student loan interest rates at 12 percent, 13 percent, and 14 percent. That gives a kid a college education and a whole lot of debt to start in the real world. Is that something that you and your colleagues are taking a hard look at?

STRASSBURGER: We sure are. We're reevaluating our relationship with a couple of lenders. And we've dropped one lender, which I won't name. And we are also working to be very clear on understanding exactly how much students are borrowing. We are trying to control that. ROMANS: That is true dropping a lender and making it very clear with the students. Some students that we have talk to actually they don't even understand after a couple years. They're just trying to get the money together to get into school and then they realize they have these private loans or they've been sold to private institutions and it's completely out of their reach. That's one reason why more students are going to community colleges. More than 400,00 this year will go to community college and also you have almost 170,000 very, very qualified high school seniors who will not go on to college. Is it a responsibility of institutions like yours to make sure those kids can go to school?

STRASSBURGER: I couldn't agree more, Christine. We do reach out. And we work as hard as we can to make it clear that college is affordable. And what you're doing with this show is a big part of that. Our biggest challenge, and I'm on a board of a foundation that gives scholarships to students in rural Pennsylvania. Over and over again students and their parents simply don't realize that they don't have to settle for the sticker price. There's lots of aid available.

ROMANS: So you can raise the sticker price to attract some new talent but you have to make sure for middle class students there's definitely a way that they can afford it.

STRASSBURGER: There is plenty of aid for families whose family incomes are under $75,000 a year.

ROMANS: John Strassburger, president of Ursinus College. Thank you so much for joining us.

STRESSBURGER: Well, thank you. It was a pleasure, Christine.

ROMANS: You're very welcome, sir.

Now, let's take a look at what's on the economic calendar in our "Look Ahead." It is going to be a busy week as the year wraps up. We will get a look at the new home market this Tuesday with the November housing starts report. Also Tuesday the producer price index will give us a quick snap shot of wholesale inflation last month. And the final revised look at the overall state of the economy is on tap Thursday. The government's first revision of third quarter gross domestic product came in better than expected and that struck a rally on Wall Street at the end of November.

Coming up after the break unite and conquer. Continental Airlines and United are talking about paring off. See what that could mean for passengers and the airline business.

Pus, the video store without the store. We will look at how companies like NetFlix made it big by writing their own rules.

And plastic versus plastic. Find out how bargain hunting turned into a competitive event.

(COMMERCIAL BREAK) WESTHOVEN: Now let's take a look at the week's top stories in our "Money Minute." Interest rates will stay right where the Federal Reserve's Open Market Committee left them unchanged after it's latest meeting. The Fed governors are hinting they don't believe the weakness in housing will drag the economy into recession.

Former Enron CEO Jeff Skilling reported to a federal prison in Minnesota. He started serving his 24-year prison sentence for his role in the massive fraud that drove the energy company into bankruptcy. Skilling was convicted in May and was hoping to stay out of prison while he appealed his case.

And Hewlett Packard CEO Mark Herd may have some legal problems of his own soon. The congressional panel investigating HP's boardroom spying probe says Herd sold of $1.37 million worth of company stock just before the scandal became public. Investigators are looking into whether that sale was a case of illegal insider trading.

It was a busy week on Wall Street with merger talk, a Fed decision and the big bonus announcements too. Susan Liscovicz has been watching it all from her perch, her post at the New York Stock Exchange with an inside look. Thanks, Susan.

SUSAN LISCOVICZ, CNN CORRESPONDENT: Jennifer if you listen very carefully you can hear the sound of champagne corks popping all over the city. It has been that kind of week, that kind of year.

WESTHOVEN: And not only are we hearing about these bonuses, the Dow right back near a record high.

What is that -- how does a Fed meeting influence into that big rally?

LISCOVICZ: The Fed did what everyone expected it to do, which was to leave rates unchanged. Having said that, the fact that it called the housing slowdown a substantial slowdown -- you know, the Fed doesn't say much in its four paragraphs. The fact that it now qualified it as a little bit more extreme I think gives folks the expectation that the next move in the new year, the next change in interest rates will be down, not up.

WESTHOVEN: Of course the other big story, that frenzy going on with the airlines in merger mania there. That is something that Wall Street loves but do we know anything about what it means for fliers or for flight attendants?

LISCOVICZ: I think you're going to see a lot of opposition, not only from the unions, the very powerful unions, of the airlines but also from Capitol Hill, as well as just consumer groups. And then, you know, any kind of merger would have to go through the FAA, the Transportation Department, and the Department of Justice. But simply put, if these mergers that are talked about or announced whether it is U.S. Air and Delta or Continental and United, Tran Air and Midwest, it takes out brands, which means fewer choices and that often means higher fares. In some cases, especially in smaller communities, they may be underserved. That's especially where legislators are very concerned about that.

WESTHOVEN: And a completely different picture for everybody working on Wall Street this time of year. Wow, it's bonus season and it has been a great year for them.

LISCOVICZ: It's unfathomable the kind of money that we're talking about Jen, $60 billion for Goldman Sachs for bonuses.

WESTHOVEN: And Morgan Stanley, the CEO getting $40 million in one check. Wow.

LISCOVICZ: It's been a good year. That would be an understatement. It's not just the stock market, that we are seeing right terrific year and so that's a reflection of that. But it's also the consolidation that we were just talking about a moment ago with the airline industry. It's been happening in many industries. Investment banks like Morgan Stanley, like Goldman Sachs. They get a lot of money for advice on these kinds of mergers and acquisitions.

Also, we should say Asia has been in fire. The Sanhi composite index hit an all time high this week and so did Australia and New Zealand. The global markets have been looking good. It's firing on all cylinders and Wall Street has reaped the benefits and especially the men and women at the very top. It's going to be a very, very happy holiday season for them.

WESTHOVEN: Hopefully you can tell us some of the payola or the inside over the top lushness from some of those Wall Street parties.

LISCOVICZ: Will do. Thank you. Have a great weekend.

WESTHOVEN: Thank you.

Coming up next on IN THE MONEY, higher fliers. Southwest Airlines really took off by changing the rules. Find out why sticking to your values can mean success in business.

And also ahead, the art of the deal. We'll look at how a shot at a bargain can make you get stupid with your wallet.

And ear candy; see how the music business is squeezing every last teddy out of its son now that CDs are fading away.

(COMMERCIAL BREAK)

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