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CNN Saturday Morning News

Reporter's Notebook

Aired July 27, 2002 - 09:31   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.
CATHERINE CALLAWAY, CNN ANCHOR: In this week's Reporter's Notebook, we are taking a look at ethics in the political, financial, and spiritual worlds, speaking of the pope.

Here's a sample of some stories from just this week.

The Securities and Exchange Commission filed charges against Adelphia Communications and six former top executives, including its founder, for massive financial fraud.

THOMAS ROBERTS, CNN ANCHOR: And then in the House, Ohio Congressman James Traficant got the boot from his colleagues for misusing his office. The Democrat now faces prison after his convictions on federal corruption charges.

And then the pontiff makes a trip to Toronto for World Youth Day in the wake of the priest sex abuse scandal.

CALLAWAY: Now, we're taking your phone calls, of course, and your e-mail this morning.

In San Francisco, Ron Brownstein from "The Los Angeles Times," and in Toronto, CNN analyst John Allen. Also in Washington joining us is Peter Spiegel. He's from "The Financial Times."

Do we have everybody this morning? Yes, yes, we do, yes.

ROBERTS: We've got our round table in order. Good morning.

CALLAWAY: Hoping we can get everybody up this morning and talk to us.

We -- you know what? I was telling everyone a moment ago that from the moment we mentioned this subject, the e-mail started pouring in, it's -- people are very emotional about this.

I'm going to start with Sharon Ford's e-mail. It says, "It seems like as soon as someone is elected, they start being concerned with being reelected. Wouldn't we and they be better off in the long run if they consistently made decisions because they were right and not just popular with some people?" That's Sharon Ford from Clinton.

What do you have to say about that? Any one of you can start.

RON BROWNSTEIN, "THE LOS ANGELES TIMES": I'll jump in.

CALLAWAY: All right.

BROWNSTEIN: You know, I think that by and large, the pressure of reelection, though it has downsides, has upsides too. I mean, the part -- the point of a democracy is to represent the interests of the voters and the people. And having to run again does put pressure on politicians to be responsive to what is going on in the country. I'm afraid that if they didn't have to run, the influence of special interests and big money would be even more overwhelming.

One quick point, the more public attention an issue gets, by and large in Washington, Catherine, the less influence special interests have. A perfect example is this massive corporate and accounting reform bill that passed the Senate last week...

CALLAWAY: Right.

BROWNSTEIN: ... (UNINTELLIGIBLE) -- this week, both chambers.

Earlier this year, when it had faded from the headlines, it really looked uncertain that anything was going to happen at all, because all of the affected industries had mobilized against it. But when WorldCom rekindled this issue to a, you know, white heat, it became impossible to top.

So there is, I think, a salutary pressure in having politicians who are responsive to an electorate.

CALLAWAY: Yes, it is interesting that he did say, the Bush administration did say certain things they weren't going to do, and then they ended up doing it.

Peter, what do you think? How does ethics play into this?

PETER SPIEGEL, "THE FINANCIAL TIMES": Well, I mean, I think Ron's right. I mean, you know, I get good question a lot being based in Washington. But if you think about that question very carefully, what the e-mailer is asking is, why do politicians do things that people are -- that are popular? Isn't that why we elect our politicians, to do things we want them to do?

So it's a little bit a tautology there.

The -- when you look back at, you know, at the business scandals in particular, and you look at what happened this last week with legislation, as Ron mentioned, I think these are things that are in some ways fixable. You know, I had this conversation with Senator Sarbanes, who was the author of this legislation, a couple of days ago about, are these ethical failures in the business community, are these bad apples, or is this a more systematic collapse of ethics?

And we sort of went back, and my conclusion, I think his conclusion too, is a little bit from both columns, that good people want to do good things, but that if they're presented with a choice, for instance, in the case of WorldCom, where if you tell the truth your stock options are going to collapse and you know, I'm going to account for costs as if they were capital investments as opposed to expenses, and my stock options will be worth tens of millions of dollars, you're going to have a, have a, have a, you know, you're -- we're all human. You're going to have a tension inside.

And what Sarbanes has tried to do is realign the incentives of the accountants, of the securities analysts, of the business executives, so those choices don't have to be made, that we're not presented with those choices in the, in the, in the boardroom.

And that being the case, if you can change the way the system is structured so you're not faced with those kind of choices, I think you'll see less ethical pressure on business executives, and some of these things can be mitigated.

ROBERTS: Hey, John Allen, we don't want to leave you out of this, with the "National Catholic Reporter," covering the pope's visit for World Youth Day in Toronto. Are they touching on ethics there? I mean, you know...

JOHN ALLEN, CNN ANALYST: Yes, well, I'm actually...

ROBERTS: ... (UNINTELLIGIBLE).

ALLEN: ... struck listening to this conversation, you know, I mean, I report on a different sort of political system, as you know, the Vatican and the Catholic Church. It's not a democracy, the pope does not have to stand for reelection. And it's ironic, you know, but one of the things -- and the pope did have to stand for reelection, I mean, there are lots of issues on which people might actually vote against his policies, you know, at least in the first world, I mean, things like birth control, women priests, or whatever.

And yet despite that, you know, one of the things that people admire about the pope is his rock-solid moral convictions. I mean, if you ask these kids, these 250,000 who have been here this week, and the up to a million we might see at Downsview Park here in Toronto tomorrow, you know, they admire the sincerity and the integrity and the moral convictions of this man despite the fact that they might draw different conclusions in terms of their own personal morality.

So in that sense, there's something to be said for having a world leader around who doesn't have to face the electorate every four years.

CALLAWAY: Yes, we don't want to support monarchy, not to say that our system isn't working now, is what we're hinting around.

ALLEN: Right.

ROBERTS: We've got e-mail coming in. We also have phone calls coming in.

Joe is on the line for us right now. Joe, what is your question or comment? CALLER: Yes, I would love to ask Peter Spiegel, Peter, with 10,000 companies, aren't we in danger of some overkill with all the regulations? I mean, it's just a few companies that have really been breaking, you know, that are breaking the ethics. Are we not -- will not too much regulation kill the goose that laid the golden egg?

SPIEGEL: Well, to a certain extent, that is certainly the concern of a lot of the business community, and we've seen a lot of lobbying in Washington, and particularly from Republicans, making that argument. But I think if you look very carefully at the Sarbanes bill that was passed this week, you'll see that there is not a whole lot of real regulation, as opposed to what, this point I was getting, of changing incentives.

I mean, let's talk about the accountants, for instance. We saw (UNINTELLIGIBLE) -- the best example, of course, was Enron, where you have a -- you had accountants who had this incentive, because they had huge consulting deal with Enron, I think more than half the money that Andersen was making from Enron was in consulting.

How can you be an objective auditor, where you're supposed to be the objective, you know, sayer of what is right and wrong in these books, when you run the risk of losing the money in consulting if you tell Enron, You can't do this any more?

And I think the same case is with the security analysts. The security analysts' incentive was to bring investment banking business to their firms. How can you objectively say what is right and wrong about a stock if your real incentive -- and you're getting compensated for bringing investment banking business into, into, into your firm?

I think, you know, I don't think there's actually a whole lot of regulation here. What we're seeing is an attempt to shift back these incentives so people have the incentive to do the right thing. And I think once those things are in place, I think you're going to see a lot less of this, of this, these -- the ethical lapses and a lot less of these -- this white collar crime that we've seen over the last few months.

ROBERTS: OK, guys, we...

CALLAWAY: OK, yes, we're going to take a break in just a moment. Gentlemen, stay with us for just a minute.

But we have Jeff Davidson of Johnstown radio station WKYE is back on the phone with us now, he's going to give us an update on the rescue efforts going on in Pennsylvania to get the coal miners out there.

Has there been a development?

JEFF DAVIDSON, WKYE RADIO: Yes, there has. Again, we're standing about 50 feet from the -- what they're considering to be Rescue One. That's the first drilling installment that they placed here on the site. But about 20 feet from where I'm standing behind me, a Medevac helicopter has just landed here from Conamaugh (ph) Hospital, which is out of Johnstown, Pennsylvania. The helicopter is now stationary, they have turned it off, but it is here, obviously in preparation for whatever they may be expecting to be pulling out of the ground here.

Again, those nine men trapped below the ground. Hopefully they're going to be asking some headway here with getting them out soon.

Also a development that I just learned about 10 minutes ago, they are going to be doing a seismograph here on the site. They have seismographic equipment set up for acres around the area. And what they're going to be doing is, they're going to be turning off as much machinery as they possibly can without infringing on the rescue process, and then they're going to ask everybody to stand still, turn off all machinery and such.

And then they're going to go ahead, do the seismograph, and see if they can possibly find some noise, some movement, some signal from down below to indicate whether or not any of these nine gentlemen are alive or not in Somerset County.

CALLAWAY: All right, we certainly hope that they are. And Jeff, stay there, we will be back with you if there's been another development. That is Jeff Davidson.

We'll take a break. More of Reporter's Notebook when we return.

(COMMERCIAL BREAK)

ROBERTS: Well, we want to turn back now to our second installment of Reporter's Notebook, the topic, ethics, we're talking ethics politically, financially, also spiritually. We're lucky to have these three gentlemen with us, in San Francisco, Ron Brownstein from "The L.A. Times," then in Toronto CNN analyst John Allen, then in Washington, last but not least, Peter Spiegel from "The Financial Times."

Gentlemen, sorry about that, we had to go for a second there. But now we're back, and I think we have a caller.

CALLAWAY: Yes, ethics has certainly been the theme of the week, and our viewers are calling and sending e-mails.

On the phone with us now is Barbara from Georgia. Good morning, Barbara.

CALLER: Good morning.

CALLAWAY: Do you have a question for our gentlemen?

CALLER: Yes, I've got several questions, but I guess the one I'm asking more than anything is that if a person robs a store, no deaths involved or anything like that, but yet here again, we have people robbing other people in the corporate world, and then again, they don't get charged and sent to jail. I just feel that it's wrong, and it's about time that one of us and some of us thought to take this into our hands and get to our elected officials who continually vote or are voted in constantly. And I think that they've got to know that white collar is just as bad as blue collar.

CALLAWAY: Hey, Peter, you know, you respond to that first. Is that the feeling in Washington, that changes have to be made?

SPIEGEL: Well, you hear a lot of people talking now that what really has to be done is, people have to go to jail. And I think, you know, you -- (UNINTELLIGIBLE) in the setup piece here, you talked about John Rigas at Adelphia. Some of these cases are, you know, (UNINTELLIGIBLE) make some nuance (UNINTELLIGIBLE) in some of these cases.

A lot of these cases are accounting fraud. But the Rigas case at Adelphia is really a pretty clear case of just a family looting from a company. And I think that is very different. It quite -- it could be the high-water mark of these scandals, actually.

And I think what you're going to see is the Rigas family play some real jail time here.

I think we still see some -- may see some out of Enron as well, particularly from Andrew Fastow, who's the CFO there.

But you hear John McCain, in particular, a lot of Democrats also, saying, Look, it is, it is, it is all well and good, you haul these people up to Capitol Hill and scream at them, but until someone faces some serious jail time, there's not going to be the disincentive to not do these things.

And I think we're seeing the Justice Department and the Bush administration in particular begin to realize that and begin to go after these executives for that reason.

ROBERTS: Well, we thank Barbara for her call.

We want to move on now, back to one of our e-mails, and it's really kind of for John Allen, who's in Toronto. And it comes to us from Toronto. It says, "Do you think the attendance at the World Youth Day in Toronto has been hampered due to the sex scandals in the Catholic Church and the way they've paid out compensation from the Mount Kashel (ph) scandal?" This coming from Glen in Toronto.

John, what do you think about that?

ALLEN: Well, you know, we've been asking officials here that question all week. You know, I think it's worth saying that the numbers are down a little bit compared to other World Youth Days, but they're still pretty big. I mean, you know, we have between 375,000 and 400,000 for the festival with the pope last -- the night before. We're going to have maybe a million at the mass tomorrow. That's still a pretty sizable group. What we're hearing from organizers is that weren't any appreciable cancellations after the sex scandals broke in the States. There were some cancellations, however, after 9/11, in other words, especially from the United States. There were some parents who were afraid about sending their children on the road in the, sort of, you know, what they perceived to be a real dangerous world context.

But I think in general, the people here are pretty happy with the crowd size.

If I can say one other thing, you know, in connection to the financial stuff we've been talking about, I'm struck by the parallels between the current financial scandals in the States and the sex scandals in the Catholic Church. I think in both senses, you had a class of leaders that for a long time didn't think the rules applied to them, and that that is now coming home to roost.

And I think if you follow the trajectories of these stories, there are some real parallels.

CALLAWAY: Yes, and Ron, I want to give you the last word, because we have run out of time due to breaking news. And also because you got up in the middle of the night to be on the air for us. So your closing thoughts on this?

BROWNSTEIN: Well, I think that point is right, you know, that what we're seeing here is a public that is disappointed in a lack of accountability really across the board, in the political, financial systems, the church. There is a demand, there's a constant demand in American society that everybody be held to the same rules. It's a dictum that we don't always live by. But whenever we break it too obviously, there is a backlash.

And I think you're seeing here, as I mentioned before, in the passage of this legislation, ideas that really haven't -- could not have been on the table without this kind of scandal. Scandal is the engine of reform in American life. You go all the way back through the century, the progressive era, the New Deal, the 1960s environmental laws. It always takes scandal to break the status quo.

And I think we're seeing that happen once again.

CALLAWAY: Wow, what a quote from you, I like that, Ron. Thank you very much.

Ron Brownstein and John Allen, Peter Spiegel, all, thank you, gentlemen, for being, especially you, Ron, for getting up -- what time was it when you got up this morning?

BROWNSTEIN: Don't ask.

CALLAWAY: (UNINTELLIGIBLE).

ROBERTS: Now you can go back to bed. Gentlemen, thanks again.

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