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Inside Politics

Markets Take a Roller Coaster Ride; Interview With Carl Levin, Joe Lieberman; Traficant Delivers Angry Defense Before Ethics Committee

Aired July 15, 2002 - 16:00   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.
LOU DOBBS, CNN ANCHOR: Now let's go to Judy Woodruff in Washington for "INSIDE POLITICS" -- Judy.

JUDY WOODRUFF, CNN ANCHOR: And Lou, before I let you go, I am going to ask you to put some of this in a policy context. What is it that you would say government policy makers have or haven't done to contribute to this kind of volatility in the markets?

DOBBS: Well, this volatility is first and foremost a sign of great uncertainty on the part of investors about the integrity of corporate financial reporting, about the integrity of the markets themselves and the reliability of financial accounting and reporting.

The policy makers have got to address the basic, in my judgment, the basic foundation of all that we are watching now in terms of excessive CEO compensation, outright greed and the misstatements of financial results. And that is to reign in those stock openings, to expense them, to put them out in front of the investors, straight- forwardly on the income statement.

And as you know, Senator Carl Levin, whom I understand you will be talking with later, advancing that effort, as Senator John McCain as well.

WOODRUFF: And Lou, we are learning late in the day that Senator Levin's plan to deal with those stock options isn't even going to make it onto the floor of the Senate because of internal opposition there. Is this the kind of thing that is going to have a direct effect on the markets, do you think?

DOBBS: I believe that it will certainly have a direct effect on the environment, the atmosphere, if you will. This, as you know, is the second effort. The first by Senator McCain and Levin to outright expense options. That amendment put forward to Senator Paul Sarbanes' legislation last week. Now with this news today that Senator Tom Daschle and the leadership of the Senate, the Democrats, will not be advancing that cause; certainly doing nothing to enhance investor confidence in either political party right now, because there is certainly a broad understanding amongst investors that this is an issue -- excessive CEO compensation, and the inability and the willingness of corporate America to step forward. Now, we are putting this on the Congress and the White House right now, Judy, but let's be clear. The Business Roundtable, the U.S. Chamber Commerce, the Business Council, all of the big business associations in corporate America themselves bear a great responsibility here. There is very precious little, very little, precious little leadership coming from corporate America itself and the exchanges. And that's unfortunate.

WOODRUFF: All right. Lou Dobbs, and I know that you will be bringing us the very latest at 6:00 Eastern on "MONEYLINE." Thank you, Lou.

DOBBS: Yes, ma'am. Thanks, Judy.

WOODRUFF: And for his part, President Bush was reduced to the role of a bystander today practically. He did deliver a speech in Alabama and claimed that the economy is fundamentally strong, but meanwhile the markets were on a roller-coaster. The president, though, said he has empathy for Americans who are feeling economic pain.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We were in a land of -- there was endless profit. There was no tomorrow when it came to the stock markets and corporate profits. And now we are suffering a hangover for that binge. But I want you to know the economy, our economy, is fundamentally strong.

(END VIDEO CLIP)

WOODRUFF: Let's bring in our White House correspondent, Kelly Wallace. Kelly, after the president made those remarks, we saw the Wall Street go in a nose dive. It has now largely recovered that, but what are they saying at the White House about this day?

KELLY WALLACE, CNN WHITE HOUSE CORRESPONDENT: Judy, you know, White House aides not really commenting. They say the goal of the president's speech was not to try to instantly turn the markets around. They say instead it was to deal with sagging confidence in the economy after a string of corporate scandals, and that is why the president sounded a very optimistic message.

He said the U.S. is on the road to recovery.

(BEGIN VIDEOTAPE)

WALLACE (voice-over): With consumer confidence at the lowest levels since right after September 11, President Bush heads to Birmingham, Alabama, taking on the role of economic cheerleader-in- chief.

BUSH: American business and workers are resilient and resolved, and this economy is coming back. That's the fact.

WALLACE: And the president touted some facts. Low inflation, rising productivity, economic growth up over 6 percent for the first three months of the year. The fundamentals are strong, he said. But the Dow did not show it. Failing to calm jittery investors last week after his Wall Street speech on corporate responsibility, the president tried again.

He said, the country needs to get over what he called "the recent economic binge."

BUSH: There was endless profit. There was no tomorrow when it came to, you know, the stock markets and corporate profits. And now we are suffering a hangover for that binge.

WALLACE: But Democrats argued the president is focusing on rhetoric, not reform. Saying what's needed now is presidential backing of tough new accounting rules for corporate America.

SEN. JON CORZINE (D), NEW JERSEY: If you consistently say the same thing, and the market keeps going down, it is kind of like beating your head again the wall. You might want to change a little bit what is -- what you say in the context of a real crisis of confidence.

(END VIDEOTAPE)

WALLACE: With the Senate bill tougher than the proposals he originally put forth, the president is holding back an endorsement, but is calling on lawmakers to pass legislation by August. And Judy, in this political environment, there is no doubt President Bush will sign whatever gets to his desk -- Judy.

WOODRUFF: All right, Kelly Wallace at the White House. And standing on the sidelines, critics now are questioning President Bush's moral authority when it comes to cracking down on corporate crooks. They cite allegations of accounting irregularities and insider stock trading while he was the director of Harken Energy Corporation in Texas more than a decade ago. Now, there is a new Gallup poll that shows 10 percent of Americans say they believe Mr. Bush did something illegal in connection with Harken Energy. Twenty- nine percent say they think he did something unethical, but not illegal, while 31 percent say Mr. Bush did nothing seriously wrong.

Now, to Capitol Hill and our congressional correspondent Jonathan Karl. Jonathan, I know you are talking to a number of members. What are they saying about the market volatility today?

JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT: Well, Judy, for the Democrats up here, the view is simply that bad news is good news for their party's electoral prospects in the midterm elections. I was on the phone with one top Democratic strategist while the market was down 400 points this afternoon, and he said to me that he can envision "The Daily News" headline that would say, "Markets to Bush: Stop Talking."

Clearly, Democrats up here have made a decision that they are going to be running on the challenging Republican stewardship of the economy in these elections, and the market downturn simply helps them to make that case.

Meanwhile, Republicans obviously are also worried about the state of the market. It is politics 101. The party in power, the president's party usually pays the price for the economic downturn. But Mike Enzi, a Republican from Wyoming, one of the most low-key senators up here, but also the only accountant in Congress said something else today. He said, "maybe the problems today in the markets," he said this while the markets were still down a couple of hundred points, is that for the last week or so, members of Congress have been going out and continually telling people why they should not have confidence in corporate America, and people are listening -- Judy.

WOODRUFF: Jonathan, I want to ask you about the Senator Paul Sarbanes' legislation to strengthen corporate accountability. Now, there was an amendment that was proposed. We've been talking about it, Senator Carl Levin trying to make a move toward getting stock options counted as expenses. We now know, though, that apparently isn't going anywhere.

KARL: Yeah, well, firstly, on the overall bill, the Sarbanes bill, that will be voted in probably the next hour or so, and look for it to get a huge victory in the Senate. But no action on this issue of stock markets and expensing of -- I mean, expensing of stock options. This is something John McCain tried to bring up last week. The Democrats objected to McCain bringing it up last week, saying it was not germane, it was not relevant to the current bill.

Now Levin, also, again, working with McCain, has come up with something with -- with less teeth. Basically, Levin's bill would simply say that this new accounting board would have to study the issue, and then make a decision about whether or not to require corporations to account those stock options as expenses.

Well, that got knocked down today. Couldn't even come up for a vote, because Republicans objected for the very reasons the Democrats had objected to McCain's bill. So Democrats are accusing the Republicans of saying no action on this, but John McCain came on the floor, and he said, "the fix is in," both sides don't want this to happen. Here is what he said.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R), ARIZONA: The fact is, the fix is in. I didn't get a vote on my amendment, and the senator from Michigan won't get a vote on his amendment. And very frankly, since it was that side of the aisle that blocked my vote, I can understand blocking of this vote, and I think it's wrong on both sides. The American people deserve to know how we stand on the issue of stock options.

(END VIDEO CLIP)

KARL: So there has been a lot of sound and fury on the issue of stock options, but right now, Judy, no vote on the issue, but the issue will not go away. Democrats have promised to bring this up again after the Sarbanes bill is gone and passed. WOODRUFF: All right. Passions running high all over this town. Jon Karl at the Capitol. Thanks.

Well, even after days of tumbling stock prices and weeks of corporate scandal, 30 percent of Americans cited terrorism as the most important problem in the United States today. Twenty percent say the economy is the most important problem; that's up from 14 percent last month.

Our Bill Schneider has been looking at what he called a dichotomy between top players in the war on terror and top players in the battle to keep the economy strong -- Bill.

BILL SCHNEIDER, CNN SR. POLITICAL ANALYST: You know, Judy, a lot of people say that Bush's national security team and his economic team are in different leagues.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): This administration's national security team is clearly major league. Colin Powell, Dick Cheney, Donald Rumsfeld, Condoleezza Rice -- experienced and knowledgeable. By comparison, the economic team looks to some like second-string players. Larry Lindsey, Don Evans, Paul O'Neill, Glenn Hubbard -- far less front line experience.

Take Treasury Secretary O'Neill.

RICH LOWRY, NATIONAL REVIEW: He's never had much credibility in Washington or on Wall Street. So the analogous situation would be if Don Rumsfeld weren't taken seriously by the military.

SCHNEIDER: Rumsfeld exudes confidence. O'Neill sometimes does not.

PAUL O'NEILL, TREASURY SECRETARY: President Bush has been advancing a reform agenda to find and punish corruption, hold corporate officers accountable...

SCHNEIDER: The problem, one critic believes, is that the key economic player is not even on the economic team.

NOAM SCHEIBER, THE NEW REPUBLIC: And as long as someone like Karl Rove, a political adviser, is seen as having serious influence over economic policy, I think it's going to be tough for anyone to really step forward and reassure the American people.

SCHNEIDER: A conservative critic agrees. The Bush economic policy is too driven by politics.

LOWRY: The foremost criticism I would have of what the administration has done over the last week or two is not economic, it's political. They made a major political misjudgment in thinking that Bush could trot out there and make a speech that would reverse the basic trajectory of the market.

(END VIDEOTAPE)

SCHNEIDER: In other words, President Bush set himself up for failure. If Wall Street doesn't respond, it means your own guys don't have confidence in you.

WOODRUFF: All right. Tough stuff. Bill Schneider, thanks.

We will talk about Wall Street slide and economic reform next with Senators Carl Levin and Joe Lieberman. Also ahead...

JEFF GREENFIELD, CNN SR. ANALYST: I'm Jeff Greenfield in New York. Of course there is political fallout when the markets go south. But it's not just economics.

CANDY CROWLEY, CNN SR. POLITICAL CORRESPONDENT: I'm Candy Crowley in Washington. Convicted Congressman James Traficant was true to form delivering an angry and sometimes weird defense before the House Ethics Committee today.

WOODRUFF: Plus, we'll tell you about another sequel of sorts to "Men in Black," featuring two members of Congress.

(COMMERCIAL BREAK)

WOODRUFF: Senator Carl Levin, thank you very much for joining us. Senator, I'm talking to you, the markets have about an hour to go before they close. But given the volatility today, given the fact the Dow was down over 400 points at one point today, what is going on?

SEN. CARL LEVIN (D), MICHIGAN: I think the public is very much concerned about the credibility of our corporate financial statements and whether they have had honest accounting. And they are not sure when the next shoe is going to drop. And so it is very, very important that we act and act sensibly, act confidently, but then we correct some of the real distortions that have existed and we fill in some of the holes that have been dug by some of the deceptive practices, by the corporate managers and corporate board of directors and those corporations who have abused their duties.

WOODRUFF: One of the things you are trying to do today, senator, is get the Senate to agree to counting stock options as expenses, that corporations would be required to do this. You tried to do this years ago. It didn't work. Do you think you are going to get it done today?

LEVIN: What we are hoping to get done is to ask the financial standards accounting board -- or Financial Accounting Standards Board, FASB, to review the current rule which provides stealth compensation for corporate executives, which allows corporate executives to vote themselves huge amounts of stock options, to get a tax deduction for the corporation for them and not show that as an expense, a compensation expense, on the corporate books this.

And this is something which the standards boards wanted to correct many years ago. The executives weighed in very heavily with huge pressure to stop them from doing what they wanted to do, and Congress weighed in and stop them. And we are just trying to say, hey, we should not have intervened politically. It is a mistake. We want you to review this matter and come up with the appropriate standard within a year.

WOODRUFF: Senator, you know one of the arguments being made by the Business Roundtable, the U.S. Chamber of Commerce, is that if this were to happen, it would cause corporations in a short period of time, frankly, to cut their bottom line, to cut their profit picture, and this at a time when the corporate America is already on very shaky ground.

LEVIN: The investors groups want honest accounting. They want the stock options that have been given to the executives mainly in such huge amounts to show as an expense, because it is compensation. If it's compensation, it ought to be treated like other forms of compensation. And it is the distortions that have created the problems with the accounting, and what the investors groups, the major investor groups, organizationally want honest proper accounting for stock options, and the only way you are going to get that is if the accounting standards board reviews this matter and adopts the correct standard.

WOODRUFF: And what do you say to your fellow Democratic Senator Joe Lieberman who says it's not all stock options that are the problem, it's just a few people who handle them unethically and abuse them?

LEVIN: Stock options have a place, but they ought to be honestly accounted for. The issue here isn't whether there is a role for stock options; the question is whether they ought to show up on the books as an expense like all other forms of compensation. That's the issue. There is no other form of compensation, including stock bonuses, which does not show up as an expense on the financial statements of corporations. This is the only exception.

As a result, you've got over half the compensation now of the executives, top executives of major corporations is in the form of stock options, which doesn't even show up as an expense. You talk about distorting the bottom line. It's the absence of a showing of compensation expense which distorts the bottom line. Enron gave out huge amounts, and so do other corporations, and that's a distortion.

WOODRUFF: Senator Carl Levin. We appreciate it. Good to talk to you.

LEVIN: Good being with you, Judy.

WOODRUFF: Well, Democratic Senator Joe Lieberman, as you just heard, has long opposed the requirement that stock options be counted as corporate expenses. Senator Lieberman joins me now from Capitol Hill. Senator, what about the point made by Senator Levin and others that it just distorts the picture of what's really going on in a corporation, not to count these stock options as compensation for top executives?

SEN. JOSEPH LIEBERMAN (D), CONNECTICUT: I don't agree. It is compensation, but it has no value until and unless the options are exercised. On the day they are granted, which is when Carl and others want to take the value or the market price off the bottom line of the company, they have no value because they are not being traded.

And look, stock options are a good idea that have given 10 million Americans, mostly middle income people, a piece of the companies that they work for. But there are now, we know, a group of greedy, unethical corporate executives who abuse the idea, and we've got to take action to stop them from ever doing that again.

But I think if you expense stock options as Carl wants to do, the net effect is that the big guys, the CEOs are still going to take care of themselves and they won't give stock options to everybody else working for them. So I think what we ought to do is not let executives give themselves options, but require option plans to be approved by the board of directors, and we ought to force the executives to hold those options for a long time, so that they don't have an incentive to fool around with the books, sell -- exercise their options and then leave the company.

WOODRUFF: Well, let me ask you about that. You say so many of them go to middle income people, but our research shows that 70 percent of stock options go to managers, 50 percent of them to senior executives. Isn't this really a perk for people at the highest levels of these companies?

LIEBERMAN: OK, I'm not exactly familiar with those numbers. My guess is the 70 percent must be the value of the dollar value, which is relevant, and it does include not just the top executives but a lot of middle managers who are middle-class people who deserve an opportunity to build up a little wealth. The -- the fact...

WOODRUFF: But are you, but, senator, are you saying it is an honest picture after corporation's profit and loss not to record this as compensation?

LIEBERMAN: Judy, I'm saying two things. The compromise that the accounting board worked out in 1994 was that if you want to know how many options are out there potentially to be exercised, they require companies to state that on a footnote, which is clearly legible in every -- every report that comes out from every corporation.

But here's the practical problem. Apart from the idea that it's great for people working for a company to get a little of its stock, the practical problem is if you force a company to expense options when they are granted, that means that's money taken off of their profits. Their quarterly profits are what they live and die by. The net effect, I think, will be that there will be fewer options -- and again, the options will still go to the big guys and not everybody else in the company.

WOODRUFF: Senator, one other question. You said yesterday in an interview that the United States economy will suffer unless President Bush and Vice President Cheney release the details of their actions when they were corporate executives in the private sector. What exactly are you asking the president do? LIEBERMAN: Yeah, Judy, there is obviously a lot of factors at work in weakening the economy. Most of important of which right new is the lack of trust in corporate reporting. We've got a president and a vice president who unfortunately were each involved in situations that look a lot like what now ails the American economy. We need leadership from them, not only to support bills like Senator Sarbanes' bill on the floor of the Senate, which the president still has not done, but we need them to have a moral authority that they don't have if they don't fully disclose what happened in each of these cases.

The media, politicians will continue to be on them. There are documents about the Harken Energy case in which President Bush was involved that the SEC will not release without his permission. He has not given it. The president has said to reporters at his press conference last week, go and read the minutes of the Harken Energy board of directors. Reporters tried to do that, and Harken won't release those minutes. Vice President Cheney has simply said nothing about the Halliburton case, whereas Halliburton -- a spokesperson I saw in the media the last couple of days said that, you know, he was the CEO of the company, he knew what was happening.

They ought to disclose, and if they feel like they made a mistake, they ought to say so, and we will go on from there.

WOODRUFF: All right. Senator Joe Lieberman, thank you for talking with us.

LIEBERMAN: Thank you, Judy.

WOODRUFF: We appreciate it.

Well, in addition to Senator Lieberman, where do the possible Democratic presidential candidates stand on these proposals to expense stock options? We were not able to get a response from Al Gore's camp, but Senator John Kerry and Vermont Governor Howard Dean say they support the idea. As you just heard, Senator Lieberman opposes it. We are also told that Senator Edwards and House Minority Leader Dick Gephardt have taken no position on the issue.

A plea deal for the American who fought with the Taliban. Details coming up in our "Newscycle." Plus, the big sell-off and the last-hour recovery of Wall Street. Are the news media overplaying the story? One of the topics ahead in our "Taking Issue" segment.

(COMMERCIAL BREAK)

WOODRUFF: Among the stories in our "Newscycle," these are live pictures coming to us from Wisconsin. This is Washington County, Wisconsin, where a freight train has derailed. Again, these are live pictures. We're told -- and this is courtesy of affiliate WITI television. We're told that at least 16 cars of this freight train have derailed. We don't have any more information than that.

You can see the fire. You can see the smoke. Clearly, some great amount of damage is done, but we can't tell you much more than that. We don't know about whether there were injuries. And we also -- at this point, Washington County, I am not able to tell you where this is in the state of Wisconsin. But perhaps we'll find that out --- just outside Milwaukee, I have just been told -- but, again, live pictures from near Milwaukee, a freight train derailment. And as soon as we get more information about the extent of any injuries and, of course, damage to the train and any effect, other effects, we'll share that with you.

Moving on to the other stories we're watching this hour: The trading week began much like the last one that ended. The Dow industrials fell more than 400 points for a time, before it closed down about 45 points. President Bush says the economy is strong. He blames the market decline on what he called a hangover from the 1990s market boom.

The American Heart Association wants doctors to start assessing the risk of heart disease when their patients are 20 years old. The revised recommendations reflect new research findings on specific risk factors for heart attacks and strokes.

American John Walker Lindh will be sentenced to prison on October the 4th. Today, he pleaded guilty to carrying weapons and serving in the Taliban army. These are charges that could keep him in prison for up to 20 years. Prosecutors dropped eight other charges, including conspiracy to murder U.S. citizens. If convicted on the original charges, Walker Lindh could have faced life in prison. White House officials say President Bush personally approved the arrangement.

With us now: Betsy Hart of the Scripps Howard News Service and Maria Echaveste. She was the deputy chief of staff in the Clinton White House.

Maria, what about this John Walker Lindh plea arrangement? Was this the right solution here?

MARIA ECHAVESTE, FORMER CLINTON DEPUTY CHIEF OF STAFF: Well, without knowing all the evidence that the government had, it certainly seems to be a reasonable proposal. They clearly decided that they were probably going to have a much harder time proving their case that could result -- they dropped eight charges. You don't drop those charges if you have a slam-dunk case.

So, this is probably resource and also something about this particular defendant. They concluded that perhaps some reasonable amount of time in prison vs. life imprisonment.

BETSY HART, SCRIPPS HOWARD NEWS SERVICE: Yes.

Judy, I was actually an advocate early on of just leaving John Walker Lindh in Afghanistan and letting the new Afghani government deal with him. But, once he ended up over here, I think the original charges were appropriate. And that is a very crack operation there in Alexandria. I think they had a good legal case.

The question was: What happens when you get this fellow before a jury? And then he starts making the case, potentially: "Oh, gee. Maybe I was drunk or I didn't know what I was doing, or I was this poor, woebegone leftist from Marin County. I didn't know I was ending up over in Afghanistan."

And I think they were afraid, at that point, getting the actual prosecution -- or getting the actual -- winning the jury verdict would be a little -- would be tough. Why not take a great settlement? Twenty years in prison, this guy is going to have. That I think is a win.

WOODRUFF: Not an insignificant amount of time.

HART: Exactly. This is going to be a win for the prosecution.

ECHAVESTE: And he's a young man.

WOODRUFF: And he could look like a sympathetic figure before a jury. Who knows.

HART: I think that is right. So, this is something -- you often see this in legal cases of this nature. I think it wasn't inappropriate at all.

WOODRUFF: Today's market -- I hate the term roller coaster. We overuse it. But it really was. It was way down and it was back up again. The news media, during President Bush's speech -- CNN did it -- other news channels did it -- were showing what the market was doing as the president was speaking.

Maria, is this fair play, do you think?

ECHAVESTE: I think it, actually, because you certainly know that people are watching on their computers. They may be watching the speech and also going back and forth to the market.

What we do know is that the market does react to what leaders like the president say. Now, whether he is responsible for the ups and downs, of course not. There are many factors. But I don't think that the media -- the media is in a feeding frenzy, but that is what we expect. And I don't think they bear greater responsibility for this fluctuation at all.

HART: Well, no, I don't think we can argue necessarily that they are causing it.

However, there is no question there is sort of a herd mentality. Like Maria said, why would we expect a whole lot different? But they are certainly forgetting a lot of parts of story, like how sound the fundamentals of the economy are, how much of this drop is almost certainly related to a psychopathology that seems to infected the market. And I also think they have been extremely irresponsible when it comes to, in particular, the Harken case.

WOODRUFF: Meaning...

HART: I'm sorry, the media, the news media, as we're talking about -- with the Harken case in particular and President Bush. You would sort of think that this was a financial scandal that has never been looked into, instead of being looked into five times, investigated by the top Democrat at the SEC, investigated by Clinton's top Democrat at the SEC in 1993, the whole notion that there was a scandal involving President Bush and the Harken company in 1993. And they all said there's no case here.

ECHAVESTE: I have to say, this is so reminiscent of Whitewater. I mean, excuse me, that was an issue, a transaction years ago.

HART: Twelve people went to prison for Whitewater. That was a real case.

(CROSSTALK)

ECHAVESTE: After we spent how many millions of dollars, how many millions of dollars

(CROSSTALK)

ECHAVESTE: Are you saying that we should have an independent counsel, then, to take a look at this?

HART: No, because Whitewater had never been properly investigated. Once it was, a dozen Clinton cronies went to prison. In this case, it has been looked at no less than five times. Top Democrats at the SEC have said there is not a case here.

ECHAVESTE: Well, then have the documents released.

HART: And I think that's what you're going to get to. Most of them have been released. In fact, through the Freedom of Information Act, they are already on the Internet. I think you will get to the point where he simply will release the rest and you will agree with me.

WOODRUFF: You do think they are going to release the documents?

HART: I actually think they will. I think they're going to have to, yes.

(CROSSTALK)

ECHAVESTE: They should.

WOODRUFF: All right. We have heard the last for now.

Maria Echaveste, Betsy Hart, good to see you both.

HART: Thank you.

ECHAVESTE: Thanks.

WOODRUFF: Bob Novak's "Inside Buzz" is next. Bob has gotten an earful about John McCain's presidential prospects and about the senator's angry colleagues.

(COMMERCIAL BREAK)

WOODRUFF: Here now with some "Inside Buzz": our Bob Novak.

Now, Bob what's this about a Democratic senator getting high marks from Republicans in the Senate?

ROBERT NOVAK, CNN POLITICAL ANALYST: Senator Paul Sarbanes, Democrat of Maryland, chairman of the Senate Banking Committee, a liberal who has never been a favorite of the Republicans. But I am hearing very, very great praise for the way he has handled this accounting reform bill. He has been very judicious. He's cautious. He has not been political. He's been even-handed. So, they give Paul Sarbanes high marks.

The person they don't give high marks is a fellow Republican, John McCain. Once again, his fellow Republicans are upset with him. They think he is being unreasonable on some of his positions, and particularly calling for the resignation of Harvey Pitt, the chairman of the SEC.

WOODRUFF: Speaking of John McCain, you have been doing a little questioning, asking around town about his political aspirations in the future. What are you hearing?

NOVAK: And especially some Republicans I have been talking to from Arizona and in Arizona. And they feel this. They feel that, if he runs for anything in 2004, it will be president. It won't be the Senate. They really don't think he is going to run for another term as senator in 2004. They think there's a possibility he might run as a president on an independent ticket.

Now, Senator McCain says he will not run for president under any conditions. He says he will make up his mind later on the Senate. But a young conservative congressman from Phoenix, Jeff Flake, looks like he is going to run for the Senate, whether or not McCain runs. And Flake might be quite a challenge to him in a primary, if McCain were to run.

WOODRUFF: But McCain's version of this is that he is not running.

NOVAK: No, he's not running for president.

WOODRUFF: For president, right.

NOVAK: Has not made up his mind whether he's running for senator.

WOODRUFF: The Former chairman of the SEC, Arthur Levitt, has a book that is going to make some people uncomfortable?

NOVAK: I just love this story. The name of the book is "Take on the Street." And it's coming out in October. This is not a paid commercial.

But he has got about -- the names of about 36 members of Congress, Republicans and Democrats. All of them have received accounting -- contributions from the accounting industry. And they intervened with Arthur Levitt when he was Clinton's chairman of the Securities and Exchange Commission to go soft on the accountants, not to do the reforms.

Now, what is interesting is that some of these people, particularly some of these Democrats, are the biggest critics of these same firms. So, this is going to be a book that is going to cause a lot of red faces on both sides of the aisle on Capitol Hill.

WOODRUFF: And, I should say, Arthur Levitt will be a guest right here on INSIDE POLITICS tomorrow.

NOVAK: You can ask him about that.

WOODRUFF: I will.

Last but not least, Mr. Bush, the president, raising money out on the campaign trail today down South.

NOVAK: Yes, he was trying to boost the stock market -- not doing too great a job -- in Birmingham.

But he was also was raising money for Bob -- I like to keep track of these names, if you've noticed -- for Bob Riley, the Republican candidate for governor. And I was told that he raised $4 million today. I am going to tell you, campaign reform or not, soft money lives, particularly on state races.

WOODRUFF: Oh, it sure does.

All right, Bob Novak, "Inside Buzz," good to see you. Thanks.

And now checking the headlines in our "Campaign News Daily": Democratic Congressmen Patrick Kennedy and Harold Ford Jr. have gone Hollywood for an upcoming fund-raiser. The Young Democratic Candidates Network is building on the success of "Men in Black II," the nation's No. 1 movie, for an upcoming salute to the two congressmen. The original announcement featured Kennedy and Ford in their regular attire. But a later invitation features a more stylish version of the two lawmakers titled "The Congress-Men in Black." Ticket prices to the event start at $20.

Some of Hollywood's best-known political activists have taken an interest in the reelection campaign of Iowa Senator Tom Harkin. The three-term Democrat recently reported donations from Bradley Whitford of TV's "The West Wing" and Christie Hefner of the Playboy enterprises. Barbra Streisand also sent money to Harkin's campaign, as did executives David Geffen and Jeffrey Katzenberg of DreamWorks.

Republican Mitt Romney appears to have weathered the challenge to his state residency. A new "Boston Herald" poll finds Romney remains the front-runner in the race for Massachusetts governor against the two leading Democrats. Romney holds double-digit leads over both Shannon O'Brien and Robert Reich. More on election-year politics up next: Many voters who once were putting on a happy face have watched the markets, and the smiles have turned down. Our Jeff Greenfield will consider how the gloom may play at the polls.

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WOODRUFF: There was panic on Wall Street today before it settled down at 4:00. But it has been this case for the last few days. And all this has colored the mood of the White House and the country as a whole.

Our senior analyst, Jeff Greenfield, is in New York -- hi, Jeff.

GREENFIELD: Hi, Judy.

Yes, last week was, in fact, about as rough a week as President Bush has had since last September's attack changed the political landscape: a shaky press conference, a major speech on Wall Street that failed to calm the markets, a Republican speaker of the House who sided with the Democrats on corporate reform.

But if President Bush is finding the waters getting a little choppy as the midterm election season approaches, he's in good company. It happens to just about every president.

(BEGIN VIDEOTAPE)

(voice-over): If you follow politics, you probably know that there is an almost iron law at work: The party that controls the White House loses congressional strength in midterm election. It happens in wartime. It happened to Franklin Roosevelt in 1942, to Harry Truman in 1950, and Lyndon Johnson in 1966. It happens after landslide reelections, as it did to Roosevelt in 1938 and to Eisenhower in 1958.

Or voters can decide to punish the president's party. They clobbered Republicans right after Watergate in 1974...

(BEGIN VIDEO CLIP)

AL GORE, VICE PRESIDENT OF THE UNITED STATES: Campaign 2000.

(END VIDEO CLIP)

GREENFIELD: They threw the Democrats out 20 years later in part because they had grown unhappy with President Clinton. And that may be the key word here: unhappy, maybe even angry. When voters go to the polls in a sour mood, it's never good news for the party in power. And there are some signs that voters may be getting angry or at least discontent.

After the attacks of September 11, the country was swept by a wave of unity, and even optimism. Nearly three in four Americans said that the country was basically on the right track. But now, according to a new Gallup poll, almost as many Americans are dissatisfied with the way things are going as are satisfied.

Why? Well, it seems to be a mix of concerns: about terrorism and national security; about the uncertain state of the economy.

KENNETH LAY, FORMER ENRON CEO: Therefore, I must respectfully decline to answer.

GREENFIELD: The specter of boardroom misconduct, even the sex scandals that have shaken the Catholic Church.

(END VIDEOTAPE)

GREENFIELD: And it is that mix that might pose the trickiest dilemma for the president's political team. The White House, as with any White House, has huge resources to shape the national conversation.

But if voters go to the polls with a broad, vague sense that a lot of things are going wrong, things over which the White House may have relatively little control, there really isn't all that much a president can do to change their minds -- Judy.

WOODRUFF: And that has got to be frustrating for every president who faces it.

GREENFIELD: I would think so.

WOODRUFF: Jeff Greenfield, thank you.

GREENFIELD: OK.

WOODRUFF: Well, you never know what Congressman James Traficant will say next. Coming up: The convicted lawmaker faces his peers with angry words about his legal plight and his political future.

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WOODRUFF: An update now on that train derailment we told you about a little while ago in Washington County, Wisconsin: This is a freight train. We're told that at least six cars of the train are off the track, three of those cars said to be on fire. You can see it very clearly here, these pictures from CNN affiliate WITI: a lot of fire, a lot of smoke.

We have no information at this point with regard to either injuries or -- in that, either on the train or in the surrounding area. We're told this is north of Milwaukee. We do not know exactly how far away from Milwaukee it is. But these are live pictures. We'll continue to keep an eye on that story and bring you any further information as we get it -- again, a freight train in Wisconsin.

Congressman James Traficant today delivered the kind of verbal barrage that has made him famous on Capitol Hill. This time, he was appearing before members of the House Ethics Committee, who were deciding if he deserves to be kicked out of Congress because of his conviction on corruption charges. Here now: our senior political correspondent, Candy Crowley.

CROWLEY: Thanks, Judy.

When Ohio Congressman James Traficant was convicted on 10 felony counts, many of his Capitol Hill colleagues expected he would quit the House and save them and himself the embarrassment of being thrown out. But even as he faces the possibility of more than 60 years in prison, Traficant was before the Ethics Committee today fighting for the last five months of his term.

(BEGIN VIDEOTAPE)

(voice-over): This is as alone as it gets: no party to claim him, no colleague to stand by him.

REP. JAMES TRAFICANT (D), OHIO: I'm glad to be here. I'm glad to be anywhere.

CROWLEY: Facing jail time and certain expulsion from Congress, James Traficant is his only defense.

TRAFICANT: I am prepared to be expelled. I am prepared to go to jail, because I did not do this.

CROWLEY: A Cleveland jury found Traficant guilty on 10 felony counts, including bribery and racketeering. He will be sentenced at the end of this month. Everyone, including Traficant, expects he will be expelled from Congress, perhaps by the end of this week.

KEN KELLNER, COUNSEL, HOUSE STANDARDS & OFFICIAL CONDUCT CMTE.: The evidence will show that Representative Traficant, in a pattern of conduct that repeated itself over and over and over again, traded his office and the duties he swore to uphold for money, farm equipment, free labor, and a myriad of other things of value to him.

CROWLEY: No one expected Traficant, the combative maverick Democrat with an ear for the pithy and puzzling sound bite, would go quietly.

TRAFICANT: I'll be damned if I'll be targeted. The FBI can go to hell.

CROWLEY: In testimony that was always defiant, frequently irrelevant, Traficant blamed a government conspiracy for his downfall, a runaway FBI and a vengeful IRS for threatening witnesses into testifying against him.

TRAFICANT: I say that Janet Reno has exposed our children to a Chinese bomb. And, damn it, I want it on the record.

CROWLEY: This is a man who seems to both revel in and be unaware of his own bizarreness.

TRAFICANT: A horse drinks five gallons of water, he is going to urinate five gallons of water. CROWLEY: In Washington, where theater and politics are a consolidated industry, this would be comedy if it were not for the pathos.

TRAFICANT: Where are we? Where are we in America? This is a damn joke. Other than that, I'm feeling fine.

If someone in the audience has a cough drop, I would appreciate it. My throat is sore. I'm having some rectal disorders, as a matter of fact, as a result of this. My stomach is upset. And I am hard to live with.

(END VIDEOTAPE)

CROWLEY: Traficant can claim a small victory today, having convinced, perhaps browbeaten his colleagues in to letting him call four witnesses. The hearings could run until the end of the week. But while you can expect an unusual few days, do not expect a surprise ending. The man without a party is expected to soon be the man without a job -- Judy.

WOODRUFF: And, Candy, there may never be another one exactly like him.

CROWLEY: No, I don't think so. I don't think so.

WOODRUFF: Candy Crowley, thanks.

I'll be back in a moment , but first let's take a look at what is coming up on "WOLF BLITZER REPORTS." Kate Snow is sitting in for Wolf -- hello, Kate.

KATE SNOW, "WOLF BLITZER REPORTS": Hi, Judy. Thanks.

He made a move that took many by surprise. We'll tell you why the judicial journey is just about over for John Walker Lindh. And we'll have the first interview with the Taliban American's attorney since this major development. Honing in on a man in hiding: what a magazine has learned about Osama bin Laden -- and a medical announcement that may make you want to visit the doctor's office.

It's all just ahead at the top of the hour, right after INSIDE POLITICS.

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WOODRUFF: That's it for INSIDE POLITICS. "WOLF BLITZER REPORTS" is next. Thank you for joining us. I'm Judy Woodruff.

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