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On the Story

Fear Grow of Patriot Act Powers That Some see as Unpatriotic; Two Years Later U.S. Economy is Still Effected by 9/11 Attacks

Aired September 13, 2003 - 10:00   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.


Now to Washington, and ON THE STORY.
JEANNE MESERVE, CNN ANCHOR, ON THE STORY: Welcome to CNN's ON THE STORY where our journalists have the inside word on the stories this week. I'm Jeanne Meserve on the Homeland Security. What's been done? And what's left to do?

DEBORAH FEYERICK, CNN ANCHOR, ON THE STORY: I'm Deborah Feyerick in New York ON THE STORY of the attacks on America two years later. Also the growing debate over the Patriot Act and powers that some see as unpatriotic.

DANA BASH, CNN ANCHOR, ON THE STORY: I'm Dana Bash. ON THE STORY of the president's request for more sacrifice and more money for post-war Iraq.

KELLY WALLACE, CNN ANCHOR, ON THE STORY: I'm Kelly Wallace in Los Angeles. ON THE STORY of the California recall, and how the candidates are making sense of the polls.

CHRISTINE ROMANS, CNN ANCHOR, ON THE STORY: I'm Christine Romans. ON THE STORY of the how two years later the economy is still fighting back from the terror attacks.

We'll talk about all these stories. Also coming up, whether New York is selling out at the drink machine. We'll see why the case of convicted murderer and Kennedy cousin Michael Skakel is joined in the headlines with the sexual assault case against basketball star Kobe Bryant.

And we'll listen to the president's weekly radio address at the end of this hour. And we want to hear from you, e-mail us at on ONTHESTORY@cnn.com.

Now, Jeanne and homeland security.

(BEGIN VIDEO CLIP)

JOHN ASHCROFT, U.S. ATTORNEY GENERAL: From time to time I've doubted whether we could commemorate the second anniversary of September 11 without seeing additional loss of life and liberty on American soil. At times I doubted America could make it, still safe, still secure to this day. (END VIDEO CLIP)

MESERVE: Attorney General John Ashcroft, this week, voicing what many people felt, relief that two years have passed without a terrorist strike here in the United States, equal to, or worse than 9/11. It surprises very many people and some experts say we're living on borrowed time.

FEYERICK: Jeanne, this question about relief, the feeling of relief, is it because people have a sense that it's the Department of Homeland Security that's doing its job, or is it just that we've gotten lucky in America?

MESERVE: It's mixed opinion. Some people, as I say, do think this is really a matter of our living very much on borrowed time. That we have not done anywhere near enough to protect the country.

However, if you talk to the administration, they make the opposite argument. They say we have made significant progress here. They claim that they have disrupted some terrorist actions in this country.

BASH: The other interesting argument that the president made this week again is, that it's better that -- that they feel what they're doing is fighting the war on terrorism outside the U.S., but what is the Homeland Security saying about that?

MESERVE: He was so explicit about that in the speech that he gave that he gave last Sunday.

BASH: Yes.

MESERVE: Saying, you know, if we fight them back overseas, we're not going to have an attack here. Experts will tell you, hokum, they just don't believe it's true. We know Al Qaeda is here. We know they've been scoping out what they might be able to do here.

And they feel that the administration is very much putting too much emphasis on the overseas battle, on the away game, and not putting the resources and attention into homeland security right here.

ROMANS: Jeanne, what are the successes, I guess, right here. Because you have this story this week of a guy shipping himself across the country undetected. You have stories of being able to smuggle whatever you want through some ports in this country. When you weigh them, are there more successes or more weaknesses?

MESERVE: Hard to say whether there's more or less. People will say there has certainly been progress. For instance, the Transportation Security Administration started from scratch. It's up, it's operating; we have a federalized screening force. Every piece of baggage is being screened now before it gets put on an airplane. That is a clear improvement.

But there was this cargo incident this week. Someone able to smuggle himself, that's because cargo still isn't being looked at. There was a GAO study we looked at yesterday where they were still able to get box cutters through screening machines.

BASH: And then you have the international problem, that the standards here in the United States are quite different from what they are abroad.

MESERVE: Right. And that came into play with that advisory that went out last week to state and local officials and private industries saying they were afraid that aircraft that took off from other countries, and might never be landing here, but were transiting over or near the United States, might be a vehicle for an attack.

People say there's such inconsistency in, for instance, airport screening in other countries. Mexico and Canada being prime examples. The U.S. has been working with those countries to try and improve the security profile there. But it's not a perfect system. There's still a distance to go.

WALLACE: Jeanne, on that note, because that seemed to be one of the most alarming things. We hear a lot about steps being taken to improve airport security in the United States. What specifics are your sources telling you that they've been able to encourage other countries to do to prevent anyone from hijacking a plane in another country and somehow crashing it in the United States?

MESERVE: Well, there's some parts in the world about which they don't have a great deal of worry. In Europe, for instance, airport security has been pretty tight for a while, because they've had their own problems overseas. But it's a continuing carrot and stick sort of thing.

Now, if there's any feeling that any airline is such a severe risk, there is the possibility they could ban it from flying into this country. They've not had to go that mile.

But one thing we heard about this week that was kind of interesting, they started to do more intense background checks on some of the foreign pilots that fly here regularly. There are about 6,000 of them. They've been doing checks on them for some time, but this summer they decided they ought to be more intense about this.

So they ran the names through multiple databases and came up with five, all of whom were Saudis, who flew for the Saudi airline and they banned them from this country. They weren't actively plotting against terrorism event. But the databases showed that they've had some association with Al Qaeda terrorists.

ROMANS: And cracking down on the visa situation as well, right?

MESERVE: Yes, there's a new program that went into effect this year. Universities had to register ahead of time, let the authorities know specifically who they were expecting to come in. And then as foreign students arrived at ports of entry, their names were put in the computer. They wanted to make sure they matched up. In most cases, they did.

But they told us there are about 190 people who it turns out who were trying to get in who apparently were not affiliated with any school whatsoever. They were turned back and sent back to their countries. This program, by the way, people were very worried about, because in the preliminary stages, there were huge computer problems. They thought there was going to be an immense tie-up at the borders when kids started flocking back.

In fact, there was a 24-hour, round-the-clock task force that was assembled. And they sort of acted as crisis managers and the thing went much more smoothly than people anticipated.

BASH: Well, Jeanne, there is a meeting in Geneva today on post- war Iraq, which, of course, as Jeanne mentioned, is something the president talked about quite a bit this week. We're awaiting a news conference with Secretary-General Kofi Annan, expected to begin shortly. CNN will bring that to you live.

President Bush, of course, says homeland security is better fought off U.S. shores. One reason he asked for more sacrifice and billions more dollars this week. But even after the Sunday speech, fewer people think he has a clear plan for Iraq . Back ON THE STORY in a moment.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Well, $87 billion, it's important to spend that money. It's in our national interest that we spend it. A free and peaceful Iraq will save this country money in the long term. It is important to get it done now.

(END VIDEO CLIP)

BASH: President Bush hammering home his request for more money for Iraq, emphasizing the point that the price is steep, but the goal is important. That's what we heard from the administration all week. As Condoleezza Rice, said it's a large sum of money, $87 billion, but national security is priceless, as they put it.

In a meeting leading up to the speech at the White House, with Republicans from Congress, they said, Mr. President, you have to be bold in your request. Ask for as much as you possibly think you'll need now, because we don't want to go back and do this again as we get closer to the election.

But I talked to one Republican who said, even though they thought it was going to be big, this is a new form of shock and awe they got; $87 billion is a lot more than they thought.

FEYERICK: Dana, take us behind the scenes. How did they come up with that number, $87 billion? And how worried are they behind the scenes about the president's declining poll ratings and all the pressure he's now facing on his Iraq policy?

BASH: Well, on the particular number, $87 billion, there was a lot of discussion before the war as we all heard from many members of the administration, that they thought that a lot of the funding for post-war Iraq would be taken from Iraqi assets, oil assets in particular. Paul Wolfowitz said $50 billion to $100 billion from there.

This week we talked to an administration official who did a conference call with reporters, who said that they don't expect any money right now, and only $12 billion in the next year. They basically say that they misread the state of disrepair in Iraq.

And the Republican I was talking to this week said, we really hope that's spin, because if it's not spin, that means our state of intelligence is not very good at all. This is a Republican I talked to.

ROMANS: They will have to spend $10s of billions to get the equipment up to modern standards in the first place, before you can start to pump that oil out of there. So that's an interesting situation to be in. And $87 billion, I mean, back of the envelope math, that's $350 per person in this country. You have to wonder if Democrats are just pouncing on this.

BASH: Well, we saw it this week. They absolutely are. The bottom line is they're going to get the money. The administration is going to get the money. Democrats and Republicans alike agree on that. But not before Democrats make the administration sweat a little bit and try to make as much political hay out of this as possible.

You just heard them talking about what this is going to mean for domestic priorities, education, Medicare, and so forth. And also you heard them talking about the fact that there's already a $500 billion deficit. The administration admitted this week it's going to be even higher now because of the money they need for Iraq.

MESERVE: Who's going to get the blame? Is everybody going to survive or are we going to see a Donald Rumsfeld or Wolfowitz or somebody paying for this price of vast miscalculation?

BASH: That's a good question. This administration is known for its loyalty and not for having people fall on their sword, so to speak. But what's interesting to remember, you remember I'm sure, Christine, back a few months ago before the war, Larry Lindsey, who was the senior economic adviser to the president, estimated that the war was going to cost $100 billion to $200 billion. And two months later he's gone. And guess what? That's how much it is costing right now.

FEYERICK: What about the impact on the president's credibility. He didn't put the numbers on the table to begin with. Now those numbers are on the table and people are beginning to question, well if it's costing this much, and we didn't know what was going to happen is now happening. How does that impact the credibility based on the folks that you were talking to?

BASH: Deborah, that's a good question. You heard this week on Capitol Hill, Paul Wolfowitz, the deputy defense secretary, going before a Senate committee and being hammered not just by Democrats, but Republicans, because of the concern of the credibility issue, about the fact that there was no sense that this was going to cost this much in terms of money, cost this much in terms of troops in the post-war effort.

I'm told that was the public grilling, in private it was even worse on the House side, with Deputy Secretary of State Richard Armitage.

But actually, let's take a look at the president's approval rating, because we've got a whole slew of new polls this week. The president's approval rating now, after the speech, is 52 percent. That's down from 70 percent last year. And it basically is about the point it was, about 51 percent, right before 9/11, 2001.

Now, Republicans I've talked to outside and close to the administration are concerned about this, because they're used to the president flying so high in the polls. When you talk to the people inside the administration, the president's pollsters, for example, it is making it very clear that they believe this is very much in keeping with what has happened in the past.

That President Reagan, President Clinton both were down in the 40s as they were ending their first terms, and they won handily in the second term. So, they said that this is a historic trend.

WALLACE: Dana, they never, of course, at the White House, as we know, want to admit when they happen to be concerned. But no question, as you're pointing out, there is concern.

What do they say -- what's their strategy? What do they say they're going to try to do to turn some of those numbers around, or at least the perception that things aren't going as well as the White House this they might be going?

BASH: Their strategy right now is to keep talking. You heard the president on Sunday night. He spoke a couple more times this week in pretty big forums about this issue of Iraq, saying that -- trying to make it clear that they feel they have it under control.

You, of course, see Secretary of State Colin Powell in Geneva. They're trying to forge a compromise at the United Nations in order to get help, international help, in terms of troops and money. So that the number that we saw that shows that Americans, 60 percent of Americans don't think that the president has a clear plan in Iraq, so that that will actually turn around.

But I talked to a Republican this week who said, you know, talking about the lesser of two evils. You know, the good news in this is that the more you hear Democrats bash the president on Iraq, the less you hear him talking about jobs, jobs, jobs, jobs, which is the thing that they are still most concerned about is the economy, in terms of his reelection.

WALLACE: Dana, that is an interesting perspective. From presidential policies and politics to California, with its own unique brand of politics. You have a squeezed-down calendar, larger than life candidates, and a recall campaign. I am ON THE STORY of the recall after this break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GRAY DAVIS, GOVERNOR (D), CALIFORNIA: We were just joking around. But it's no joke that Arnold Schwarzenegger supported 187, is perceived as anti-immigrant.

ARNOLD SCHWARZENEGGER (R), CA. GOV. CANDIDATE: He doesn't like the way I say the word California, because I say "California," rather than "Cala-fornia."

(BEGIN VIDEO CLIP)

WALLACE: A sign that things are getting a little bit nasty here in California. California Governor Gray Davis made an off-handed remark, commenting on how Arnold Schwarzenegger pronounces the name of the state. You saw the movie star turned-candidate responding.

Welcome back to ON THE STORY. I'm Kelly Wallace in Los Angeles.

Less than a month now until voters will go to the polls. And there are two big stories we're following this weekend. Number one, the state Republican convention gets under way. And there is a growing concern on the part of Republicans that you have two major Republican candidates: Schwarzenegger and Republican State Senator Tom McClintock. Concern that the Republicans could split the vote and keep the governorship in Democratic hands.

We also have another story to follow. Former President Bill Clinton coming to town tomorrow to campaign for Gray Davis, and campaign against the recall.

ROMANS: Kelly, where is Gray Davis in all this? Does the sort of carnival atmosphere around all of this somehow make him look a little better or give him a chance of holding on, or no?

WALLACE: He certainly hopes so, Christine. And his aides are quite happy with some recent polls. "The Los Angeles Times" poll, in fact, yesterday shows this race is very, very tight. That Californians are really evenly divided about whether to oust Gray Davis from office.

So the Davis folks feel like they have the momentum on their side, that there is a slow movement away from recalling Gray Davis. What they hope Bill Clinton can do is encourage African-Americans to vote. He's going to an African-American church. And really, many people believe turnout will be key. If Bill Clinton comes here he can jazz up the Democratic base and encourage people to get to the polls.

FEYERICK: Are Hollywood heavy hitters backing Arnold Schwarzenegger in the numbers that perhaps he expected?

WALLACE: Not quite, Deborah. In fact, there is going to be a fundraiser in fact tomorrow night, Sunday night, at the home of Jim Belushi. Other Hollywood figures are likely to be there for Arnold Schwarzenegger.

But the candidate who seems to get most of the Hollywood support right now is Arianna Huffington. She had a fundraiser earlier this week. A number of comedians there, Rob Schneider, Larry David, other people, Bill Maher is a big fan. She seems to be getting a lot of the support of Hollywood. Hollywood is known to lean a little to the left. She's getting a lot of support, but right now she is really going nowhere in the polls. She's getting about 3 percent the support of likely voters. Does not look like she has a chance to pull it off.

BASH: Kelly, the Republican Party in California has been in a state of disarray probably as an understatement for the past few years. Between the conservatives and moderates, what are the chances given that, that they will actually come behind one Republican candidate, which I guess is what they say they need?

WALLACE: That is. It has been exactly 10 years, 1994 is the last time the Republicans won a big prize here in California, the governorship. So you have a lot of talk behind the scenes about Republicans who say, we might have to compromise on principles.

That Arnold Schwarzenegger, some Republicans say, might not be as conservative on all the issues. He's moderate on social issues. They say he might not be conservative enough, but they're willing to sacrifice principles in order to win.

Right now, though, Tom McClintock is being quite stubborn. He is moving up in the polls. He's challenging Schwarzenegger to a debate. He said there should be a debate so that voters can see where they stand on the issues and then make a determination.

But many people think behind the scenes that McClintock doesn't want to be "the Ralph Nader of this race." That ultimately he will get out, and Republicans will have to coalesce around Schwarzenegger in order to try to defeat the Democrat, Lieutenant Governor Cruz Bustamante. This is, of course, all depending on whether a majority of California voters decide to oust Gray Davis.

MESERVE: Now, Schwarzenegger is talking today, I think, to the GOP state convention. I wouldn't think that this was his kind of audience, necessarily. What's the preview? What kind of reception is he going to get?

WALLACE: Not his audience at all, Jeanne. But there he was yesterday, Arnold Schwarzenegger, with the Howard Jarvis, of the Taxpayer's Association, one of the biggest groups. Very much an anti- tax group; a no-new-taxes kind of group. So there he was yesterday trying to build the momentum that he is a fiscal conservative, that he is going to clamp down spending, not going to raise taxes. He is going to there about for fiscal conservatives.

Obviously he is moderate on social issues, such as gay rights and abortion rights. His aides say he will do what he can today in his speech to reach out to the conservatives, and encourage them that he is the man that can work for them when it comes to spending and taxes. Again, the hope is that that will be more important to conservatives than some of these social issue positions.

ROMANS: You know, Kelly, one of the ironies here is that it is the economy that got him in all this trouble in the first place. And it has been a big focus of everything that is going on. Yet, there are economists who say some of these states, including California, are likely to see their financial positions improve a little bit as the economy slowly improves. So some of the fire that started all of this might be dying down a bit.

WALLACE: It's an interesting point you are raisin -

(CROSS TALK)

WALLACE: I'm sorry, Deb. I was just going to say, that's an interesting point you're raising. Although I don't think it's getting to the voters. Because in "The Los Angeles Times" poll, really the number one concern continues to be the budget and people feel that there's really a dismal state of affairs here in California when you're talking about the economy. And that could motivate people to go to the polls and recall Davis.

FEYERICK: Is Schwarzenegger's team a bit surprised over the fact that he's slipped behind in the polls a little bit and that they're getting hit harder than perhaps they expected or anticipated? And are they getting Republican support as much as they wanted?

WALLACE: No surprise, Deb. The spinning goes on and on. You say to these aides, hey, Arnold Schwarzenegger hasn't really been increasing significantly in the polls. Why is that? And they immediately point to Tom McClintock. They say he's taking away some of the vote.

They say that Arnold Schwarzenegger is now, since Labor Day, really getting out there day after day, talking about issues, such as education, talking about the economy. So they think the numbers will start to change. But it is -- it has to be a concern for political advisors, when you have a candidate with 100 percent name recognition, like Arnold Schwarzenegger, and he really hasn't gone up from the 25 percent mark over the past several weeks.

BASH: And Kelly, absentee ballots, people are already voting? Absentee ballots already coming in?

WALLACE: Exactly, people started voting or could start voting by absentee ballot on Monday. So, and all the campaigns -- Dana, no surprise -- are really trying to target absentee voters, sending thousands of mailers, urging absentee voters to vote for their candidate. Overseas, there was also a bit of a controversy. Some concern that some U.S. troops who happen to leave, did not vote, or get their absentee ballots in time.

It came down that the Secretary of State's office will allow them to fax those ballots in to California. So the voting is already under way. And I can't stress enough, many people think this will all come down to turnout. And they're just not sure who will be the voters, who will turn out. They say that can decide it all. FEYERICK: And that's where the dramatic tension in this race kind of begins.

We're going to zip back East, where time for many hasn't healed the many broken hearts of 9/11. The anniversary at ground zero, the Pentagon and Pennsylvania.

And how some state and local governments are balking at one of Washington's major anti-terrorism measures, the Patriot Act.

Also just ahead, a check of what's making news at this hour. I'm back ON THE STORY straight away.

(COMMERCIAL BREAK)

(NEWS BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Patricia Lawrence Decadro (ph).

UNIDENTIFIED FEMALE: Deborah Ann D. Matino (ph).

UNIDENTIFIED MALE: Bennett Lawson Fisher (ph).

UNIDENTIFIED FEMALE: John Roger Fisher (ph).

(END VIDEO CLIP)

FEYERICK: Children at Ground Zero reading the names of their moms and dads, aunts, uncles, grandparents.

Welcome back. We are ON THE STORY.

This was a ceremony honoring those who died, those who have survived courageously, and the Armed Forces fighting back in Iraq and Afghanistan. So many hearts are still mending and trying to mend. And emotions remain very, very raw.

BASH: And Deborah, the interesting thing that I heard from you and from others is that oddly enough, this second anniversary for some was harder than the first.

FEYERICK: Experts say that right after this kind of tragedy, people will go through what's called post-traumatic stress disorder where there's been this horrible, tragic event that defines the course of their life and they've go to deal with. Well, the emotions are still very much on the surface.

And now people are beginning to deal with the real issues. For example, the deadlines coming up by which folks have to file for compensation. And there are still many people who say, I cannot do that. I cannot put pen to paper. I cannot put some dollar value on the life of somebody who I lost because that value, that person is irreplaceable. And there is no amount of money. And yet the government is saying you've got to do it now, because if you don't do it now, there will be no compensation.

And the compensation that would be given by the government would basically prevent these folks from suing the airlines, from suing the Port Authority. There's now a lawsuit that says you can sue those people. So people are going to have to take a risk on that. Many of them just can't, just yet.

WALLACE: Deb, where do things stand about a memorial at the site of Ground Zero. And how is all that controversy kind of affecting people who lost loved ones as they come upon this second anniversary?

FEYERICK: Well, there's nothing simple about Ground Zero. The memorial, for example, families of firefighters think that firefighters should be honored in a different way. That either they should be spotlighted with the names of their companies next to their names. But the families say, look, there were no people that day who were greater heroes than others. And they feel very strongly about that because everybody was just an unwitting victim in this horrible attack.

And so there is a debate. Do firefighters get more credit, or are they honored more than the families who were just there doing their jobs, supporting a family? Those people say that those people are also heroes. So that, too, just hasn't been resolved yet.

MESERVE: Deb, I looked at that huge public memorial, and I wondered if you had any sense of how many families are opting out of that sort of very public expression of their grief, and choosing instead to commemorate this in a more private way?

FEYERICK: Jeanne, it's a good question. The memorial this year was smaller than it was last year. Last year, I think police estimated there were about 25,000 people. This year they estimated that there were about half that number, about 12,000 people. Some just can't get back to this space. Others feel they do have to get back to this space, because there's a connection, that this is where, you know, their husbands, their wives, it's the place where they spent their last minutes alive. But for some, they are getting out of the spotlight, because every year they're going to be calls, will you talk to this media outlet, will you talk to that media outlet. And they don't want to talk.

The grieving, right now very private with more and more families circling the wagons, trying to go on, trying to cope, trying to make it easier. But one man that we spoke to who lost his brother, he said you know, it's good to be in an environment where other people are feeling the same way you are. They know. You don't have to say anything. The understanding, the raw understanding is there. However, does the pain go away? This man said no, it will never go away. That this moment has become the defining moment in his life, were instead of going right or straight, he took, you know, a different turn altogether because he had to.

ROMANS: And Deborah, it's interesting that you said, circling the wagons and defining moments, because it's also sort of the circling of the wagons and the defining moment of the United States. And what happened after that, the Patriot Act. You have been covering this story. And what amounts to, I guess, municipal opposition to what the federal government has put in place. Tell us about it.

FEYERICK: Absolutely. A hundred and sixty states, municipalities, also local governments saying, we are against the Patriot Act. That it gives government too much broad power to launch investigations. That it amounts to spying on your neighbors, on your friends. Authorities can go to a library and say, we want to see what library books this person has been checking out. They can go to a doctor's office and say, show us the private medical records. Maybe somebody's been exposed to some sort of chemical that would indicate something.

Many people don't know; but the fear is that what's happening is that the government is getting too much authority. And there's no judicial review. They don't have to incorporate judges in the process in terms of issuing subpoenas. And that's what has many people balking at this, saying, you know what, we don't want to go in this direction.

ROMANS: All right. From the emotional impact of September 11 and its anniversary, and how the U.S. is trying to protect itself to the economic impact. Has the country climbed out of the 9/11 slump? I'm back ON THE STORY in a moment. . (COMMERCIAL BREAK)

ROMANS: Children and or relatives of victims of the September 11 terror attacks ringing the bell at the start of Thursday's trading at the New York Stock Exchange. A reminder of the human loss, but also the economic setback two years ago.

Welcome back. We're ON THE STORY.

The stock market actually lowered the S&P 500 down 6 percent from its pre-September 11 levels. You've got hundreds of thousands of jobs lost in the wake. In fact, job losses still at this point, 21 months after a recovery began, we've lost more than 1 million jobs. Usually at this stage of an economic recovery you've gained about 3.8 million.

So the job situation is still pretty critical. All economists agree, the economy is slowly getting back up on its feet, but it is been a couple years, and quite difficult for the U.S. economy. And one economist telling me, basically, one whole year we just wrote off. We just took a whole year to absorb the shock of September 11. And now we're getting back on trick.

MESERVE: Christine, got to ask you about Richard Grasso. A hundred and forty million bucks, can this guy negotiate my next contract? Please?

ROMANS: Yes, absolutely.

MESERVE: And where was the board of directors?

ROMANS: The board of directors apparently orchestrated this entire thing. Richard Grasso said the only thing he said to the board was every year they'd tell him how much money he was going to make. And he would say, thank you, I'm blessed. Last year he made $250,000 a week, $50,000 a day.

MESERVE: Wow! Sounds great.

ROMANS: The SEC Chairman Bill Donaldson makes less than that in a year, as does also the fed chief. So there is a question here about, is that money just greedy, gross excess of the 1990s? And should he be punished for it? Or, you know, some capitalists would say he was worth every penny.

BASH: And in covering this story, you and other journalists had a lot of trouble getting some of the answers to those questions and finding the documents.

ROMANS: Well, here's the issue. The Stock Exchange is notoriously very closed-lip about its internal dealings. And as it's going through its own corporate governance review, it's starting to give out more drips and drabs of information. The SEC has asked for all of the information pertaining to Mr. Grasso's pay package; that was 1200 pages of documents that the Stock Exchange kept in a 12-floor room. And reporters had to make an appointment to go in and see it; so the reporters around the table sort of fighting with each other for the documents.

A source of the SEC called it a document dump of dump. And questioned why this couldn't have been put on a disk. Or what technological problems the Stock Exchange was having in making it available; because clearly, documents of this size have been made readily available before, but not in this case.

WALLACE: Christine, what about the image problem here? You have Enron, WorldCom, a couple of years of corporate scandals. He is the chairman of the New York Stock Exchange. What are your sources saying behind the scenes about just the general perception or image problem that, you know, he sort of should set a standard in the role that he has now?

ROMANS: Well, it's absolutely what a lot of people are saying. And the corporate governance experts are just furious about this. Some of the members of the New York Stock Exchange say they had no idea he made that much money. And some are even saying that the directors on the board may have thought it was a typo. That it was really a -- you know, $13 million...

MESERVE: And they didn't even ask a question?

ROMANS: Well, I don't know.

FEYERICK: WorldCom's financial sheets had a couple of typos, as did Enron's as well.

Getting back to the issue, what does he do? How can you justify that kind of salary in this kind of an economic climate? What are they saying? Oh, he's worth every penny. Why? ROMANS: Because 90 percent of the international listings at the New York Stock Exchange he personally wooed. Two-thirds of the company's listed there; he also had a hand in, in bringing to list on the Stock Exchange.

But you know, people say that's not worth $140 million. A hundred and forty million dollars is a lot of money. Granted, this is some of it deferred compensation over the past few years, but in 2001 he made $31 million. That is more than the median pay of financial services CEOs, which his pay was supposed to be based off of. So he says he's one-third regulator, two-thirds entrepreneur.

But I want to switch gears here, because he Grasso headlines, the money is just so astonishing, people can talk about it forever. One portfolio manager this week said his office talked of nothing else all week. But there's mutual fund scandal as well.

BASH: That's what I wanted to ask you about because it matters to all of us, right?

ROMANS: It does. Morning Star, which is a well, you know, a well-respected firm that rates mutual funds this week, yesterday said investors should not have confidence in Janis funds, and a few other funds that are involved in this Elliott Spitzer investigation into mutual fund misdeeds. Basically, Elliott Spitzer is alleging that these mutual funds sort of sold special trading rights to their best, prominent rich customers to the detriment of people like us who may own mutual funds. And Elliott Spitzer is at the very beginning of this investigation.

And Morning Star says, you know, what this is such a terrible allegation. We're not even going to wait to see if it's proved to be true. Investors, take your money out of these funds.

MESERVE: And then there's the big story of the week, the apple Snapple connection.

ROMANS: Oh, apple Snapple! This got a lot of play, you know, because maybe because it made such good, you know, "New York Post" headlines. But you know, maybe the chief -- the new chief marketing officer of New York City has struck a deal with Snapple, $166 million over, I don't know, several years, to put Snapple in the schools. It will be the official drink of the New York public schools.

Some people say this is sort of New York City selling its soul to, you know, a corporate sponsorship. Others say this is a creative way to try to raise a little money in a really tough, tough environment for some of these municipalities.

So I don't know, Deborah, what do you think? If you had a kid in public schools, would you say here's $1.50, go drink all the Snapple you want?

FEYERICK: You know, I don't think so. I'm a little suspicious about things of things that are marketed to children in school: sneakers, soft drinks, things like that. I think it just sort of puts my radar up as to what's really going on.

But anyway, let's move from the world of money and business to celebrity and crime. You can never get enough celebrity and crime. In an unusual event, one of the sensational cases of last year was suddenly linked to one of this year's headline grabbers. We're all back ON THE STORY straight after this.

UNIDENTIFIED MALE: One of the most popular toys in the world, the Barbie doll was in the news this week. What's her story? More ON THE STORY after this.

(COMMERCIAL BREAK)

The Barbie Doll, what's her story? Religious police in Saudi Arabia now say the doll already banned in the kingdom is a threat to morality. The Web site of the Committee for the Propagation of Virtue and Prevention of Vice denounces what it calls Jewish Barbie dolls, with their revealing clothes and shameful posture as a symbol of decadence to the perverted West. The Associated Press says a black market Barbie in Saudi Arabia can set you back $27.

FEYERICK: Well, the ON THE STORY question of the week, how can celebrity criminal cases collide? Well, chances are about as slim as two meteors hitting together in space. But this week Kobe Bryant and Kennedy cousin, Michael Skakel joined. Skakel was convicted of the 1975 murder of Martha Moxley; both were fifteen at the time.

But this week, there's word that a cousin of Kobe Bryant might have evidence to clear Skakel, that he was with several people that night. This is Tony Bryant, who was with several people that night. And they said that they were going out to look for some trouble, look for somebody to hurt. So right now, prosecutors are saying, if that's the case, we want to talk to them, we want that evidence. But so far, nothing forthcoming.

WALLACE: Deb, any chance that this could lead the appeals team to get a new trial for Michael Skakel?

FEYERICK: Well, that is really what's driving this. Michael Skakel now has new lawyers. He was convict of murdering Martha Moxley. He is now serving 20 years. His new lawyers want to get this trial reopened. They want to appeal. They want to find grounds to do that on. This could open that window, if ever so slightly.

ROMANS: Deborah, you have all the great assignments. The interesting nuggets of information. OK, so what's the latest in the Kobe case?

FEYERICK: Well, the judge there in the Kobe case has said that he is not going to allow cameras in the courtroom. There's going to be a preliminary hearing at that time. You're going to hear a lot of the evidence that the prosecutors and investigators are using against Kobe Bryant. Some of it could be very sensitive. And the judge has said that he wants to safeguard that information. Therefore, no cameras. Though journalists will be allowed in the court. But it's very different. It's different to see it played out on television as opposed to just hearing about the evidence. Effectively second hand from, you know, people like us. So no cameras.

BASH: And the other -- Jeanne, the other controversial issue that came up this week is Chief Moose and his book.

MESERVE: Which will hit the bookstores on Monday morning. He left his job to write this book. The Ethics Commission in Montgomery County said, you shouldn't be able to profit from your job here. He said this is my First Amendment right. I have something to say. So he left his job to write it; reportedly got a $170,000 advance.

I talked to a former federal prosecutor this week who just went off about this. Said, this is unimaginable, unprecedented, outrageous, that a law enforcement officer should be writing a book like this before the trials begin. John Mohammed goes on trial next month, Malvo the month after that. This prosecutor, at least, thought it was outrageous.

BASH: But he was cleared by an ethics committee, wasn't he?

MESERVE: Well, not cleared by the Ethics Committee. He left his job to write the book because the Ethics Committee wouldn't give him the OK.

But yesterday afternoon, I had a talk with Robert Horan, he's the prosecutor who is going to be bringing the case against Malvo. He said, he frankly, didn't have that big a problem with Moose's book. He thought this was mostly going to be about the quest to find the snipers. He expressed the more worry about the book that's going to be coming out in the next month by two "Washington Post" reporters. Because he thinks that may have some stuff that really could have more of an impact on the trials, and jury selections specifically.

ROMANS: I can't believe it's been a year. I mean it feels like that was just going on yesterday. It shows you how this news cycle really grabs you and pulls you along.

MESERVE: That's right. It was a year ago. And as I said, trial is starting in a month. Right around the corner.

FEYERICK: Won't Chief Moose be called to testify, though, and couldn't this book potentially jeopardize the integrity of his testimony?

MESERVE: Some people are saying that. But going back to Mr. Horan who's prosecuting Malvo, and knows about this much as anything, he said to me flatly, "I don't intend to call him as a witness in my case. I just can't see that it's going to be a factor."

But this is apparently quite an unprecedented thing that ordinarily people who are involved in cases wait until after the prosecution to go public with what they have to say.

ROMANS: A hundred and seventy thousand dollars and... WALLACE: Jeanne, very quick...

WALLACE: Oh, I'm sorry. Jeanne, very quick, I was going to ask you, what about Chief Moose's public image? I mean, what are people saying behind the scenes about, he was held in such a high regard during the whole sniper story. Where is his standing now after all of this?

MESERVE: It's a real mixed picture. You travel around Montgomery County and there are still people who say, wow, what a great job he did for us. I talked to the County Executive Doug Duncan; he said my one regret is that he isn't still our police chief. He was a great guy and he did a great job.

But there are other people who say that Moose was not very effective here, that the police had a lot of clues and cues as to who the snipers might be, that they simply missed. That they were so focused on this white men in white van thing, that they closed their vision. So it very much a mixed picture.

ROMANS: All right. Of course, we're still waiting for our Secretary General of the U.N. Kofi Annan in Geneva. We'll bring that to you when we get it. But thanks to my colleagues, thanks for watching ON THE STORY. We'll be back next week.

Still "PEOPLE IN THE NEWS," focusing this week on Osama bins Laden. At 12 noon Eastern, 9 a.m. Pacific, "CNN LIVE SATURDAY," and at 1:00 p.m., 10 a.m. Pacific, CNN's "IN THE MONEY," where Jack Cafferty has more about the request on the U.N. for help in Iraq. And I'll have more on the Dick Grasso story.

Coming up at the top of the hour, a news alert. But first, the president's weekly radio address.

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




Unpatriotic; Two Years Later U.S. Economy is Still Effected by 9/11 Attacks>


Aired September 13, 2003 - 10:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
Now to Washington, and ON THE STORY.
JEANNE MESERVE, CNN ANCHOR, ON THE STORY: Welcome to CNN's ON THE STORY where our journalists have the inside word on the stories this week. I'm Jeanne Meserve on the Homeland Security. What's been done? And what's left to do?

DEBORAH FEYERICK, CNN ANCHOR, ON THE STORY: I'm Deborah Feyerick in New York ON THE STORY of the attacks on America two years later. Also the growing debate over the Patriot Act and powers that some see as unpatriotic.

DANA BASH, CNN ANCHOR, ON THE STORY: I'm Dana Bash. ON THE STORY of the president's request for more sacrifice and more money for post-war Iraq.

KELLY WALLACE, CNN ANCHOR, ON THE STORY: I'm Kelly Wallace in Los Angeles. ON THE STORY of the California recall, and how the candidates are making sense of the polls.

CHRISTINE ROMANS, CNN ANCHOR, ON THE STORY: I'm Christine Romans. ON THE STORY of the how two years later the economy is still fighting back from the terror attacks.

We'll talk about all these stories. Also coming up, whether New York is selling out at the drink machine. We'll see why the case of convicted murderer and Kennedy cousin Michael Skakel is joined in the headlines with the sexual assault case against basketball star Kobe Bryant.

And we'll listen to the president's weekly radio address at the end of this hour. And we want to hear from you, e-mail us at on ONTHESTORY@cnn.com.

Now, Jeanne and homeland security.

(BEGIN VIDEO CLIP)

JOHN ASHCROFT, U.S. ATTORNEY GENERAL: From time to time I've doubted whether we could commemorate the second anniversary of September 11 without seeing additional loss of life and liberty on American soil. At times I doubted America could make it, still safe, still secure to this day. (END VIDEO CLIP)

MESERVE: Attorney General John Ashcroft, this week, voicing what many people felt, relief that two years have passed without a terrorist strike here in the United States, equal to, or worse than 9/11. It surprises very many people and some experts say we're living on borrowed time.

FEYERICK: Jeanne, this question about relief, the feeling of relief, is it because people have a sense that it's the Department of Homeland Security that's doing its job, or is it just that we've gotten lucky in America?

MESERVE: It's mixed opinion. Some people, as I say, do think this is really a matter of our living very much on borrowed time. That we have not done anywhere near enough to protect the country.

However, if you talk to the administration, they make the opposite argument. They say we have made significant progress here. They claim that they have disrupted some terrorist actions in this country.

BASH: The other interesting argument that the president made this week again is, that it's better that -- that they feel what they're doing is fighting the war on terrorism outside the U.S., but what is the Homeland Security saying about that?

MESERVE: He was so explicit about that in the speech that he gave that he gave last Sunday.

BASH: Yes.

MESERVE: Saying, you know, if we fight them back overseas, we're not going to have an attack here. Experts will tell you, hokum, they just don't believe it's true. We know Al Qaeda is here. We know they've been scoping out what they might be able to do here.

And they feel that the administration is very much putting too much emphasis on the overseas battle, on the away game, and not putting the resources and attention into homeland security right here.

ROMANS: Jeanne, what are the successes, I guess, right here. Because you have this story this week of a guy shipping himself across the country undetected. You have stories of being able to smuggle whatever you want through some ports in this country. When you weigh them, are there more successes or more weaknesses?

MESERVE: Hard to say whether there's more or less. People will say there has certainly been progress. For instance, the Transportation Security Administration started from scratch. It's up, it's operating; we have a federalized screening force. Every piece of baggage is being screened now before it gets put on an airplane. That is a clear improvement.

But there was this cargo incident this week. Someone able to smuggle himself, that's because cargo still isn't being looked at. There was a GAO study we looked at yesterday where they were still able to get box cutters through screening machines.

BASH: And then you have the international problem, that the standards here in the United States are quite different from what they are abroad.

MESERVE: Right. And that came into play with that advisory that went out last week to state and local officials and private industries saying they were afraid that aircraft that took off from other countries, and might never be landing here, but were transiting over or near the United States, might be a vehicle for an attack.

People say there's such inconsistency in, for instance, airport screening in other countries. Mexico and Canada being prime examples. The U.S. has been working with those countries to try and improve the security profile there. But it's not a perfect system. There's still a distance to go.

WALLACE: Jeanne, on that note, because that seemed to be one of the most alarming things. We hear a lot about steps being taken to improve airport security in the United States. What specifics are your sources telling you that they've been able to encourage other countries to do to prevent anyone from hijacking a plane in another country and somehow crashing it in the United States?

MESERVE: Well, there's some parts in the world about which they don't have a great deal of worry. In Europe, for instance, airport security has been pretty tight for a while, because they've had their own problems overseas. But it's a continuing carrot and stick sort of thing.

Now, if there's any feeling that any airline is such a severe risk, there is the possibility they could ban it from flying into this country. They've not had to go that mile.

But one thing we heard about this week that was kind of interesting, they started to do more intense background checks on some of the foreign pilots that fly here regularly. There are about 6,000 of them. They've been doing checks on them for some time, but this summer they decided they ought to be more intense about this.

So they ran the names through multiple databases and came up with five, all of whom were Saudis, who flew for the Saudi airline and they banned them from this country. They weren't actively plotting against terrorism event. But the databases showed that they've had some association with Al Qaeda terrorists.

ROMANS: And cracking down on the visa situation as well, right?

MESERVE: Yes, there's a new program that went into effect this year. Universities had to register ahead of time, let the authorities know specifically who they were expecting to come in. And then as foreign students arrived at ports of entry, their names were put in the computer. They wanted to make sure they matched up. In most cases, they did.

But they told us there are about 190 people who it turns out who were trying to get in who apparently were not affiliated with any school whatsoever. They were turned back and sent back to their countries. This program, by the way, people were very worried about, because in the preliminary stages, there were huge computer problems. They thought there was going to be an immense tie-up at the borders when kids started flocking back.

In fact, there was a 24-hour, round-the-clock task force that was assembled. And they sort of acted as crisis managers and the thing went much more smoothly than people anticipated.

BASH: Well, Jeanne, there is a meeting in Geneva today on post- war Iraq, which, of course, as Jeanne mentioned, is something the president talked about quite a bit this week. We're awaiting a news conference with Secretary-General Kofi Annan, expected to begin shortly. CNN will bring that to you live.

President Bush, of course, says homeland security is better fought off U.S. shores. One reason he asked for more sacrifice and billions more dollars this week. But even after the Sunday speech, fewer people think he has a clear plan for Iraq . Back ON THE STORY in a moment.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Well, $87 billion, it's important to spend that money. It's in our national interest that we spend it. A free and peaceful Iraq will save this country money in the long term. It is important to get it done now.

(END VIDEO CLIP)

BASH: President Bush hammering home his request for more money for Iraq, emphasizing the point that the price is steep, but the goal is important. That's what we heard from the administration all week. As Condoleezza Rice, said it's a large sum of money, $87 billion, but national security is priceless, as they put it.

In a meeting leading up to the speech at the White House, with Republicans from Congress, they said, Mr. President, you have to be bold in your request. Ask for as much as you possibly think you'll need now, because we don't want to go back and do this again as we get closer to the election.

But I talked to one Republican who said, even though they thought it was going to be big, this is a new form of shock and awe they got; $87 billion is a lot more than they thought.

FEYERICK: Dana, take us behind the scenes. How did they come up with that number, $87 billion? And how worried are they behind the scenes about the president's declining poll ratings and all the pressure he's now facing on his Iraq policy?

BASH: Well, on the particular number, $87 billion, there was a lot of discussion before the war as we all heard from many members of the administration, that they thought that a lot of the funding for post-war Iraq would be taken from Iraqi assets, oil assets in particular. Paul Wolfowitz said $50 billion to $100 billion from there.

This week we talked to an administration official who did a conference call with reporters, who said that they don't expect any money right now, and only $12 billion in the next year. They basically say that they misread the state of disrepair in Iraq.

And the Republican I was talking to this week said, we really hope that's spin, because if it's not spin, that means our state of intelligence is not very good at all. This is a Republican I talked to.

ROMANS: They will have to spend $10s of billions to get the equipment up to modern standards in the first place, before you can start to pump that oil out of there. So that's an interesting situation to be in. And $87 billion, I mean, back of the envelope math, that's $350 per person in this country. You have to wonder if Democrats are just pouncing on this.

BASH: Well, we saw it this week. They absolutely are. The bottom line is they're going to get the money. The administration is going to get the money. Democrats and Republicans alike agree on that. But not before Democrats make the administration sweat a little bit and try to make as much political hay out of this as possible.

You just heard them talking about what this is going to mean for domestic priorities, education, Medicare, and so forth. And also you heard them talking about the fact that there's already a $500 billion deficit. The administration admitted this week it's going to be even higher now because of the money they need for Iraq.

MESERVE: Who's going to get the blame? Is everybody going to survive or are we going to see a Donald Rumsfeld or Wolfowitz or somebody paying for this price of vast miscalculation?

BASH: That's a good question. This administration is known for its loyalty and not for having people fall on their sword, so to speak. But what's interesting to remember, you remember I'm sure, Christine, back a few months ago before the war, Larry Lindsey, who was the senior economic adviser to the president, estimated that the war was going to cost $100 billion to $200 billion. And two months later he's gone. And guess what? That's how much it is costing right now.

FEYERICK: What about the impact on the president's credibility. He didn't put the numbers on the table to begin with. Now those numbers are on the table and people are beginning to question, well if it's costing this much, and we didn't know what was going to happen is now happening. How does that impact the credibility based on the folks that you were talking to?

BASH: Deborah, that's a good question. You heard this week on Capitol Hill, Paul Wolfowitz, the deputy defense secretary, going before a Senate committee and being hammered not just by Democrats, but Republicans, because of the concern of the credibility issue, about the fact that there was no sense that this was going to cost this much in terms of money, cost this much in terms of troops in the post-war effort.

I'm told that was the public grilling, in private it was even worse on the House side, with Deputy Secretary of State Richard Armitage.

But actually, let's take a look at the president's approval rating, because we've got a whole slew of new polls this week. The president's approval rating now, after the speech, is 52 percent. That's down from 70 percent last year. And it basically is about the point it was, about 51 percent, right before 9/11, 2001.

Now, Republicans I've talked to outside and close to the administration are concerned about this, because they're used to the president flying so high in the polls. When you talk to the people inside the administration, the president's pollsters, for example, it is making it very clear that they believe this is very much in keeping with what has happened in the past.

That President Reagan, President Clinton both were down in the 40s as they were ending their first terms, and they won handily in the second term. So, they said that this is a historic trend.

WALLACE: Dana, they never, of course, at the White House, as we know, want to admit when they happen to be concerned. But no question, as you're pointing out, there is concern.

What do they say -- what's their strategy? What do they say they're going to try to do to turn some of those numbers around, or at least the perception that things aren't going as well as the White House this they might be going?

BASH: Their strategy right now is to keep talking. You heard the president on Sunday night. He spoke a couple more times this week in pretty big forums about this issue of Iraq, saying that -- trying to make it clear that they feel they have it under control.

You, of course, see Secretary of State Colin Powell in Geneva. They're trying to forge a compromise at the United Nations in order to get help, international help, in terms of troops and money. So that the number that we saw that shows that Americans, 60 percent of Americans don't think that the president has a clear plan in Iraq, so that that will actually turn around.

But I talked to a Republican this week who said, you know, talking about the lesser of two evils. You know, the good news in this is that the more you hear Democrats bash the president on Iraq, the less you hear him talking about jobs, jobs, jobs, jobs, which is the thing that they are still most concerned about is the economy, in terms of his reelection.

WALLACE: Dana, that is an interesting perspective. From presidential policies and politics to California, with its own unique brand of politics. You have a squeezed-down calendar, larger than life candidates, and a recall campaign. I am ON THE STORY of the recall after this break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GRAY DAVIS, GOVERNOR (D), CALIFORNIA: We were just joking around. But it's no joke that Arnold Schwarzenegger supported 187, is perceived as anti-immigrant.

ARNOLD SCHWARZENEGGER (R), CA. GOV. CANDIDATE: He doesn't like the way I say the word California, because I say "California," rather than "Cala-fornia."

(BEGIN VIDEO CLIP)

WALLACE: A sign that things are getting a little bit nasty here in California. California Governor Gray Davis made an off-handed remark, commenting on how Arnold Schwarzenegger pronounces the name of the state. You saw the movie star turned-candidate responding.

Welcome back to ON THE STORY. I'm Kelly Wallace in Los Angeles.

Less than a month now until voters will go to the polls. And there are two big stories we're following this weekend. Number one, the state Republican convention gets under way. And there is a growing concern on the part of Republicans that you have two major Republican candidates: Schwarzenegger and Republican State Senator Tom McClintock. Concern that the Republicans could split the vote and keep the governorship in Democratic hands.

We also have another story to follow. Former President Bill Clinton coming to town tomorrow to campaign for Gray Davis, and campaign against the recall.

ROMANS: Kelly, where is Gray Davis in all this? Does the sort of carnival atmosphere around all of this somehow make him look a little better or give him a chance of holding on, or no?

WALLACE: He certainly hopes so, Christine. And his aides are quite happy with some recent polls. "The Los Angeles Times" poll, in fact, yesterday shows this race is very, very tight. That Californians are really evenly divided about whether to oust Gray Davis from office.

So the Davis folks feel like they have the momentum on their side, that there is a slow movement away from recalling Gray Davis. What they hope Bill Clinton can do is encourage African-Americans to vote. He's going to an African-American church. And really, many people believe turnout will be key. If Bill Clinton comes here he can jazz up the Democratic base and encourage people to get to the polls.

FEYERICK: Are Hollywood heavy hitters backing Arnold Schwarzenegger in the numbers that perhaps he expected?

WALLACE: Not quite, Deborah. In fact, there is going to be a fundraiser in fact tomorrow night, Sunday night, at the home of Jim Belushi. Other Hollywood figures are likely to be there for Arnold Schwarzenegger.

But the candidate who seems to get most of the Hollywood support right now is Arianna Huffington. She had a fundraiser earlier this week. A number of comedians there, Rob Schneider, Larry David, other people, Bill Maher is a big fan. She seems to be getting a lot of the support of Hollywood. Hollywood is known to lean a little to the left. She's getting a lot of support, but right now she is really going nowhere in the polls. She's getting about 3 percent the support of likely voters. Does not look like she has a chance to pull it off.

BASH: Kelly, the Republican Party in California has been in a state of disarray probably as an understatement for the past few years. Between the conservatives and moderates, what are the chances given that, that they will actually come behind one Republican candidate, which I guess is what they say they need?

WALLACE: That is. It has been exactly 10 years, 1994 is the last time the Republicans won a big prize here in California, the governorship. So you have a lot of talk behind the scenes about Republicans who say, we might have to compromise on principles.

That Arnold Schwarzenegger, some Republicans say, might not be as conservative on all the issues. He's moderate on social issues. They say he might not be conservative enough, but they're willing to sacrifice principles in order to win.

Right now, though, Tom McClintock is being quite stubborn. He is moving up in the polls. He's challenging Schwarzenegger to a debate. He said there should be a debate so that voters can see where they stand on the issues and then make a determination.

But many people think behind the scenes that McClintock doesn't want to be "the Ralph Nader of this race." That ultimately he will get out, and Republicans will have to coalesce around Schwarzenegger in order to try to defeat the Democrat, Lieutenant Governor Cruz Bustamante. This is, of course, all depending on whether a majority of California voters decide to oust Gray Davis.

MESERVE: Now, Schwarzenegger is talking today, I think, to the GOP state convention. I wouldn't think that this was his kind of audience, necessarily. What's the preview? What kind of reception is he going to get?

WALLACE: Not his audience at all, Jeanne. But there he was yesterday, Arnold Schwarzenegger, with the Howard Jarvis, of the Taxpayer's Association, one of the biggest groups. Very much an anti- tax group; a no-new-taxes kind of group. So there he was yesterday trying to build the momentum that he is a fiscal conservative, that he is going to clamp down spending, not going to raise taxes. He is going to there about for fiscal conservatives.

Obviously he is moderate on social issues, such as gay rights and abortion rights. His aides say he will do what he can today in his speech to reach out to the conservatives, and encourage them that he is the man that can work for them when it comes to spending and taxes. Again, the hope is that that will be more important to conservatives than some of these social issue positions.

ROMANS: You know, Kelly, one of the ironies here is that it is the economy that got him in all this trouble in the first place. And it has been a big focus of everything that is going on. Yet, there are economists who say some of these states, including California, are likely to see their financial positions improve a little bit as the economy slowly improves. So some of the fire that started all of this might be dying down a bit.

WALLACE: It's an interesting point you are raisin -

(CROSS TALK)

WALLACE: I'm sorry, Deb. I was just going to say, that's an interesting point you're raising. Although I don't think it's getting to the voters. Because in "The Los Angeles Times" poll, really the number one concern continues to be the budget and people feel that there's really a dismal state of affairs here in California when you're talking about the economy. And that could motivate people to go to the polls and recall Davis.

FEYERICK: Is Schwarzenegger's team a bit surprised over the fact that he's slipped behind in the polls a little bit and that they're getting hit harder than perhaps they expected or anticipated? And are they getting Republican support as much as they wanted?

WALLACE: No surprise, Deb. The spinning goes on and on. You say to these aides, hey, Arnold Schwarzenegger hasn't really been increasing significantly in the polls. Why is that? And they immediately point to Tom McClintock. They say he's taking away some of the vote.

They say that Arnold Schwarzenegger is now, since Labor Day, really getting out there day after day, talking about issues, such as education, talking about the economy. So they think the numbers will start to change. But it is -- it has to be a concern for political advisors, when you have a candidate with 100 percent name recognition, like Arnold Schwarzenegger, and he really hasn't gone up from the 25 percent mark over the past several weeks.

BASH: And Kelly, absentee ballots, people are already voting? Absentee ballots already coming in?

WALLACE: Exactly, people started voting or could start voting by absentee ballot on Monday. So, and all the campaigns -- Dana, no surprise -- are really trying to target absentee voters, sending thousands of mailers, urging absentee voters to vote for their candidate. Overseas, there was also a bit of a controversy. Some concern that some U.S. troops who happen to leave, did not vote, or get their absentee ballots in time.

It came down that the Secretary of State's office will allow them to fax those ballots in to California. So the voting is already under way. And I can't stress enough, many people think this will all come down to turnout. And they're just not sure who will be the voters, who will turn out. They say that can decide it all. FEYERICK: And that's where the dramatic tension in this race kind of begins.

We're going to zip back East, where time for many hasn't healed the many broken hearts of 9/11. The anniversary at ground zero, the Pentagon and Pennsylvania.

And how some state and local governments are balking at one of Washington's major anti-terrorism measures, the Patriot Act.

Also just ahead, a check of what's making news at this hour. I'm back ON THE STORY straight away.

(COMMERCIAL BREAK)

(NEWS BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Patricia Lawrence Decadro (ph).

UNIDENTIFIED FEMALE: Deborah Ann D. Matino (ph).

UNIDENTIFIED MALE: Bennett Lawson Fisher (ph).

UNIDENTIFIED FEMALE: John Roger Fisher (ph).

(END VIDEO CLIP)

FEYERICK: Children at Ground Zero reading the names of their moms and dads, aunts, uncles, grandparents.

Welcome back. We are ON THE STORY.

This was a ceremony honoring those who died, those who have survived courageously, and the Armed Forces fighting back in Iraq and Afghanistan. So many hearts are still mending and trying to mend. And emotions remain very, very raw.

BASH: And Deborah, the interesting thing that I heard from you and from others is that oddly enough, this second anniversary for some was harder than the first.

FEYERICK: Experts say that right after this kind of tragedy, people will go through what's called post-traumatic stress disorder where there's been this horrible, tragic event that defines the course of their life and they've go to deal with. Well, the emotions are still very much on the surface.

And now people are beginning to deal with the real issues. For example, the deadlines coming up by which folks have to file for compensation. And there are still many people who say, I cannot do that. I cannot put pen to paper. I cannot put some dollar value on the life of somebody who I lost because that value, that person is irreplaceable. And there is no amount of money. And yet the government is saying you've got to do it now, because if you don't do it now, there will be no compensation.

And the compensation that would be given by the government would basically prevent these folks from suing the airlines, from suing the Port Authority. There's now a lawsuit that says you can sue those people. So people are going to have to take a risk on that. Many of them just can't, just yet.

WALLACE: Deb, where do things stand about a memorial at the site of Ground Zero. And how is all that controversy kind of affecting people who lost loved ones as they come upon this second anniversary?

FEYERICK: Well, there's nothing simple about Ground Zero. The memorial, for example, families of firefighters think that firefighters should be honored in a different way. That either they should be spotlighted with the names of their companies next to their names. But the families say, look, there were no people that day who were greater heroes than others. And they feel very strongly about that because everybody was just an unwitting victim in this horrible attack.

And so there is a debate. Do firefighters get more credit, or are they honored more than the families who were just there doing their jobs, supporting a family? Those people say that those people are also heroes. So that, too, just hasn't been resolved yet.

MESERVE: Deb, I looked at that huge public memorial, and I wondered if you had any sense of how many families are opting out of that sort of very public expression of their grief, and choosing instead to commemorate this in a more private way?

FEYERICK: Jeanne, it's a good question. The memorial this year was smaller than it was last year. Last year, I think police estimated there were about 25,000 people. This year they estimated that there were about half that number, about 12,000 people. Some just can't get back to this space. Others feel they do have to get back to this space, because there's a connection, that this is where, you know, their husbands, their wives, it's the place where they spent their last minutes alive. But for some, they are getting out of the spotlight, because every year they're going to be calls, will you talk to this media outlet, will you talk to that media outlet. And they don't want to talk.

The grieving, right now very private with more and more families circling the wagons, trying to go on, trying to cope, trying to make it easier. But one man that we spoke to who lost his brother, he said you know, it's good to be in an environment where other people are feeling the same way you are. They know. You don't have to say anything. The understanding, the raw understanding is there. However, does the pain go away? This man said no, it will never go away. That this moment has become the defining moment in his life, were instead of going right or straight, he took, you know, a different turn altogether because he had to.

ROMANS: And Deborah, it's interesting that you said, circling the wagons and defining moments, because it's also sort of the circling of the wagons and the defining moment of the United States. And what happened after that, the Patriot Act. You have been covering this story. And what amounts to, I guess, municipal opposition to what the federal government has put in place. Tell us about it.

FEYERICK: Absolutely. A hundred and sixty states, municipalities, also local governments saying, we are against the Patriot Act. That it gives government too much broad power to launch investigations. That it amounts to spying on your neighbors, on your friends. Authorities can go to a library and say, we want to see what library books this person has been checking out. They can go to a doctor's office and say, show us the private medical records. Maybe somebody's been exposed to some sort of chemical that would indicate something.

Many people don't know; but the fear is that what's happening is that the government is getting too much authority. And there's no judicial review. They don't have to incorporate judges in the process in terms of issuing subpoenas. And that's what has many people balking at this, saying, you know what, we don't want to go in this direction.

ROMANS: All right. From the emotional impact of September 11 and its anniversary, and how the U.S. is trying to protect itself to the economic impact. Has the country climbed out of the 9/11 slump? I'm back ON THE STORY in a moment. . (COMMERCIAL BREAK)

ROMANS: Children and or relatives of victims of the September 11 terror attacks ringing the bell at the start of Thursday's trading at the New York Stock Exchange. A reminder of the human loss, but also the economic setback two years ago.

Welcome back. We're ON THE STORY.

The stock market actually lowered the S&P 500 down 6 percent from its pre-September 11 levels. You've got hundreds of thousands of jobs lost in the wake. In fact, job losses still at this point, 21 months after a recovery began, we've lost more than 1 million jobs. Usually at this stage of an economic recovery you've gained about 3.8 million.

So the job situation is still pretty critical. All economists agree, the economy is slowly getting back up on its feet, but it is been a couple years, and quite difficult for the U.S. economy. And one economist telling me, basically, one whole year we just wrote off. We just took a whole year to absorb the shock of September 11. And now we're getting back on trick.

MESERVE: Christine, got to ask you about Richard Grasso. A hundred and forty million bucks, can this guy negotiate my next contract? Please?

ROMANS: Yes, absolutely.

MESERVE: And where was the board of directors?

ROMANS: The board of directors apparently orchestrated this entire thing. Richard Grasso said the only thing he said to the board was every year they'd tell him how much money he was going to make. And he would say, thank you, I'm blessed. Last year he made $250,000 a week, $50,000 a day.

MESERVE: Wow! Sounds great.

ROMANS: The SEC Chairman Bill Donaldson makes less than that in a year, as does also the fed chief. So there is a question here about, is that money just greedy, gross excess of the 1990s? And should he be punished for it? Or, you know, some capitalists would say he was worth every penny.

BASH: And in covering this story, you and other journalists had a lot of trouble getting some of the answers to those questions and finding the documents.

ROMANS: Well, here's the issue. The Stock Exchange is notoriously very closed-lip about its internal dealings. And as it's going through its own corporate governance review, it's starting to give out more drips and drabs of information. The SEC has asked for all of the information pertaining to Mr. Grasso's pay package; that was 1200 pages of documents that the Stock Exchange kept in a 12-floor room. And reporters had to make an appointment to go in and see it; so the reporters around the table sort of fighting with each other for the documents.

A source of the SEC called it a document dump of dump. And questioned why this couldn't have been put on a disk. Or what technological problems the Stock Exchange was having in making it available; because clearly, documents of this size have been made readily available before, but not in this case.

WALLACE: Christine, what about the image problem here? You have Enron, WorldCom, a couple of years of corporate scandals. He is the chairman of the New York Stock Exchange. What are your sources saying behind the scenes about just the general perception or image problem that, you know, he sort of should set a standard in the role that he has now?

ROMANS: Well, it's absolutely what a lot of people are saying. And the corporate governance experts are just furious about this. Some of the members of the New York Stock Exchange say they had no idea he made that much money. And some are even saying that the directors on the board may have thought it was a typo. That it was really a -- you know, $13 million...

MESERVE: And they didn't even ask a question?

ROMANS: Well, I don't know.

FEYERICK: WorldCom's financial sheets had a couple of typos, as did Enron's as well.

Getting back to the issue, what does he do? How can you justify that kind of salary in this kind of an economic climate? What are they saying? Oh, he's worth every penny. Why? ROMANS: Because 90 percent of the international listings at the New York Stock Exchange he personally wooed. Two-thirds of the company's listed there; he also had a hand in, in bringing to list on the Stock Exchange.

But you know, people say that's not worth $140 million. A hundred and forty million dollars is a lot of money. Granted, this is some of it deferred compensation over the past few years, but in 2001 he made $31 million. That is more than the median pay of financial services CEOs, which his pay was supposed to be based off of. So he says he's one-third regulator, two-thirds entrepreneur.

But I want to switch gears here, because he Grasso headlines, the money is just so astonishing, people can talk about it forever. One portfolio manager this week said his office talked of nothing else all week. But there's mutual fund scandal as well.

BASH: That's what I wanted to ask you about because it matters to all of us, right?

ROMANS: It does. Morning Star, which is a well, you know, a well-respected firm that rates mutual funds this week, yesterday said investors should not have confidence in Janis funds, and a few other funds that are involved in this Elliott Spitzer investigation into mutual fund misdeeds. Basically, Elliott Spitzer is alleging that these mutual funds sort of sold special trading rights to their best, prominent rich customers to the detriment of people like us who may own mutual funds. And Elliott Spitzer is at the very beginning of this investigation.

And Morning Star says, you know, what this is such a terrible allegation. We're not even going to wait to see if it's proved to be true. Investors, take your money out of these funds.

MESERVE: And then there's the big story of the week, the apple Snapple connection.

ROMANS: Oh, apple Snapple! This got a lot of play, you know, because maybe because it made such good, you know, "New York Post" headlines. But you know, maybe the chief -- the new chief marketing officer of New York City has struck a deal with Snapple, $166 million over, I don't know, several years, to put Snapple in the schools. It will be the official drink of the New York public schools.

Some people say this is sort of New York City selling its soul to, you know, a corporate sponsorship. Others say this is a creative way to try to raise a little money in a really tough, tough environment for some of these municipalities.

So I don't know, Deborah, what do you think? If you had a kid in public schools, would you say here's $1.50, go drink all the Snapple you want?

FEYERICK: You know, I don't think so. I'm a little suspicious about things of things that are marketed to children in school: sneakers, soft drinks, things like that. I think it just sort of puts my radar up as to what's really going on.

But anyway, let's move from the world of money and business to celebrity and crime. You can never get enough celebrity and crime. In an unusual event, one of the sensational cases of last year was suddenly linked to one of this year's headline grabbers. We're all back ON THE STORY straight after this.

UNIDENTIFIED MALE: One of the most popular toys in the world, the Barbie doll was in the news this week. What's her story? More ON THE STORY after this.

(COMMERCIAL BREAK)

The Barbie Doll, what's her story? Religious police in Saudi Arabia now say the doll already banned in the kingdom is a threat to morality. The Web site of the Committee for the Propagation of Virtue and Prevention of Vice denounces what it calls Jewish Barbie dolls, with their revealing clothes and shameful posture as a symbol of decadence to the perverted West. The Associated Press says a black market Barbie in Saudi Arabia can set you back $27.

FEYERICK: Well, the ON THE STORY question of the week, how can celebrity criminal cases collide? Well, chances are about as slim as two meteors hitting together in space. But this week Kobe Bryant and Kennedy cousin, Michael Skakel joined. Skakel was convicted of the 1975 murder of Martha Moxley; both were fifteen at the time.

But this week, there's word that a cousin of Kobe Bryant might have evidence to clear Skakel, that he was with several people that night. This is Tony Bryant, who was with several people that night. And they said that they were going out to look for some trouble, look for somebody to hurt. So right now, prosecutors are saying, if that's the case, we want to talk to them, we want that evidence. But so far, nothing forthcoming.

WALLACE: Deb, any chance that this could lead the appeals team to get a new trial for Michael Skakel?

FEYERICK: Well, that is really what's driving this. Michael Skakel now has new lawyers. He was convict of murdering Martha Moxley. He is now serving 20 years. His new lawyers want to get this trial reopened. They want to appeal. They want to find grounds to do that on. This could open that window, if ever so slightly.

ROMANS: Deborah, you have all the great assignments. The interesting nuggets of information. OK, so what's the latest in the Kobe case?

FEYERICK: Well, the judge there in the Kobe case has said that he is not going to allow cameras in the courtroom. There's going to be a preliminary hearing at that time. You're going to hear a lot of the evidence that the prosecutors and investigators are using against Kobe Bryant. Some of it could be very sensitive. And the judge has said that he wants to safeguard that information. Therefore, no cameras. Though journalists will be allowed in the court. But it's very different. It's different to see it played out on television as opposed to just hearing about the evidence. Effectively second hand from, you know, people like us. So no cameras.

BASH: And the other -- Jeanne, the other controversial issue that came up this week is Chief Moose and his book.

MESERVE: Which will hit the bookstores on Monday morning. He left his job to write this book. The Ethics Commission in Montgomery County said, you shouldn't be able to profit from your job here. He said this is my First Amendment right. I have something to say. So he left his job to write it; reportedly got a $170,000 advance.

I talked to a former federal prosecutor this week who just went off about this. Said, this is unimaginable, unprecedented, outrageous, that a law enforcement officer should be writing a book like this before the trials begin. John Mohammed goes on trial next month, Malvo the month after that. This prosecutor, at least, thought it was outrageous.

BASH: But he was cleared by an ethics committee, wasn't he?

MESERVE: Well, not cleared by the Ethics Committee. He left his job to write the book because the Ethics Committee wouldn't give him the OK.

But yesterday afternoon, I had a talk with Robert Horan, he's the prosecutor who is going to be bringing the case against Malvo. He said, he frankly, didn't have that big a problem with Moose's book. He thought this was mostly going to be about the quest to find the snipers. He expressed the more worry about the book that's going to be coming out in the next month by two "Washington Post" reporters. Because he thinks that may have some stuff that really could have more of an impact on the trials, and jury selections specifically.

ROMANS: I can't believe it's been a year. I mean it feels like that was just going on yesterday. It shows you how this news cycle really grabs you and pulls you along.

MESERVE: That's right. It was a year ago. And as I said, trial is starting in a month. Right around the corner.

FEYERICK: Won't Chief Moose be called to testify, though, and couldn't this book potentially jeopardize the integrity of his testimony?

MESERVE: Some people are saying that. But going back to Mr. Horan who's prosecuting Malvo, and knows about this much as anything, he said to me flatly, "I don't intend to call him as a witness in my case. I just can't see that it's going to be a factor."

But this is apparently quite an unprecedented thing that ordinarily people who are involved in cases wait until after the prosecution to go public with what they have to say.

ROMANS: A hundred and seventy thousand dollars and... WALLACE: Jeanne, very quick...

WALLACE: Oh, I'm sorry. Jeanne, very quick, I was going to ask you, what about Chief Moose's public image? I mean, what are people saying behind the scenes about, he was held in such a high regard during the whole sniper story. Where is his standing now after all of this?

MESERVE: It's a real mixed picture. You travel around Montgomery County and there are still people who say, wow, what a great job he did for us. I talked to the County Executive Doug Duncan; he said my one regret is that he isn't still our police chief. He was a great guy and he did a great job.

But there are other people who say that Moose was not very effective here, that the police had a lot of clues and cues as to who the snipers might be, that they simply missed. That they were so focused on this white men in white van thing, that they closed their vision. So it very much a mixed picture.

ROMANS: All right. Of course, we're still waiting for our Secretary General of the U.N. Kofi Annan in Geneva. We'll bring that to you when we get it. But thanks to my colleagues, thanks for watching ON THE STORY. We'll be back next week.

Still "PEOPLE IN THE NEWS," focusing this week on Osama bins Laden. At 12 noon Eastern, 9 a.m. Pacific, "CNN LIVE SATURDAY," and at 1:00 p.m., 10 a.m. Pacific, CNN's "IN THE MONEY," where Jack Cafferty has more about the request on the U.N. for help in Iraq. And I'll have more on the Dick Grasso story.

Coming up at the top of the hour, a news alert. But first, the president's weekly radio address.

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Unpatriotic; Two Years Later U.S. Economy is Still Effected by 9/11 Attacks>