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Aired June 25, 2002 - 18:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LOU DOBBS, HOST: Tonight: Firefighters are using aircraft and helicopters to try to stop a wildfire from destroying a town in Eastern Arizona. Officials now say the town has only a 50 percent chance of survival. We'll have a live report for you.

President Bush continues his campaign for a new Palestinian leadership. The president is meeting with the heads of industrial nations near Calgary.

Also, tonight the first of our special reports in collaboration with "The Economist": American leadership, new directions. Tonight, we'll examine why Iraq should be the next target.

National Security Adviser Richard Perle will tell us why he believes Saddam Hussein must be removed from power and soon.

Ambassador Richard Murphy will be here to offer his assessment of the president's Middle East peace initiative.

And more than 137 million Americans use cellular phones. Tonight, our report focuses on whether they are risking their health.

ANNOUNCER: This is LOU DOBBS MONEYLINE for Tuesday, June 25. Here now: Lou Dobbs.

DOBBS: Good evening.

A massive wildfire continues to burn tonight out of control in Arizona; 350,000 acres have been scorched. Nearly 400 homes have been destroyed; 30,000 people have fled their homes.

Bill Delaney is in Show Low, Arizona, tonight with the very latest for us.

Bill, the status of that fire right now?

BILL DELANEY, CNN CORRESPONDENT: Well, what I can tell you, Lou, is, it's 3:00 in the afternoon here. You'd never know it. It looks like an enormous thunderstorm is coming in here. Would that it were in this parched place. It's smoke obscuring the sun at 3:00 in the afternoon, the Rodeo-Chediski fire now less than a half-a-mile from outside this evacuated city of 8,000, Show Low. Now, we are feeling, nonetheless, relatively secure where we are. And that's because of critical work that firefighters did overnight and continued today. They blackened, in a controlled burn, 43,000 acres to the West of the city of Show Low. That creates a barricade. The fire won't go through an area with no fuel in it. And that's what they were able to accomplish on the western flank.

The concern now, depending on winds, particularly this afternoon: that an ember could fly off this big fire and leap a mile or so toward the southern flank of the city. If it did, if it hit a tree or something, if it ignited, it could then burn structures. And it could get to be the kind of wall of flame that's been talked about here for days now. That's considered about a 50/50 likelihood, that something like that could happen from the south.

We watch and wait. We'll know whether it does or not just in the next several hours, Lou; 35,000 people still evacuated from this area -- a fire, as you said, still very much zero contained -- Lou.

DOBBS: Bill, how fast is the fire moving?

DELANEY: Well, the fire tends to move about -- at a relatively stately pace. I mean, it was about a mile and a half outside of this city yesterday. It's now less -- yesterday afternoon, even, 24 hours ago -- 24 hours later, it's about a half-a-mile outside this city -- now, of course, all of that depending also on how the fire is blocked, on how winds shift.

Winds can shift and the fire can roar forward at a much accelerated rate -- so, again, everything depending here on the shifting tides of wind and cloud. If the smoke lifts and it gets hot again, that can also fuel the fire. Simply heat can fuel the fire -- Lou.

DOBBS: Bill, remarkable pictures of that sky behind you, the clouds surrounding you, the clouds of smoke.

What is the weather forecast for the remainder of this afternoon where you are and this evening?

DELANEY: Well, they were earlier saying that they thought that the winds would continue to be light to moderate, 10 to 20 miles an hour. That's good. They don't want the winds to die down. That causes the sort of superheated plume that can result in those embers leaping across Highway 60 here toward that vulnerable southern flank -- Lou.

DOBBS: Bill Delaney, thank you very much -- Bill Delaney reporting from Show Low, Arizona.

As that fire today burned more homes, President Bush declared the region a federal disaster area. President Bush then toured that area by air, receiving a firsthand look at the devastation that's been caused by what is now a 50-mile-wide fire. President Bush also met with the firefighters and some of their families. Mr. Bush told them to hang in there. The federal disaster declaration will make money available to the region to help with housing and low-cost loans to cover what are becoming substantial losses. Another $20 million was offered to help cover firefighting costs.

Colorado has already been declared a disaster area. There, crews are continuing to fight a 67,000-acre blaze near Durango. The 137,000-acre fire near Denver is now all but contained. So far this year, 2.5 million acres have been burned across the Western part of the country.

An early rally today on Wall Street to tell you about as well: Investors suffered yet another setback, the fourth in the past five sessions, an extremely volatile session on the market today. It swung in a 300-point range. The Dow lost 155 points. The Nasdaq fell 36 points, losing 2.5 percent on the day. And the index is now back to its September low of 1423. The S&P 500 dropped more than 16 1/2 points. Jan Hopkins will have the complete coverage of the market for us later.

President Bush took his Middle East peace plan on the road today, Mr. Bush meeting with leaders of the world's largest industrial democracies near Calgary in Canada. Many leaders had been urging greater U.S. involvement in the Middle East, but not all are expected to back the president's call for the removal of Yasser Arafat.

Suzanne Malveaux is traveling with the president and she joins me now from Kananaskis, Alberta -- Suzanne.

SUZANNE MALVEAUX, CNN CORRESPONDENT: Hello, Lou.

Well, the president just touched down in Calgary. He was greeted very warmly by the mayor. We are told he is expected to receive a white cowboy hat as a gift. But, as you mentioned before, the president brings with him a controversial Middle East peace initiative.

And, really, this G8 summit is seen as a good platform to gauge international response, reaction to that plan. Earlier today, as Secretary of State Colin Powell made many phone calls to foreign ministers of Saudi Arabia, Jordan, and Egypt, we are told that he emphasized in those phone calls, clarifying Mr. Bush's statement yesterday, a call for a change in the Palestinian leadership as a condition for a provisional Palestinian state, Mr. Powell saying that if, in fact, the Palestinians decide to elect Yasser Arafat in democratic elections, that the United States would have to accept this.

This is a position that has also been expressed by our allies, British Prime Minister Tony Blair as well as Russian President Vladimir Putin -- the United States, of course the administration realizing they not only have to sell this plan to Arab nations, but also to Europe, Russia and the United Nations.

(BEGIN VIDEO CLIP) RICHARD BOUCHER, STATE DEPARTMENT SPOKESMAN: What's next is to talk to the various parties and especially the leaders in the region. The president has made clear repeatedly, made clear again in his statement yesterday, that we look to other parties to take responsibility, particularly on the Arab side.

(END VIDEO CLIP)

MALVEAUX: Now, there is some concern from leaders that perhaps the Middle East will overshadow some of the other issues, namely fighting terrorism, development in Africa, as well as strengthening the global economy -- the prime minister here, Jean Chretien, saying that he is not going to let that happen -- Lou.

DOBBS: Thank you very much, Suzanne -- White House correspondent Suzanne Malveaux traveling with the president.

Today Yasser Arafat defiant after the president's Middle East speech. Arafat says only the Palestinians can choose their leaders. But Arafat welcomed the president's call for an independent Palestinian state. Meanwhile, Israeli troops continued a sweep of West Bank towns, those forces exchanging heavy fire with Palestinians in Ramallah.

I'm joined now by Wolf Blitzer in Jerusalem -- Wolf.

WOLF BLITZER, CNN CORRESPONDENT: Lou, the Israelis believe they have effectively received a green-light from the Bush administration to go forward with their very aggressive military campaign on the West Bank, going into several major towns in recent days, including most recently in Hebron, the Israelis saying that they are trying to preempt terror strikes against Israeli civilians.

They also insist that nothing in what the president said last night discourages them from going forward with this military campaign. At the same time, the Palestinian leader, Yasser Arafat, as you say, is defiant. He insists that the Palestinians will determine who their leader is, the Palestinian leader, Yasser Arafat, going forward, meeting today with some visitors, also telling reporters that the Palestinians do indeed already have a democracy, pointing to the elections a few years back, when he was elected, insisting those elections had international supervision.

In the Arab world, the moderate Arab leaders are putting their best face forward, too: for example, the Egypt president, Hosni Mubarak, saying that there were both positive elements, from the Arab standpoint, in the president's speech, specifically calling on Israel to freeze its settlement activities on the West Bank and go back to the borders that existed prior to the 1967 war -- the Israelis insisting that was never the intention of the president, the president calling for secure and recognized boundaries, not necessarily precisely those '67 lines -- Lou.

DOBBS: Wolf, thank you very much -- Wolf Blitzer in Jerusalem tonight. The public appears to be losing some confidence that the war against the radical Islamists and terrorists is being won. Public confidence that the U.S. and its allies are winning slipped to 33 percent, according to the latest CNN/"USA Today"/Gallup poll. That is the lowest reading since September 11. It is well below the 66 percent recorded back in January. Overall, 73 percent of those polled say President Bush is doing a good job.

The president's speech challenged the Palestinian people to choose new leadership, people who are not compromised by terror, as the president put it. His initiative is designed to provide a framework that will lead to a Palestinian state. But experts say that establishing the framework will be far from easy. No surprise there.

Kitty Pilgrim reports.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): "He wasn't talking about me" was Yasser Arafat's response to President Bush's speech. He's not one to give up power easily.

Founder of Al Fatah, an underground terrorist organization, Arafat was elected the first president of the Palestinian Council governing the West Bank and Gaza Strip in 1996. He won by a 75 percent landslide. The only other candidate was a 73-year-old woman. World leaders worry about new elections in an atmosphere of violence and extremism.

KOFI ANNAN, U.N. SECRETARY-GENERAL: You could find yourself in a situation that the radicals are the ones who get elected. And it will be the result of a democratic process. And we have to accept that.

MARTIN INDYCK, SABAN CENTER AT BROOKINGS: You could get a situation where it's the fundamentalist forces, the Islamists, who ran for the elections, and the concern would be that they would win.

PILGRIM: However, among those already in the political wings is Marwan Barghouti, general secretary of Arafat's Fatah movement. He was arrested by Israel in April; Mohammed Dahlan, who recently resigned as the Gaza security chief; Jibril Rajoub, West Bank security chief and Hebrew speaker.

The question is, would any of these step up to oppose Arafat? Some suggest Yasser Arafat could be talked into a ceremonial role like president, while a prime minister would run the day-to-day operations of the interim state.

MARK PERRY, "THE PALESTINE REPORT": I don't think it's out of the question at all. I think that he may move up into a much more ceremonial role. He is a Palestinian nationalist. If he has to move aside for there to be a Palestinian state, I think he'll do so.

(END VIDEOTAPE)

PILGRIM: Now, many Palestinians have called for reform. And work has begun on a new constitution. Secretary of State Colin Powell has said he is convinced that there are people in the Palestinian community committed to peace -- Lou.

DOBBS: Kitty, thank you very much.

Turning now to our MONEYLINE "Quick Vote," tonight's question: "Should the United States' next target be Saddam Hussein?" Please cast your vote at CNN.com/MONEYLINE. That's CNN.com/MONEYLINE. We will of course have the results for you later in the broadcast.

Still ahead: Yasser Arafat remains calm as Israeli and U.S. pressure for his removal grows. Former Ambassador Richard Murphy will be here to tell us about the prospects for peace.

Scientists unveil new evidence that radiation from cellular telephones may, may, cause brain cancer. We'll have a special report for you.

And the United States is more dependent upon oil imports than ever. We'll tell you tonight why time is running out for this country to become energy self-sufficient.

And the investigation into Martha Stewart's share-dealing overshadowing the scandal at ImClone Systems -- we'll tell you what's going on next.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: My next guest says President Bush failed to offer the Palestinians enough incentives in his speech yesterday and says the president's speech talked about the future, but offered no timeline to statehood.

Richard Murphy is director of Middle East studies at the Council on Foreign Relations, formerly assistant secretary of state for Near Eastern and South Asian affairs between 1983 and 1989, and the former ambassador to Saudi Arabia.

Good to have you here.

RICHARD MURPHY, DIRECTOR OF MIDDLE EAST STUDIES, COUNCIL ON FOREIGN RELATIONS: Thank you.

DOBBS: You think that this was a remarkably tepid offer?

MURPHY: Well, there's no bridge between today and the future, which every Palestinian would embrace, the future that he described.

DOBBS: What would you have had the president say, if you had your druthers, if I may ask that, Ambassador?

MURPHY: You may ask it, certainly.

It's a tight timeline. There is no timeline to that vision which the president floated yesterday that, by such-and-such a date, this will be accomplished.

DOBBS: What would be an incentive that you think would have been a better proffer on the part of the president?

MURPHY: I think that was, for me, the basic missing element. Now, it's tricky to have a timeline. What if it's not met? What if the deadline passes? But without that, I think the Palestinians are just going to say: Hey, he's walking away from the whole problem and endorsing Sharon 100 percent in the process.

DOBBS: Well, this would not be the first time that that had happened to the Palestinians, certainly, that people had walked away from them. This president, even if he is not successful, would be no less successful than any previous president in bringing about a successful conclusion to the conflict, resolution of the conflict between the Israelis and the Palestinians.

It seemed to me that first declaring that the Palestinians killing innocents in Israel are terrorists, a plain, bald statement by the president, a statement that the Israeli occupation of the West Bank and Gaza, is that an occupation? No president has ever spoken so plainly on those two issues. Do you take any heart in that?

MURPHY: And let's give him credit. He's the first president to talk about a state of Palestine.

DOBBS: Certainly. Certainly.

MURPHY: So, the rhetoric has been a marked change of the past. And that has, I think -- will work its effect in the area.

DOBBS: What will be the reaction? Now, we've heard sort of a moderate response from Arab leaders, seemingly unwilling to move much in one direction or another.

It struck me that this president talked about American values. He talked about democracy as a condition precedent to anything that happens, whether one puts a specific timeline on it or not. That's a first as a condition precedent. Do you find that problematic for our Arab friends in the region?

MURPHY: You can call it a condition precedent. I'd call it a show-stopper.

That's describing a Middle East which is so far out of reach for us today. Even some of the more senior Israeli commentators, including former Foreign Minister Ben-Ami, said this is not the reality of the Middle East that we live in and that we have to face day by day.

DOBBS: But that reality has led to indeterminable bloodshed, a conflict that has endured for 54 years. It may not be the Middle East, but, Ambassador, is it not time to construct a new reality? Is that also perhaps one of the messages that the president was delivering? MURPHY: Without a timeline, it will be seen, I believe, will be heard by the Palestinians and the Arab world generally as a hunting license for Sharon to pursue his goals, with no criticism from the United States.

DOBBS: Well, one day later, you're absolutely right. Prime Minister Sharon is pursuing his strategy, his tactics. Do you have a sense of what should be his tactics, given the suicide bombings, the terrorist attacks against his people? What is his real, his realistic recourse here?

MURPHY: I've got no problem with him pursuing the terrorists, arresting, and, as the case may be in the struggle, of killing. But there is nothing else out there that's being heard by the Palestinians. And there are a lot of Palestinians who don't -- aren't classifiable as terrorists in anybody's language. They're looking for a political future and a political solution.

DOBBS: You think it's highly unlikely, then, that that will emerge from the president's speech of yesterday?

MURPHY: I didn't hear anything that would incline me to think that Sharon was interested in such a solution on his watch. He certainly wants to get beyond the next election, say a year and three months from now, without facing that.

DOBBS: Ambassador Richard Murphy, good to have you here.

MURPHY: Thank you.

DOBBS: Coming up next: Can your cell phone cause brain cancer? We'll have a special report tonight on the hidden dangers of cell phones.

The Martha Stewart name is under assault from nearly every direction. What happened, however, to something called ImClone Systems? It seems companies and the origins of scandals tend to get lost these days. We'll try to find them again.

Tonight, in cooperation with "The Economist" magazine: our special report on Iraq and Saddam Hussein. We'll tell you about America's efforts to deal with one of the biggest obstacles to stability and peace.

And America's dependence upon foreign oil is rising, not declining -- our report tonight on what's being done to develop alternative energy sources.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: The investigation of Martha Stewart's sale of ImClone Systems stock is making headlines every day. Today, Stewart told the CBS News "Early Show" that she hopes she would be -- quote -- "exonerated of any ridiculousness in the ImClone trading scandal." Stewart has denied any wrongdoing. The story about her share-dealing is now overshadowing the original congressional investigation into ImClone Systems.

Peter Viles clears it up for us.

(BEGIN VIDEOTAPE)

(BEGIN VIDEO CLIP, "THE EARLY SHOW")

MARTHA STEWART, CEO, MARTHA STEWART LIVING OMNIMEDIA: The investigation really centers around ImClone and its drug called Erbitux, which many of us thought had great potential and probably still does have great potential for curing cancer.

(END VIDEO CLIP)

PETER VILES, CNN CORRESPONDENT (voice-over): Even as she was chopping up a summer salad, Martha Stewart was stealing the headlines again. But the problems at ImClone are still festering. And they go far beyond her stock trading. Criminal and civil charges of insider trading against the former CEO, Sam Waksal, are pending.

Waksal's brother Harlan is now running the company, which may face additional civil charges for not leveling with investors about its dealings with the FDA. Congress is still investigating, with an eye toward how it was that inside information from the FDA made its way to the Waksal brothers, but not to ImClone shareholders, which raises the question: Is Harlan Waksal really the right person to restore investor confidence?

An ImClone spokesman says -- quote -- "He's been at the company for 18 years. He knows the strategy better than anyone else." The problem is, so far, the strategy hasn't worked.

PATRICK MOONEY, THOMAS WEISEL PARTNERS: ImClone never had an employee, to the best of our knowledge, who has ever successfully developed a drug and commercialized a drug and has dealt really successfully with the FDA. We recommend that investors, when the sector comes back into favor, that they look for companies that have strong management teams that have successfully developed drugs in the past. ImClone hasn't.

VILES: Well, one more problem: Board member Arnold Levine recently quit his day job at Rockefeller University and has been named in a tabloid sex scandal. He also sold $93,000 worth of ImClone stock last October.

(END VIDEOTAPE)

VILES: The biggest loser in all of this has been the drug company Bristol-Myers Squibb. It invested $1 billion in ImClone last fall for 20 percent of the company. Today, that $1 billion investment is worth $130 million -- Lou.

DOBBS: As if Bristol-Myers didn't have enough other problems as well. I thought it was interesting Martha Stewart saying that Erbitux probably, could be, maybe...

VILES: Could be, maybe.

DOBBS: ... a cancer drug. But she sold it, so one thinks, probably...

VILES: She did cash out, so she may not really believe that.

DOBBS: And, at this stage, we don't know any more about Erbitux, do we?

VILES: No, we don't. The analyst we spoke to says he does think it will come to market 2004, perhaps. And when it does, Bristol-Myers Squibb gets 39 percent of the U.S. revenues. They still have their money on the table. They just bought at the top. They bought this stock at $70 a share. It's below $9 tonight.

DOBBS: Unfortunately, for many investors, Bristol-Myers Squibb is not alone in having done so.

Pete, thank you very much.

Coming up next: more evidence that mobile phones can alter human cells. We'll tell you whether they can cause brain cancer as well.

The market reverses course, turning an early rally into a sharp sell-off -- Jan Hopkins with the market.

And together with "The Economist" magazine tonight: a special report on what's next in the confrontation with Iraq and Saddam Hussein.

All of that and more when we continue.

(COMMERCIAL BREAK)

DOBBS: Cell phone use has become so widespread that, in many countries, more than half the population uses mobile phones. In this country, 137 million of us have them. But the jury is certainly still out on health risks. Scientists today unveiled new research that cell phones might, might, cause brain cancer.

Steve Young has the report.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): The latest finding that cell phones could cause cancer came from a Finnish scientist presenting his results to the Bioelectromagnetic Society meeting in Quebec.

The researcher exposed human cells to the kind of energy transmitted by mobile phones in most of the world, though not to the majority of cell phone customers in the United States. A one-hour exposure alone was enough to show protein changes. Some scientists say that might be a molecular mechanism that could trigger cancer and other illnesses in the brain.

The theory? Mobile phone energy could lower the barrier that's supposed to exist between blood and brain.

DARIUSZ LESZCZYNSKI, FINNISH RESEARCHER: Our study was designed to find whether mobile phone radiation causes any biological effects. It was not designed to determine whether there are any health effects. This will be coming later.

YOUNG: It's no surprise the latest work comes out of Finland. Funding for studies of cell phone use and possible harmful health consequences largely dried up in the United States three years ago. But the U.S. industry denies backing away from the scientific inquiry.

JO-ANNE BASILE, CELLULAR TELECOM & INTERNET ASSN.: While in fact there is considerable amount of research happening in Europe today, if you recall, there have been major studies that have come out of the United States in the past. And so now there's kind of a passing of the baton, if you will.

YOUNG: But some critics compare the mobile phone industry in the U.S. to cigarette manufacturers.

LOUIS SLESIN, EDITOR, "MICROWAVE NEWS": Tobacco did the research and then hid it. Cell phone companies learned the lesson and just are not doing the work. They're basically asleep at the switch here. They don't want to know the truth. They just want to sell the phones.

YOUNG (on camera): Research into mobile phones and health has been under way for eight years. It could take that long or longer to prove conclusively their safety or danger.

Steve Young, CNN Financial News, New York.

(END VIDEOTAPE)

DOBBS: The United States is more independent on oil imports than ever. Nearly 2/3 of our oil now originates overseas. And that has prompted the government to begin to offer incentives to companies to develop unconventional energy sources. Casey Wian reports from Los Angeles.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN FINANCIAL CORRESPONDENT (voice-over): Capstone Turbine makes power generators that run on a wide range of fuels. During California's energy crisis, Capstone's business was booming and its stock soared above $90 a share. But now that interest in generators has waned, Capstone stock has fallen below $2.

AKE ALMGREN, PRES. & CEO, CAPSTONE TURBINE: We think we're well- positioned for the market when it will take off on a more significant basis. But I think in the short-term there's a big concern about exactly when it's going to happen. WIAN: Capstone is just one example of how alternatives to petroleum based energy have struggled to gain acceptance. Despite the emergence of solar, geothermal and wind-generated electricity and battery and fuel cell powered cars, cheaper oil and natural gas still supply about 2/3 of the nation's energy.

The United States now relies on imports for nearly 60 percent of its oil. During much of the 1980s it was about 1/3. That's risky because of the prospect of a politically motivated supply disruption and because scientists now believe global oil supplies will peak, then begin declining by the end of the decade.

TOM VALONE, PRES., INTEGRITY RESEARCH INST.: We're pretending that business as usual will supply all our needs. But there's an impending oil crisis that we're basically seeing, will actually bite us sooner than we're expecting it. And it's better to prepare for it now.

WIAN: There are signs of preparation. In Michigan, home of the auto industry, state lawmakers are considering tax breaks for alternative energy companies. The U.S, Senate wants to require 10 percent of electricity to be generated from renewable sources by 2020. And a growing number of big companies have committed to address global climate change. Steps include reductions in fossil fuel use.

(on camera): But in California, a law requiring 10 percent of all new cars sold here be non-polluting by next year has been derailed by legal challenges and lack of consumer demand.

Casey Wian, CNN Financial News, Los Angeles.

(END VIDEOTAPE)

DOBBS: Coming up next, what began as a rally ended as a sharp sell-off on Wall Street. We'll tell you about another disappointing performance for investors.

And NASA has grounded all four space shuttles indefinitely. We'll tell you why, next. Stay with us.

(COMMERCIAL BREAK)

DOBBS: On Wall Street, what began as a promising rally turned into a disappointing sharp sell-off. More than $175 billion of market cap erased. Procter & Gamble accounted for a fifth of the Dow's decline. Jan Hopkins is here as always with the market for us.

Make this somewhat lighter than it seems.

JAN HOPKINS, CNN FINANCIAL CORRESPONDENT: It's going to be hard to do that because the gloom was definitely back on Wall Street. The day started out OK. But gains from Dupont and Boeing were not enough to keep stocks up for long.

Now some of the stocks that have held up so far in the sell-off are beginning to cave in, including tobacco stocks, Procter & Gamble and Federal Express. And the selling accelerated at the end of the day. The Dow was down 155 points to 9,126.

The Nasdaq closed at its September low, 1,423. The S&P 500 lost 16 to 976. Christine Romans is at the New York Stock Exchange and Greg Clarkin is at the Nasdaq Marketsite -- Christine.

CHRISTINE ROMANS, CNN FINANCIAL NEWS: Jan, another tricky session. Tobacco, defense and health care sectors tumbled. And transports slid 4 percent, led by Federal Express. Wall Street ignored strong fourth-quarter earnings and was instead disappointed by first quarter guidance.

Philip Morris fell 5 percent. Investors still rattled by recent individual claims against tobacco companies. Even the year's winners, like Procter & Gamble and Coke, were punished. And Hewlett Packard fell in brisk trade after Goldman Sachs cut its numbers.

Now, some good news. Dupont raised its second quarter earnings target but the stock rose 2 percent.

Now to the Nasdaq and Greg.

GREG CLARKIN, CNN FINANCIAL NEWS: And, Christine, an all too familiar pattern today. Investors selling into anything resembling a rally. Now, among the weaklings on the Nasdaq were the Internet stocks. Shares of Amazon.com tumbled. That, after rival Buy.com said it would beat Amazon's book prices by 10 percent.

Intel down 5 percent, indicative of the weakness in chip stocks. Sun Microsystems down 6.5 percent. And take a look at shares of Cytyc. They lost 40 percent. This, after the government moved to block its acquisition of Digene on fears that the combined company would dominate the market for cervical cancer tests.

But there were some winners. Sporting goods retailer Big 5, it made its market debut today. It posted a slight gain on its first day of trading. Not a bad feat, given the overall down market.

In after hours trading, WorldCom shares are down sharply on reports of accounting irregularities. That would be a stock to watch tomorrow morning.

Jan, back to you.

HOPKINS: And WorldCom stock is below $1 before this sell-off. Thanks, Greg.

In the boom market, investors rewarded for buying stocks when the market fell. But now the opposite strategy is working. Investors are selling stocks when the market rallies. The S&P 500 has not had three up days in a row since March. The overall trend is down.

No wonder investor sentiment is lousy. The Nasdaq, Lou, is down more than 70 percent from its high, and that was just over two years ago -- 72 percent.

DOBBS: Do you remember the part where I asked you to make this lighter than it appeared?

HOPKINS: I'm sorry, maybe tomorrow.

DOBBS: Jan, thanks a lot. Remarkable.

U.S. bancorp Piper Jaffray became the latest Wall Street firm to be punished for abusing analyst power. The National Association of Securities Dealers fined Piper Jaffray $250,000. One of the firm's managing directors, Scott Beardsley, was ordered to pay an additional $50,000.

The NASD said Piper Jaffray threatened to drop analyst research coverage of a biotech if it hired another underwriter for a stock offering. This is the first time that the NASD has targeted a firm for a direct threat linking underwriting and research.

Still ahead tonight, our special report with "The Economist" magazine, in which we take a look at what's next in the confrontation with Saddam Hussein.

And NASA has grounded the entire space shuttle fleet. We'll have that story and a great deal more. Please stay with us.

(COMMERCIAL BREAK)

DOBBS: Tonight I'm pleased to tell you we begin our new collaboration between MONEYLINE and "The Economist" magazine. We'll be taking a look at the significant issues in business and politics in our series entitled, "American Leadership, New Directions," looking at America's expanding role in the world since the September 11th attacks.

It will also be the subject of a special survey in the next edition of "The Economist." Tonight, our focus is Iraq.

(BEGIN VIDEOTAPE)

(voice-over): Iraqi defector Khidhir Hamza was a key member of Saddam Hussein's nuclear program during the mid to late '80s.

KHIDHIR HAMZA, FMR. ADVISER, IRAQI NUCLEAR PROG.: If we had went ahead and processed what we had, I believe we would have had a device. And it would have worked, to have that by November, 1990.

DOBBS: Hamza says his team believed that putting a nuclear weapon in Saddam Hussein's hands would have meant the end of Iraq. So they lied to him about how far they had progressed.

HAMZA: The failure was due to our reluctance, actually. The chemists in the program dragged their feet.

DOBBS: In the 12 years since the Gulf War, Saddam Hussein has failed to comply with U.N. resolutions that call for the destruction of any nuclear weapons capability or research. There have been no inspections inside Iraq now for nearly four years. BILL EMMOTT, EDITOR IN CHIEF, "THE ECONOMIST": I think it's pretty close to 100 percent certain that Saddam will get nuclear weapons if we don't act. He's got all the motivation and all the attitude to get them. I think he's got the money, too.

DOBBS: Khidhir Hamza believes U.N. inspections don't have a chance anyway.

HAMZA: The computer I used to design nuclear weapons work is now sitting in a hospital for the mentally insane wing in the outskirts of Baghdad. Now, how would an inspector know that this hospital is a nuclear war plan design site?

DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: He's now kicked the inspectors out. There's a lot of evidence that he does in fact have and is continuing to develop weapons of mass destruction.

DOBBS: The Bush administration seems to have given up on inspections, too. Increasingly, the rhetoric points to toppling Saddam. Outside the administration, there are some dissenters. Charles Freeman was U.S. ambassador to Saudi Arabia during the Gulf War.

CHARLES FREEMAN, PRES., MID EAST POLICY COUNCIL: I don't think he poses much threat at all to the region. The Republican Guard was cut back to size during the Gulf War. His programs of developing weapons of mass destruction were set back decades by our bombing and by the U.N. inspection effort earlier.

Certainly, no one in the region sees him as an active threat. And this is part of the problem that we will face if we actually decide to go ahead. We will have very little, if any support from neighboring countries.

DOBBS: If the United States does invade, Freeman warns of potentially dangerous consequences in the region.

FREEMAN: I think there is a real danger that an effort to produce regime change in Iraq might end up producing it in Saudi Arabia and some other places.

EMMOTT: I think an overthrow of the regime in Saudi Arabia is always a possibility. It's a fragile regime. It will not make the Saudi regime stronger by doing nothing. We have to take that risk. The important thing is to succeed.

DOBBS: Iran will also be watching closely.

KENNETH POLLACK, FMR. CIA MILITARY ANALYST: They're going to have trouble with Saddam Hussein too, if he acquires a nuclear weapon. That said, the Iranian leadership isn't wild about the idea of seeing the United States March 250,000 troops into the region and knock down an unpleasant dictatorship that we don't like. The parallels are a little bit too close to home for them.

DOBBS: And what of Iraq itself, after Saddam? FREEMAN: Why do we believe that in a thugdom -- meaning a country run by thugs -- like Iraq, one thug will not succeed another?

DOBBS: But Bill Emmott sees opportunity for reinventing the region and he points out it's worked well before.

EMMOTT: I think the best parallel for a post-Saddam Iraq is the situation in Japan and Germany after 1945 in which democracies, market economies, were built in the rubble of fascism and totalitarianism.

DOBBS: What do Iraqis think? There's evidence that anti-U.S. sentiment has festered under sanctions, but Saddam's former bomb maker says that a change of regime will be welcome in the streets of Baghdad.

HAMZA: The Iraqis are educated and they know what's going on. And they know who's the culprit. They are waiting for a savior. Anybody who comes in, they'll flock to his side and try to get themselves out of the pit Saddam put them in.

(END VIDEOTAPE)

DOBBS: My guest tonight says the removal of Saddam Hussein is essential for victory. Richard Perle is a fellow at the American Enterprise Institute. He's also chairman of the defense policy board which advises the Pentagon.

Good to have you here.

RICHARD PERLE, CHMN., DEFENSE POLICY BOARD: It's a pleasure.

DOBBS: Iraq -- its importance in winning the war, in your view?

PERLE: I think the president, the vice president, and others have been very clear that the combination of weapons of mass destruction in the hands of a regime that has supported and continues to support terrorism is a threat to the United States that is intolerable over the long term.

Every day that we wait, it becomes more urgent. One morning the president's intelligence advisers are going to go to the morning meeting and say, Mr. President, we can now confirm that Saddam Hussein has nuclear weapons. And from the moment that happens, the options available to this country in dealing with Saddam and the region will be drastically diminished.

DOBBS: When that does happen, the question arises as to how we will find out. We have been talking about the capacity of Saddam Hussein, in terms of weapons of mass destruction, for years now. Both President Clinton and President Bush have talked about the need to deal with the issue of Iraq. Yet nothing has happened. Why not?

PERLE: Well, I think after the Gulf War there was a period in which we rather hoped that the defeat in that war would lead to Saddam's removal. It didn't. Then we looked at the risks and the consequences of immediate action against Saddam. Now I think it is reasonable for us to be concerned about the removal of the inspectors, leading to a dark void about what he is actually capable of doing. We know he has an active nuclear program. We heard Dr. Hamza, who was actively involved in it.

We know he has chemical and biological weapons already. And he's got terrorists living in Baghdad responding to his orders. When you put that all together, the danger is greater now than it was seven, six, five years ago.

DOBBS: How soon do you believe the United States should act against Saddam Hussein?

PERLE: As I said, every day that we choose not to act is -- may be the day when we get that dreaded announcement. What's so significant about his crossing the nuclear threshold is that, gaining the support of others in an integrated effort to deal with him will be vastly more difficult, because he can deliver a nuclear weapon in the neighborhood. Fortunately, it's much more difficult to deliver it at a distance. So the immediate impact would be on the region.

DOBBS: And within the region, the delicacy, if you will, of the situation vis-a-vis Saudi Arabia, Iran, what would you expect to be both the support of the Arab nations to be, and their opposition?

PERLE: Well, I think what we just heard from the ambassador is, frankly, wrong. We will be liberating Iraq if we go in, not invading it. And every one of Saddam's neighbors, privately, tells us that they would be delighted to see him removed.

So what is said now in public by people who are living next door to Saddam and who have no reason today to believe that we are serious about removing him, is what you would expect. They do not want to provoke their neighbor. Once we actually take action, I think we'll have massive support.

DOBBS: The president announces his initiative yesterday, in terms of the Israeli-Palestinian conflict. To what degree is that helpful in the region in shoring up support for ultimate action against Iraq?

PERLE: I think it's very helpful, partly because it was such a bold action on his part. He's breaking with all past diplomatic treatment of the region. He's saying the key is a decent, democratic regime among the Palestinians, with which the world can work.

And that's the key in Iraq as well -- a regime that embraces democracy, that renounces weapons of mass destruction, and that lends its formidable weight to the peace process. And Saddam now sends checks to suicide bombers. He's helping to inflame trouble in the region. The whole region will be better off when he's gone. And, in a sense, his removal is probably the single most important thing we can do to help the peace process, generally.

DOBBS: The alarmist state of Iran, what would be, in your judgment, their reaction? Would they be as sanguine as I infer you're suggesting?

PERLE: They will be very unhappy if we unseat Saddam because they are likely to be unseated by their own population, by the millions of Iranians -- 60 percent of the country is under the age of 20. And they don't like being ruled by the mullahs.

It's a terrible, brutal dictatorship. And the example next door of the unseating of a brutal dictator may well be the spark that leads to their demise as well. So the theory sometimes here, that if we remove Saddam, somehow Iran, with whom we have lots of problems, will be empowered, I think is quite wrong. I think they'll be greatly diminished.

DOBBS: Richard Perle, thank you for being here.

PERLE: Always a pleasure.

DOBBS: Now let's turn to the results of our poll this evening. Should the United States' next target be Saddam Hussein? Fifty percent of you voted yes. Fifty percent said no. As I've said, while they're not scientific polls, they are remarkably interesting about the attitudes and views of our audience.

"CROSSFIRE" will begin in just a few minutes, speaking of remarkably interesting. James Carville and Bob Novak in Washington -- James.

JAMES CARVILLE, "CROSSFIRE": Well, we've got an interesting show tonight. It looks like the government, like a lot of investors, are going el busto, here. So we're going to be talking about the federal government's financial affairs, or the lack of them, and what can be done about it and whose fault it is, and everything else.

ROBERT NOVAK, "CROSSFIRE": And, Lou, we've got some new evidence on the wildfires in Arizona, that they were caused by liberal insanity. And we'll debate that. And also, you know, this is the -- today is the 20th anniversary of "CROSSFIRE" and we'll have some highlights and some low-lights of the last two decades on this program.

DOBBS: A remarkable two decades, to be capped off by the two of you and your cohorts. I wish to send you, if I may, my most profound congratulations and sincerest hope for another 20. And, Bob, I have to say, only you could find a liberal conspiracy in a wildfire. Thank you, gentlemen, looking forward to it.

NASA today grounded all four of the space shuttles indefinitely. It is because small cracks have been found in the fuel lines of the shuttles Discovery and Atlantis. Scientists say those cracks may pose a safety concern. They fear that a piece could break off and go into the engine during flight. The investigation means the launch of the shuttle Discovery, which had been scheduled for July 19th, will now be postponed for at least several weeks.

Still ahead, my thoughts on trust and a stock index and a changing world. And of course we'll have your thoughts and "Their Words." Stay with us.

(COMMERCIAL BREAK)

DOBBS: As the Nasdaq today crashed back to the lows set after the terrorist attacks last fall, I couldn't help but think of the mood on Wall Street and around the country then. Much of the country of course was still in shock and grieving and angry, and also proud of the fact that the stock exchanges had managed to reopen so quickly, to have restored life to the heart of the financial system in lower Manhattan amidst all the devastation.

President Bush and others told us that our world would never be the same, that we were to engage the enemy in a war that could take years to begin, and within days the military was to launch attacks against the al Qaeda and the Taliban in Afghanistan.

And indeed, that war goes on as our military takes the war to the enemies of civilization around the globe. And if our CNN-"USA Today"- Gallup poll is right, fully half of us now aren't sure we're winning that war. That poll says most of us, indeed, expect another terrorist attack.

And today we learn that consumer confidence has fallen as well, to the lowest point since February. What does all of this have to do with the stock index? Well, we've seen investors, and rightly, I think, lose substantial confidence in these markets because of corporate excesses and abuses -- whether mindlessly high CEO pay or corporate crime, fraud, or insider trading.

All of these crimes against our trust would be bad enough at any time. But now when I think about young men and women around the world and in this country who are fighting a war against those who would destroy us, those crimes have risen to the level of the obscene.

And tonight I feel that that index, which is back to the lows of September, reflects far more than stock prices. Our world has changed. And I hope we soon find the resolve to make it, without question, a change for the better.

Let's take a look at some of your thoughts. Sending corporate criminals off to prison sounds like the right idea to Robert Vargas. He says: "Jailing the few criminals at the top of many public companies would go a very long way toward improving corporate governance."

Of the president's straight talk about the Middle East yesterday, Greg Warwar writes to say: "The president deserves praise and support for his tough comments directed this time at both sides."

A.J. Anderson agrees: "We must recognize that President Bush and his Reaganesqe honesty has placed our country into an honorable position of integrity and truth. Bush made us proud of our leadership."

Not everyone, of course, is proud of the president's vision of the Middle East. Hai Li writes in to say: "We don't need Bush to lecture the Palestinians about democracy... Bush should remember that he won his own election by less than half the popular vote."

We always appreciate hearing your thoughts. Please e-mail us at moneyline@cnn.com. And as always, we ask that you include your name and address.

Those are your words. Let's turn to "Their Words."

(BEGIN VIDEO CLIP)

BUSH: Today I signed a declaration declaring this emergency which then provides for federal help, which means money to fight the fires. It means temporary housing money and long-term housing money. It means help for small business owners.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP, CBS "EARLY MORNING SHOW")

JANE CLAYSON, HOST: Your stock broker was suspended from Merrill Lynch, and that seems to have put more focus on you in this whole situation of you selling your share of ImClone stocks on December 27th. Are you worried that what he did might further complicate matters for you?

MARTHA STEWART, CHMN & CEO, MARTHA STEWART LIVING: Well, again, I have nothing to say on the matter. I mean, I'm really not at liberty to say. And as I said, I think this will all be resolved in the very near future and I will be exonerated of any ridiculousness.

(END VIDEO CLIP)

DOBBS: That's MONEYLINE for this Tuesday evening. We thank you for being with us. For all of us here, good night from New York.

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



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