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President Bush Puts Corporate World on Notice; Democrats Accuse Bush, Republicans of Soft Stance on Corporate Abuse

Aired June 28, 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, President Bush puts corporate America on notice: Shape up or face the Justice Department.

Democrats accuse the president and Republican lawmakers of being too soft on corporate abuse.

We'll have live reports for you from the White House and Capitol Hill.

WorldCom's CEO sends a letter to the president promising cooperation and reform.

Xerox admits it made a $4-billion mistake but says, nonetheless, it is no WorldCom.

We'll have a special report there as well.

The Arizona wildfire is even stronger tonight. It's broken through fire containment lines. Two additional towns tonight are in jeopardy.

And former Enron employees are now the women of "Playboy" magazine.

ANNOUNCER: This is LOU DOBBS MONEYLINE for Friday, June 28th. Here now Lou Dobbs.

DOBBS: Good evening.

President Bush today lashed out against corporate misbehavior. Mr. Bush said companies need to raise the bar and not fudge their numbers. Tomorrow, the president will use his radio address to urge corporate leaders to clean up their acts.

We have two reports tonight. We begin with Kate Snow on Capitol Hill and Senior White House Correspondent John King.

John.

JOHN KING, CNN SENIOR WHITE HOUSE CORRESPONDENT: Well, Lou, the president will be talking about this theme more and more in the days ahead. You mentioned the radio address tomorrow. The president will once again urge corporate leaders to show responsibility, double-check their accounting practices.

Mr. Bush also will travel to New York City on July 9th, CNN is told, and deliver a speech dedicated entirely to the theme of corporate responsibility.

The White House seizing on this story, trying to get the initiative. Mr. Bush saying the government is looking at what it can do administratively. He's urging the Congress to take a look at disclosure rules as well.

Mr. Bush saying he is worried about this theme not only because of the cases of WorldCom and Enron, but he believes it is causing a slowdown in consumer -- a lack of consumer confidence in the stock market and having an impact on the overall U.S. economy.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Corporate America has got to understand there's a higher calling than trying to fudge the numbers, trying to slip a billion here or a billion there and hope nobody notices.,

But you have a responsibility in this country to always be above board. We expect high standards in our schools, we expect high standards in corporate America as well, and I intend to enforce the law to make sure that there are high standards.

(END VIDEO CLIP)

KING: The White House realizing this is not just a policy debate but also a political debate. Democrats making the case in this midterm election year that the president and his Republican Party are to blame for lax regulation, are too cozy with big business. The White House says Mr. Bush is determined to get out ahead on this one and not let Democrats make that case.

Lou.

DOBBS: John, the president calling upon Congress to act here. The White House has been supporting Senator Phil Gramm's efforts to stop reform of accounting and corporate reform on Capitol Hill. How does this all square off?

KING: Well, certainly, since the Enron disclosures and now the WorldCom disclosures, the White House is saying that it is asking the SEC Chairman Harvey Pitt to do more administratively and says it will push in the Congress.

But you're exactly right in that some Democrats on Capitol Hill say there are at least inconsistencies, some say hypocrisies, in the administration's approach. All this now part of a political debate in this midterm election year as well as a very legitimate policy debate over just exactly where is the role of government in telling corporate America how to govern itself.

And, John, the president is undergoing a colonoscopy this weekend. Any word as to why he is going to be under sedation during that examination?

KING: His doctors recommended this, Lou. The procedure can be incredibly uncomfortable. Mr. Bush has had two in the past in which benign polyps have been removed. His doctors say he was sedated at the last one.

They say, number one, sedation minimizes discomfort on the patient. And, number two, they say it allows then the doctors to do a more thorough job because, if the patient is uncomfortable, the doctors tend to rush the procedure.

Everyone here at the White House saying this is a very routine procedure for the president to do this. He has no symptoms at all. He's in superb health, his doctors say.

But he will temporarily transfer power to the vice president. Mr. Bush says that is a wartime precaution, expecting Dick Cheney will be acting president of the United States somewhere in the area of one to three hours tomorrow.

Lou.

DOBBS: OK, John. Thank you very much.

Senior White House Correspondent John King.

Democrats, as John reported, are trying to gain political advantage from these corporate scandals. Today, Senate Majority Leader Tom Daschle said corporate corruption is threatening the economy, and Daschle accused Republicans of backing policies that led to corporate misbehavior.

For more on the story, I'm joined by Kate Snow on Capitol Hill.

Kate.

KATE SNOW, CNN CONGRESSIONAL CORRESPONDENT: Lou, Tom Daschle also said that he's heard from a lot of CEOs over the last couple of weeks, and he said they share his outrage over things like WorldCom. He says they recognize as much as we do, lawmakers do, that, in Daschle's words, there's got to be a change in the laws, the laws need to be strengthened.

He was very clear that you can't put the sole blame on the Bush administration for WorldCom's failure, but he does say that he believes, quote, "a laissez-faire attitude in this administration has helped create the kind of environment that exists today."

(BEGIN VIDEO CLIP)

SEN. TOM DASCHLE (D-SD), SENATE MAJORITY LEADER: There's too much government regulation. There's too much government involvement in the corporate sector. And what we need now is to remove government and all of its presence from any oversight responsibilities.

And, piece by piece, they dismantled the regulatory environment that we had and, in large measure, created this sense of laissez- faire, of just total unwillingness on the part of enforcement or regulatory agencies to play a role.

(END VIDEO CLIP)

SNOW: Now, clearly, Democrats are seizing on this issue, hoping that it might gain them some votes this fall in the election.

While some Democratic strategists have said they're not going to be gleeful about people losing jobs, certainly not, another strategist did say to me this was a lucky break, this WorldCom story.

House Democratic leader Dick Gephardt being even a little more forceful, a little more political than Tom Daschle was. He said -- he suggested that it was the past eight years of House Republican control -- Republican control of the House of Representatives -- that has caused some of the problems because they did nothing about corruption.

And, today, a Republican shot back, invoking Bill Clinton's legacy.

(BEGIN VIDEO CLIP)

REP. WILLIAM THOMAS (R), CALIFORNIA: If you want to find a model for people not behaving morally -- or the way of saying it is: Do the right thing even when people aren't watching -- I think you'll find that the Oval Office has a whole lot more similarity to the board room than the floor of the House of Representatives.

If you're looking for someone who set the moral tone for the decade of the '90s, I don't think you have to look any farther than the former president's behavior.

(END VIDEO CLIP)

SNOW: And Republicans say they are equally upset about what's happened at WorldCom, they too want action, but they simply don't see it as a political problem, Lou.

They say that if Democrats are going to try to play up the little guy versus the powerful in this campaign season, this operative said, well, maybe it will work just as well as it did for Al Gore.

Lou.

DOBBS: All right, Kate. One question on this. Tom Daschle, gleeful or not, referring to the laissez-faire attitude in rolling back regulation. The Telecommunications Reform Act of 1996 was signed by Bill Clinton. How does that...

SNOW: I'm sure Republicans will point to that too, and they have. They've said, "Look, you can't say that the past eight years has been totally under Republican control. You had President Clinton in the White House."

They've made that point again and again when this has come up. And they've also said, you know, for a little while -- well, the Senate's been in control now for a little while of the Democrats. What about that?

Lou.

DOBBS: OK. thank you very much.

Kate Snow reporting from Capitol Hill.

The parole board in California that has been considering whether to release an infamous Manson family member who is serving life in prison for her role in killing sprees in 1969 -- Leslie Van Houten was 19 at the time.

This is a live picture of Leslie Van Houten. She was 19 at the time of those killings. She has faced a parole board 13 times. Each time, she's been turned down. Her parole again has been turned down.

Let's listen in.

(BEGIN VIDEO CLIP)

UNIDENTIFIED CALIFORNIA PAROLE BOARD MEMBER: She, however, had been arrested for auto theft. They were not apparently prosecuted. But she did have prior criminality in that she was a drug user, including LSD, marijuana, methadrine, mescaline, and benzadrine, and this drug use had been going on for at least a couple of years.

(END VIDEO CLIP)

DOBBS: This, the California Parole Board, denying Leslie Van Houten, a member of the infamous Manson family gang, again for a 14th time being denied a request for parole, and her life sentence continues.

"Surprise" and "outrage," the words used by WorldCom's chief executive officer, John Sidgmore, in a letter to the president today.

Sidgmore said he was shocked by the discovery of a $4-billion fraud at his company. He also outlined changes he's making in WorldCom's business practices, and, among those, 17,000 layoffs that started today.

Sidgmore also pledged full cooperation with the various investigations of WorldCom.

And, meanwhile, a Mississippi judge has issued a restraining order that bars WorldCom, its auditors, and its employees from destroying documents. The judge also said he would appoint a monitor to oversee document retention. An SEC order this week only advised that documents be preserved.

Another accounting scandal at Xerox. Xerox will take out nearly $2 billion of revenue that it already reported. An audit showed that Xerox posted those revenues before they were actually made.

Bruce Francis has the report.

(BEGIN VIDEOTAPE)

BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Xerox admits that back in the late '90s, it robbed the future to make the present look better than it actually was. The company is revising five years of results.

Xerox had to restate its financials after settling charges with the Securities and Exchange Commission back in April and paying a $10- million fine.

In a statement, CEO Anne Mulcahy said Xerox today closes a difficult chapter in the company's history. Mulcahy declined to be interviewed for our story.

Rating the stock a buy since November, Peter Ausnit thinks that Xerox can turn around.

PETER AUSNIT, DEUTSCHE BANK SECURITIES: We see Xerox as a company that can earn a substantial amount of money over the next couple of years, especially when business conditions normalize.

FRANCIS: But investors, especially those who bought Xerox during the late '90s, might not find it so easy to forget Xerox's faulty accounting.

As part of its restatement, Xerox now admits it should have booked less revenue in 1997, '98, and '99, a time when the stock was taking off. But the company insists that the sales -- in this case, equipment leases -- are real and that the revenue from the late '90s actually belongs in 2000, 2001, and beyond. For example, 2001 ends up looking better than before by half a billion dollars.

The bottom line $1.9 billion will be taken out of revenues already reported.

But the author of "How Companies Lie" says don't minimize what Xerox did.

RICHARD SCHROTH, AUTHOR, "HOW COMPANIES LIE": I don't think it's a small, little accounting error at all. Companies like Xerox and others who have been named to the Fortune 100 best companies and other such -- have a responsibility to be overtly careful on these kinds of things.

(END VIDEOTAPE)

FRANCIS: Well, former Xerox auditor KPMG maintains that they were careful, putting out a statement today standing by its prior work with Xerox and calling the copier company's restatement an astonishing about-face.

Lou, they're on the fence. DOBBS: The auditor not agreeing with the restatement.

FRANCIS: Not agreeing with the restatement, not agreeing with Xerox, not agreeing with the SEC, not agreeing with PricewaterhouseCoopers.

DOBBS: And we've seen a lot of room for disagreement, but it does make you wonder how anyone can say they were careful when there's an issue of $2 billion.

FRANCIS: Expensive decisions that cost investors a lot of money, Lou.

DOBBS: And we're, unfortunately, getting used to a lot of these decisions that cost investors a lot of money.

Bruce, thanks a lot.

Stocks closed little changed on the day despite the latest scandal. Today marked the end of the second quarter. That quarter saw major indexes register double-digit losses.

Today, the Dow Jones Industrial Average fell more than 26 point. The Nasdaq rose almost 6 points. The S&P 500 dropped almost a point.

Jan Hopkins will have complete market coverage for us in just moments.

Tonight's MONEYLINE quick vote question is about the markets. We'd like to know: Do you believe that this stock market has finally hit bottom? You can cast your vote by going to cnn.com/moneyline -- cnn.com/moneyline -- and while you're there, you can always send us an e-mail as well. We'll have the results of tonight's vote later in the broadcast.

We also want to take this opportunity to take a look at your thoughts on corporate scandals. Susan Christie writes in to say, "With Enron, Arthur Andersen, and now WorldCom, the phrase 'Figures never lie, but liars always figure,' was never more true."

John DePetris, "Why should al Qaeda plan more attacks when we have Enron, WorldCom, Xerox CEOs, CFOs, et cetera, doing what the terrorists would dream of doing? That is destroying the American financial market."

And Brian Scott of Canada says, "Is it any wonder that current anti-globalization protesters have no faith in the current capital system. All they see are thieves, cheats, and liars whose only interest is to enrich themselves at the expense of investors and employees."

We'll have more of your thoughts later in the broadcast. And, as always, you can e-mail us at moneyline@cnn.com. And we always ask that you include your name and address.

Let's turn now to those wildfires raging in the western part of the country. A new danger tonight in Arizona. That massive fire near the town of Show Low, Arizona, has broken through a containment line, threatening a nearby subdivision.

Thelma Gutierrez has more on the story for us.

Thelma.

THELMA GUTIERREZ, CNN CORRESPONDENT: Lou, right now, what's happening is that firefighters are working to establish a fire line to push that fire back. The wind has kicked up a little bit in just the past few minutes, which is not a good thing out there.

Also last night, the fire had moved down the back side toward the town of Heber. Firefighters working day and night to try to hold those fire lines to save those communities. They have felt and they said earlier today that, if they're able to hold those lines through the day, they'll have an excellent chance of saving the communities.

Now, today and tomorrow, the Red Cross and local officials have started what they have called van tours for residents who lost their homes. The residents will only have a chance to view their properties. Because of safety concerns, they will not be allowed to actually get off and go into their property. And officials have said that because of the sensitive nature of those tours, cameras will not be allowed in.

Now, so far, 419 acres of Ponderosa pines have burned up here in the Show Low area, and more than 50 percent of the land that has burned is on the Apache reservation land that has had a devastating impact on tribal members. So far, they say that two sawmills have now closed down. Three hundred jobs out here may be lost. The total estimated value of the timber they have lost: $237-million.

(BEGIN VIDEO CLIP)

LUCI BENALLY, APACHE TRIBE MEMBER: I hope that everyone knows that not only do people in the Show Low and Pinetop areas stand to lose their homes, but our tribe has lost so much and too much. We're talking millions and millions and millions of dollars that will never be replaced in our lifetime.

(END VIDEO CLIP)

GUTIERREZ: A spokesperson for the Apache tribe told me a short time ago that it will a century before they're able to recover from this fire, Lou.

DOBBS: Thelma, thank you very much.

Thelma Gutierrez from Show Low, Arizona.

Well, officials in Colorado are hoping that calmer weather will help their fight against wildfires. Two fires near Durango, Colorado, have burned more than 70,000 acres and destroyed dozens of homes. Those fires are only a third contained.

Meanwhile, an almost 150,000-acre fire near Denver should be fully under control by Sunday.

Coming up tonight, the markets grappling with a surge in earnings restatements by corporate America. We'll assess the potential for more surprises ahead.

Wall Street, once the envy of the world. Now much of the world is questioning our model of capitalism. We'll have that report for you.

We'll assess the challenge that America faces in sustaining the war against terrorism and radical Islamists in our MONEYLINE "Economist" magazine series on American Leadership, New Directions.

And Henry Kissinger will be here to assess America's peace efforts in the Middle East.

All of that and more still ahead. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Two major corporations came forward to make massive restatements in their prior results this week. The question no one can answer tonight is how many more restatements are there.

Peter Viles has the story.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): As one-two punches go, this was an awfully expensive combination. WorldCom, then Xerox, $6 billion worth of crummy accounting. The number of corporate revenue and earnings restatements had already been rising, spiking much more sharply in the recent economic downturn than it did in the last one.

So the question investors are asking: Is this the peak or just the beginning? Clearly, the SEC is not ready to declare victory on bogus bookkeeping.

HOWARD SCHILIT, CENTER FOR FINANCIAL RESEARCH & ANALYSIS: The work of the SEC is beginning to pick up speed. They have something like 65 current investigations. The SEC just got a big increase in their budget. And I think the pressure continues to be on the SEC and other regulators to clean up the mess.

VILES: The SEC last night took action that will force CEOs to swear, under oath, to the accuracy of earnings reports, a tough step intended to flush out any accounting scandals that are hiding in corporate books.

LYNN TURNER, FORMER SEC CHAIRMAN: Harvey Pitt has to go a step further and say, "Not only do I want you to sign on the bottom line here when you send in your next set of financial statements, but you need to understand that if those turn out to be wrong, we are going to turn around and send you to jail." VILES: That's a good point, but Harvey Pitt has been there and said that. Here's what he said this week when asked what happens if these sworn declarations turn out to be false?

HARVEY PITT, SEC CHAIRMAN: You go to jail because it's fraud if you certify it and it's false.

(END VIDEOTAPE)

VILES: In light of this tough talk from the SEC, there is some speculation we may actually see more restatements in the coming weeks than we would have otherwise.

Corporate America basically has six weeks to get its books in order. Then beginning in mid-August CEOs will have to swear under oath that those books are the truth.

Lou.

DOBBS: It's a shame that it's come to this, but Harvey Pitt's idea here in terms of signing and swearing to those financial statements -- it may turn out to be the solution here or a big part of it.

VILES: It's a way to make everybody say, "Come forward. All those who have not committed accounting fraud, step forward." It was the president's idea originally.

DOBBS: OK. Pete, I appreciate it. Thank you.

The scandals sweeping across corporate America are raising big questions about the effectiveness of the model of capitalism, its practice in this country. International investors, some of them, are reluctant to put are put their money in this country, and American accounting practices are being challenged as never before.

Kitty Pilgrim has the story.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): For years, the American business model was touted as the best in the world, U.S. General Accounting Principles superior, and corporate governance the most advanced. With debacles at Enron, ImClone, Tyco, and Adelphia dominating U.S. headlines, Europeans are starting to gloat.

"In America, all that glitters is not gold," Deutsche Bank's former CEO Rolf Breuer said in a speech this week. But America's system was golden for a while and had the numbers to prove it. Unemployment lower than in Europe, capital markets in the U.S. outperforming Europe, higher productivity numbers, and a strong dollar.

But now the dollar has fallen about 10 percent against the euro so far this year. Markets are foundering, and the highly touted accounting standards being reexamined under a congressional microscope, enough to make the White House defend the American way.

ARI FLEISCHER, WHITE HOUSE SPOKESMAN: The president believes that America's free enterprise system is a system that's done very well for the American people, it's led to much comfort, it's led to a strong way of life for the American people.

PILGRIM: And a look at the markets shows, over the last two years, the Dow held up better than stock indexes in Frankfurt, London, and Paris, down 28, 38, and 42 percent respectively.

Some point out the U.S. business model is always evolving and improving from its missteps.

ROBERT SCHILLER, YALE UNIVERSITY ECONOMIST: From decade to decade, we learn more and more about how to run corporations, but part of the process involves experimentation, and experimentation has unpredictable consequences, and some undesirable consequences, and so we are -- from one decade to the next, we have to straighten out these errors as well.

(END VIDEOTAPE)

PILGRIM: So, in the past few months, there have been changes in the way overseas companies are operating, and Europeans are now pushing for more independent board members and greater transparency, and the CEO incentives are also being reexamined. In short, the growing pains are being felt all around.

Lou.

DOBBS: But still free markets and freedom. It's working.

PILGRIM: It's working, and...

DOBBS: A little rough at times.

Kitty, thanks a lot.

Kitty Pilgrim.

Still ahead here, the final part of our series with the "Economist" magazine. Tonight, we look at the challenges facing the United States in sustaining the war against radical Islamism and terror.

Blue chips fizzle on the last day of the second quarter. The NASDAQ ends slightly higher, but a tough quarter it was. We'll be telling you about that.

And the women of Enron reveal their talents with the help of "Playboy" magazine.

All of that and more still ahead. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Stocks closed the second quarter little changed on the day despite this latest accounting news from Xerox.

Jan Hopkins has the market for us now.

Jan.

JAN HOPKINS, CNN CORRESPONDENT: Lou, given all of that, it was not a bad showing for stocks.

The market basically added to yesterday's rally. But the Dow did slip into negative territory just before the closing bell when the president announced he would transfer power to the vice president during his colonoscopy tomorrow at Camp David.

For the day, the Dow was down, and it was down for the sixth week in a row. Nasdaq ended the day and week higher. The S&P slipped slightly.

Christine Romans is at the New York Stock Exchange, and Greg Clarkin is at the Nasdaq.

Christine?

CHRISTINE ROMANS, CNN CORRESPONDENT: Well, Jan, another volatile day and two-billion shares traded today to close this quarter.

Xerox, as you'd expect, lost 13 percent because of that restatement, but NIKE soared after strong fourth-quarter earnings. Auto stocks rallied today on hopes for a rebound in June car sales. And Philip Morris gained after a terrible week. It's still down 16 percent this quarter, though. Tyco also gaining today on high hopes for its CIT IPO.

But it's been a lousy quarter for Tyco, down 54 percent. Take a look at AOL, parent of this network, AT&T, IBM, and GE, all widely held stocks, all suffering sharp percentage losses over the past three months.

Now to the NASDAQ and Greg.

GREG CLARKIN, CNN CORRESPONDENT: And, Christine, fairly quiet day for news in big name tech stocks.

Take a look back on the quarter. See how those big cap technology stocks fared. Take a look at Sun Microsystems down almost 43 percent for the second quarter. Intel down almost 40 percent. Oracle losing almost 26 percent. You had Cisco with a 17-percent loss. Microsoft down 8.6 percent.

But you want to talk about stability? How about Dell Computer? It began the quarter trading at $26.11. It ends the quarter trading at $26.14. That three-penny gain makes Dell Computer the best- performing big cap technology stock for the second quarter.

Jan, back to you.

Thanks, Greg. HOPKINS: The Nasdaq just finished its worst half-year on record. It is down 25 percent for the year so far, and I think investors don't need to be reminded that this is the third year in a row that the Nasdaq is lower.

For the S&P, this is the first half-year in 30 years, a loss of 14 percent.

But, Lou, a new quarter begins on Monday.

DOBBS: Something to look forward to, as I'm sure just about everybody is.

Jan, thank you.

Well, accounting scandals, of course, are the focus this week. Corporate misbehavior at WorldCom, Xerox dealing another blow to investor confidence. Investors wondering just what in the world is going on and what's next.

With me now in the studio is Steve Forbes, the editor of "Forbes," Mark Morrison, editor of "BusinessWeek," and joining us from Los Angeles, Bill O'Neil. He is the main man at "Investors Business Daily."

And it's good to have you all here.

Let me begin, if I may, Bill, with you. This market behaving, at the very least, badly in the face of bad news on earnings and scandals. What's going on, in your judgment?

BILL O'NEIL, "INVESTORS BUSINESS DAILY": Well, I think that it's the aftermath of the big tulip bulb craze that went on in '98 and '99. In Holland, everybody bought tulip bulbs and they went crazy over them, and it all blew up. And that's what happened in high-tech and biotech.

DOBBS: I was thinking more, Bill, about this week. We found out about the tulips a long time ago.

O'NEIL: Yes. Well, this week, the Nasdaq has been going down since January 1. It's had three waves down and this last one is a little steeper, and it undercut a low. But I think you picked up some short selling and there's been an awful lot of news. So you're probably in along the lows.

The market has really shifted to consumer stocks. So I'm not so certain that these fallen leaders in the high-tech sector are absolutely essential for a market that's slowing to gradually recover over time.

DOBBS: Mark, your thoughts?

MARK MORRISON, MANAGING EDITOR, "BUSINESSWEEK": Well, I think the market reacted pretty well considering the extent of the bad news this week. The WorldCom and Xerox announcements were quite shocking. Yet the market, after that news, acted fairly well, was fairly stable.

And I think that in a selective way, the market did maybe punish some of the companies that -- where accounting questions are still lingering, the ones that use...

DOBBS: Amongst those that are...

MORRISON: EBITDA, the ones that have pro forma accounting and have pushed that concept. Those -- the market reacted more in a selective way than in a general, panicky way to the news.

DOBBS: Steve?

STEVE FORBES, EDITOR, "FORBES": I think that's generally right. I think the market is reaching a bottom. I think the more pessimism there is, the quicker this thing is going to turn around. But one of the things I think that's weighing on the market, it's not the spate of scandals about corporations, but a sense that perhaps we're not waging this war on terror as vigorously as we should. I think if we went after Iraq and seized those oil fields, I think you'd see the market really move up.

DOBBS: It's interesting that you would connect those two. We did have polls this week suggested only 1/3 of Americans believe that we're actually winning this war. What do you think of that idea, Mark?

MORRISON: I don't think that's bearing a lot on the market right now. I think that the market is taking maybe some comfort from the fact that the government and corporate America seem to be taking seriously this mess that's been going on in bookkeeping and in governance. And that some serious reform is going to come out of this at the other end. That may take some time, six months or a year from now. Though I think...

DOBBS: Do we have time? I mean, that's the intriguing question to me. Bill, let me ask you to come in on this. Do we really have time? If we're interested in restoring investor confidence, do we have time to watch this play out and to see how many more are out there?

O'NEIL: I think the problem is, when you go through a severe correction that's prolonged, you have to do something to stimulate the economy extra. It's more like '73, '74, even a little bit like' 29. And I think that you should accelerate some of these tax cuts.

They should set up a new act to give tax breaks to people who start a new business. That doesn't mean for all investors, necessarily. But let people who start a new business only have to pay half the normal tax, and the owners and founders and employees that own stock, maybe when they sell the stock over the first 10 years, to only pay half the capital gains. This would start a big boom in new companies.

(CROSSTALK)

DOBBS: I'm sorry. Go ahead, Bill.

O'NEIL: I think you need some extra stimulus because you're going to come out of this very slowly. You'll come out of it, but you're not going to come roaring out like nothing ever happened.

DOBBS: Steve, your thoughts on this? More targeted investment tax credits, more -- I can't imagine you resisting that suggestion.

FORBES: No, my objection would be to the targeting. Why not just have an across-the-board cut on the capital gains tax? That's what we did in the mid 1990s and it worked. We shouldn't forget that the so-called booming '90s, the first half was the worst economic recovery from recession since the '20s.

DOBBS: You're absolutely right. It's easy to forget that. So you'd like to see it addressed through capital gains. How about the idea of a broader investment tax credit?

FORBES: Well, I think the key is for tax credit, rather than trying to play games like we did in the early '60s with tax credit on, tax credit off. People have got to believe this is permanent. And moving up, as Bill suggests, the anemic tax cuts they passed last summer, which are fairly small, make those effective now, that would help too.

DOBBS: Well, investors and the audience of this broadcast, there is a real sense that we get here, that people want to see real results. They're concerned about the integrity of the markets. They're concerned about transparency. They want to see real results from corporate America.

Mark, you were talking about the EBITDA stocks, the pro forma, if you will, companies and stocks. Real earnings -- is there going to be a lasting adjustment here, do you think, to companies that just make money?

MORRISON: I think there is going to be. and that's one reason why I guess I'm a little bit of a good news guy about the WorldCom and Xerox news. I think that this has helped push the administration and corporate America to believe that this was not just a case of a few bad apples, but there really is going to have to be some serious house cleaning done.

And the alternative is, what? To kind of slide by this episode. And then we go back to business as usual. And a year from now, or two years from now, we have a worse problem.

DOBBS: We're going to come back with Bill O'Neill and Mark Morrison and Steve Forbes, and talk about why the sudden urgency about corporate reform. And we'll decide -- or these three gentlemen will decide whether this is the fault of the Democrats or the Republicans. Stay with us.

(COMMERCIAL BREAK)

DOBBS: We're back with Steve Forbes of "Forbes" magazine and Mark Morrison of "Business Week" and Bill O'Neil of "Investors Business Daily."

Gentlemen, as I said at the break, we want to find out whose fault this is, Republicans or Democrats. But first, the question that we're asking our audience tonight is, has this market bottomed? And, Bill, very quickly, has this market in your judgment bottomed?

O'NEIL: I think it probably has. But if it doesn't, I think the government needs to step up and lower some taxes and do a few things, because there's too much fear and it's been going on too long. And we don't need to have it. It's down in along what ought to be the bottom. And there was only the Nasdaq that's been exerting the real pressure.

DOBBS: Mark?

MORRISON: I don't see a bottom yet. I think this is a bear market and we'll have to wait and see. We're bumping along at a pretty low point but valuations are still high. I don't see a real turn yet.

DOBBS: And, Steve, just moments ago you used an expression, "searching for a bottom." How goes the search?

FORBES: I think if we're not at it, we're very near it. I think investors who like to play timing games should start to be going back in. I think we're going to have a rally fairly soon. The more pessimism there is, the better the market's going to do.

DOBBS: One would hope that we would not see a greater wall of worry confront us than this, or greater pessimism. Who do we blame here? Mark, Republicans or Democrats?

MORRISON: Certainly politicians are partially to blame. They were on the ride with the investors and with the accountants and with the executives. And all of us, even the media, were on the big ride in the late '90s, when all these excesses and shortcuts began.

So, as far as Washington goes, I don't pin the blame on either party. I think that, obviously, the Bush folks are having to change their tune very dramatically because their view of letting the markets do all the regulation is not working.

DOBBS: Looks like there may be an interest in some outcome other than a market result, in the case of Enron, for example. Bill?

O'NEIL: Well, the market topped in March of 2000. So you can blame it on either party you want to. But human nature is human nature. And every single bear market I've ever seen, every single recession, has a few companies go bankrupt, a few people that are doing something dishonest get caught.

And the SEC does a pretty good job. Sooner or later they'll catch most of these people. So I don't think you can blame it on one party or the other.

DOBBS: OK, Steve? FORBES: Well, I think if you want to look at the tone of the '90s, it started right at the top, at the White House, where the attitude was anything goes. If you get caught, spin your way out of it. The only thing they didn't resist -- they could resist everything except temptation. So it started at the top.

DOBBS: And how about Wall Street, the investment bankers, the analysts, all of the commercial banks supporting these deals?

FORBES: There was an attitude that there are no more rules, that you could push the envelope, get to the edge, fall off the edge. The parachute would protect you. And results was what counted. Short- term results is what counted. And we're having the hangover.

MORRISON: We also have to look at where the money was coming from, from a very sophisticated group of institutional investors who run money for states and pension funds and the rest, who were just very happy to invest in the Enrons of the world when they couldn't even understand the business or the reports.

(CROSSTALK)

DOBBS: Bill, you get the last word on this thing. Do you like the idea of all these sophisticated money managers now suing to correct the market's correction, if you will?

O'NEIL: Well, I think the biggest problem, it's sad for the public. Most investors don't really know how to invest in a sound way. They don't really know how to protect themselves in poorer periods. And I'm hoping that they'll realize this and start trying to study and learn more about how to select stocks, how to sell them, how to handle them, rather than just accepting what anybody else says.

DOBBS: That was perhaps an acceptable approach when we could watch 25 percent gains. It's a little different world, as you suggest, Bill. Bill O'Neil, thanks for being with us. Mark Morrison, Steve Forbes, appreciate it.

Coming up next, challenging questions ahead for the United States in the war against terrorists and radical Islamists. We'll have the MONEYLINE "Economist" magazine special report for you next, in "America: New Directions." Stay with us.

(COMMERCIAL BREAK)

DOBBS: The continuing MONEYLINE "Economist" magazine series on "American Leadership: New Directions." Tonight we take a look at the challenge ahead for the United States in sustaining this war against terrorism and radical Islamism. We are examining whether America has the will to go it alone if necessary -- politically, economically and militarily.

(BEGIN VIDEOTAPE)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Today, our fellow citizens, our way of life, our very freedom came under attack. DOBBS (voice-over): The president's war on terrorism has set the stage for a new American era. But it's also created challenges to the United States on two fronts: to our political and military power, and to our economic strength.

The president's coalition has been strained and tenuous from the beginning. India, Pakistan, both important members of that coalition, and both nuclear powers, went to the brink of war. France, always uniquely independent in coalition, seems more aligned at times with Iraq.

Other European nations, including our closest ally, Britain, at best seem uneasy about U.S. policy in the Middle East.

JAMES A. BAKER III, FMR. SECRETARY OF STATE: I think as we move forward in the war on terrorism, which is going to be a long and strenuous struggle, we're going to suffer coalition fatigue. We're suffering it because of the Arab/Israeli conflict, we're suffering it because of the issues between India and Pakistan.

BILL EMMOTT, EDITOR IN CHIEF, "THE ECONOMIST": I think Colin Powell has it right. He says that the important thing is to keep talking, to tell your allies what you're doing, why you're doing it. But not necessarily give them a veto about what you're doing.

BAKER: The surest and best test of a great power is the ability to do something unilaterally when your national interest requires it.

DOBBS: American leadership in this new era may require the United States to go it alone in response to the threats posed by both Saddam Hussein and Osama bin Laden.

EMMOTT: I think that to make sense of Osama bin Laden's terrorism, you have to assume what he'd really like to do is to emulate Lenin. Lenin was a terrorist who became powerful because he got Russia and took over Russia. Osama bin Laden is just a terrorist right now. He can only get powerful by getting Saudi Arabia or Pakistan or some other country.

DOBBS: Kenneth Pollack is a former CIA military analyst. Pollack says the time for half-measures against Saddam Hussein is passed.

KENNETH POLLACK, COUNCIL ON FOREIGN RELATIONS: I think a full- scale invasion is going to be big. It's going to be costly. A lot of people are going to lose their lives in it. That said, I do not think that it would be nearly as costly as fighting a war against Saddam Hussein once he has acquired nuclear weapons.

DOBBS: The world's only superpower, which is also the world's wealthiest nation, will without question be burdened by the rising costs of a global conflict with elusive enemies. The cost of fighting the war this year will top $76 billion.

Still, if the Bush administration wins congressional approval of its entire defense budget increase, that budget will still be near historic lows -- less than half what it was during the Cold War, as a percentage of the U.S. gross domestic product.

BAKER: The world has asked a lot of U.S. economic engine for a long time. Over the course of the past 10 years we've been the only real source of global growth.

UNIDENTIFIED MALE: Our heroes will now open the marketplace.

DOBBS: America's economic strength is the foundation and engine necessary to drive this war. That's why business scandals like Enron and WorldCom threaten more than just confidence in the markets and the economy.

EMMOTT: After the bursting of the stock market bubble and all the abuses at Enron and Global Crossing and Tyco, and all of those, I think America's going to have a bumpy couple of years. During that period, America's confidence in its ability to continue to fund defense spending and desire to go out in the world could get dented at times.

DOBBS: The economic costs and political risks of this conflict will be great. But the need to win the war is imperative. And so is the opportunity to achieve global peace and prosperity, based on traditional American values of democracy and free markets.

EMMOTT: America has the chance to reshape the world in a whole lot of positive ways in the next few years. The question is whether it will continue to have the motivation to do it and permission from the rest of the world. My belief is that it will have both.

(END VIDEOTAPE)

DOBBS: The new edition of "The Economist" magazine is devoted to the changing role of American leadership since September 11th. Called "America's Place in the World," it's on newsstands now.

And coming up next here, the results of our MONEYLINE poll on whether you think this market has finally hit bottom.

And, how the collapse of Enron has given three women the chance to profit from corporate failure. Stay with us.

(COMMERCIAL BREAK)

DOBBS: And this just in to CNN. The Walt Disney company, according to Reuters, will restate its 2000 and 2001 earnings. That according to SEC filings. The Reuters again reporting that Disney will restate its earnings. And the reason for that restatement, according to those SEC filings, is a math error.

Turning now to another developing story, explosions heard tonight in the West Bank town of Hebron. Palestinian security sources say 75 percent of the Palestinian complex was destroyed. Israeli troops have been outside the complex for several days now trying to negotiate the surrender of Palestinians.

Meanwhile, President Bush's Middle East plan has met with some skepticism at the G-8 summit this week. As you know, G-8 leaders agreeing with the call for Palestinian statehood. But some saying it's up to the Palestinians to choose their leaders. Joining me now to talk about this new initiative is the former Secretary of State Henry Kissinger.

Henry, good to have you with us here.

HENRY KISSINGER, FMR. SECRETARY OF STATE: Always good to be with you.

DOBBS: I know you were in Europe when the president put forward the initiative. First, what is your reaction? Is it a reason for hope?

KISSINGER: Well, the president made clear that there isn't one plan you can put forward for a negotiation until you have partners that you can have some confidence in. And I think that was an important contribution.

And in the next phase, once some progress is made in that direction, I think in the next phase, there will be progress in negotiations. And I think what needs to happen next is that the moderate Arab countries assume some responsibility for the domestic changes that the president spelled out for the Palestinians.

Because the Palestinians will not be able to do it by themselves under present conditions. And that way, there would be created a negotiating partner.

DOBBS: Is it your sense that Saudi Arabia, in particular, Egypt, Jordan, have both the capacity and the will right now to be a positive influence on any reform that the Palestinian Authority must undergo to make it possible for statehood, even on an interim basis?

KISSINGER: Well, they have the ability. And I think they are developing the will to do this. Probably they will insist that there's some progress in negotiation -- or some negotiations being conducted. before the whole process of internal change in the Palestinian areas is completed. But I believe that they are becoming very restless with the impact on them of the continuation of suicide bombing and turmoil.

DOBBS: And for the Israelis, the president's insistence that the settlements, the construction of settlements, stop on the West Bank and in Gaza, that there be effectively a roll-back to the pre-'67 war borders. Is that a reasonable, and do you think possibly productive, initiative?

KISSINGER: I think perhaps, yes, I think it is. I think the president has called attention to the fact that you cannot go from here to a final settlement. You have to begin by restoring conditions in which normal life can start again.

And this is why he's urged the Israelis to go back when the Palestinians have made their changes, to the conditions that existed when this whole crisis started. And also to end any new settlement activity. I think this is a reasonable basis on which to begin negotiations.

DOBBS: Dr. Henry Kissinger, thank you very much for being with us, as always.

KISSINGER: Pleasure to be on.

DOBBS: Let's take a quick look now at the results of our MONEYLINE poll. Tonight's question: do you believe that this stock market has finally hit bottom? Twenty percent of you said yes, 80 percent said no. And, while not scientific, a fair indication. And I must say that the market doesn't seem to be arguing with the results of this poll.

Coming up next, the "Dobbs Report." A few thoughts about the rising political temperature and posturing in Washington about corporate scandals. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Well, after the scandals at Enron, three enterprising former Enron women have decided to exploit their misfortune by trying to improve their fortunes, appearing in "Playboy" magazine. And they're cashing in rather neatly in a whirlwind media tour which has led them, of course, to New York City. And they are, should you be interested, appearing in the August issue of "Playboy" magazine.

Well, Enron, Global Crossing, Tyco, Rite Aid, Qwest, Adelphia, ImClone Systems, now WorldCom -- the Democrats have discovered a campaign issue, corporate abuse. The Senate majority leader says the issue will play in every state this November. Tom Daschle today charged that the Republicans -- quote -- "dismantled the regulatory environment we had and, in large measure, created the sense of laissez faire," end quote.

Even Al Gore wants to play, saying at a fund raiser here in Manhattan this week that the president's tax policies resemble the outbreak of accounting fraud.

I don't want to be a spoilsport here, but did either Mr. Gore or Senator Daschle notice that these multibillion dollar corporate restatements go back to 1997? That the telecommunications act was 1996?

And now, of course, President Bush wants to put them in jail and the treasury secretary wants to hang them high. George Bush and Paul O'Neill talking about corporate criminals, not the Democrats. The president is siccing the Justice Department on the bad guys and the SEC is investigating just about every major company in the country.

Again, I don't want to be a spoilsport here, but does the Bush administration forget that it's been supporting Senator Phil Gramm's efforts to stop accounting and corporate reform on Capitol Hill for months now?

Do the Republicans and the Democrats both realize that the American investing and voting public is aware that it's been six months since Enron went bankrupt, and none of those House or Senate investigations -- of which there have been a dozen -- have amounted to anything to this point? That there have been no charges brought against a single Enron executive?

If the Republicans and the Democrats are serious about reform now, at last, then their actions will have to be at least as vigorous as their campaign rhetoric.

That's MONEYLINE for this Friday evening. Thanks for being with us and have a very pleasant weekend. For all of us here, good night from New York.

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