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Lou Dobbs Tonight

Firefighters Gain Upper Hand in California; Coalition Warns of Escalating Terror Attacks in Iraq; American Economy on the Road to Recovery?

Aired October 31, 2003 - 18:00   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.


ANNOUNCER: This is LOU DOBBS TONIGHT for Friday, October 31. Here now, Lou Dobbs.
LOU DOBBS, CNN ANCHOR: Good evening.

Tonight: After battling devastating wildfires for a week, firefighters are gaining the upper hand in California. We'll have a live report from hard-hit San Diego County.

Illegal aliens are costing this country billions of dollars every year in health care, education and social services. Peter Viles will report tonight in our series of special reports, "The Great American Giveaway."

Also, Arizona State Representative Russell Pearce is trying to protect social services for Arizona residents. He's our guest.

And the White House, the Pentagon, the State Department and the CIA all have failed to meet a Senate Intelligence Committee deadline to turn over documents on Iraq. We'll have a live report from Suzanne Malveaux, who is traveling with three president in Texas.

And in "Heroes" tonight, Army National Guard Staff Sergeant Michael McNaughton lost his right leg in Afghanistan. Now one of the most advanced prosthetics in history is changing his life. Casey Wian will have his remarkable, inspiring story.

Tonight, in Iraq, coalition officials are warning that terrorists may launch a wave of suicide attacks over this weekend. The targets could include police stations, schools, mosques, hotels and international organizations.

There was also more death and destruction in Iraq today. Terrorists killed an American soldier, a member of the 82nd Airborne Division, in a bomb west of Baghdad. Four other soldiers were wounded in the attack.

Troops hunting Saddam Hussein cordoned off the village where the former Iraqi leader was born. Soldiers ordered adults to apply for new identity cards.

(BEGIN VIDEO CLIP)

COL. STEVE RUSSELL, U.S. ARMY: We have provided security. We have provided cordon. And we are not limiting the movement of those that register in the town. Once they have a pass, they have complete freedom of movement, as they would at any other time.

(END VIDEO CLIP)

DOBBS: There is also violence in a village near Baghdad International Airport today. Troops supported by tanks and helicopters were called in to put down a riot by Saddam Hussein loyalists. At least 14 Iraqis were killed.

Senior Pentagon correspondent Jamie McIntyre joins me now with more on this new wave of violence and the threat of more to come -- Jamie.

JAMIE MCINTYRE, CNN MILITARY AFFAIRS CORRESPONDENT: Well, U.S. coalition forces are bracing for worst over the next couple of days, because of a spate of rumors and some hardened intelligence as well suggesting that there may be more suicide bomb attacks coinciding with the date of November 1, which is tomorrow.

According to CNN Pentagon producer Mike Mount, who is now on assignment in Iraq, he is quoting coalition sources as telling him that they see indications that the threats against U.S. and Iraqi targets over the next couple of days are coming from the same group which may have been behind or responsible for a series of suicide attacks on Monday. Interesting enough, a lot of these threats are coming against schools, where we're told that men with their heads covered in black cloth have come to threaten students, teachers and families.

The threats are not specific, but they basically say that no one will be safe at police stations, schools, markets, mosques, hotels and that nongovernment organizations will also be targeted. It's not known if these are empty threats or real threats. But the coalition is taking steps to beef up security. And, of course, everybody is on alert, waiting to see what will happen -- Lou.

DOBBS: Jamie, do we know the source of these threats?

MCINTYRE: Well, again, the intelligence and the rumors of some of the threats seems to indicate that they may be from the same group responsible on Monday, that is, perhaps some foreign fighters working with loyalists of the old Saddam Hussein regime.

But Pentagon officials are being careful to say they don't have a good, firm handle on exactly who is behind these. They do believe they are essentially being directed by supporters of Saddam Hussein, but they say not Saddam Hussein himself.

DOBBS: Jamie McIntyre, senior Pentagon correspondent, thank you.

The White House, the Pentagon, and the State Department and the CIA today all failed to meet a deadline for turning over prewar intelligence on Iraq. The deadline was set by the Senate Intelligence Committee, which is investigating whether the Bush administration embellished what it knew about Iraq's weapons.

Suzanne Malveaux is traveling with President Bush in Crawford, Texas, and joins us now with a report -- Suzanne.

SUZANNE MALVEAUX, CNN CORRESPONDENT: Well, Lou, congressional sources tell us that, already, this public spanking, this public rebuke from the Senate Intelligence Committee seems to be working somewhat, that they have gotten documents today after that deadline passed.

Really, this was meant to accelerate the process. They find that that is actually happening. But the White House did respond to that deadline. They were one of those groups that missed the deadline, Scott McClellan earlier today making a number of points, first of all, that the Senate Intelligence Committee doesn't have the jurisdiction over the White House to require it to turn over classified and sensitive documents.

But second, having said that, the White House did say that it will continue to cooperate, that it will provide interviews with National Security Council members, as well as some documents. What may happen, Lou, is similar how to the White House is dealing with the 9/11 Commission, that is, allowing committee members to eyeball some of those really sensitive materials, as opposed to walk away with them.

And, finally, the White House made the point that they do not believe, they take exception with, that they're impeding this investigation. They said that all the documentation sent from the CIA sent to the White House will be turned over.

(BEGIN VIDEO CLIP)

SCOTT MCCLELLAN, WHITE HOUSE PRESS SECRETARY: We previously -- even those the committee has no jurisdiction over the White House, we previously have made NSC staff statements available and provided access to relevant documents to help investigators. And we will continue working with them as they move forward.

(END VIDEO CLIP)

MALVEAUX: Now, Lou, the question is whether or not the committee is really going to get everything it wants. Congressional sources said they really didn't expect it. This whole public thing was just about moving people along, getting the process going.

Another remaining question, really big debate that is taking place between Republicans and Democrats on that committee, is whether or not this committee has the right, not only to investigate the quality of intelligence before 9/11, but also whether or not it can actually determine if that intelligence was misused -- Lou.

DOBBS: Suzanne, it is hard to imagine that this White House wants a public battle with a Senate Intelligence Committee chaired by one of the best regarded leaders on Capitol Hill, Senator Pat Roberts. What is the indication of their stomach for such a fight?

MALVEAUX: Well, the White House really wants to cooperate with the committee. And you're absolutely right. They don't have the stomach for this type of legal battle.

And, as you know, they could get subpoena power and enter that kind of battle with the White House over some of these documents. In all likelihood, what is going to happen is, they're going to reach a compromise similar to what they've done with these other commissions. So they're going to say, yes, we have executive privilege, but perhaps there's way that we can make these committee members have access to the documentation without the threat of leaks.

DOBBS: Suzanne, thank you very much -- Suzanne Malveaux traveling with the president tonight in Crawford, Texas.

A victory for the president in Congress today. The House of Representatives voted in favor of the administration's $87 billion request for additional spending in Iraq and Afghanistan; 82 Democrats voted with the Republicans to support the bill. All the money will be in the form of grants, as the president had requested. Congressmen decided not to convert any of that money into loans. The Senate is expected to take up the vote on the bill Monday.

Turning now to our special report, "The Great American Giveaway" -- tonight, the tremendous cost of illegal aliens to American taxpayers. Health, education, welfare benefits for illegal aliens all add up to billions of dollars every year.

Peter Viles is here now and has the report for us -- Pete.

PETER VILES, CNN CORRESPONDENT: Lou, these are some very big numbers. And they add up in quite a hurry.

And the frustrating thing for local governments, these costs mainly borne by local governments, which have any voice whatsoever in immigration policy.

(BEGIN VIDEOTAPE)

VILES (voice-over): Here's a factor in that California budget crisis that Arnold Schwarzenegger cannot fix, the huge cost of providing services and education to illegal aliens and their children, an estimated $2 billion a year for education in California alone. Nationally, the costs are mounting: $1.4 billion a year in emergency health care; $1.5 billion in incarceration costs; $5 to $6 billion a year in welfare costs, including food stamps, and $7.5 billion in education costs.

This is not to say that illegal aliens don't pay taxes. They pay sales taxes, property taxes and, in many cases, income tax, but not enough to cover the services that they use.

STEVEN CAMAROTA, CENTER FOR IMMIGRATION STUDIES: The problem is, is that illegal aliens are very poor. And they're not poor because they're illegal. They're poor because some 80 or 90 percent lack even a high school education. And people who lack high school education make little money and thus pay a little bit in taxes, but often receive a lot in services. VILES: Cities and towns have no choice in much of this. Public schools must accept illegal aliens because of a landmark 1982 Supreme Court ruling, Plyler v. Doe, in which Justice William Brennan wrote that barring illegals from school would violate the Equal Protection Clause of the 14th Amendment.

DAN STEIN, EXECUTIVE DIRECTOR, FAIR: Look, 25 years ago, the Supreme Court said, if kids are here illegally, they have to get an education. But that doesn't mean the kids have to stay here against federal law. The Supreme Court never said that we couldn't enforce immigration laws or that, if immigration authorities became aware of the fact that there were illegal immigrants here, that we couldn't deport the immigrants and their kids.

(END VIDEOTAPE)

VILES: Now, there is mounting anger over these costs, particularly in Arizona and California. But this is fundamentally a federal issue. And there's no indication yet that the federal government even views this as a problem that needs to be addressed -- Lou.

DOBBS: The idea that the 1982 decision would stand in the context of 10 million illegal aliens, without question, a difficult problem. Why are school districts not dealing with this on an illegal immigration basis?

VILES: As I understand it, they are barred, under that ruling, from even asking questions about the status of these students. The only question legally that they can ask of a student is, do you live in this school district?

They can't ask about the parents' status or the student's status. And we confirmed that with Homeland Security today. Schools essentially have no business asking about immigration or trying to enforce immigration laws. And we know that ICE, the immigration, really is not out there at the grassroots level trying to find these people.

DOBBS: Pete, thank you very much -- Peter Viles.

Coming up next here: One Arizona state representative is taking action, trying to protect the citizens of his state from funding benefits for illegal aliens. State Representative Russell Pearce will join us next.

And the wildfires still burn in California. Firefighters, however, tonight are trying to contain the damage. And some officials have begun to play the blame game. Bob Franken will report from Southern California.

And "Heroes" -- tonight, an American soldier wounded in action relying on technology and determination on his road to recovery. Casey Wian will report on "Heroes" from Baton Rouge, Louisiana.

Stay with us. (COMMERCIAL BREAK)

DOBBS: As we reported earlier, citizens of Arizona, faced with the growing numbers of illegal aliens in their state, are now taking aggressive action to protect their public services and their state budget.

An initiative called Protect Arizona Now is gaining momentum among voters. But it still faces opposition from that state's congressional delegation.

My next guest is helping to organize the effort. My guest is Arizona State Representative Russell Pearce. He joins us tonight from Phoenix.

Good to have you here.

REP. RUSSELL PEARCE (R), ARIZONA: Good to be here, sir.

DOBBS: The idea that you would put forward an initiative in the face of so much opposition from your congressional delegation -- as I understand it, your governor also is opposed to this initiative. Yet the most recent survey showed that 70 percent of Arizonans support it. Why isn't the congressional delegation and your governor supporting it as well?

PEARCE: Well, I'd like to know that same answer.

And let me tell you, actually, it's much greater than 70 percent. It's 78 percent of those that have an opinion. It was 85 percent of Republicans, 83 percent of independents, 83 percent of rural Arizona, 85 percent of those most likely to vote. This is aggravating. We're standing by while we have an invasion going on in this country that is destroying our country economically and in other ways, our neighborhoods.

And I agree with you, first of all. It is the federal government's responsibility to secure the border, USC Title 8. But once they're past that border, it's our neighborhoods, it's our health care system, it's our education system, it's our welfare system. In Arizona, AXIS, which is our Medicaid program, was $200 million in 2001; 2002 wasn't that long ago.

In 2003, it was $1.2 billion. It's on its way to bankrupt this state if we don't wake up. And the violence that is committed, these aren't just good people looking for work; 25 percent of federal prisons are made up of illegals, 12 percent of state prisons, 12 to 15 percent of county jails. The hospital systems are collapsing. Maricopa County is losing $2 million a week on their Maricopa County hospital.

When are we going to wake up? I've taken an oath not to my party. And I love my party and I love President Bush. But immigration is a miserable failure. And it's destroying our neighborhoods, destroying our country. And I've taken my oath seriously to uphold the Constitution of the United States, the constitutional laws of the state of Arizona. And that's what this is about.

We may not be able to stop illegal immigration entirely, but we can do something about fraud. And the issue you didn't mention, too, in this act, it's a not just the welfare. And that's important. But it's our places of elections. The Arizona Constitution, Article 7, Section 12, says, we will put into place provisions to protect the security of our elective process. We have an obligation. The Holla (ph) bill out of Congress says the same thing. When are we going to wake up?

(CROSSTALK)

DOBBS: Well, that's a question, if you watch this broadcast, you may know, we have asked several times here.

But I've also -- I began my career as a journalist is Yuma, Arizona. I love that community. I enjoyed working there. And I still stay in touch with some of those people. But the fact is, there is the benefit of those illegal aliens as well, which many people in Arizona, over 30 years, sort of winked and nodded. The citrus growers need them to bring in crops. They have also provided some economic benefit as well, have they not?

PEARCE: Well, and I think we can't deny that there's been a need for those that are in the agribusiness.

But, Lou, there's 79 different work visas into this country. We let one million people into this country every single year legally. We're talking about illegal immigration. And it is destroying this country; 42 percent -- and, again, the United States Census Bureau admits and that we keep -- be throwing out seven, eight million.

The U.S. Census Bureau admits there's 11 to 15 million in this country illegally. And I suspect it's much larger than that. The Border Patrol apprehended about 430,000 illegals crossing the border in 2001. They admit -- they admit -- three to five get by for every one they apprehend. It's a huge issue. And it's destroying -- it's the Trojan horse that we treat like a sacred cow. And we owe our citizens better than that.

And you talk about a disconnect. And you showed it in this poll that was done by ASU, Channel 8 TV; 85 percent of our constituency is demanding we do something like this. And yet we have politicians running the wrong direction and not standing behind their constituency.

(CROSSTALK)

DOBBS: Well, I understand that some of the delegation, the congressional delegation, from Arizona, Mr. Pearce, and your governor as well, consider the initiative as a lost cause, because they say it will be found unconstitutional.

PEARCE: You know, 187 in California was a much tougher initiative than ours. And it was ruled down by a lower court. It was not appealed by Gray Davis, because it was constitutional. We've had seven constitutional attorneys look at this. We're not creating new law. And that's what people keep trying to do, is put a spin on this that is not true. We're asking for the laws on the books to be enforced and we're setting penalties and eligibility standards that will help ensure that, that evidence of citizenship must be shown when you register to vote -- already a law -- that proof of who you are, a picture I.D. when you go to vote -- simply, these poll voters, if they don't know who you are, have never seen you, they ought to have some I.D.

Unlike Chicago, we believe that, once you're dead, you ought not be voting anymore.

(CROSSTALK)

DOBBS: Russell Pearce, we thank you very much for being with us. We're absolutely out of time.

(CROSSTALK)

DOBBS: I have got one quick question for you. If Arizona were to pass this initiative, it goes on the ballot next year.

PEARCE: 2004, yes, sir.

DOBBS: And it were to be held constitutional, what would happen to the illegal immigrant population in Arizona?

PEARCE: They'd stop committing fraud. They wouldn't be able to get on welfare. They wouldn't be able to vote. That's what the focus of this is about. We're not enforcing immigration laws. We expect our federal government to do that, even though they have failed to date miserably. That's their job. We need to hold them accountable. And we need to remove people that don't support this Constitution.

(CROSSTALK)

DOBBS: Representative Russell Pearce of the state of Arizona, thanks for being with us.

PEARCE: Thank you, sir. Thank you very much.

DOBBS: Appreciate it.

Coming up next: a political crisis erupting in Russia, after that nation's richest businessman was hauled away at gunpoint. Kitty Pilgrim reports on the impending crisis.

And in this country, a strong base for economic recovery -- one key element is missing, however, jobs. We'll be joined by the editors of the nation's leading business magazines in this week's edition of "News Makers."

Please stay with us.

(COMMERCIAL BREAK) DOBBS: The United States today said Russia must answer serious questions about its commitment to free markets and an independent judiciary. The State Department said authorities should address concerns that the arrest of Russia's richest man might be politically motivated.

That arrest could have serious implications for the relationship between this country and Russia.

Kitty Pilgrim is here now and has the report.

KITTY PILGRIM, CNN CORRESPONDENT: Lou, the Russian oil industry was booming. Investment was pouring in. And now there is a gasp over this sudden arrest.

(BEGIN VIDEOTAPE)

PILGRIM (voice-over): Suddenly, President Putin looks scary. Western bankers flew to Moscow this week, looking for assurances. So is the U.S. government.

RICHARD BOUCHER, STATE DEPARTMENT SPOKESMAN: We think the Russian authorities needs to dispel concerns that the Yukos case is politically motivated.

PILGRIM: Mikhail Khodorkovsky, the head of Yukos, is one of the wealthy young tycoons in Russia who not millions, but billions after the markets opened up. He was arrested, they say, for tax reasons. But many think it was because he meddled in politics and posed a threat to President Putin. Russia watchers say the arrest raises questions about the rule of law in Russia.

DMITRI SIMES, NIXON CENTER: The office which moved against Khodorkovsky, while officially independent, would not do anything without guidance from Putin and his key associates.

PILGRIM: Putin's chief of staff, Alexander Voloshin, out, and the prime minister, Mikhail Kasyanov, publicly said he was greatly concerned over the arrest.

Russian oil capacity is seen as a potential long-term insurance policy against overdependence on the Middle East. Yukos produces about a quarter of Russia's oil and was in talks with companies like ExxonMobil and ChevronTexaco about a stake in the company. This week, the Putin government froze a 44 percent stake in the company.

MICHAEL ROTHMAN, MERRILL LYNCH: What it has raised questions about is the investment climate and whether, for a longer term arising, you're back to the situation where, in the case of Russian oil, do we have to deal more with political risk.

(END VIDEOTAPE)

PILGRIM: Now, President Putin made the analogy to Enron and WorldCom, defending the arrests, and talked about continued economic reforms. The Russian markets, however, sold off and have only partially recovered -- Lou.

DOBBS: Kitty, thank you very much -- Kitty Pilgrim.

Coming up next here: firefighters in California battling the worst firefighters in that state's history, officials battling now over who is to blame. Bob Franken will report from Southern California.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: In tonight's "Exporting America," IBM CEO Samuel Palmisano told the Council on Competitiveness in Washington, D.C. today that the United States is at risk of failing to keep up with innovation globally.

And he said, that innovation is necessary to stem the flow of technology jobs overseas. IBM is one of many technology companies shifting jobs overseas as they cut costs. Last week, Intel CEO Craig Barrett said its future investments would follow its markets overseas; 70 percent of its markets are overseas. And Intel's co-founder, Andy Grove, has said the entire American technology industry could suffer the same fate as that of the American steel industry.

That brings us to the topic of tonight's poll question. What do you think is the principal cause of U.S. unemployment, high productivity, record trade deficits, illegal aliens, or outsourcing of jobs overseas? Cast your vote at CNN.com/Lou. We'll have the results for you later in the show.

Now for a look at some of your thoughts.

On the phrase "under God" in the Pledge of Allegiance from Fort Lee, New Jersey: "Here's a solution to the pledge problem. For the disputed phrase, substitute the following, "one nation, geographically, under Canada.' No one except Alaskans and Hawaiians could be offended by that" -- Bob Mobley.

From Baltimore, Maryland: "Lou, although you and I might find ourselves on different sides of the political aisle, I find your continuing 'Great American Giveaway' series to be right on target. In fact, I watch it every night and have begun urging my other friends who are middle-aged, displaced, and outsourced to watch it, too" -- Anne Madison.

We hope you find work very quickly.

And from Safety Harbor, Florida: "I am shocked and appalled at your report of illegal alien convicted sexual offenders being released from jails on the population. I am shocked and appalled often by some of your reports, but only because I hear reports on your program that I hear no place else" -- that from Peggy Dillashaw.

From Diamond Bar, California: "Lou, although 14 million U.S. jobs may be exported to China and India in the future, the last time I checked, China and India have been operating their cheap-labor shops in the United States for years. They're called Wal-mart stores and Wal-Mart supercenters" -- that from Derming Wang.

By the way, if Wal-Mart were a country, it would be China's fifth largest trading partner. It is, of course, the fifth largest importer.

From Orangevale, California: "When are you guys going to get it straight? This has not been a jobless recovery. It has created millions of jobs in India and China" -- Rick Martin.

From Tampa, Florida: "Lou, please tell your viewers where the American flag lapel pin that you wear is made."

Tom, I have to confess, when you asked, I started to get a little nervous. But this lapel pin happens to be made right here in the United States. But you are right. We checked. A number of lapel pins with those beautiful American flags are made in China.

We love hearing from you. E-mail us at LOUDOBBS@CNN.com.

In Southern California tonight, chilly temperatures, dense fog helping firefighters to control the worst wildfires in that state's history. Firefighters are now using bulldozers to build massive firebreaks around threatened mountain resorts. Officials say the worst may be over, but there's still risks of high winds. Those winds have blown the fires through grasslands and forests toward populated areas. The fires have scorched nearly 750,000 acres now. They've forced more than 100,000 people from their homes; 20 people have been killed.

Bob Franken is in San Diego County tonight. He has the report for us -- Bob.

BOB FRANKEN, CNN NATIONAL CORRESPONDENT: Well, what we're hoping, Lou, is that the rain will come later tonight. The sun is out right now. That's not a good thing.

The winds have died down a little bit. That is a good thing, all for the obvious reasons. And they're hoping for cooperation from the weather to continue, so that the firefighters can continue to get the upper hand over the fires. You can see, of course, it's too late for this home and several hundred others in Scripps Ranch area of San Diego, one of the more affluent areas of San Diego. But, of course, that made no differences.

The fires raged up those hills and consumed these homes, leaving some of the others still standing. But, right now, there's a very heavy, heavy presence of insurance adjustors. And the homeland security director, Thomas Ridge, is due just about any minute in this particular part of San Diego to take a look and see the Federal Emergency Management Agency is doing the job that he wants it to do to try and make these people whole again.

Of course, it's a big fight that's going on in this part of California and a little bit to the north, north of Los Angeles, where so many thousands of acres have been burned. The weather, of course, has given the firefighters the chance to make those fire lines around the fire, by which I mean they actually bulldoze, try and create a clear area, clear of stuff the is incendiary, the stuff that has burned so, so rapidly over the last several days, causing such a tragedy.

In addition to which, after they do the fire lines, there will be an extended period of time before they can confidently say that this is over. That can be over a couple of weeks -- Lou.

DOBBS: Bob, thank you. Bob, it's -- of course, that devastation behind you, around you, is horrible. But it's encouraging that at least those firefighters who have been in this terrible fight against those fires will be at least having some better success and hopefully containing them.

Bob Franken, thank you very much.

The largest wildfires in the state's history have sparked controversy, as well as flames, of course, with some officials now trying to place blame. The Federal Emergency Management Agency denied Governor Davis' request for $430 million to clear dead trees from areas now devastated by the fire. But that denial came six months after Governor Davis warned the beetle-infested trees posed a catastrophic threat.

Congresswoman Mary Bono said, if the denial was given sooner, Davis would have had time to appeal. FEMA says it didn't grant the money, because California was already receiving more than $40 million to deal with that problem.

(BEGIN VIDEO CLIP)

MIKE BROWN, FEMA DIRECTOR: Even if we had granted all of the money in the world to fight the bark beetle infestation at the time the request came in, that would have done nothing to stop these particular fires. So I think that issue is something that we really shouldn't be focusing on, but instead focusing on getting these fires put out as quickly as possible and taking care of these victims.

(END VIDEO CLIP)

DOBBS: The White House says President Bush plans to tour the devastated areas in California Tuesday.

The economy grew at its fastest pace in 19 years in the third quarter. So far, however, jobs have not been part of the boom. Unemployment remains at its highest levels in a decade, almost a decade.

And joining us now in "News Makers" are the editors of this country's leading business magazine, Steve Shepard, editor in chief of "BusinessWeek," Steve Forbes, editor in chief of "Forbes" magazine, and Rik Kirkland, managing editor of "Fortune" magazine.

Good to have you with us. (CROSSTALK)

DOBBS: Steve, 7.2 percent GDP growth. It's the original report. This is, after all, government work. It could well be revised, even significantly. But this has got to be the best news we've seen in a long time.

STEVE SHEPARD, EDITOR IN CHIEF, "BUSINESSWEEK": It's a great number, no question about it. And the capital spending part of the numbers are particularly encouraging.

But I think what people are concerned about is that, when it comes down to a more sustainable rate of say 4 percent, which is also a good number for GDP growth for next year, people are going to wonder whether we will get the improvement in employment. And the reason they're wondering is because things are different this time around. We have two factors that are different, higher productivity and the outsourcing of jobs, particularly to China and India.

So we can't really gauge this expansion by what happened the last time we came out of a recession.

DOBBS: We can't have our economic generals fighting the last war, but it looks like that's what's happening.

Do you find great positives in this report?

STEVE FORBES, EDITOR IN CHIEF, "FORBES": Absolutely. And I think the stock market foresaw it, which is why we've got a booming stock market since early this year. And if we get 4 or 5 percent next year, which I think we will, you are going to start to see real job creation, especially among smaller businesses. Government surveys sometimes tend to overlook smaller businesses, which is where the job creation is anyway.

In the 1980s, our 500 largest companies

(CROSSTALK)

DOBBS: That's where job creation is when jobs are being created.

FORBES: Well, even in this recession, you saw small businesses create jobs. The top 500 companies in the last recession shed four million jobs, yet the American economy created twenty million jobs.

RIK KIRKLAND, MANAGING EDITOR, "FORTUNE": On one hand, I think Steve makes a good point, mentioning the stock market as a predictor. Right now, the market is not sure what it's predicting.

We have kind of gone sideways with these great numbers, because they were confirmation of the run-up we had. And I think you have raised the right issue. I think there's a question still, even at 4 percent, which I think is going to be a good number. And I think we can do it. Are we really going to generate more than a tiny downtick in unemployment? DOBBS: Steve brings up outsourcing. We hear today from Samuel Palmisano. We have now heard from Craig Barrett, Andy Grove, Warren Buffett in your magazine, Rik. We have some serious issues here. And we're talking about, in the latest report from the University of California, Berkeley, the prospect of 14 million jobs are vulnerable to outsourcing? That could be devastating.

SHEPARD: Well, we're talking about job loss during a sluggish recovery and we're following a recession.

When the economy picks up a little more and some jobs are created, things are going to be a lot better. Our exports are going to pick up, as they did in this third-quarter report we just saw. So we're looking at it at the worst possible time. And I think it won't be

(CROSSTALK)

DOBBS: If only we could choose our time, Steve.

SHEPARD: Well, it won't be as dire as they're saying, I'm sure

DOBBS: Steve, do you agree?

FORBES: Yes. And I think if you go back to the 1980s...

DOBBS: Which one of us, either Steve or me?

FORBES: With everybody. I'm in politics -- was.

(CROSSTALK)

DOBBS: No, he said he is in politics. We have got a news break here tonight.

FORBES: I wouldn't put a press release out about it.

(LAUGHTER)

FORBES: But, seriously, in the 1980s, when manufacturing took a real hit, millions of jobs were lost. And even high-tech looked like it was going to go down the tubes, with Intel in the late 1980s. We came back because we stayed ahead on the technology curve, came up with better chips and created whole new segments. And you're starting to see whole new segments.

(CROSSTALK)

DOBBS: Well, the semiconductor industry, though, came together in the 1980s and created SEMATECH.

(CROSSTALK)

FORBES: It turns out it wasn't needed. The advances in microchips enabled that industry to come back on its feet.

(CROSSTALK)

DOBBS: From one reporter's viewpoint, I think, as they say.

Rik.

KIRKLAND: I think really it's different this time.

And I think what's different is that the Internet didn't exist the last time we were coming out of a downturn, and companies like Global Crossing and others that have put on this bandwidth age. We've lowered the costs threefold. And I think this trend, at least among the large companies, whether it's white collar in particular in technology, is going to go on.

And the bet -- and I believe that we can do this, but I think the transition is going to be difficult -- is that the economy can find jobs elsewhere to offset what are going to be continued job losses among the big companies.

(CROSSTALK)

FORBES: But it underscores, this country really hurts our competitiveness with a business tax regime that's the second worst among major nations, tort lawyers running amuck.

(CROSSTALK)

DOBBS: Steve, I'm sorry. When you start talking about tax levels

(CROSSTALK)

SHEPARD: He's back in politics.

DOBBS: Exactly. He's back.

The fact is, corporate tax levels today are much lower than they were 40 years ago. That's just a simple fact. Income tax levels are much lower than they were 40 years ago.

(CROSSTALK)

FORBES: Yes, but compare our tax rates today with other countries.

DOBBS: Compare our wage levels.

FORBES: We're going to second worst in the world, 40 percent, when you combine federal and state levels.

(CROSSTALK)

SHEPARD: But in the 1990s, when we had a boom, we had essentially the tame tax regime. And so I don't think that's the explanation. I really don't.

(CROSSTALK)

DOBBS: It was also in the '90s, Steve, that Lester Thurow and Bill Clinton were running around the country, holding up the models of Germany and Japan as the paradigm of productivity.

(CROSSTALK)

SHEPARD: Now it's China and India, right?

DOBBS: You have got to stay flexible here.

FORBES: Every decade, you get a new villain, whether it's Japan, Germany, Mexico. Now it's India and China.

DOBBS: Well, the villain may well be this country itself now and our inability to deal straightforwardly and honestly with a number of problems. Steve said it. This is a different world. And I don't get the sense that our business leaders, that our policy-makers, comprehend that fully.

SHEPARD: Well, it's a different world for good, as well as bad.

DOBBS: Absolutely.

SHEPARD: There's a lot of things that are going on that are very, very positive.

DOBBS: Like 7.10 percent GDP growth.

SHEPARD: Yes. If we have a lot of innovation in the economy, we will get a lot of growth.

DOBBS: Well, we are going to take a quick break. And we're going to focus on only the good things. We are going to focus on all of the good things in just a moment, as we continue with our "News Makers."

And later here, a hero for the 21st century, technology helping an American soldier wounded in Afghanistan return to a productive life. Casey Wian will have the story.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: Back once again with the editors of the nation's premier business magazine for "News Makers."

Steve, you said you wanted to focus on the good. We all do. There's so much good in this country. We shouldn't neglect it. So let's talk about Eliot Spitzer. Bill Donaldson at SEC suggested I put it that way.

(LAUGHTER)

DOBBS: The rather open criticism by Spitzer, the New York attorney general, of the SEC chairman, Bill Donaldson, what do you make of it?

SHEPARD: Just what we need, another scandal.

Well, I think, on the mutual funds thing, he's absolutely right. The SEC has oversight...

DOBBS: Spitzer's right?

SHEPARD: Yes. And he was more critical not of Donaldson, but of the man who runs the mutual fund part of the SEC oversight.

Look, Spitzer uncovered this. And whatever you think of him, there's a lot of things that need to be fixed in the mutual fund business.

DOBBS: I tell you what I think of Spitzer. I think the people who say he's politically ambitious, I say, so what? He's getting a lot done. That's what I think of him.

What do you think of him?

KIRKLAND: I think he deserves a lot of credit, particularly in this case, because this one was not on anybody's radar screen. The conflicts of interests on Wall Street, we all understood. But this is new.

DOBBS: The mutual fund scandal, which, again, the New York attorney general brought to the forefront -- the SEC has now joined in -- where does that end, Steve?

FORBES: I think fundamental reform of an industry that got very fat and very complacent. Their fees have increased, even though their assets...

DOBBS: Very greedy.

FORBES: Very greedy.

Their assets increased 70-fold over 20 years, and yet their cost per dollar of assets went up. They're shafting the investor going in. These 12B-1 expenses, supposedly, they bring down expenses because they bring in more assets. Fraud. Conflict of interests, managing money for your own, going against your own shareholders, sitting on the boards of companies that sell the funds, on the funds themselves. It's a disaster.

(CROSSTALK)

KIRKLAND: And, again, no governance. They always bragged for years about, they had independent boards of directors. And these guys were all cronies and asleep at the switch. So once again...

DOBBS: Well, speaking of governance, the interim chairman, John Reed, at the New York Exchange, has solved the governance issues for the New York Stock Exchange. He is going to create a two-tier system. Still, of course, the regulators, the compliance people, will be reporting to the CEO, which could be him. Do you think that's a brilliant idea, Rik?

KIRKLAND: The...

DOBBS: Any part of that.

(LAUGHTER)

(CROSSTALK)

KIRKLAND: Yes.

The board stuff, I think, is interesting. I think what's important is this debate about it moving away from the specialist system. And I'm in the camp that, increasingly, the more I have looked at it and thought about it, thinks that we don't need this so- called trade-through rule. And it's not -- the new electronic exchanges and those approaches are probably better for investors and for buyers, as well as for sellers.

SHEPARD: Yes, I guess I would disagree. I think there should be more trading in an automated electronic way on the New York Stock Exchange. But I think it would be a mistake to get rid of the specialist system. What's the point of making the New York Stock Exchange just like every exchange?

(CROSSTALK)

SHEPARD: The specialists do have a function for a certain kind of trading. And I think should be retained, as long as there's more movement to electronic trading.

(CROSSTALK)

FORBES: That's why the best thing would be for the exchange to go public, where they're accountable to public shareholders, to the SEC.

And that way, if they think the specialist system is good, then they have to justify it and show they can make money at it.

DOBBS: I think it's interesting that the SEC wants to see how it is that the specialists provide liquidity to the marketplace and help all us investors. That's going to be a wonderful answer. I can't wait to see that.

But the other is the Securities and Exchange Commission. Why in the world don't we just cut out the IPO process going public and have the SEC do what it should be doing, which is regulate the exchanges for the protection of the investor?

(CROSSTALK)

FORBES: Yes, but that assumes they know what they're doing. As we've seen with the mutual fund industry

(CROSSTALK)

DOBBS: Well, everyone has a learning curve.

FORBES: That doesn't always come to

(CROSSTALK)

DOBBS: The SEC hasn't learned to what do with all the whistle- blowers yet either.

FORBES: Well, they've only had 70 years, Lou. Come on. For government, that's a short time.

(LAUGHTER)

DOBBS: We sit here laughing about it, but a lot of people lost a lot of money.

(CROSSTALK)

DOBBS: And we have got John Reed saying, we are going to do a Boeing-like two-tier system. Quit finessing. Investors deserve a little honesty. Don't you agree?

SHEPARD: Well, how could I not agree with that statement?

DOBBS: Well, that's why I put it that way.

(LAUGHTER)

(CROSSTALK)

SHEPARD: Deserve a little honesty. Don't we all?

DOBBS: Well, they've got a little. How about a little more?

SHEPARD: Yes.

I think that having these SROs, the self-regulatory organizations, is a good idea. The SEC has to provide oversight and it has to do a better job of providing oversight. But I think it would be a mistake to turn all the regulation over to the SEC.

FORBES: One of the thing that always happens in democratic capitalism is that the innovations and the prosperity always goes ahead of the law.

Then you have the scandals. The law catches up. Reforms are put in. And we are able to move forward. We're in one of those periods now. And we have to pull back and say, what are the reforms we need to get better governance? We have it every 20 or 30 years, but it's a dynamic of the system. And it's a positive. When things go wrong, we know how to fix it. DOBBS: Well, I find it interesting you like the idea that the New York Stock Exchange, which just awarded its chairman $140 million, plus another 40, which we haven't quite determined

(CROSSTALK)

FORBES: Which none of the directors seemed know about.

DOBBS: And the directors didn't even vote on it. Well, a number of them do take responsibility, to their credit. But the fact is, why in the world shouldn't that be changed significantly?

SHEPARD: It's going to be. It's going to be.

(CROSSTALK)

FORBES: That's why the thing should be going public. So that way...

(CROSSTALK)

SHEPARD: Because they would have had to disclose all this stuff. Even the directors who were sleeping through lunch would have had to see the numbers.

(CROSSTALK)

DOBBS: One thing we've demonstrated here over the last two years is that any public company, it's an automatic safeguard against defrauding the shareholders, the employees.

(CROSSTALK)

FORBES: At least the information is there, if you care to look.

(CROSSTALK)

DOBBS: I think people are beginning to care to look. Perhaps they'll care to look just a little more.

FORBES: That's why they should subscribe to our magazines. See how generous I am tonight?

(CROSSTALK)

(LAUGHTER)

DOBBS: That would include "BusinessWeek," "Forbes," and "Fortune."

Gentlemen, good to have you with us, Steve Shepard, Steve Forbes, Rik Kirkland. Thank you, gentlemen. Have a great weekend.

(CROSSTALK)

DOBBS: Tonight's thought is on government spending. "As quickly as you start spending money in large amounts, it looks like free money" -- Dwight David Eisenhower, 34th president of the United States.

A reminder now to vote in tonight's poll: What do you think is the principal cause of unemployment, high productivity, record trade deficits, illegal aliens, or outsourcing? Cast your vote at CNN.com/Lou. We'll have the results for you in just a few moments.

Coming up next: Technology and tenacity help an American soldier walk again after he lost his leg serving in Afghanistan. Casey Wian will have this hero's remarkable story.

Stay with us.

(BEGIN VIDEOTAPE)

DOBBS: In "Heroes" tonight, the extraordinary story of Army Reserve Sergeant Michael McNaughton. He saw combat in the first Gulf War, Bosnia and Afghanistan. Two weeks before he was to leave Afghanistan, he stepped on a land mine and lost most of his right leg. McNaughton has become the Army's first bionic soldier.

Casey Wian has the story of this hero from Baton Rouge, Louisiana.

(BEGIN VIDEOTAPE)

SGT. MICHAEL MCNAUGHTON, LOUISIANA NATIONAL GUARD: This is an amazing leg. I'm very happy to have it.

CASEY WIAN, CNN CORRESPONDENT (voice-over): Army National Guard Staff Sergeant Michael McNaughton is the first soldier to get his C- Leg, a $43,000 prosthesis that allows him to do almost anything he could do before most of his right leg was blown off by a land mine in Afghanistan. On this day, his doctor repairs minor damage McNaughton did playing soccer with his son.

UNIDENTIFIED MALE: It's the most state-of-the-art prosthesis anywhere right now.

WIAN: The C-Leg contains computer chips and sensors that enable it to adjust to everything from walking to riding a bike. For most prosthesis patients, every step is a chore. But the computer- programmed C-Leg automatically adjusts to McNaughton's weight and gate.

MCNAUGHTON: How much weight should I put on it?

WIAN: The 31-year-old McNaughton's military career began more than a decade ago. He served in Saudi Arabia, Kuwait, and Bosnia, then left the Army.

MCNAUGHTON: After 9/11, I just decided I needed to do something.

WIAN: So he joined the National Guard. Within three months, he was clearing mine fields in Afghanistan. His unit removed 1,500 anti- personnel and 47 anti-tank mines. Then he walked into an area Polish soldiers told him had been cleared.

MCNAUGHTON: And I was awake for the whole thing. I saw the blast. It was one of the biggest rides I ever had in my life. I went up in the air and I fell down. And I knew I was bleeding profusely on the ground. I knew not to look, because I didn't want to go into shock. And I told them to call the hospital to have some O-negative blood ready.

WIAN: McNaughton's right leg was gone. So was a big chunk of left calf and two fingers.

MCNAUGHTON: And, of course, I was thinking about my family. And then I started thinking about my soldiers, because that was my job, to make sure my soldiers were safe.

WIAN: His superiors still marvel at how the critically wounded sergeant seemed more worried about keeping his fellow soldiers away from mines than his own safety.

MAJ. ROBERT KYGER, LOUISIANA NATIONAL GUARD: He's exemplified everything that you try to say that you want a soldier to be and a person from the very start, when he was laying there in the E.R.

WIAN: McNaughton has kept his sense of humor.

MCNAUGHTON: I tell kids that an alligator chewed off my leg or something like that. She doesn't like that. It scares some kids. But I get a kick out of it.

WIAN: This week, McNaughton has his ninth surgery. Ahead, more rehabilitation and several career choices, including whether to stay in the National Guard and an offer to go running with the president.

MCNAUGHTON: He said any time. So, hopefully, as soon as I get this operation and I get this running leg going, I can go there and smoke him.

WIAN: Casey Wian, CNN, Baton Rouge, Louisiana.

(END VIDEOTAPE)

BROWN: Outstanding.

Still ahead here, we'll have the results of tonight's poll and a strong month to tell you about on Wall Street. Christine Romans will be here.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: Now the results of our poll. What do you think the principal cause of U.S. unemployment is. Ten percent of you said high productivity; 27 percent said record trade deficits; 2 percent said illegal aliens; 62 percent outsourcing. On Wall Street, stock prices scored another win. However, they were little changed today. The Dow up 14 points. The Nasdaq lost less than a point. The S&P added just about four points.

And Christine Romans is here with the market.

Quite a month and a few problems as well.

CHRISTINE ROMANS, CNN CORRESPONDENT: Absolutely, Lou.

Let's start with the stellar market for the week. And for the month, Lou, you had the Dow and the S&P rising more than 2 percent this week. So it was the best week in about a month. And then it was the best month since April, blue chips up about 5 percent in October. The Nasdaq rallied 8 percent in the month. And small caps today ended within a point of their all-time high, more strong economic data.

The profit picture remains rosy, fewer than 100 companies left to report. Profits still up 20 percent, revenue now up more than 9 percent. October marks the end of the year for many mutual funds. Here's how the biggest shaped up. Vanguard 500, Magellan, and American Funds ICA sporting modest gains for the month. But look at the year, very strong performance for the year for some of these top mutual funds.

But this, Lou, is an industry in turmoil. And the problems for Putnam Investments mount. Rhode Island, Pennsylvania and Iowa all pulled their retirement money from Putnam. And the withdrawals now total almost $4 billion. The Senate Banking Committee will investigate. Calls for reform are widespread. New York Attorney General Eliot Spitzer heads to Capitol Hill on Monday. The SEC is also investigating. But, in the meantime,, state treasurers are voting with their feet and with their clients' dollars and are pulling their money out and moving it around.

DOBBS: OK, Christine, thank you very much. Have a great weekend. It was quite a month for investors.

That's our show for tonight. Thanks for being with us. Monday, we begin a series of special reports on failing education in this country, wasted minds, our failing schools.

For all of us here, thanks for being with us and good night from New York. Have a very pleasant weekend and a safe and happy Halloween.

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





Warns of Escalating Terror Attacks in Iraq; American Economy on the Road to Recovery?>


Aired October 31, 2003 - 18:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: This is LOU DOBBS TONIGHT for Friday, October 31. Here now, Lou Dobbs.
LOU DOBBS, CNN ANCHOR: Good evening.

Tonight: After battling devastating wildfires for a week, firefighters are gaining the upper hand in California. We'll have a live report from hard-hit San Diego County.

Illegal aliens are costing this country billions of dollars every year in health care, education and social services. Peter Viles will report tonight in our series of special reports, "The Great American Giveaway."

Also, Arizona State Representative Russell Pearce is trying to protect social services for Arizona residents. He's our guest.

And the White House, the Pentagon, the State Department and the CIA all have failed to meet a Senate Intelligence Committee deadline to turn over documents on Iraq. We'll have a live report from Suzanne Malveaux, who is traveling with three president in Texas.

And in "Heroes" tonight, Army National Guard Staff Sergeant Michael McNaughton lost his right leg in Afghanistan. Now one of the most advanced prosthetics in history is changing his life. Casey Wian will have his remarkable, inspiring story.

Tonight, in Iraq, coalition officials are warning that terrorists may launch a wave of suicide attacks over this weekend. The targets could include police stations, schools, mosques, hotels and international organizations.

There was also more death and destruction in Iraq today. Terrorists killed an American soldier, a member of the 82nd Airborne Division, in a bomb west of Baghdad. Four other soldiers were wounded in the attack.

Troops hunting Saddam Hussein cordoned off the village where the former Iraqi leader was born. Soldiers ordered adults to apply for new identity cards.

(BEGIN VIDEO CLIP)

COL. STEVE RUSSELL, U.S. ARMY: We have provided security. We have provided cordon. And we are not limiting the movement of those that register in the town. Once they have a pass, they have complete freedom of movement, as they would at any other time.

(END VIDEO CLIP)

DOBBS: There is also violence in a village near Baghdad International Airport today. Troops supported by tanks and helicopters were called in to put down a riot by Saddam Hussein loyalists. At least 14 Iraqis were killed.

Senior Pentagon correspondent Jamie McIntyre joins me now with more on this new wave of violence and the threat of more to come -- Jamie.

JAMIE MCINTYRE, CNN MILITARY AFFAIRS CORRESPONDENT: Well, U.S. coalition forces are bracing for worst over the next couple of days, because of a spate of rumors and some hardened intelligence as well suggesting that there may be more suicide bomb attacks coinciding with the date of November 1, which is tomorrow.

According to CNN Pentagon producer Mike Mount, who is now on assignment in Iraq, he is quoting coalition sources as telling him that they see indications that the threats against U.S. and Iraqi targets over the next couple of days are coming from the same group which may have been behind or responsible for a series of suicide attacks on Monday. Interesting enough, a lot of these threats are coming against schools, where we're told that men with their heads covered in black cloth have come to threaten students, teachers and families.

The threats are not specific, but they basically say that no one will be safe at police stations, schools, markets, mosques, hotels and that nongovernment organizations will also be targeted. It's not known if these are empty threats or real threats. But the coalition is taking steps to beef up security. And, of course, everybody is on alert, waiting to see what will happen -- Lou.

DOBBS: Jamie, do we know the source of these threats?

MCINTYRE: Well, again, the intelligence and the rumors of some of the threats seems to indicate that they may be from the same group responsible on Monday, that is, perhaps some foreign fighters working with loyalists of the old Saddam Hussein regime.

But Pentagon officials are being careful to say they don't have a good, firm handle on exactly who is behind these. They do believe they are essentially being directed by supporters of Saddam Hussein, but they say not Saddam Hussein himself.

DOBBS: Jamie McIntyre, senior Pentagon correspondent, thank you.

The White House, the Pentagon, and the State Department and the CIA today all failed to meet a deadline for turning over prewar intelligence on Iraq. The deadline was set by the Senate Intelligence Committee, which is investigating whether the Bush administration embellished what it knew about Iraq's weapons.

Suzanne Malveaux is traveling with President Bush in Crawford, Texas, and joins us now with a report -- Suzanne.

SUZANNE MALVEAUX, CNN CORRESPONDENT: Well, Lou, congressional sources tell us that, already, this public spanking, this public rebuke from the Senate Intelligence Committee seems to be working somewhat, that they have gotten documents today after that deadline passed.

Really, this was meant to accelerate the process. They find that that is actually happening. But the White House did respond to that deadline. They were one of those groups that missed the deadline, Scott McClellan earlier today making a number of points, first of all, that the Senate Intelligence Committee doesn't have the jurisdiction over the White House to require it to turn over classified and sensitive documents.

But second, having said that, the White House did say that it will continue to cooperate, that it will provide interviews with National Security Council members, as well as some documents. What may happen, Lou, is similar how to the White House is dealing with the 9/11 Commission, that is, allowing committee members to eyeball some of those really sensitive materials, as opposed to walk away with them.

And, finally, the White House made the point that they do not believe, they take exception with, that they're impeding this investigation. They said that all the documentation sent from the CIA sent to the White House will be turned over.

(BEGIN VIDEO CLIP)

SCOTT MCCLELLAN, WHITE HOUSE PRESS SECRETARY: We previously -- even those the committee has no jurisdiction over the White House, we previously have made NSC staff statements available and provided access to relevant documents to help investigators. And we will continue working with them as they move forward.

(END VIDEO CLIP)

MALVEAUX: Now, Lou, the question is whether or not the committee is really going to get everything it wants. Congressional sources said they really didn't expect it. This whole public thing was just about moving people along, getting the process going.

Another remaining question, really big debate that is taking place between Republicans and Democrats on that committee, is whether or not this committee has the right, not only to investigate the quality of intelligence before 9/11, but also whether or not it can actually determine if that intelligence was misused -- Lou.

DOBBS: Suzanne, it is hard to imagine that this White House wants a public battle with a Senate Intelligence Committee chaired by one of the best regarded leaders on Capitol Hill, Senator Pat Roberts. What is the indication of their stomach for such a fight?

MALVEAUX: Well, the White House really wants to cooperate with the committee. And you're absolutely right. They don't have the stomach for this type of legal battle.

And, as you know, they could get subpoena power and enter that kind of battle with the White House over some of these documents. In all likelihood, what is going to happen is, they're going to reach a compromise similar to what they've done with these other commissions. So they're going to say, yes, we have executive privilege, but perhaps there's way that we can make these committee members have access to the documentation without the threat of leaks.

DOBBS: Suzanne, thank you very much -- Suzanne Malveaux traveling with the president tonight in Crawford, Texas.

A victory for the president in Congress today. The House of Representatives voted in favor of the administration's $87 billion request for additional spending in Iraq and Afghanistan; 82 Democrats voted with the Republicans to support the bill. All the money will be in the form of grants, as the president had requested. Congressmen decided not to convert any of that money into loans. The Senate is expected to take up the vote on the bill Monday.

Turning now to our special report, "The Great American Giveaway" -- tonight, the tremendous cost of illegal aliens to American taxpayers. Health, education, welfare benefits for illegal aliens all add up to billions of dollars every year.

Peter Viles is here now and has the report for us -- Pete.

PETER VILES, CNN CORRESPONDENT: Lou, these are some very big numbers. And they add up in quite a hurry.

And the frustrating thing for local governments, these costs mainly borne by local governments, which have any voice whatsoever in immigration policy.

(BEGIN VIDEOTAPE)

VILES (voice-over): Here's a factor in that California budget crisis that Arnold Schwarzenegger cannot fix, the huge cost of providing services and education to illegal aliens and their children, an estimated $2 billion a year for education in California alone. Nationally, the costs are mounting: $1.4 billion a year in emergency health care; $1.5 billion in incarceration costs; $5 to $6 billion a year in welfare costs, including food stamps, and $7.5 billion in education costs.

This is not to say that illegal aliens don't pay taxes. They pay sales taxes, property taxes and, in many cases, income tax, but not enough to cover the services that they use.

STEVEN CAMAROTA, CENTER FOR IMMIGRATION STUDIES: The problem is, is that illegal aliens are very poor. And they're not poor because they're illegal. They're poor because some 80 or 90 percent lack even a high school education. And people who lack high school education make little money and thus pay a little bit in taxes, but often receive a lot in services. VILES: Cities and towns have no choice in much of this. Public schools must accept illegal aliens because of a landmark 1982 Supreme Court ruling, Plyler v. Doe, in which Justice William Brennan wrote that barring illegals from school would violate the Equal Protection Clause of the 14th Amendment.

DAN STEIN, EXECUTIVE DIRECTOR, FAIR: Look, 25 years ago, the Supreme Court said, if kids are here illegally, they have to get an education. But that doesn't mean the kids have to stay here against federal law. The Supreme Court never said that we couldn't enforce immigration laws or that, if immigration authorities became aware of the fact that there were illegal immigrants here, that we couldn't deport the immigrants and their kids.

(END VIDEOTAPE)

VILES: Now, there is mounting anger over these costs, particularly in Arizona and California. But this is fundamentally a federal issue. And there's no indication yet that the federal government even views this as a problem that needs to be addressed -- Lou.

DOBBS: The idea that the 1982 decision would stand in the context of 10 million illegal aliens, without question, a difficult problem. Why are school districts not dealing with this on an illegal immigration basis?

VILES: As I understand it, they are barred, under that ruling, from even asking questions about the status of these students. The only question legally that they can ask of a student is, do you live in this school district?

They can't ask about the parents' status or the student's status. And we confirmed that with Homeland Security today. Schools essentially have no business asking about immigration or trying to enforce immigration laws. And we know that ICE, the immigration, really is not out there at the grassroots level trying to find these people.

DOBBS: Pete, thank you very much -- Peter Viles.

Coming up next here: One Arizona state representative is taking action, trying to protect the citizens of his state from funding benefits for illegal aliens. State Representative Russell Pearce will join us next.

And the wildfires still burn in California. Firefighters, however, tonight are trying to contain the damage. And some officials have begun to play the blame game. Bob Franken will report from Southern California.

And "Heroes" -- tonight, an American soldier wounded in action relying on technology and determination on his road to recovery. Casey Wian will report on "Heroes" from Baton Rouge, Louisiana.

Stay with us. (COMMERCIAL BREAK)

DOBBS: As we reported earlier, citizens of Arizona, faced with the growing numbers of illegal aliens in their state, are now taking aggressive action to protect their public services and their state budget.

An initiative called Protect Arizona Now is gaining momentum among voters. But it still faces opposition from that state's congressional delegation.

My next guest is helping to organize the effort. My guest is Arizona State Representative Russell Pearce. He joins us tonight from Phoenix.

Good to have you here.

REP. RUSSELL PEARCE (R), ARIZONA: Good to be here, sir.

DOBBS: The idea that you would put forward an initiative in the face of so much opposition from your congressional delegation -- as I understand it, your governor also is opposed to this initiative. Yet the most recent survey showed that 70 percent of Arizonans support it. Why isn't the congressional delegation and your governor supporting it as well?

PEARCE: Well, I'd like to know that same answer.

And let me tell you, actually, it's much greater than 70 percent. It's 78 percent of those that have an opinion. It was 85 percent of Republicans, 83 percent of independents, 83 percent of rural Arizona, 85 percent of those most likely to vote. This is aggravating. We're standing by while we have an invasion going on in this country that is destroying our country economically and in other ways, our neighborhoods.

And I agree with you, first of all. It is the federal government's responsibility to secure the border, USC Title 8. But once they're past that border, it's our neighborhoods, it's our health care system, it's our education system, it's our welfare system. In Arizona, AXIS, which is our Medicaid program, was $200 million in 2001; 2002 wasn't that long ago.

In 2003, it was $1.2 billion. It's on its way to bankrupt this state if we don't wake up. And the violence that is committed, these aren't just good people looking for work; 25 percent of federal prisons are made up of illegals, 12 percent of state prisons, 12 to 15 percent of county jails. The hospital systems are collapsing. Maricopa County is losing $2 million a week on their Maricopa County hospital.

When are we going to wake up? I've taken an oath not to my party. And I love my party and I love President Bush. But immigration is a miserable failure. And it's destroying our neighborhoods, destroying our country. And I've taken my oath seriously to uphold the Constitution of the United States, the constitutional laws of the state of Arizona. And that's what this is about.

We may not be able to stop illegal immigration entirely, but we can do something about fraud. And the issue you didn't mention, too, in this act, it's a not just the welfare. And that's important. But it's our places of elections. The Arizona Constitution, Article 7, Section 12, says, we will put into place provisions to protect the security of our elective process. We have an obligation. The Holla (ph) bill out of Congress says the same thing. When are we going to wake up?

(CROSSTALK)

DOBBS: Well, that's a question, if you watch this broadcast, you may know, we have asked several times here.

But I've also -- I began my career as a journalist is Yuma, Arizona. I love that community. I enjoyed working there. And I still stay in touch with some of those people. But the fact is, there is the benefit of those illegal aliens as well, which many people in Arizona, over 30 years, sort of winked and nodded. The citrus growers need them to bring in crops. They have also provided some economic benefit as well, have they not?

PEARCE: Well, and I think we can't deny that there's been a need for those that are in the agribusiness.

But, Lou, there's 79 different work visas into this country. We let one million people into this country every single year legally. We're talking about illegal immigration. And it is destroying this country; 42 percent -- and, again, the United States Census Bureau admits and that we keep -- be throwing out seven, eight million.

The U.S. Census Bureau admits there's 11 to 15 million in this country illegally. And I suspect it's much larger than that. The Border Patrol apprehended about 430,000 illegals crossing the border in 2001. They admit -- they admit -- three to five get by for every one they apprehend. It's a huge issue. And it's destroying -- it's the Trojan horse that we treat like a sacred cow. And we owe our citizens better than that.

And you talk about a disconnect. And you showed it in this poll that was done by ASU, Channel 8 TV; 85 percent of our constituency is demanding we do something like this. And yet we have politicians running the wrong direction and not standing behind their constituency.

(CROSSTALK)

DOBBS: Well, I understand that some of the delegation, the congressional delegation, from Arizona, Mr. Pearce, and your governor as well, consider the initiative as a lost cause, because they say it will be found unconstitutional.

PEARCE: You know, 187 in California was a much tougher initiative than ours. And it was ruled down by a lower court. It was not appealed by Gray Davis, because it was constitutional. We've had seven constitutional attorneys look at this. We're not creating new law. And that's what people keep trying to do, is put a spin on this that is not true. We're asking for the laws on the books to be enforced and we're setting penalties and eligibility standards that will help ensure that, that evidence of citizenship must be shown when you register to vote -- already a law -- that proof of who you are, a picture I.D. when you go to vote -- simply, these poll voters, if they don't know who you are, have never seen you, they ought to have some I.D.

Unlike Chicago, we believe that, once you're dead, you ought not be voting anymore.

(CROSSTALK)

DOBBS: Russell Pearce, we thank you very much for being with us. We're absolutely out of time.

(CROSSTALK)

DOBBS: I have got one quick question for you. If Arizona were to pass this initiative, it goes on the ballot next year.

PEARCE: 2004, yes, sir.

DOBBS: And it were to be held constitutional, what would happen to the illegal immigrant population in Arizona?

PEARCE: They'd stop committing fraud. They wouldn't be able to get on welfare. They wouldn't be able to vote. That's what the focus of this is about. We're not enforcing immigration laws. We expect our federal government to do that, even though they have failed to date miserably. That's their job. We need to hold them accountable. And we need to remove people that don't support this Constitution.

(CROSSTALK)

DOBBS: Representative Russell Pearce of the state of Arizona, thanks for being with us.

PEARCE: Thank you, sir. Thank you very much.

DOBBS: Appreciate it.

Coming up next: a political crisis erupting in Russia, after that nation's richest businessman was hauled away at gunpoint. Kitty Pilgrim reports on the impending crisis.

And in this country, a strong base for economic recovery -- one key element is missing, however, jobs. We'll be joined by the editors of the nation's leading business magazines in this week's edition of "News Makers."

Please stay with us.

(COMMERCIAL BREAK) DOBBS: The United States today said Russia must answer serious questions about its commitment to free markets and an independent judiciary. The State Department said authorities should address concerns that the arrest of Russia's richest man might be politically motivated.

That arrest could have serious implications for the relationship between this country and Russia.

Kitty Pilgrim is here now and has the report.

KITTY PILGRIM, CNN CORRESPONDENT: Lou, the Russian oil industry was booming. Investment was pouring in. And now there is a gasp over this sudden arrest.

(BEGIN VIDEOTAPE)

PILGRIM (voice-over): Suddenly, President Putin looks scary. Western bankers flew to Moscow this week, looking for assurances. So is the U.S. government.

RICHARD BOUCHER, STATE DEPARTMENT SPOKESMAN: We think the Russian authorities needs to dispel concerns that the Yukos case is politically motivated.

PILGRIM: Mikhail Khodorkovsky, the head of Yukos, is one of the wealthy young tycoons in Russia who not millions, but billions after the markets opened up. He was arrested, they say, for tax reasons. But many think it was because he meddled in politics and posed a threat to President Putin. Russia watchers say the arrest raises questions about the rule of law in Russia.

DMITRI SIMES, NIXON CENTER: The office which moved against Khodorkovsky, while officially independent, would not do anything without guidance from Putin and his key associates.

PILGRIM: Putin's chief of staff, Alexander Voloshin, out, and the prime minister, Mikhail Kasyanov, publicly said he was greatly concerned over the arrest.

Russian oil capacity is seen as a potential long-term insurance policy against overdependence on the Middle East. Yukos produces about a quarter of Russia's oil and was in talks with companies like ExxonMobil and ChevronTexaco about a stake in the company. This week, the Putin government froze a 44 percent stake in the company.

MICHAEL ROTHMAN, MERRILL LYNCH: What it has raised questions about is the investment climate and whether, for a longer term arising, you're back to the situation where, in the case of Russian oil, do we have to deal more with political risk.

(END VIDEOTAPE)

PILGRIM: Now, President Putin made the analogy to Enron and WorldCom, defending the arrests, and talked about continued economic reforms. The Russian markets, however, sold off and have only partially recovered -- Lou.

DOBBS: Kitty, thank you very much -- Kitty Pilgrim.

Coming up next here: firefighters in California battling the worst firefighters in that state's history, officials battling now over who is to blame. Bob Franken will report from Southern California.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: In tonight's "Exporting America," IBM CEO Samuel Palmisano told the Council on Competitiveness in Washington, D.C. today that the United States is at risk of failing to keep up with innovation globally.

And he said, that innovation is necessary to stem the flow of technology jobs overseas. IBM is one of many technology companies shifting jobs overseas as they cut costs. Last week, Intel CEO Craig Barrett said its future investments would follow its markets overseas; 70 percent of its markets are overseas. And Intel's co-founder, Andy Grove, has said the entire American technology industry could suffer the same fate as that of the American steel industry.

That brings us to the topic of tonight's poll question. What do you think is the principal cause of U.S. unemployment, high productivity, record trade deficits, illegal aliens, or outsourcing of jobs overseas? Cast your vote at CNN.com/Lou. We'll have the results for you later in the show.

Now for a look at some of your thoughts.

On the phrase "under God" in the Pledge of Allegiance from Fort Lee, New Jersey: "Here's a solution to the pledge problem. For the disputed phrase, substitute the following, "one nation, geographically, under Canada.' No one except Alaskans and Hawaiians could be offended by that" -- Bob Mobley.

From Baltimore, Maryland: "Lou, although you and I might find ourselves on different sides of the political aisle, I find your continuing 'Great American Giveaway' series to be right on target. In fact, I watch it every night and have begun urging my other friends who are middle-aged, displaced, and outsourced to watch it, too" -- Anne Madison.

We hope you find work very quickly.

And from Safety Harbor, Florida: "I am shocked and appalled at your report of illegal alien convicted sexual offenders being released from jails on the population. I am shocked and appalled often by some of your reports, but only because I hear reports on your program that I hear no place else" -- that from Peggy Dillashaw.

From Diamond Bar, California: "Lou, although 14 million U.S. jobs may be exported to China and India in the future, the last time I checked, China and India have been operating their cheap-labor shops in the United States for years. They're called Wal-mart stores and Wal-Mart supercenters" -- that from Derming Wang.

By the way, if Wal-Mart were a country, it would be China's fifth largest trading partner. It is, of course, the fifth largest importer.

From Orangevale, California: "When are you guys going to get it straight? This has not been a jobless recovery. It has created millions of jobs in India and China" -- Rick Martin.

From Tampa, Florida: "Lou, please tell your viewers where the American flag lapel pin that you wear is made."

Tom, I have to confess, when you asked, I started to get a little nervous. But this lapel pin happens to be made right here in the United States. But you are right. We checked. A number of lapel pins with those beautiful American flags are made in China.

We love hearing from you. E-mail us at LOUDOBBS@CNN.com.

In Southern California tonight, chilly temperatures, dense fog helping firefighters to control the worst wildfires in that state's history. Firefighters are now using bulldozers to build massive firebreaks around threatened mountain resorts. Officials say the worst may be over, but there's still risks of high winds. Those winds have blown the fires through grasslands and forests toward populated areas. The fires have scorched nearly 750,000 acres now. They've forced more than 100,000 people from their homes; 20 people have been killed.

Bob Franken is in San Diego County tonight. He has the report for us -- Bob.

BOB FRANKEN, CNN NATIONAL CORRESPONDENT: Well, what we're hoping, Lou, is that the rain will come later tonight. The sun is out right now. That's not a good thing.

The winds have died down a little bit. That is a good thing, all for the obvious reasons. And they're hoping for cooperation from the weather to continue, so that the firefighters can continue to get the upper hand over the fires. You can see, of course, it's too late for this home and several hundred others in Scripps Ranch area of San Diego, one of the more affluent areas of San Diego. But, of course, that made no differences.

The fires raged up those hills and consumed these homes, leaving some of the others still standing. But, right now, there's a very heavy, heavy presence of insurance adjustors. And the homeland security director, Thomas Ridge, is due just about any minute in this particular part of San Diego to take a look and see the Federal Emergency Management Agency is doing the job that he wants it to do to try and make these people whole again.

Of course, it's a big fight that's going on in this part of California and a little bit to the north, north of Los Angeles, where so many thousands of acres have been burned. The weather, of course, has given the firefighters the chance to make those fire lines around the fire, by which I mean they actually bulldoze, try and create a clear area, clear of stuff the is incendiary, the stuff that has burned so, so rapidly over the last several days, causing such a tragedy.

In addition to which, after they do the fire lines, there will be an extended period of time before they can confidently say that this is over. That can be over a couple of weeks -- Lou.

DOBBS: Bob, thank you. Bob, it's -- of course, that devastation behind you, around you, is horrible. But it's encouraging that at least those firefighters who have been in this terrible fight against those fires will be at least having some better success and hopefully containing them.

Bob Franken, thank you very much.

The largest wildfires in the state's history have sparked controversy, as well as flames, of course, with some officials now trying to place blame. The Federal Emergency Management Agency denied Governor Davis' request for $430 million to clear dead trees from areas now devastated by the fire. But that denial came six months after Governor Davis warned the beetle-infested trees posed a catastrophic threat.

Congresswoman Mary Bono said, if the denial was given sooner, Davis would have had time to appeal. FEMA says it didn't grant the money, because California was already receiving more than $40 million to deal with that problem.

(BEGIN VIDEO CLIP)

MIKE BROWN, FEMA DIRECTOR: Even if we had granted all of the money in the world to fight the bark beetle infestation at the time the request came in, that would have done nothing to stop these particular fires. So I think that issue is something that we really shouldn't be focusing on, but instead focusing on getting these fires put out as quickly as possible and taking care of these victims.

(END VIDEO CLIP)

DOBBS: The White House says President Bush plans to tour the devastated areas in California Tuesday.

The economy grew at its fastest pace in 19 years in the third quarter. So far, however, jobs have not been part of the boom. Unemployment remains at its highest levels in a decade, almost a decade.

And joining us now in "News Makers" are the editors of this country's leading business magazine, Steve Shepard, editor in chief of "BusinessWeek," Steve Forbes, editor in chief of "Forbes" magazine, and Rik Kirkland, managing editor of "Fortune" magazine.

Good to have you with us. (CROSSTALK)

DOBBS: Steve, 7.2 percent GDP growth. It's the original report. This is, after all, government work. It could well be revised, even significantly. But this has got to be the best news we've seen in a long time.

STEVE SHEPARD, EDITOR IN CHIEF, "BUSINESSWEEK": It's a great number, no question about it. And the capital spending part of the numbers are particularly encouraging.

But I think what people are concerned about is that, when it comes down to a more sustainable rate of say 4 percent, which is also a good number for GDP growth for next year, people are going to wonder whether we will get the improvement in employment. And the reason they're wondering is because things are different this time around. We have two factors that are different, higher productivity and the outsourcing of jobs, particularly to China and India.

So we can't really gauge this expansion by what happened the last time we came out of a recession.

DOBBS: We can't have our economic generals fighting the last war, but it looks like that's what's happening.

Do you find great positives in this report?

STEVE FORBES, EDITOR IN CHIEF, "FORBES": Absolutely. And I think the stock market foresaw it, which is why we've got a booming stock market since early this year. And if we get 4 or 5 percent next year, which I think we will, you are going to start to see real job creation, especially among smaller businesses. Government surveys sometimes tend to overlook smaller businesses, which is where the job creation is anyway.

In the 1980s, our 500 largest companies

(CROSSTALK)

DOBBS: That's where job creation is when jobs are being created.

FORBES: Well, even in this recession, you saw small businesses create jobs. The top 500 companies in the last recession shed four million jobs, yet the American economy created twenty million jobs.

RIK KIRKLAND, MANAGING EDITOR, "FORTUNE": On one hand, I think Steve makes a good point, mentioning the stock market as a predictor. Right now, the market is not sure what it's predicting.

We have kind of gone sideways with these great numbers, because they were confirmation of the run-up we had. And I think you have raised the right issue. I think there's a question still, even at 4 percent, which I think is going to be a good number. And I think we can do it. Are we really going to generate more than a tiny downtick in unemployment? DOBBS: Steve brings up outsourcing. We hear today from Samuel Palmisano. We have now heard from Craig Barrett, Andy Grove, Warren Buffett in your magazine, Rik. We have some serious issues here. And we're talking about, in the latest report from the University of California, Berkeley, the prospect of 14 million jobs are vulnerable to outsourcing? That could be devastating.

SHEPARD: Well, we're talking about job loss during a sluggish recovery and we're following a recession.

When the economy picks up a little more and some jobs are created, things are going to be a lot better. Our exports are going to pick up, as they did in this third-quarter report we just saw. So we're looking at it at the worst possible time. And I think it won't be

(CROSSTALK)

DOBBS: If only we could choose our time, Steve.

SHEPARD: Well, it won't be as dire as they're saying, I'm sure

DOBBS: Steve, do you agree?

FORBES: Yes. And I think if you go back to the 1980s...

DOBBS: Which one of us, either Steve or me?

FORBES: With everybody. I'm in politics -- was.

(CROSSTALK)

DOBBS: No, he said he is in politics. We have got a news break here tonight.

FORBES: I wouldn't put a press release out about it.

(LAUGHTER)

FORBES: But, seriously, in the 1980s, when manufacturing took a real hit, millions of jobs were lost. And even high-tech looked like it was going to go down the tubes, with Intel in the late 1980s. We came back because we stayed ahead on the technology curve, came up with better chips and created whole new segments. And you're starting to see whole new segments.

(CROSSTALK)

DOBBS: Well, the semiconductor industry, though, came together in the 1980s and created SEMATECH.

(CROSSTALK)

FORBES: It turns out it wasn't needed. The advances in microchips enabled that industry to come back on its feet.

(CROSSTALK)

DOBBS: From one reporter's viewpoint, I think, as they say.

Rik.

KIRKLAND: I think really it's different this time.

And I think what's different is that the Internet didn't exist the last time we were coming out of a downturn, and companies like Global Crossing and others that have put on this bandwidth age. We've lowered the costs threefold. And I think this trend, at least among the large companies, whether it's white collar in particular in technology, is going to go on.

And the bet -- and I believe that we can do this, but I think the transition is going to be difficult -- is that the economy can find jobs elsewhere to offset what are going to be continued job losses among the big companies.

(CROSSTALK)

FORBES: But it underscores, this country really hurts our competitiveness with a business tax regime that's the second worst among major nations, tort lawyers running amuck.

(CROSSTALK)

DOBBS: Steve, I'm sorry. When you start talking about tax levels

(CROSSTALK)

SHEPARD: He's back in politics.

DOBBS: Exactly. He's back.

The fact is, corporate tax levels today are much lower than they were 40 years ago. That's just a simple fact. Income tax levels are much lower than they were 40 years ago.

(CROSSTALK)

FORBES: Yes, but compare our tax rates today with other countries.

DOBBS: Compare our wage levels.

FORBES: We're going to second worst in the world, 40 percent, when you combine federal and state levels.

(CROSSTALK)

SHEPARD: But in the 1990s, when we had a boom, we had essentially the tame tax regime. And so I don't think that's the explanation. I really don't.

(CROSSTALK)

DOBBS: It was also in the '90s, Steve, that Lester Thurow and Bill Clinton were running around the country, holding up the models of Germany and Japan as the paradigm of productivity.

(CROSSTALK)

SHEPARD: Now it's China and India, right?

DOBBS: You have got to stay flexible here.

FORBES: Every decade, you get a new villain, whether it's Japan, Germany, Mexico. Now it's India and China.

DOBBS: Well, the villain may well be this country itself now and our inability to deal straightforwardly and honestly with a number of problems. Steve said it. This is a different world. And I don't get the sense that our business leaders, that our policy-makers, comprehend that fully.

SHEPARD: Well, it's a different world for good, as well as bad.

DOBBS: Absolutely.

SHEPARD: There's a lot of things that are going on that are very, very positive.

DOBBS: Like 7.10 percent GDP growth.

SHEPARD: Yes. If we have a lot of innovation in the economy, we will get a lot of growth.

DOBBS: Well, we are going to take a quick break. And we're going to focus on only the good things. We are going to focus on all of the good things in just a moment, as we continue with our "News Makers."

And later here, a hero for the 21st century, technology helping an American soldier wounded in Afghanistan return to a productive life. Casey Wian will have the story.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: Back once again with the editors of the nation's premier business magazine for "News Makers."

Steve, you said you wanted to focus on the good. We all do. There's so much good in this country. We shouldn't neglect it. So let's talk about Eliot Spitzer. Bill Donaldson at SEC suggested I put it that way.

(LAUGHTER)

DOBBS: The rather open criticism by Spitzer, the New York attorney general, of the SEC chairman, Bill Donaldson, what do you make of it?

SHEPARD: Just what we need, another scandal.

Well, I think, on the mutual funds thing, he's absolutely right. The SEC has oversight...

DOBBS: Spitzer's right?

SHEPARD: Yes. And he was more critical not of Donaldson, but of the man who runs the mutual fund part of the SEC oversight.

Look, Spitzer uncovered this. And whatever you think of him, there's a lot of things that need to be fixed in the mutual fund business.

DOBBS: I tell you what I think of Spitzer. I think the people who say he's politically ambitious, I say, so what? He's getting a lot done. That's what I think of him.

What do you think of him?

KIRKLAND: I think he deserves a lot of credit, particularly in this case, because this one was not on anybody's radar screen. The conflicts of interests on Wall Street, we all understood. But this is new.

DOBBS: The mutual fund scandal, which, again, the New York attorney general brought to the forefront -- the SEC has now joined in -- where does that end, Steve?

FORBES: I think fundamental reform of an industry that got very fat and very complacent. Their fees have increased, even though their assets...

DOBBS: Very greedy.

FORBES: Very greedy.

Their assets increased 70-fold over 20 years, and yet their cost per dollar of assets went up. They're shafting the investor going in. These 12B-1 expenses, supposedly, they bring down expenses because they bring in more assets. Fraud. Conflict of interests, managing money for your own, going against your own shareholders, sitting on the boards of companies that sell the funds, on the funds themselves. It's a disaster.

(CROSSTALK)

KIRKLAND: And, again, no governance. They always bragged for years about, they had independent boards of directors. And these guys were all cronies and asleep at the switch. So once again...

DOBBS: Well, speaking of governance, the interim chairman, John Reed, at the New York Exchange, has solved the governance issues for the New York Stock Exchange. He is going to create a two-tier system. Still, of course, the regulators, the compliance people, will be reporting to the CEO, which could be him. Do you think that's a brilliant idea, Rik?

KIRKLAND: The...

DOBBS: Any part of that.

(LAUGHTER)

(CROSSTALK)

KIRKLAND: Yes.

The board stuff, I think, is interesting. I think what's important is this debate about it moving away from the specialist system. And I'm in the camp that, increasingly, the more I have looked at it and thought about it, thinks that we don't need this so- called trade-through rule. And it's not -- the new electronic exchanges and those approaches are probably better for investors and for buyers, as well as for sellers.

SHEPARD: Yes, I guess I would disagree. I think there should be more trading in an automated electronic way on the New York Stock Exchange. But I think it would be a mistake to get rid of the specialist system. What's the point of making the New York Stock Exchange just like every exchange?

(CROSSTALK)

SHEPARD: The specialists do have a function for a certain kind of trading. And I think should be retained, as long as there's more movement to electronic trading.

(CROSSTALK)

FORBES: That's why the best thing would be for the exchange to go public, where they're accountable to public shareholders, to the SEC.

And that way, if they think the specialist system is good, then they have to justify it and show they can make money at it.

DOBBS: I think it's interesting that the SEC wants to see how it is that the specialists provide liquidity to the marketplace and help all us investors. That's going to be a wonderful answer. I can't wait to see that.

But the other is the Securities and Exchange Commission. Why in the world don't we just cut out the IPO process going public and have the SEC do what it should be doing, which is regulate the exchanges for the protection of the investor?

(CROSSTALK)

FORBES: Yes, but that assumes they know what they're doing. As we've seen with the mutual fund industry

(CROSSTALK)

DOBBS: Well, everyone has a learning curve.

FORBES: That doesn't always come to

(CROSSTALK)

DOBBS: The SEC hasn't learned to what do with all the whistle- blowers yet either.

FORBES: Well, they've only had 70 years, Lou. Come on. For government, that's a short time.

(LAUGHTER)

DOBBS: We sit here laughing about it, but a lot of people lost a lot of money.

(CROSSTALK)

DOBBS: And we have got John Reed saying, we are going to do a Boeing-like two-tier system. Quit finessing. Investors deserve a little honesty. Don't you agree?

SHEPARD: Well, how could I not agree with that statement?

DOBBS: Well, that's why I put it that way.

(LAUGHTER)

(CROSSTALK)

SHEPARD: Deserve a little honesty. Don't we all?

DOBBS: Well, they've got a little. How about a little more?

SHEPARD: Yes.

I think that having these SROs, the self-regulatory organizations, is a good idea. The SEC has to provide oversight and it has to do a better job of providing oversight. But I think it would be a mistake to turn all the regulation over to the SEC.

FORBES: One of the thing that always happens in democratic capitalism is that the innovations and the prosperity always goes ahead of the law.

Then you have the scandals. The law catches up. Reforms are put in. And we are able to move forward. We're in one of those periods now. And we have to pull back and say, what are the reforms we need to get better governance? We have it every 20 or 30 years, but it's a dynamic of the system. And it's a positive. When things go wrong, we know how to fix it. DOBBS: Well, I find it interesting you like the idea that the New York Stock Exchange, which just awarded its chairman $140 million, plus another 40, which we haven't quite determined

(CROSSTALK)

FORBES: Which none of the directors seemed know about.

DOBBS: And the directors didn't even vote on it. Well, a number of them do take responsibility, to their credit. But the fact is, why in the world shouldn't that be changed significantly?

SHEPARD: It's going to be. It's going to be.

(CROSSTALK)

FORBES: That's why the thing should be going public. So that way...

(CROSSTALK)

SHEPARD: Because they would have had to disclose all this stuff. Even the directors who were sleeping through lunch would have had to see the numbers.

(CROSSTALK)

DOBBS: One thing we've demonstrated here over the last two years is that any public company, it's an automatic safeguard against defrauding the shareholders, the employees.

(CROSSTALK)

FORBES: At least the information is there, if you care to look.

(CROSSTALK)

DOBBS: I think people are beginning to care to look. Perhaps they'll care to look just a little more.

FORBES: That's why they should subscribe to our magazines. See how generous I am tonight?

(CROSSTALK)

(LAUGHTER)

DOBBS: That would include "BusinessWeek," "Forbes," and "Fortune."

Gentlemen, good to have you with us, Steve Shepard, Steve Forbes, Rik Kirkland. Thank you, gentlemen. Have a great weekend.

(CROSSTALK)

DOBBS: Tonight's thought is on government spending. "As quickly as you start spending money in large amounts, it looks like free money" -- Dwight David Eisenhower, 34th president of the United States.

A reminder now to vote in tonight's poll: What do you think is the principal cause of unemployment, high productivity, record trade deficits, illegal aliens, or outsourcing? Cast your vote at CNN.com/Lou. We'll have the results for you in just a few moments.

Coming up next: Technology and tenacity help an American soldier walk again after he lost his leg serving in Afghanistan. Casey Wian will have this hero's remarkable story.

Stay with us.

(BEGIN VIDEOTAPE)

DOBBS: In "Heroes" tonight, the extraordinary story of Army Reserve Sergeant Michael McNaughton. He saw combat in the first Gulf War, Bosnia and Afghanistan. Two weeks before he was to leave Afghanistan, he stepped on a land mine and lost most of his right leg. McNaughton has become the Army's first bionic soldier.

Casey Wian has the story of this hero from Baton Rouge, Louisiana.

(BEGIN VIDEOTAPE)

SGT. MICHAEL MCNAUGHTON, LOUISIANA NATIONAL GUARD: This is an amazing leg. I'm very happy to have it.

CASEY WIAN, CNN CORRESPONDENT (voice-over): Army National Guard Staff Sergeant Michael McNaughton is the first soldier to get his C- Leg, a $43,000 prosthesis that allows him to do almost anything he could do before most of his right leg was blown off by a land mine in Afghanistan. On this day, his doctor repairs minor damage McNaughton did playing soccer with his son.

UNIDENTIFIED MALE: It's the most state-of-the-art prosthesis anywhere right now.

WIAN: The C-Leg contains computer chips and sensors that enable it to adjust to everything from walking to riding a bike. For most prosthesis patients, every step is a chore. But the computer- programmed C-Leg automatically adjusts to McNaughton's weight and gate.

MCNAUGHTON: How much weight should I put on it?

WIAN: The 31-year-old McNaughton's military career began more than a decade ago. He served in Saudi Arabia, Kuwait, and Bosnia, then left the Army.

MCNAUGHTON: After 9/11, I just decided I needed to do something.

WIAN: So he joined the National Guard. Within three months, he was clearing mine fields in Afghanistan. His unit removed 1,500 anti- personnel and 47 anti-tank mines. Then he walked into an area Polish soldiers told him had been cleared.

MCNAUGHTON: And I was awake for the whole thing. I saw the blast. It was one of the biggest rides I ever had in my life. I went up in the air and I fell down. And I knew I was bleeding profusely on the ground. I knew not to look, because I didn't want to go into shock. And I told them to call the hospital to have some O-negative blood ready.

WIAN: McNaughton's right leg was gone. So was a big chunk of left calf and two fingers.

MCNAUGHTON: And, of course, I was thinking about my family. And then I started thinking about my soldiers, because that was my job, to make sure my soldiers were safe.

WIAN: His superiors still marvel at how the critically wounded sergeant seemed more worried about keeping his fellow soldiers away from mines than his own safety.

MAJ. ROBERT KYGER, LOUISIANA NATIONAL GUARD: He's exemplified everything that you try to say that you want a soldier to be and a person from the very start, when he was laying there in the E.R.

WIAN: McNaughton has kept his sense of humor.

MCNAUGHTON: I tell kids that an alligator chewed off my leg or something like that. She doesn't like that. It scares some kids. But I get a kick out of it.

WIAN: This week, McNaughton has his ninth surgery. Ahead, more rehabilitation and several career choices, including whether to stay in the National Guard and an offer to go running with the president.

MCNAUGHTON: He said any time. So, hopefully, as soon as I get this operation and I get this running leg going, I can go there and smoke him.

WIAN: Casey Wian, CNN, Baton Rouge, Louisiana.

(END VIDEOTAPE)

BROWN: Outstanding.

Still ahead here, we'll have the results of tonight's poll and a strong month to tell you about on Wall Street. Christine Romans will be here.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: Now the results of our poll. What do you think the principal cause of U.S. unemployment is. Ten percent of you said high productivity; 27 percent said record trade deficits; 2 percent said illegal aliens; 62 percent outsourcing. On Wall Street, stock prices scored another win. However, they were little changed today. The Dow up 14 points. The Nasdaq lost less than a point. The S&P added just about four points.

And Christine Romans is here with the market.

Quite a month and a few problems as well.

CHRISTINE ROMANS, CNN CORRESPONDENT: Absolutely, Lou.

Let's start with the stellar market for the week. And for the month, Lou, you had the Dow and the S&P rising more than 2 percent this week. So it was the best week in about a month. And then it was the best month since April, blue chips up about 5 percent in October. The Nasdaq rallied 8 percent in the month. And small caps today ended within a point of their all-time high, more strong economic data.

The profit picture remains rosy, fewer than 100 companies left to report. Profits still up 20 percent, revenue now up more than 9 percent. October marks the end of the year for many mutual funds. Here's how the biggest shaped up. Vanguard 500, Magellan, and American Funds ICA sporting modest gains for the month. But look at the year, very strong performance for the year for some of these top mutual funds.

But this, Lou, is an industry in turmoil. And the problems for Putnam Investments mount. Rhode Island, Pennsylvania and Iowa all pulled their retirement money from Putnam. And the withdrawals now total almost $4 billion. The Senate Banking Committee will investigate. Calls for reform are widespread. New York Attorney General Eliot Spitzer heads to Capitol Hill on Monday. The SEC is also investigating. But, in the meantime,, state treasurers are voting with their feet and with their clients' dollars and are pulling their money out and moving it around.

DOBBS: OK, Christine, thank you very much. Have a great weekend. It was quite a month for investors.

That's our show for tonight. Thanks for being with us. Monday, we begin a series of special reports on failing education in this country, wasted minds, our failing schools.

For all of us here, thanks for being with us and good night from New York. Have a very pleasant weekend and a safe and happy Halloween.

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