Return to Transcripts main page

Reliable Sources

Corporate Stars Lose Lustre

Aired June 29, 2002 - 18:30   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.
HOWARD KURTZ, HOST: Savaging the CEOs, journalists pile on after the collapse of WorldCom, Enron, Global Crossing, Tyco and Arthur Andersen. But wasn't it the media that pumped up these high-flying companies, their stocks and their bosses like Ken Lay and Martha Stewart? Did reporters wait too long to dig into corporate chicanery and Wall Street refugee Jim Cramer on money, media and his own dot-com mom.

Welcome to RELIABLE SOURCES where we turn a critical lens on the media. I'm Howard Kurtz. Ahead my conversation with a self-confessed Wall Street addict Jim Cramer. But first, after the corporate scandals that began with the bankruptcy of Enron seven months ago, this week's news about WorldCom rattled the markets and the media.

(BEGIN VIDEO CLIP)

WOLF BLITZER, HOST, WOLF BLITZER REPORTS: The huge financial scandal has rocked the world today, the business world from Main Street to Wall Street to Pennsylvania Avenue throughout Europe, Asia, even here in the Middle East.

UNIDENTIFIED MALE: Another huge American company is threatened with bankruptcy tonight thanks to what may be the biggest case of cook in the books in history.

UNIDENTIFIED MALE: Scandal in an American corporation that is so huge that it may well eclipse what happened at Enron.

KURTZ: But news organizations have plenty of great things to say about former WorldCom chief Bernard Ebbers back when he was swallowing MCI and other companies. For two decades the media were turning CEOs into cultural heroes -- GE's Jack Welch, Microsoft's Bill Gates, AOL Steve Case, Disney's Michael Eisner and "Times 1999 Man of the Year" Amazon's Jeff Bezos. But now "Newsweek's" cover girl is Martha Stewart under fire amid questions of insider trading in the company ImClone.

(END VIDEO CLIP)

So was the press court napping while corporate America cooked the books? Well joining us now in New York, Allan Chernoff, senior correspondent for CNN and CNNFN and David Faber, who broke the WorldCom story for CNBC. He's also the author of the new book, "The Faber Report".

David Faber, congratulations on your WorldCom scoop.

DAVID FABER, WALL STREET CORRESPONDENT, CNBC: Thank you, Howard.

KURTZ: But don't you wish that back when WorldCom was flying high, that more reporters had been digging more deeply into its finances?

FABER: I think that could have been done. I think in some ways it was done. I still believe that there were a lot of questions being asked then that people weren't paying attention to in the general investing public, Howard.

You know, I'm not sure that we can really place that great a blame on journalists for somehow failing to find these things out. I think a lot of them were being brought to light to a certain extent, at least in terms of questions being asked and investors at that time, they were just giddy. They didn't want to know - they didn't want to hear about it. There were plenty of frauds uncovered during the period '96 through 2000 and the market just went on until it finally stopped.

KURTZ: Allan Chernoff, journalists aren't prosecutors. They don't have subpoena power. Obviously they couldn't have uncovered all of these kinds of frauds, but let's face it, Enron, Global Crossing, WorldCom, these were portrayed as pretty hot, pretty sexy companies by CNN and CNBC and everybody else back when they were flying high, when their stocks were going up.

ALLAN CHERNOFF, SENIOR CORRESPONDENT, CNN FINANCIAL NEWS: Well Howard, not only are journalists not prosecutors, but they are also not auditors, and journalists, as well as all of Wall Street, basically does have to - we do have to rely on the audited numbers at companies like KPMG, Arthur Andersen are supposed to certify and that's, after all, our system.

But having said that, I would agree that the media certainly did pump up CEOs. There certainly has been a culture of celebrity built up. Many media outlets are treating the stock market a bit like a ballgame and the CEOs have, in fact, been treated like all-star ball players.

KURTZ: You know David Faber, we've all read these profiles about CEOs who have sailed around the world on their boats, have got up at 4:00 a.m. in the morning to do their jobs, and I do have the impression that the media, leaving aside the question of fraud, really did turn these people into marketable celebrities who could then appear on the air and help bring in eyeballs - your thoughts.

FABER: You know I wonder which comes first, Howard, and you might be able to answer this question. Is the media giving the public what it thinks they want and therefore because stocks were going so much higher, and everybody was in a relatively good mood or feeling fairly wealthy, did they want to read about these CEOs who were helping them get rich, or so they thought, and was the media feeding that? Has it reversed now? Should the media be leading the pack to a certain extent?

Should it be looking underneath and sort of asking those tougher questions?

Yes, but again I do think that was going on. I don't think the attention span of the viewing and or reading public was particularly long or large for those kinds of stories. It didn't seem to really hit with the public that was, at that point at least during this period in time very giddy, and Allan's point is a great one.

You know fraud by its nature is hard to detect and it's very hard to expect any journalist to be able to find these things out when the auditors at the companies weren't able to at least determine them on their own.

KURTZ: Let's take a look at an interview two years ago on "LARRY KING LIVE" with one rather well known chief executive.

(BEGIN VIDEO CLIP)

LARRY KING, HOST, LARRY KING LIVE: What's it like to have woken up in the morning worth, according to on October 19th, this is what we've learned, you woke up in the morning worth $250 million; went to bed worth $1.6 billion. What was that like?

MARTHA STEWART: Well, sort of exciting and certainly rewarding and certainly felt good that finally, you know, my company was worth what I thought it was.

(END VIDEO CLIP)

KURTZ: I'll fast forward to this week when Martha Stewart appeared on CBS' "Early Show" and she kept trying to chop that salad while Jayne Clayson was asking her questions about this insider trading case and the role of her own broker.

(BEGIN VIDEO CLIP)

JAYNE CLAYSON, CBS EARLY SHOW: Are you worried that what he did might further complicate matters for you?

STEWART: Well, again, I have nothing to say on the matter. I'm really not at liberty to say and as I said, I think this will all be resolved in the very near future and I will be exonerated ...

CLAYSON: I know ...

STEWART: ... ridiculousness.

(END VIDEO CLIP)

KURTZ: Allan Chernoff, did the media go overboard in pumping up the - and depicting the Martha Stewarts of the world?

CHERNOFF: Well, Howard, first of all, let's point never interview a CEO holding a knife. Now ... KURTZ: I sort of wondered what she was going to do with that knife after awhile.

CHERNOFF: She was using it pretty well. Anyway, no question, I think the focus on Martha Stewart is a perfect example of our entire culture of celebrity because all the headlines recently have been focused on Martha Stewart.

In fact, it was the CEO or the former CEO of ImClone who was implicated. Martha Stewart thus far, we should point out, hasn't been implicated just yet, not facing charges yet. Although, of course, that certainly is a possibility, but the focus certainly has not been so much on Sam Waksal. Also very interesting, there has been very little reporting about that wonder drug behind all of this, Erbitux ...

KURTZ: Right.

CHERNOFF: ... that drug was pumped up several years ago, plenty of stories about it. I did stories about it as well and a lot of patients, a lot of doctors still have plenty of hope in that drug Erbitux.

KURTZ: A lot of that - a lot of that, indeed, has gotten lost. Let me go back to David Faber. The first chapter of your book is called "Why I Hate Analysts" and you're quite critical of Jack Rudman (ph) of Salomon Smith Barney who, by the way, rode WorldCom all the way down, finally downgrading this week when it's under a buck.

It had been about $60 and this week a NBC reporter was ambushed, on the street and was chasing after me. He didn't want answer questions and it looked like, you know, chasing a mafia figure or something. Is that harassment or people like Jack Rudman (ph) now fair game for that kind of ambush?

FABER: I think they're fair game to a large extent. I think Jack could have handled that a lot better. I think it's unfortunate that he didn't in some ways just come out and say listen, I'm an analyst. I'm not associated with the company. I feel very badly about this or whatever it was that he actually did say as he continued to sort of amble down the sidewalk. For those purposes, though, it was great television.

You know Jack Rudman (ph) did not speak, Howard, very often to the press to begin with, at least not publicly, not on TV here at CNBC. He kind of kept to himself to a certain extent doing what he did, which is constantly tunneling under that wall, going back and forth (UNINTELLIGIBLE) being a banker and then being an analyst, sort of the right side, left side of his brain doing two different things ...

KURTZ: But you ...

FABER: ... for a very long ...

(CROSSTALK) KURTZ: ... write that he hugged you at parties.

FABER: He hugged me a few weeks ago, in fact, at a party again, and this is even after being aware of what was in the book. I give Jack credit in some ways, Howard, for being able to or at least able to shrug things off. I ...

KURTZ: OK.

FABER: ... almost feel a little badly for him at this point. You know, he will be pointed to. There is a great deal of criticism that's coming his way. He's going to be testifying on Capitol Hill, having been subpoenaed by a House Committee. It'll be interesting to see how he bears up under this and what happens.

KURTZ: I notice you say almost. Now, Allan Chernoff, analysts like Rudman (ph) - I mean Henry Blodget, Mary Meeker, Ralph Oncapore (ph), Abby Josephcone (ph), television made these people famous. They put them on. We hung on their words. We reported their upgrades and downgrades and now in retrospect it looks like the media went along for the ride.

CHERNOFF: Well let's point out, first of all with Jack Rudman (ph), he used to be very cooperative with the media. I interviewed him many times. Then all of a sudden when he started serving more as an investment banker than an analyst, he did seem to quiet up especially as the stock WorldCom plummeted.

Now in terms of all the Wall Street gurus, no question that the media did help build them up, but clearly there was a lot of interest in that and these are some smart people. Now, just because the media pays so much attention to them does not mean that they always get it right. In fact nobody on Wall Street always gets it right. The fact is recently most analysts and strategists have been getting it wrong.

KURTZ: As we have learned all too painfully and obviously investors need to make their own decisions whether somebody's on TV or not about whether they want to buy a particular stock. Now David Faber, we have about a half a minute. "Newsweek" columnist Robert Samuelson writes this week that pat (ph) journalism seems now to be charging off in the other direction. If we were guilty before of perhaps being too puppy (ph) (UNINTELLGIIBLE) these CEOs now, perhaps we're spreading the impression that they're all crooks, that they're all cooking the books. I wonder if you think there's some validity in that criticism.

FABER: Well I think there's some. I think we're all a little bit shocked at what's been going on, journalists or those people who are very close to it or otherwise and so I think there's something to be said for following it very closely and following these scandals, if you will. But you brought up a very good point just now. You know, ultimately it's the decision of the investor to be able to parse through the press, to parse through the ...

KURTZ: All right. FABER: ... statements of analysts and everybody else. It's up to investors to make decisions and understand the conflicts and where their interests are aligned or not aligned with corporate America or Wall Street. I think that was too often not done. I think ultimately this has served as a real wake-up call to the investment community and to the average investor. I hope they take that wake-up call and take it more seriously ...

(CROSSTALK)

KURTZ: ... leave it there. David Faber, Allan Chernoff, this story is not going away. Thanks for joining us.

And coming up, the confessions of Street.com founder Jim Cramer.

(COMMERCIAL BREAK)

KURTZ: Welcome back to RELIABLE SOURCES. We turn now to a man who's hard to ignore if you have electricity, my recent conversation with one of the best-known radio and TV commentators about Wall Street, cofounder of the Street.com and the author of "Confessions of a Street Addict".

Jim Cramer, welcome.

JIM CRAMER, AUTHOR, "CONFESSIONS OF A STREET ADDICT": How have you been, Howard?

KURTZ: Great. When I wrote about you in my book "The Fortune Tellers" I described you as an angry, tyrannical, obsessed, monomaniacal demon. Now you've got your own book and you describe yourself as an angry, tyrannical, obsessed, monomaniacal demon. Why the favorable self-portrait?

CRAMER: Well, you know, because it's the best. I mean the great thing - look, I mean I know - I know that I have demons in my head still, but I would like to think that they're somewhat more subdued than they were when I was trading and the trading brought out the Mr. Hyde in me and now I'm kind of Dr. Jekyl, it's not so bad.

KURTZ: So you've exercised the demons of the past and you're almost a normal person?

CRAMER: True. I mean I - now I'm new to the high road. That's hard. My wife tells me that I'm on the Pennsylvania turnpike, I'm on Exit One. It's going to take all the way before I get to Ohio, stay on the high road, and I'm doing my best to stay on. But you know, it's new for me.

KURTZ: Now you are the cofounder of the Street.com financial Web site and the columnist there. That site, as you well know, went - the stock went from a high of $71 three years ago to about two-and-a-half bucks now. Are you sorry given all the problems the site has caused you that you launched that effort?

CRAMER: Well, I hate to say this, but that is a great question. I mean I hate to say this because I love the product. I think that we're doing a terrific job. I love the CEO, Tom Clarke, and the staff is great.

I look at my wife and my kids and I think, well, what happened between 1997 and 2000 that I didn't see them. Of course they were in front of me, I just didn't see them, and I blame Street.com for that. So, yes, I'm really thrilled with what we've done, what we've accomplished, where we are, but I want those three years back and I'm having a hard time getting them.

KURTZ: But did you, like so many other wild-eyed journalists, overestimate the potential of online news?

CRAMER: Oh, no - just kidding. I mean (UNINTELLGIIBLE) such.

KURTZ: OK.

CRAMER: I really enjoyed - see I was a guy who got up in the middle of the night by nature - I mean I was up at 3:00 a.m. because I was up at 3:00 a.m. I couldn't get the papers delivered, so I naturally went online. Most people don't get up at 3:00 a.m. Most people like the tactile feel of paper.

Most people, a whole generation is going to have to go through before my eldest daughter says what were they doing reading newspapers? I thought it was going to be accelerated by the Web. I was - let me see, I want to kind of - how about wrong.

KURTZ: OK. We'll settle for that word. Now, let's talk a bit about the relationship between Wall Street trading and the media. Did you, like a zillion other traders, try to make money by anticipating what Maria Bartiromo was going to say on CNBC, what was going to be in "Business Week", what was going to be in the "Wall Street Journal's" "Heard on the Street" column.

CRAMER: I want to distinguish first of all the people who work at CNBC who would call, never tipped you off about what they were going to do and they're kind of beyond reproach. And they tend to call just to ask about what the upgrades and downgrades were. I will tell you that I did as I described in my book, genuinely try to anticipate what upgrades and downgrades would come at brokerage houses by talking a great deal with the analysts and with the companies to try to get a sense of what was going on.

Until Regulation FD, Fair Disclosure, passed, that was pretty much the way everybody did at a certain level of professional money management. But to try to anticipate what David Faber did, no, and my trading records would reflect that, just so you know. I think that there's been a lot of publicity that people did try to gain the media, and I know in your excellent book, in "Fortune Tellers" we talk about the relationship with the media, but you spend enough time in my office to know that what I really tried to do was anticipate moves in the market, whether I could get whether they would sell tech and buy drugs ...

KURTZ: Sure. Sure. (CROSSTALK)

CRAMER: That was really what my stock in trade was ...

KURTZ: OK.

CRAMER: And to find undervalued situations - that's kind of how I made my money.

KURTZ: OK. Now there's a book out, as you know, by a former employee of yours, Nicholas Maier, in which he says that you were feeding some of these - some of this information to Marie Bartiromo and trying to make money from the resulting buzz - your response.

CRAMER: Oh, I understand that Nick's - you know, he was someone I fired years ago, and he's describing conversations that happened seven years ago, that he was not in the room for. I always find that - it's interesting. It reminds me of Woodward & Bernstein when they were saying - and when he was riding down in the elevator, he was thinking let's bomb Cambodia.

See, I was not in a position, fortunately, to have Nick hear what I was saying, but that's OK. As he told ABC in an interview, hey look, it doesn't matter. Jim Cramer's a public figure. You know you can say whatever you want about public figures.

I say he's a disgruntled employee. Disgruntled employees can say whatever they want. I think it's a shame. I do like his mom and dad. I had his dad as a professor of Harvard, a terrific guy ...

KURTZ: OK.

CRAMER: I think he should have told the son, hey come on man, be - have a little shame.

KURTZ: OK ,now let's look at the media landscape here. Meiers is published by Hartford Collins (ph), part of Rupert Murdoch's News Corp, got a lot of publicity in the "New York Post", part of Rupert Murdoch's News Corp. Now you suggested that Roger Ailes, the head of Fox News, part of Rupert Murdoch's News Corp also might be part of this campaign to maybe sink your book.

CRAMER: I mistakenly said that to the "New York Times". I mistakenly because Roger Ailes set everything straight in an article that you wrote in the "Washington Post". He said it's all coincidence. I somehow felt that the "New York Post" attacked me five straight days in a row, and I wasn't a serial murderer that there had to be some motivation.

And I looked at the ownership structure of Hartford Collins (ph) and saw it also run by Murdoch and recognized that I had a lawsuit with the Murdoch Company. Ailes is a man of his word. He tells me the whole thing's coincidence, Howard, it's coincidence.

KURTZ: OK. Why did the business media, looking back with all the benefit of hindsight, get so swept away by the dot-com boom and build up analysts like Henry Blodget at Merrill Lynch who was touting Internet stocks that he was privately deriding as crap and junk.

CRAMER: Not a good thing and we can thank Elliot Spencer (ph) and his good offices and attorney general of New York State to bring that to light. But Howard ...

KURTZ: He's a former ...

CRAMER: ... it was no ...

(CROSSTALK)

CRAMER: Yes indeed.

KURTZ: OK.

CRAMER: I plead guilty. I ran his money. I will tell you this. I was his friend, too. Oh man, they'll really put me behind bars for that. I'll tell you this - I'll tell you this, none of this was revelatory to any of us. You sat in my office many, many days and you know that we used to make fun of all these analysts.

But, what it was revelatory to was the 45 million people who had their 401(k)s and believed that these people were objective analysts that were actually trying to make you money. I feel sorry for them. The game was in their eyes rigged and ...

(CROSSTALK)

CRAMER: ... that's why it's been so hard.

KURTZ: Wasn't that in part because television networks put these people on television almost every day because newspapers quoted them, because they were trotted out as the all-knowing, all-seeing experts who could help you get rich?

CRAMER: One hundred percent right. I think in "Fortune Tellers" you make that point. I think at the time the market was still too good, Howard. Your book holds up better now than it did two years ago because now we know that these people were just film critics that were paid for by the movie studios.

KURTZ: It's like fine wine. Now, you as a TV guest, I've watched you many times. You like to yell and point fingers and ...

CRAMER: Oh, I've been ...

KURTZ: ... bang your fists.

CRAMER: ... well I've been better lately.

KURTZ: That's what I was going to ask. Now that you're the co- host of your own CNBC show, are you subdued? Are you - is this Jim Cramer under control?

CRAMER: Well, maybe it's Jim Cramer under Xanax. No, it's not. I would tell you that when I'm outraged, I still get outraged, but I'll tell you this. I have a partner by the name of Larry Kudlow, and Larry Kudlow is in many ways whom I - the way he attacks is the way that I would like to begin to be - more reasoned, less emotion.

I still have that emotion from the trading floor, but each day that I'm removed from the trading floor, I feel like I'm more reasoned and I'm always going to be emotional about where I see right and wrong, but I think the days when I threw phones at people, I really do believe are past.

KURTZ: Last question, looking back on your career, was it a mistake to be a trader running $400 million of other people's money and part of the Wall Street game there and at the same time trying to be a commentator on TV, Street.com columnist, "New York" magazine columnist and tracking criticism when those roles collided?

CRAMER: I don't think it was a mistake because I disclosed properly at all times. I think that I caused tremendous heartache for my family and that I regret very much.

KURTZ: OK. Well I guess we won't be seeing you throw any phones any time soon, Jim Cramer?

CRAMER: No, no more.

KURTZ: Thanks very much for joining us.

Just ahead Bernard Kalb goes looking for leaks and encounters a variable flood. "The Back Page" up next.

(COMMERCIAL BREAK)

KURTZ: Time now for "The Back Page". Here's Bernard Kalb.

(BEGIN VIDEOTAPE)

BERNARD KALB, CNN CORRESPONDENT: White Houses hate leaks, any White House, any leak, or at least unauthorized leaks. So you had to marvel the other day at the way the administration launched just the opposite a flood on the record - a flood named Colin.

The floodgates opened with the president's barely disguised call for the ouster of Yasser Arafat.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Peace requires a new and different Palestinian leadership so that a Palestinian state can be born.

KALB: Then the one-man tsunami struck, inundating the media, trying to whip up support for the new policy, trying to preempt questions raised in headlines.

An interview with the "New York Times"; ditto with the "Washington Post"; and the next day in what is probably a new world record, a one-on-one with CBS, ABC, NBC, Fox, CNN, and there was Powell, not so much connecting the old dots, but trying to correct new dots for the new U.S. policy. So new, in fact, that not all of the dots are yet in place.

TOM BROKAW: If Arafat is reelected by the Palestinian people, you have no choice but to deal with him, do you?

COLIN POWELL, SECRETARY OF STATE: We will see what the Palestinian people do in the election and I don't want to answer right now in a hypothetical and ...

BROKAW: Well, why couldn't you answer that Mr. Secretary? I mean ...

POWELL: Because ...

BROKAW: ... after all ...

POWELL: .. the election ...

BROKAW: .. democratic process.

POWELL: ... the election hasn't been held.

KALB: In short the Powell flood did not drown out questions and the same kind of uncertainty hung over the State Department briefing, so much so that it produced some awkward laughter.

UNIDENTIFIED FEMALE: What tangibly is going on now because I don't have a sense of it.

UNIDENTIFIED MALE: Good. You don't - you don't have a sense of it because it's not (UNINTELLGIIBLE). There are - hold on - come on - I'm - OK I'm making light of it, so you can make light of it too.

KALB: So thanks for Powell's marathon performance, but now with the waters receding it's time for the press to get beyond the official flood and come up with some juicy unauthorized leaks on its own.

(END VIDEOTAPE)

KURTZ: Bernard Kalb. Well that's it for this edition of RELIABLE SOURCES. I'm Howard Kurtz. Join us again tomorrow morning at 9:30 Eastern for another critical look at the media. Next week a special conversation with Senator John McCain. He's been beating up on the networks for refusing to give candidates free airtime.

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