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Aired June 5, 2002 - 18:00   ET


ANNOUNCER: This is LOU DOBBS MONEYLINE for Wednesday, June 5. Here now Lou Dobbs.

LOU DOBBS, HOST: Tonight, outrage at the Justice Department's latest plan to combat terrorism -- fingerprinting, photographing, and following visitors to the United States. Will it be effective security or racial profiling?

Khalid Shaikh Mohammed, Osama bin Laden's money man. How a key player in the September 11 attacks has been identified, and the threat he still poses to this country.

It catches cheats in casinos, so why isn't it being used to catch terrorists? Tonight, the power of face recognition technology and why it hasn't been installed in a single airport in this country.

The battle over health care. Companies trying to shift the cost of health insurance on to their employees. We'll tell you how some workers are successfully fighting that effort.

And after nearly a week of trying to launch space shuttle Endeavor, seven astronauts have blasted off into space toward a rendezvous with history.

Good evening. We begin tonight with a controversial plan to catch terrorists from U.S. Attorney General John Ashcroft. Ashcroft wants to fingerprint and photograph all visitors who arrive from countries that have known terrorist operations. The attorney general won't say what countries would be targeted, but he vows this country will be safer as a result.

But, almost nine months after the September 11 attacks, this plan, according to some critics, is very little, very late, and it has invoked a firestorm of criticism.

We're going to go now to Wolf Blitzer for the latest on that press conference in Los Angeles.

CRAIG HARVEY, CHIEF OF OPERATIONS, LOS ANGELES COUNTY CORONER'S OFFICE: My name is Craig Harvey, and I'm the chief of operations for the Los Angeles County coroner's office.

To my right is Dr. James Reevey (ph), senior deputy medical examiner for the L.A. County coroner, and to my left is deputy chief David Kalish with the Los Angeles Police Department. And we'll be available to answer any questions you might have.

I'd like to read the press release from the coroner's office first.

The Los Angeles County Department of Coroner conducted an autopsy on Paolo Ayala on June 5, 2002. The findings of the autopsy have established the cause of death to be asphyxia due to fresh-water drowning. The death has been ruled by the coroner to be accidental. Anatomical findings show no evidence of the body having been removed from the pool prior to discovery on June 4, 2002, at approximately 8:30 a.m.

DOBBS: This is Craig Harvey, the L.A. County coroner, announcing that the young boy, Paolo Ayala, who was discovered in a pool yesterday morning in the exclusive Holmby Hills region of Los Angeles died of natural causes asphyxia, and he was discovered in a pool. That discovery baffled police who were searching for the boy, and there was, obviously, a significant suspicion of foul play, but the coroner rendering the judgment that the death was accidental.

Returning now to the story that is at the top of the news the Justice Department making, putting together new policies to this country through our coming from countries with suspected terrorist operation. Attornet General John Ashcroft deciding that fingerprinting and a number of other measures will be conducted to protect the borders of this country.

Kelli Arena has the story from Washington.


The changes are controversial, but the attorney general says they are necessary to win the war on terrorism. The new regulations will require fingerprinting, photographing, and otherwise tracking what the government calls high-risk visitors who could be terrorists.


JOHN ASHCROFT, ATTORNEY GENERAL: Today I am announcing the National Security Entry Exit Registration System. This system will expand substantially America's scrutiny of those foreign visitors who may pose a national security concern and enter our country, and it will provide a vital line of defense in the war against terrorism.


ARENA: The attorney general says about 100,000 visitors would be checked in the first year alone from countries the U.S. says sponsor state terrorism. But sources say they will also include countries such as Saudi Arabia, Yemen, Pakistan, and Somalia, so-called al Qaeda countries. And those sources say the focus will be mainly on young men. Now that has caused an uproar in the Arab-American community.

(BEGIN VIDEO CLIP) NIHAD AWAD, COUNCIL ON AMERICAN ISLAMIC RELATIONS: Effective law enforcement means applying the law equally across the board. If you want to fingerprint one person, fingerprint every person who comes from outside to the United States. But do not select a group of color, religion, or ethnicity for that. This is not effective.


ARENA: Processing will be done at U.S. ports of entry, and individuals will be required to check in and register with the INS after 30 days in the country. Now, as for people already here, anti- terror teams will help INS officials register them. Those in violation could face a variety of penalties, including fines and deportation -- Lou.

DOBBS: Kelli, thank you very much.

Kelli Arena reporting from Washington.

In his 2003 budget, President Bush setting aside $6.3 billion for the INS, which would be responsible for the so-called super registry. It includes a $1.2 billion increase, thousands of new positions.

The INS still has the mandate to stop illegal immigrants and to help legal ones, though there's been a lot of talk about handing the law-enforcement duties over to other departments.

About 30,000 people currently work at the INS, which has been characterized as the single worst managed and performing agency in the federal government.

The government and the media for the past nine months, by the way, have been calling this a war against terror. So have we here.

But terror is not the enemy. It is what the enemy wants to achieve. So, on this broadcast, beginning tonight, we're making a change in the interest of clarity and honesty.

The enemies in this war are radical Islamics who argue that all non-believers in their faith must be killed. They are called Islamists. That's what we are doing tonight. Abandoning that phrase "war against terror." The new phrase is the "war against Islamists."

Let us be clear. This is not a war against Muslims or Islam or Islamics. It is a war against Islamists and all who support them, and if ever there were a time for clarity, it is now. We hope this new policy is a step in that direction.

And, as always, we like to hear from you on important issues, and this is certainly one of them. E-mail us at Again, that's

A key planner behind last September's terrorist attacks was identified today. He is Khalid Shaikh Mohammed. He is considered Osama bin Laden's money man. Mohammed is one of the highest ranking al Qaeda members still at large and has been on the FBI's most wanted list since last September.

David Ensor has the report now from Washington -- David.

DAVID ENSOR, CNN CORRESPONDENT: Well, Lou, the new information about him suggests that he may have been instrumental in the attack on September 11, that he may, in fact, have played a pivotal role in planning that operation. He was not, however, the mastermind, as some reports incorrectly stated yesterday. Still, a key man, indeed.

Who was Khalid Shaikh Mohammed? Well, he's a Kuwaiti national. He was indicted in 1996 in the failed terror plot by Ramzi Yousef and others to try and knock western aircraft out of the sky over the Pacific Ocean. He is on the FBI's most wanted list.

There is a reward for $25 million for information leading to his capture. The new information about the -- about Mohammed is mostly at least originating from Abu Zubaydah, the key al Qaeda operative who has been a prisoner of the United States for many months now and has been being interrogated.

He, obviously, has an interest in saying, you know, others, for example, Mohammed, were more instrumental in the attacks than I was. So intelligence officials say they are taking everything he says with skepticism, but some of the information that he's given about Khalid Shaikh Mohammed has been corroborated by other intelligence information drawn from other sources.

So U.S. officials say they are now increasingly convinced that this man Mohammed is one of the key players -- was one of the key players in the attack September 11 -- Lou.

DOBBS: David Ensor, thank you very much.

Congressional hearings into intelligence failures before September 11 have ended for the day. Senator Bob Graham, who co- chairs those hearings, said late this afternoon there were even more failures than had been disclosed. Senator Graham says those incidents will be revealed over the next few months.

The most noteworthy mistakes revealed so far: the FBI's handling information about a suspected terrorist who was arrested in Minneapolis, and the CIA's botched surveillance of two of the hijackers.

The joint hearings will continue tomorrow with FBI agent Coleen Rowley, the Minnesota agent who wrote a scathing letter detailing the agency's mishandling of the case of suspected terrorist Zacarias Moussaoui.

A suicide car bomber in Israel killed 17 people on a bus today. Thirteen of the victims were Israeli soldiers. At least 35 people were injured in the blast. The bomber's car pulled alongside the bus. It exploded on the highway. The bus driver was amongst those injured. It was the fourth time that he has survived a terrorist attack.

It was the worst loss of life since the Israeli's army offensive into the West Bank. Israeli troops today responded by entering the West Bank town of Jenin. Israeli Prime Minister Ariel Sharon is delaying his visit to the United States by one day. He now plans to leave Israel on Saturday.

Thirty-five years ago today, Israel entered into the Six Day War against its Arab neighbors. The outcome of the conflict reaffirmed Israel's military superiority and it expanded Israel's borders.

Today, those areas continue to be points of contention in a peace process that seems to have been certainly directed toward making as little progress as possible since 1967.

Kitty Pilgrim has the story.


KITTY PILGRIM, CNN CORRESPONDENT (voice-over): The war was one of the shortest in history, with repercussions still felt in the Middle East today. The map of the Middle East was redrawn by the conflict from one in which Jordan, Egypt and Syria held the majority of territory disputed today.

But in six days, Israel more than tripled its size. Israel laid claim on Gaza and the Sinai from Egypt. From Jordan, East Jerusalem, including the Old City and the West Bank. And the Golan Heights from Syria. At that time, not a single Jewish settler was living on the West Bank or Gaza.

Today, there are about 200,000. The return of the Sinai Peninsula was agreed in 1979 in a peace deal with Egypt. The rest is still debated.

RACHEL BRONSON, COUNCIL ON FOREIGN RELATIONS: All conversations that we're having now over territory go fundamentally back to the '67 war. The '67 war was probably the most earth-shaking political event of the region.

PILGRIM: Under fear of being annihilated, Israel launched a preemptive strike against its Arab neighbors who had been amassing formidable military strength within strike range.

By the end of that brief war, the air forces of Egypt, Syria, and Jordan were all but destroyed. Billions of dollars in military hardware.

Two of the key players in today's events, Yasser Arafat and Ariel Sharon, were in the formative years of their careers during that time.

GEOFFREY KEMP, THE NIXON CENTER: Arafat did not really emerge as a leader until after the '67 war. The '67 war was a complete humiliation for the Arab leaders of Egypt, Jordan, and Syria, and it was because of the failure of the Arab leaders to essentially defeat Israel that the Palestinian Liberation Organization emerged as a counterpoint, that if the Arab governments can't liberate us, we'll have to do it ourselves. PILGRIM: And the refugee issue, which had displaced more than a million people in 1947 and '48, became worse with another exodus of refugees, primarily to Jordan. The right of return of these refugees has become one of the sticking points of any negotiation.

Israel was convinced the war would be the basis for peace talks. Israeli General Moshe Dayan was quoted as saying, quote, "I'm waiting for the phone to ring." It never did. And after the war, politics emerged.

JEROME SEGAL, UNIVERSITY OF MARYLAND: Israel was divided between those who saw the territory as a bargaining chip and were at least prepared to give back much of it and those who wanted to hold on to it permanently.

PILGRIM: U.N. Resolution 242 came as a direct result from the Six Day War, a land-for-peace deal that still forms the foundation for most discussion. At issue, Israel giving back some territory. In return, guarantees of peace, recognition of sovereignty as a Jewish state.

The most recent proposal by Saudi Crown Prince Abdullah revisits many of the issues of U.N. Resolution 242. That proposal under discussion as recently as the Saudi prince's visit with President Bush in Crawford, Texas, in April.


PILGRIM: Now the situation, while it has it roots in the 1967 conflict, today has polarized and it's become nearly impossible to solve. The 35 years that have passed have had an impact. Solutions that would have perhaps been legitimate or embraced have now been -- become almost impossible to discuss -- Lou.

DOBBS: Kitty, thanks very much.

Well, Indian and Pakistani troops today traded heavy artillery fire across the Kashmir border after their leaders failed to ease fears of war. The Indian army said both sides used artillery mounted on armored vehicles for the first time in this crisis.

That shelling followed the failure of the Pakistani president and the Indian prime minister to even talk to one another at a security summit in Kazakhstan. The United States is now stepping up its efforts to broker a peace.

Stocks today on Wall Street surged following a report the service sector grew at the fastest pace in nearly two years. The Dow soared 109 points. The NASDAQ up 17 points, a 1 percent gain for both. The S&P 500 up 9. We'll have complete coverage later when Jan Hopkins brings us the market.

Tonight's MONEYLINE quick vote focuses on our nation's borders. The question tonight: Should the United States do what is required to make its borders secure, irrespective of cost and convenience? Again, should the United States do whatever it takes to make its borders secure, irrespective cost and convenience?

And, of course, you can vote by logging on to Again, for your vote. We will have the results later in the broadcast.

Well, still ahead, why the CIA is being accused of being rotten to the core. Former CIA agent Melvin Goodman will be here to tell us what's wrong with that agency.

Face recognition technology is a proven success in the casinos, but it's not being used to catch terrorists in any of this country's airports. We'll find out why.

And space shuttle Endeavor blasts off on its mission to the International Space Station. We'll have that for you coming right up.


DOBBS: There has been a lot of finger pointing since September 11, but one Air Force colonel has gone over the line. Lt. Col. Steve Butler accused President Bush of allowing those attacks to happen in order to boost his presidency.

Butler made those accusations in a letter to a newspaper. The colonel has been suspended and could face a court-martial. Military law prohibits officers from using contemptuous words against the president and other top civilian officials.

My guest tonight is a former CIA agent. He is now professor of international studies at the National Defense College in Washington, D.C. Professor Melvin Goodman has been watching the blame game unfold since September 11. The professor says the FBI is receiving more than its share of criticism for the pre-September intelligence failures, and he says the CIA deserves a better proportion of that blame.

Professor, good to have you here.

MELVIN GOODMAN, NATIONAL DEFENSE COLLEGE PROFESSOR: Good to be here. I'll try not to be contemptuous, Lou.

DOBBS: Well, with your civilian standing, I think you can be whatever you want to be. That's the great thing about this country.

GOODMAN: I hope so.

DOBBS: Let's talk about your criticism of the CIA, which, in many respects, has done a splendid job, I think, despite some expectations to the contrary. What do you see as the principal area for which the CIA should be blamed?

GOODMAN: Well, I think the CIA has been dysfunctional for the past ten years. It started with the failure to recognize the weakness and ultimate decline and collapse of the Soviet Union.

Look at the bombing of the pharmaceutical plant in Khartoum, the bombing of the Chinese embassy in Kosovo, the failure with regard to the Indian nuclear tests. What bothers me about 9/11 is this is a repeat of Pearl Harbor.

This is essentially Pearl Harbor II. This is why the CIA was created, to have a central place where good intelligence came and to make sure it was distributed and put together.

In other words, the intelligence would be the stones or the mosaic to form a picture of what was going on in the world, and that's exactly what the CIA was not able to do. They were not able to challenge old assumptions and create new ones.

DOBBS: Not to quibble with you, but the failure -- and you're referring, I assume, when you talk about the Indian nuclear tests in 1998 -- is that correct?

GOODMAN: That's right. A very serious failure.

DOBBS: But that would also be a remarkable failure on the part of the NRO as well as the NSA. One might even argue more so than the CIA.

GOODMAN: I agree with you. I think the military is much to blame because they set the priorities for intelligence collection, and, clearly, the military was setting the satellites in the wrong direction.

But there was very good political reporting that made it clear that this new Indian government in 1998 was going to resume testing. It was going to be testing their nuclear devices and nuclear materials.

I think the CIA had the technology and the political intelligence to get this right. The fact that they got it wrong led directly to the defeat of the comprehensive test ban in the Senate, the first time a major treaty had not been passed for ratification since the Versailles Treaty of 1919.

This was a very important failure.

DOBBS: Professor, returning to these failures, the CIA director of counterintelligence, Cofer Black, fired, as you know, in the wake of the September 11 attacks. He's testifying now before the Senate Intelligence Committee in closed session.

What do you think will be the impact of that? And what should be the role of George Tenet here, the director of the CIA?

GOODMAN: Well, there are two problems here. One problem is a political problem on the part of George Tenet. What in the world is he doing in the Middle East now conducting a political negotiation with Arafat?

Granted, the Middle East process is an important process right now and should gather a lot of our attention, but this is no role for George Tenet. He has already failed in terms of creating a security force that's been annihilated by the Israeli military. Is he going to create another one where the Israelis then annihilate that security force?

He just doesn't belong in that role. That's a role for the State Department, not for the CIA.

Cofer Black was pushed aside because the counterterrorism center, which was created in 1986, is essentially a bureaucratic failure. The center was created to bring intelligence people together and operational people together to make sure that the raw analytical reporting received a good intelligence analysis.

Obviously, the raw reporting of the director of operations was pretty good, but it didn't get good strategic analysis. And, also, the center was designed to bring together the FBI and the CIA to make sure information was distributed, was shared. Obviously, this did not happen, and that's why Cofer Black was pushed aside.

DOBBS: Professor, what should we do? What should be done to make certain that the FBI, the CIA, the national intelligence agencies work together and are effective?

GOODMAN: Only one person can do this, and that's the president. You gather all these people in a room, and you don't do it on television. You do it privately, and you start knocking heads. And if people have to be replaced, then they should be replaced.

But if the president gives the word that there will be sharing, that would be the first step in breaking down these secret cultures that make too much of sources and methods. We can protect sources and methods. That is not a real problem in terms of sanitizing intelligence reporting.

But these are secret cultures that don't want to recognize one another. The NSA in 1993 had information linking the World Trade Center to al Qaeda. That wasn't passed to the Justice Department the way it should have been because the NSA was protecting their methodology, and we have the same problem again.

DOBBS: Professor Melvin Goodman, we thank you for being with us.

GOODMAN: Thank you, Lou.

DOBBS: Coming up next, three million of this country's truck drivers are joining a nationwide effort to stop another terrorist attack. We'll have that report for you.

And attorneys have begun their closing arguments in the Andersen trial in Houston. There could be a verdict within the next day or so.

Stay with us.


DOBBS: This country's truck drivers are on alert tonight. Terrorism experts fear that one of their vehicles could be used to deliver the next deadly attack against America. Efforts are underway to protect this country's truckers and to enlist their help in fighting the war against Islamists.

Patty Davis joins us now with the story -- Patty.

PATTY DAVIS, CNN CORRESPONDENT: Well, Lou, within the past two weeks, the Transportation Department has been put out an alert to the trucking industry. Fuel trucks could be targeted by terrorists. Now that follows another warning by Transportation Department's inspector general that there aren't enough safeguards in place to prevent terrorists from getting commercial truck driver licenses. Now the trucking industry is stepping in to help fight terrorism.


JEFF BEATTY, AMERICAN TRUCKING ASSOCIATION: Our B-52s can, you know, deliver precision munitions of 2,000 pounds. Well, trucks can do that, too, and they're not nearly as sophisticated. It's knowing that and being dedicated to making sure that no truck be used as a weapon -- that's our goal.

DAVIS: The American Trucking Assocation plans to train all 3 million drivers of those big 18 wheelers to be on the lookout for suspicious activity. Those truckers asked to keep a close eye on what's happening on the roads they travel every day. Monitor tunnels, monitor bridges as well. If something doesn't look right, they're told to call 911 or a special 800 number.

The hope: that if drivers are alert and aware, and report what they see, that they could foil a terrorist truck hijacking, a terrorist using a truck for a bomb. The trucking industry says it's the very health of the U.S. economy that is dependent on keeping those roads, bridges, tunnels safe, and the nation's commerce flowing -- Lou.

DOBBS: Thank you very much, Patty. Patty Davis.

When it comes to stopping terrorism, the nation's airports appear to be a few steps behind. Las Vegas casinos in that city use facial recognition technology to identify cheating gamblers. Not one of this country's airports has a plan in place to use facial recognition technology to stop terrorists. Steve Young reports.


STEVE YOUNG, CNN FINANCIAL CORRESPONDENT (voice-over): Vegas, chronically at war with cheats of all kinds, knew a bet when it saw it a decade ago.

At least 20 Las Vegas casinos have installed facial recognition systems. As in this demonstration for CNN, live video from any of the cameras can be frozen and compared in one second with 1,500 to 2,000 undesirables from a shared database.

JIM PEPIN, BIOMETRICA SYSTEMS: It makes the difference between them catching the person while they're still at the table, versus going through their file cabinets and their books of pictures, and they'd realize who just hit us for $14,000, but they'd realize six hours too late. And they're gone with the money.

YOUNG: But at the airports 427 commercial airports, not a single facial recognition system has been permanently installed to screen for terrorists. Facial recognition is far from perfect. But analysts say unlike fingerprint or iris scanning, it requires zero cooperation from the suspect.

BRIAN RUTTENBUR, MORGAN KEEGAN: There's cameras up in a lot of public places already. And face is the only thing that can work at a distance, with movement, and pick out those faces that are potential threats.

YOUNG: The new government agency at the Transportation Security Administration declined to be on camera about its view of facial recognition technology. It said only it's one of a wide range of technologies the TSA is looking into.


Facial recognition systems would have to guard 4,000 gates to provide full U.S. commercial airport coverage, at a cost of several billion dollars. But that's about 1/8 of the current homeland security budget. The president is aiming for $37 billion in fiscal 2003. The Congress indicates it will see that $37 billion and raise him some -- Lou.

DOBBS: Steve, this facial recognition technology, foolproof?

YOUNG: Not foolproof, but probably as good as biotechnology gets.

DOBBS: All right, Steve, thanks a lot.

Coming up next here, passionate arguments from both sides as the Andersen trial draws to a close. We'll go to Peter Viles for a live report from Texas.

And investors finally discover some reasons for cheer. All of the major indexes making gains on the day. Jan Hopkins will have the market for us, next. Stay with us.


DOBBS: Closing arguments at the Andersen trial in Houston. A tense and at times passionate and contentious day in federal court. The government focusing its arguments on Andersen attorney Nancy Temple today. The Andersen defense arguing the innocence of David Duncan. Peter Viles reports from Houston -- Peter.


PETER VILES, CNN CORRESPONDENT (voice-over): In a case of strange twists and turns, a final twist. The government, in its closing argument, focused intently on Nancy Temple, the Andersen lawyer who took the Fifth Amendment. Prosecutor Sam Buell, in a measured, methodical close, reminding the jury that under the law, to convict of obstruction of justice all he needs to show is the destruction of a single document. And thousands were destroyed. He portrayed Temple as a mastermind of destruction. Quote: "She never says stop. She never says retain. She never says hold on to the Enron documents because she's interested in destruction, not retention."

"It doesn't matter what Andersen destroyed," he argued, "because the SEC is entitled to all the facts and all the documents it wants to see. Arthur Andersen doesn't get to make those decisions for them."

When Rusty Hardin's turn came, he was passionate, accusing the government of rushing to judgment and destroying a company of 28,000 employees with no evidence of criminal intent. He went quickly to the subject of David Duncan and to the jury instruction on criminal intent. The guidance from Judge Melinda Harmon speaks to the intent to -- quote -- "subvert or undermine an official proceeding."

"Does David Duncan establish that there was a crime," he asked. "Absolutely, unequivocally, without a doubt, no. Are those the words of Rusty Hardin? No, those are the words of David Duncan."

Hardin then put up Duncan's testimony in huge type. Duncan saying he broke the law by invoking the Andersen document policy, knowing that would lead to the destruction of the documents, but making no mention of subverting or impeding the SEC.

"That is not a crime," Hardin thundered. "God help the man for having pled guilty, but that is not a crime."


Rusty Hardin now into his now into his fourth hour of arguing. The jury will eventually tell us whether he's been effective. I can tell you, Lou, he's been very engaging. He has thanked this jury, he has praised this jury. He has begged the jury's forgiveness. He has warned the jury to watch out for prosecutors like these.

He's told a few jokes, he's had the courtroom in stitches. But when he gets serious, he often comes back to this point of criminal intent. He says the government hasn't come close to proving it was criminal intent at Andersen last fall -- Lou.

DOBBS: Let me ask you one of those tough questions, perhaps even one that shouldn't be asked, but I'm incapable of resisting. Is it your sense that the prosecution or the defense today has been better at engaging the attention of the jury?

VILES: Well, Rusty is certainly more engaging. I'll give him that. He really has the jury in rapt attention. It's spellbinding in there. But Sam Buell, to his credit this morning, had never really argued to this jury.

They hadn't seen much of his personality. They didn't see as much as they see in Rusty Hardin every day. But they did see some. That was different. That was a switch. They appeared to pay a lot of attention to Sam Buell.

Now, the government is going to get the last word, but we don't know if they'll get it tonight because Rusty Hardin is going on and on. Question to the judge is: does she want to keep the jury late to hear the government's last word? Or does she want to bring them back first thing tomorrow morning, when they're fresh, to hear the government's last word -- Lou.

DOBBS: Pete, thank you very much. Peter Viles from Houston.

A modest rally strengthened on Wall Street today. The Dow gained for the first time in three sessions. Jan Hopkins is here with the market for us -- Jan.

JAN HOPKINS, CNN FINANCIAL CORRESPONDENT: Well, Lou, the mood was a little bit better on Wall Street today. Investors started off the day in a more positive mood because of reports that the services part of the economy is getting stronger. And the rally gained momentum in the last hours of trading.

Some markets ended on a high note. The Dow gained 108 points. The Nasdaq and the S&P came along for the ride. The Nasdaq up 17 percent, the S&P up 9 points. Christine Romans is at the New York Stock Exchange and Greg Clarkin is at the Nasdaq -- Christine.

CHRISTINE ROMANS, CNN FINANCIAL NEWS: Well, Jan, retail, home- building and consumer stocks driving the Dow higher. Strong May sales for WalMart and a Gap upgrade sparked a retail rally. Investors also bet that a weak dollar and strong earnings will drive consumer names like Procter & Gamble higher. And Tyco tacked on 53 cents in very active trading there.

But power stocks tumbled after regulators threatened to revoke power trading licenses of Williams, Avista and El Paso Electric -- and Perot Systems, a computer company drawn into the fray amid accusations it helped companies benefit from California's energy crisis. Perot Systems denying that, but the stock fell 20 percent anyway.

Now to the Nasdaq and Greg.

GREG CLARKIN, CNN FINANCIAL NEWS: And, Christine, you can thank Oracle for that last-minute surge in technology stocks. Oracle's CEO Larry Ellison saying the company does not plan to issue a profit warning. That ends weeks of speculations and triggers a big surge in shares of Oracle towards the close of trading. The stock finishing up with an almost 11-percent gain.

Microsoft gained as well today. It was up 3.5 percent. WorldCom fell. They would neither confirm nor deny a "USA Today" report that they may cut 16,000 jobs. Manugistics plunged 25 percent. The business software company said weak demand will cause it to miss its sales goals.

And Pathmark, down 20 percent as sales at the supermarkets fell last quarter. Weak sales. Trends are continuing into this quarter as well. Again, the Nasdaq composite closes at record-session highs. Jan, back to you.

HOPKINS: Thanks, Greg. And 24 out of the 30 stocks in the Dow 30 ended the day higher. GM and Philip Morris fell. But they're the top performers this year.

For the year, the Dow is down by only a couple of hundred points, 2 percent. That could be made up in a couple of days like this one. The Nasdaq has more catching up to do. It is still down about 18 percent for the year.

David Briggs said federated investors liked the rally. He said the market was up, but not a ridiculous amount. He thinks that investor confidence needs to be restored one step at a time.

And, Lou, one other thing that helped today. There was a sell- off in gold. It was down $6.80 announce after touching $330 yesterday. And also, oil was down. So that helped the mood on Wall Street.

DOBBS: I love the fact that people are becoming gold bugs again, paying attention to gold prices.

HOPKINS: After 20 years.

DOBBS: Yes, after 20 years. Jan, many thanks.

Well, a reminder to give us your opinion on tonight's MONEYLINE quick vote. Our question tonight is: should the United States do whatever it takes to make our borders secure, irrespective of cost and convenience? Cast your vote at We will have the results coming up during the broadcast in just a few moments.

Still ahead, the rainstorm that dumped eight inches of rain in just 24 hours. Residents in the Midwest counting the cost. So are we. We'll have that story and a lot more, including "New York Times" columnist Paul Krugman. Stay with us.


DOBBS: Corporate greed has become a focus of this broadcast. No one on Wall Street is above scrutiny, whether analysts or executives. But my guest tonight says corporate leaders are no worse than they have always been. Only the incentives have changed.

Here now, Paul Krugman, who's a "New York Times" columnist and MONEYLINE regular contributor. Paul, good to have you with us.


DOBBS: The incentives have changed? By that you mean just the amazing stock options, packages?

KRUGMAN: Yes. Corporate compensation, executive compensation, used to be a salary, basically. Twenty years ago it was a salary. Now it's very much geared to the stock price. That was supposed to create incentives to be efficient. It creates some other incentives, too. And we're seeing the results of that.

DOBBS: And investors were perfectly delighted for the CEO of the company of which stock they owned. As it was going up 20 percent a year, for that CEO to make $100 million a year. With that stock going down, they're not quite as comfortable with that.

KRUGMAN: Yes, we missed -- I have to say, I blame myself. We missed the red flag. We should have been looking. We should have said, you know, those corporate profit statements, if you add them up, are growing a whole lot faster than the profit figure of the national income accounts -- there's something wrong here. But we didn't see it.

And now we suddenly say, what are we paying these guys? We used to pay them 40 times the average salary. Now we pay them 500 times the average salary -- for what?

DOBBS: And for what indeed. Most of the companies, with declining profits, I have seen about 50 percent declines in profits on average. I've seen executive pay drop by 2 percent.

KRUGMAN: You know, I read the academic literature, which is very matter-of-fact on this stuff. And they talk quite matter-of-factly about the camouflage principle and the outrage constraint. And the basic view of the people who are really researching on this is, it's a scam at all of the major companies.

DOBBS: That doesn't sound like it's a "value neutral," a scam?

KRUGMAN: Well, you know, look...

DOBBS: By economic standards, my gosh, that's passion...

KRUGMAN: Oh, they don't say scam. That's my word. They talk about alternative models.

DOBBS: Is it a scam?

KRUGMAN: Let's put it -- there's an awful lot of self dealing. We created a system...

DOBBS: It's a scam!

KRUGMAN: Yes, yes.

DOBBS: If it's self dealing and you're working with the shareholders and the board, it's a scam.

KRUGMAN: We created a system that unfortunately rewards bad behavior. People are no worse than we used to be.

DOBBS: What's the solution? How are we going to fix it? Because I agree with you 100 percent. KRUGMAN: Well, some of it is government policy. Some of it -- not much, but you can say at least we've got to say that the accounting standards say the stock options are at cost. Mostly -- and I hate to say this -- I think mostly it's the private sector. It's shareholder activism. And people have got to say...

DOBBS: Shareholder, Paul, I don't know if you agree with me or not, but the shareholder today is more impotent than he or she has ever been.

KRUGMAN: There are big, institutional shareholders.

DOBBS: They've been awfully quiet, because the heads of those institutions' shareholders are participating fully in this egregious...

KRUGMAN: You're telling me we need a revolution.

DOBBS: I am saying that what we need is reform. Aren't you?


DOBBS: Where is it going to come from?

KRUGMAN: That's -- I have to say, I don't have an answer on that. I'm kind of pessimistic. The last time we got through an era of corporate excesses, it was -- we cleaned ourselves up in reaction to the Great Depression and World War II. I'm not recommending a repeat.

DOBBS: We did the same thing in the '80s, coming out of the insider trading scandal, coming out of the Savings & Loan crisis.

KRUGMAN: That's the trick. We did not actually clean it up. What happened was that the corporations became their own creditors. They internalized. You didn't need Gordon Gekko, because the CEO was already doing his job.

DOBBS: Gordon Gekko. Greed ain't so good anymore.

KRUGMAN: Watch the movie again. It's a great movie.

DOBBS: Paul, thank you very much, as always. Paul Krugman, good to have you here.

Coming up next, success at the last for shuttle Endeavor, beating the weather, on its way to the international space station. A rendezvous with history coming up next. Stay with us.


DOBBS: Now a look at the results for our MONEYLINE quick vote. The question: should the United States do whatever it takes to make its borders secure, irrespective of cost and convenience? Eighty-two percent of you voted yes. Eighteen percent of you voted no. And we would say that this is a non-scientific poll, of course. But it is our poll and we like it a lot. And we thank you for participating.

"CROSSFIRE" begins in just a few minutes. Let's go to Tucker Carlson and Paul Begala in Washington to find out what they have for us.

TUCKER CARLSON, "CROSSFIRE": Lou, I like your take on statistics. By the way, it's Adam Smith's birthday today. Congratulations. We could be doing a show on the fundamental contradictions of capitalism, but we're not. Instead, we're doing it on the government's new plan to fingerprint visitors from countries that sponsor terrorism. Its opponents say this is one step away from internment camps and tattoos on the forearm. We'll have one of those in the studios with us tonight.

Then we'll talk about the Danny Pearl video. It is now linked to a Web site of a newspaper in Boston. Is it pornography? Some, including us, think it is.

PAUL BEGALA, "CROSSFIRE": And then, Lou, we're going to take a look at this explosive new story. It's just come out today from "Esquire" magazine, where the chief of staff to the president of the United States and many other top aides to the president commit the sin of candor.

They tell the truth about what's really going on in the Bush White House. And we'll have the veteran observer of Bush and a Republican loyalist to hash that out. But you've got to read it. It's a stunning set of admissions about Bush and the reactions to Karen Hughes going home to Texas -- Lou.

DOBBS: OK, Paul, we're looking forward to it. Tucker, thank you very much.

The clean-up from yesterday's flooding in the Midwest is under way. Torrential storms dumped up to eight inches of rain in a 24-hour period. Rivers, creeks, overrun their banks. Houses flooded. Hundreds of people had to be evacuated from their homes. Seven Iowa counties were declared disaster areas. Officials are now concerned those floods would also damage farmland areas, killing crops and costing the state millions and millions of dollars more.

Well, the collapse of a dam in Syria sent a 10-foot wall of water crashing through nearby villages, submerging three of those villages and killing ten people. The dam in northern Syria collapsed yesterday after heavy rains. Four-hundred people, the entire population of one village, are unaccounted for tonight.

Some local residents say some of those missing may have escaped to higher ground before the collapse of the dam. The dam was built in 1996 to store rainwater. And investigation into the cause of the dam's collapse is under way.

Just over an hour ago, space shuttle Endeavor blasted off after a week's delay. High winds and storm clouds threatened to scuttle the launch for the third time in a week. But the Endeavor's seven-member crew heading now for the international space station. Three of those astronauts will swap places with three space station crewmembers. At least two of those coming home will be very happy to join them. Americans Daniel Birch and Carl Waulz (ph) have been aboard the spate station since December. By the time the shuttle's mission ends, they will have been in space for 194 days. And that eclipses the 188-day record set by Shannon Lusef (ph) back in 1996.

Three months ago, space walking astronauts repaired the infrared camera aboard the Hubble telescope. Now that camera is paying great benefits to astronomers and all the rest of us, by taking pictures of absolutely amazing space events and structures. The infrared camera, known as NICMO, took photos of activity deep in the center of a star- forming cloud.

It also looked into the center of a galaxy surrounded by a ring of stars and recorded a spectacular, four-galaxy collision. As those galaxies collided, new stars were created, the dust blowing brightly. And the infrared light, brought to you by Hubble.

This camera, by the way, had been inactive for more than three years. Think of all the wonderful images that we were denied. But now it's working. It's nearly 40 percent more sensitive, this new camera. It enables scientists to see much deeper into the universe. And we get to have a ringside seat at the spectacle of space.

Coming up next, my thoughts on Islamists and your thoughts on attorneys. Stay with us.


DOBBS: Congress has launched its investigation of intelligence failures that led up to the terrorist attacks of September 11th. And Congress is preparing to spend a lot more money on intelligence, which already has a budget of $35 billion.

And we learned today that the United States has spent $17 billion so far on the war effort in Afghanistan. And as far as I'm concerned, that's money well spent. And I'm sure you agree.

But let's be honest about what we're doing, about what it will cost and how we're going to go about it. Just what are we doing? We're not fighting terror. We're fighting a particular and specific breed of terrorist.

We are fighting a war against extreme, radical Muslims who are trying to destroy us, our society, our economy, our way of life. They're called Islamists, as we've reported for the past two days. Not Muslims or Islamics, Islamists. They are the enemy.

They are the enemy in Afghanistan, in the Philippines, Indonesia, Kashmir, Yemen, Somalia, Kenya, Saudi Arabia, and other countries all over the world. Islamists, a particular brand of terrorist.

Now, that may not be politically correct, but it's honest. And this is the time for honesty in all quarters of our national life, whether in business, religion, government or media. Especially the media.

Now for a look at your thoughts. On the subject of last night's "Dobb's Report," Rob Khare in Canada writes: "I agree. Investors are about the only people connected with the market that aren't confused these days. The industry has a monumental task gaining investors' trust again. Hopefully, when investors start to make the markets move in the right direction, it will be for all the right reasons."

And on to last night's story on the wave of lawsuits against the food industry over, of all things, fat. Michael Terry of Norfolk, Virginia writes in to say: "There's not a person in this country who sucks on a cigarette who does not know it's bad for them, just as there's not a person in this country who does not know that eating a double Whopper with cheese is bad for them. All of this litigation is ridiculous."

Jack Susin in New Mexico, writes to say: "Any judge that allows one of these cases in their court should be super sized off the bench."

I couldn't agree more. E-mail us, As always, we ask that you include your name and address.

Now from your words to "In Their Words."


DONALD RUMSFELD, SECRETARY OF DEFENSE: What is it, then, 55, 57 years since nuclear weapons have been fired in anger. And that's an impressive accomplishment on the part of humanity, I would say.



ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The president condemns this brutal attack in the strongest possible terms. This attack underscores the fact that these terrorists are the worst enemies of not only the Israeli people, but also of the Palestinian people and their hopes for a better life. And for all people who are concerned with peace.


DOBBS: That's MONEYLINE for this Wednesday evening. Thanks for being with us as always. For all of us here, good night from New York.





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