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Dow Takes Sharp Plunge; Corporate Responsibility Overtakes Political Spotlight

Aired July 19, 2002 - 16:00   ET


JUDY WOODRUFF, CNN ANCHOR: I am Judy Woodruff in Washington where anxious eyes are following the financial markets and the plunge of the Dow.

JOHN KING, CNN SR. WHITE HOUSE CORRESPONDENT: I'm John King at the White House, with a CNN investigation of George W. Bush, the businessman.

BROOKS JACKSON, CNN CORRESPONDENT: I'm Brooks Jackson in Washington. Some candidates who used to be business executives are getting hit with TV spots accusing them of Enron style ethics. But are those ads true? If they're not, I'll zap them.

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: I'm Bill Schneider in Washington where scoring the political play of the week is an art.

ANNOUNCER: Live from Washington, this is "Inside Politics" with Judy Woodruff.

WOODRUFF: We begin with more on the Dow's plunge of just about 400 points today and the crisis of confidence in the economy. Let's quickly bring back "MONEYLINE"'s Lou Dobbs. Lou, I have been listening to your analysis. Is there a message in what we see happening today for Washington's policy makers?

DOBBS: Oh, there most certainly is, Judy. And I think they've have gotten the message. The fact is that Congress, both the Senate and the House moving legislation through this week, now in conference committee to deal with corporate reform, reform of the accounting industry, establishing an oversight board, trying to deal with conflicts of interest on Wall Street. They've gotten that message.

The president has given two speeches in the past two weeks on corporate integrity and reforming the way business does business in this country. So I think they've got the message. Whether or not we're going to see substantive reform and real accountability, that is the arrest of corporate criminals, that remains to be seen. It's also on the minds of investors.

WOODRUFF: Lou, in the meantime, is there anything out there to given investors heart?

DOBBS: There's a great deal to given investors heart. At the very least, we have an economy that is in recovery. It is a moderate recovery, as Alan Greenspan testified before the House and Senate this week. But nonetheless, it is a recovery. There is weakness to be sure. But the market itself, fundamental to the economy, this market is being weakened by not only lower earnings than anyone would like, corporate earnings, but also by the lowest levels of trust in corporate America in decades.

WOODRUFF: And finally, Lou, at a time like this, to whom do people turn for advice on what to do?

DOBBS: Well for advice, I would suggest that everyone begin to take their own counsel here. We have gone through a period in which people were expecting to be able to look at a 401(k), Judy, and see a 20 percent return as if it were an automatic and God-given right. Obviously, that's reversed itself.

We've seen $7 trillion in wealth ripped out of this stock market. And that's out of the pockets and the accounts of investing Americans. Individual responsibility here, taking charge of your own investments to lay the foundation for your retirement, for your children's education and for your own well-being.

WOODRUFF: All right, Lou Dobbs, I heard you giving that message just a few minutes ago. I think it is one people have got to listen to. Thanks a lot.

DOBBS: I hope so. Thanks, Judy.

WOODRUFF: Thanks again.

Well, as the markets brace for a new week of trading and more anxiety, corporate fraud and responsibility, as you just heard, are likely to remain in the headlines. WorldCom reportedly may seek bankruptcy protection in the next few days, further fall out from that company's accounting scandal. This filing would be the largest of its kind in U.S. history.

President Bush who visited with troops in New York state today will talk about economic security and corporate responsibility in his Saturday radio address.

Our John King at the White House who's been watching this story and others all day long, John, what is the president going to say tomorrow? What can he say at this point?

KING: Well, Judy the market's only complicating the president's task and increasing the urgency as the president, White House press secretary Ari Fleischer said today, will use most of his radio address tomorrow to urge the Congress to move quickly on that corporate corruption bill, the corporate responsibility bill. New measures, as Lou Dobbs just saying, was discussing, one way to give investors confidence is to give them some belief that the government will put those committing fraud in jail.

The president will urge Congress to pass that bill and get it to him as quickly as possible. Now the White House doing that, adding it to the president's radio address, after the House Democratic Leader, Dick Gephardt said this week it could take as long as two months to get the legislation here to the White House. But the president also has a problem with Republicans too. Many Republicans in the House don't agree with some of the provisions in the Senate bill. So there has been talk of a lengthy conference as the House and Senate try to work out their differences. This White House saying that in the days ahead it needs to work not only publicly, pressuring Congress in general to act quickly, but will have to perhaps twist some arms behind the scenes to get the Republicans to move quickly, get a bill here to the president's desk. They hope that would be one step to inspire a bit more confidence in the markets.

WOODRUFF: All right, John King at the White House. And, John, we're going to have you back in just a few minutes because you have an investigative report on President Bush's business history. Thank you, John. We'll see you in a few minutes.

Well, if you needed any more evidence that corporate responsibility has become a major political issue, you only need to check out the latest crop of campaign ads. Our ad zapper, Brooks Jackson, looks at some of those spots and whether they are any more truthful than some companies cooked books.



JACKSON: With just days to go before the primary, consultant Deno Sedar's (ph) candidate is attacked as a shady Enron style business executive. A response is needed now.

UNIDENTIFIED MALE: Usually, it is important to respond immediately to an ad if you think it is dishonest.

JACKSON: The attack practically accused Sedar's (ph) client, Democratic congressional candidate Fran Marcum, of criminal misconduct. Watch.


UNIDENTIFIED MALE: Corporate executives out of control, even if Tennessee. Criminal investigators caught CEO Fran Marcum's company red-handed, wrongly billing taxpayers $7 million. Millionaire Fran Marcum's company, false claims, fake invoices.


JACKSON: Criminal, false claims, sounds awful. But it's not the whole story. Marcum's family company, Micro Craft, which conducts wind tunnel tests was indeed accused by auditors from NASA of submitting what they called dummy invoices and false claims, 98 of them, totaling well over $7 million by billing NASA before work was complete.

But the work was eventually done and the actual loss to taxpayers was put at less than $152,000, what the government lost in interest by paying too soon. And when the U.S. attorney got the case, this was in 1999, no lawsuit was filed, let alone criminal charges. Micro Craft paid $214,462 to settle the charges, but admitted no guilt and still does business with NASA. Marcum's opponent hopes to ride a wave of public reaction to business scandals.


Lincoln Davis, fighting corporate fraud.


JACKSON: Even if it takes exaggeration to do. And it's not just Democrats attacking Democrats. Former Senator Gordon Humphrey is attacking the business record of his opponent in New Hampshire's governor gubernatorial primary.


UNIDENTIFIED MALE: Can you trust Craig Benson's record? Employees did and his company eliminated 85 percent of its new Hampshire work force.


JACKSON: Benson is the multimillion founder of Cabletron, once a high-flying computer networking company with a history of trouble with the Securities and Exchange Commission.


Repeated federal investigations, press reports of questionable accounting, his company stock plummets 90 percent. Retirements are threatened but not Craig Benson's.


JACKSON: Sounds like another Enron. But parts of this ad also are exaggerated. Local news media say Cabletron's lay offs don't add up to 85 percent. And a Benson spokesman says Cabletron employees were allowed to put no Cabletron stock in their 401(k) retirement unlike Enron's.

And while records show the SEC did force Cabletron to restate earnings while Benson was CEO, it was to report higher profits and lower losses, good news for shareholders. But, Benson still sits on the board and audit committee of a troubled successor company, Enterasys, whose stock plunged nearly 90 percent after disclosing in April that it's under SEC investigation for accounting irregularities. So the Humphrey ad...


UNIDENTIFIED MALE: Repeated Federal investigations, press reports of questionable accounting.

(END VIDEO CLIP) JACKSON: ... contains some truth that could cause trouble for Benson.

(on-camera): The question for voters is this, whom do they trust less? Business executives who cook the books or politicians who can't resist bending the truth in attack ads.

Brooks Jackson, CNN, Washington.


WOODRUFF: Question are the Democrats likely to profit politically from corporate controversies in the market slide? Up next the two party chairmen go head to head on that question. And the election '02 outlook.


WOODRUFF: The two major party chairmen are with me now to talk about the politics of corporate responsibility and the upcoming midterm elections. Republican Mark Racicot is in San Francisco. Democrat Terry McAuliffe is here in Washington. Gentlemen, both of you have corporate ties.

Terry McAuliffe, you were invested in Global Crossings. It's now under investigation by the SEC. Mark Racicot you lobbied for companies including Enron. My question to both of you, is are you both appropriate spokesman for your party on these issues? Terry McAuliffe.

TERRY MCAULIFFE, DNC CHAIRMAN: All can I tell you is Republicans keep talking about Global Crossing. I was merely an investor. I never worked for the company. I was not on the board. I was never an officer. I was fortunate to be an investor in that company and I feel bad for everybody who lost money and the shareholders that lost money, that people lost their job.

Judy, I merely invested. I was like millions of people who owned stock in companies and had no say over the management, how the company was run. We can't hold people accountable just because they hold shares of a company.

WOODRUFF: Mark Racicot, you lobbied for several companies including Enron.

MARK RACICOT, RNC CHAIRMAN: Well, I performed legal services for Enron. But let me say plainly that Terry McAuliffe is imminently well qualified to speak for the Democratic party. The fact of the matter is, we all ought to in this country make certain that we avoid the kind of suggestion or innuendo or implication that somehow impunes the character of people for having been associated with some kind of a business entity and there's no proof whatsoever to suggest anything inappropriate. That's the case with Terry McAuliffe. It's the case with me. It's the case with the president. It's the case the vice president. People ought to quit trying to opportunistically take advantage of this particular issue. WOODRUFF: Let me ask you both about this. At a time when we're talking about corporate responsibility, both of your parties are taking enormous amounts of money from corporations. Over the last 10 years, the Republicans have taken in over $635 million. The Democrats have taken in $450 million. Is there -- where is the truth when both parties are going after this money at the same time you're saying corporations clean your house.

RACICOT: There is no causal connection between contributing to the possibility for the American people to talk to each other and to carry on the political activities of this nation that are assumed in our constitution. There is no connection between allowing for that opportunity to continue through a contribution and a specific policy decision as a result of your participation in that effort. I have never seen where there has been a causal connection between the two that just automatically occurs.

WOODRUFF: Terry McAuliffe?

MCAULIFFE: Judy, just because a political party raises money, you insinuate there's something wrong with it. The issue is not how much money you raise, but the issue is, what do you get for your contributions which is a totally different question than you had asked.

But in our political process, people raise money. They put on television ads, they build field organizations, grassroots operations, run campaigns, get their messages out and listen, these corporations are in trouble today. And today we know there is probably 10 or 12 that we've known that possibly were involved in cooking their books. There are 17,000 companies today that are publicly traded.

Let's not put a broad brush against America's business out there because of a couple companies. We have many great CEOs in this country who do a great job everyday creating shareholder wealth, creating jobs. And we just need to be careful because jobs are out there to be created. Businessmen and women are out there to create jobs today.

WOODRUFF: On a separate take of this whole question of corporate responsibility, Mark Racicot, today in the "Washington Times," a Republican state party chairman is quoted on the subject of whether the Republicans are vulnerable on this whole question of corporate responsibility. He said we did it to ourselves. We nominated two people at the top of the ticket, president and vice president who have very close ties to business. Is this a vulnerability for your party, and are your party officials worried about it?

RACICOT: Well, I salute Chairman McAuliffe's statement, this previous statement that he made, suggesting to some people in this country that somehow because there are a few who abuse the trust that was reposed in them that somehow that is a wholesale problem that applies to virtually everyone is patent nonsense. And the fact of the matter is, you can find people no better or more well qualified to serve this nation than those who have been involved in the management, making day-to-day decisions in our business entities around the country Whether they're from large businesses or small businesses.

WOODRUFF: Let me just quickly ask you before I turn back to Terry McAuliffe, Mark Racicot, what are they shouting there in the background? We can't help but ask.

RACICOT: Well, I think it is focuses on the gubernatorial campaign here in California. But I don't know all together because I've been trying to listen very intently to you.

WOODRUFF: And we're glad for that. Maybe we can find out later about what they're saying. But, Terry McAuliffe, back on this question of the corporate responsibility issue. Today, that same article in the "Washington Times," there was a Republican operative who was quoted as saying, Democrats have told him that for every hundred points the stock market goes down, they think they, the Democrats, are going to pick up four seats in November. Are you counting on the stock market to help the Democrats this fall?

MCAULIFFE: Well, first of all, whoever made that statement shouldn't be involved in politics because you do not relate a down turn in the stock market to picking up seats. That's wrong. Today, a lot of people lost an awful lot of money. The Dow was down 400 points today and our heart goes out to all those who are people losing money. We are not using it for political gain.

And this whole issue of Harken and Halliburton, all these names out there, I don't want to spend my time going into the fall campaign talking about them. The issue is the fundamental underbelly of our economy. Are we creating jobs and how do people feel about the economic security. The prescription drug benefit are they being offered, Social Security is it financially intact. Those are the issues that we want it debate going into the fall elections and who do you think will do a better job, Republicans or Democrats. I will argue of course that the Democrats will do a better on the basic elements of our economy to create jobs, and to help people move themselves forward. That's the issue and not all this stuff that people talk about today. I think it's a particular waste of time.

Let's focus on the economy. We're going to win a lot of elections I believe this November because of the Democratic party whom I believe is offering the best opportunities and the best alternatives to get our economy going and not President Bush and his administration. That's the difference of opinion.

WOODRUFF: Mark Racicot, quick final word.

RACICOT: Well, I would agree with almost everything that the chairman said, except that obviously I think that the president is doing a fine job. But in the end too, I wish that all of those who are running, the Democratic party particularly and the congressional leadership would listen to what the chairman has it say because I think he's correct and they've been trying to take advantage of this and I think opportunistically, not to the best interests of the American people.

WOODRUFF: That may be the most sweetness and light we've ever heard in an interview with the two of you. Mark Racicot...

RACICOT: That's the most responsible interview Terry has ever given.

MCAULIFFE: He's out in San Francisco. He's out with the Democrats in California.

WOODRUFF: Terry McAuliffe, Mark Racicot, good to see you both. We appreciate it. Thank you very much.

To a grim story coming up. Police arrest a suspect in the death of 5-year-old girl in California. That story straight ahead. Plus, President Bush rallies the troops. We join the president for his trip to Ft. Drum when we return.


WOODRUFF: Among the stories in our "Newscycle," the closing bell sounding the end to a brutal week on Wall Street. The Dow lost almost 400 points this day. It is now down more than 1,000 points over the past two weeks.

President Bush traveled to Ft. Drum, New York today where he told cheering soldiers that the U.S., quote, will use diplomacy when possible and use force when necessary to defeat terrorist regimes. Many of the soldiers it in Ft. Drum's 10th mountain division were among the first units deployed after the September attack.

The president's niece, Noelle Bush was released from a Florida jail today, the only daughter of Florida Governor Jeb Bush served three days for violating terms of her drug treatment contract. After a courtroom status hearing, Noelle Bush's brother told reporters the family stands behind her.


GEORGE P. BUSH, NOELLE BUSH'S BROTHER: We basically have shown tough love. That basically there are consequences for your actions, that she is going to receive equal treatment under the law, and that if she continues down a certain path, then there are going to be certain ramifications.


WOODRUFF: After that hearing, Noelle Bush returned to a drug treatment center.

With us now, Jodie Allen of "U.S. News & World Report" and Tucker Carlson of CNN's "CROSSFIRE."

First of all, the SEC chairman, you might say embattled SEC Chairman Harvey Pitt. He gave a speech before the Press Club here in Washington today, Jodie are we focusing too much attention on Mr. Pitt. Almost everyday somebody calls for him to step down. Should we be focusing on the bigger picture? JODIE ALLEN, "U.S. NEWS & WORLD REPORT": Investors clearly are focusing on the bigger picture. They certainly didn't pay much attention to Mr. Pitt's words of reassurance today. But Harvey Pitt as far as the markets are concerned is an important part of the story. So that it's inevitable that attention would focus on the question of whether he can restore faith in the markets and at the moment, Judy, it is faith that is sorely lacking, not good news.

WOODRUFF: How much of a target should Harvey Pitt be, Tucker?

TUCKER CARLSON, "CROSSFIRE": Well, I don't know. I'm struck by the fact after September 11th, which was the result at least in part of his massive security failure, nobody was forced out from the FBI or CIA or NSA. And here you have Harvey Pitt, not even clear what he did wrong, the focus of all this anger and insinuation, and requests that he step aside, and it is still not clear to me why. I mean it does seem like the kind of classic scapegoat example. You know, he says foolish things once in a while. His comment the other day about how he wouldn't want to hurt America by leaving, et cetera. It is annoying but it doesn't mean he did wrong.

WOODRUFF: Is he a scapegoat, Jodie?

ALLEN: No, I don't really think so Judy. I think he does hold an important position and as they say, one that is especially key, the appearances of it right now because the market is reacting to appearances and any hint of scandal that would have been a page three story, now makes headlines. And Pitt has not played his cards well. He came in having represented every single one of the major accounting firms as well as all the big brokerage and investment houses on Wall Street. And he made the mistake of just this spring meeting with the head of KPMG, one of big audit firms. They say he talked about a Xerox case that they were involved in that was before SEC. That's not smart, especially at a delicate time like this. Now nobody questions his competence. But they do question his judgment and judgment matters right now.

WOODRUFF: Let me turn (UNINTELLIGIBLE) something and coming out of the White House yesterday and that is the president AIDS adviser, Scott Eberts (ph) is being replaced. The White House didn't have a whole lot to say about it, but what we hear from a spokesman for the Human Rights Campaign is that quote, "the pro abstinence crowd is carrying the day."

And I'm going to also quote somebody from the San Francisco AIDS Foundation, Fred Dillon (ph) who said, "Scott Eberts said the right things many times, but that was not translated into action in many cases. This administration is high on rhetoric, short on action." But I guess my question is, does the administration have an open mind when it comes to AIDS education -- Tucker.

CARLSON: Those strike me as pretty reactionary quotes, considering Eberts was essentially promoted, going over to HHS. He's being replaced by an openly gay man and third there is growing real evidence...

WOODRUFF: Leaving the White House?

CARLSON: From real studies, that in fact abstinence in Africa anyway probably does a better job of preventing the AIDS than condom distributions. So it's not just some crackpot, right wing Christian right theory that condom use isn't necessarily the greatest way to prevent AIDS. There's growing evidence.


ALLEN: Well, but, Tucker, you can't deny that condom use has got to be an important part.

You are right about the Uganda experience. But that wasn't what temporarily diminished AIDS cases here in the United States. It was being more careful among those who remain sexually active. And, apparently, people have lost that carefulness. And to condemn an important figure just because he raises an important therapeutic approach -- one, as you say that they will continue to push in Africa, and he will now be in charge of those, the U.S. assistance to AIDS- prevention programs in Africa -- that does seem like retaliation. It seems very politically motivated.

WOODRUFF: We are going to have to leave it there.

Jodie Allen, Tucker Carlson, good to see you both on this Friday. Thanks very much.

CARLSON: Thanks.

WOODRUFF: Our CNN investigation of George W. Bush the businessman is still ahead.

Also up next: a new scoop on Georgia politics that may make your mouth water.


WOODRUFF: As the markets have tumbled, including today's almost- 400 drop in the Dow and corporate scandals have emerged, President Bush's own business background has been under the microscope.

Our senior White House correspondent John King has been investigating Mr. Bush's business history.


JOHN KING, CNN SR. WHITE HOUSE CORRESPONDENT (voice-over): He married Laura Welch in 1977, two years into the oil business in rugged West Texas. Friends knew what was coming.

JOE O'NEILL, CHILDHOOD FRIEND: It was just a matter of time and the opportunity. You knew he, in his heart, he wanted to do it some day, public service.

KING: A candidate by his first anniversary,1978.


ANNOUNCER: George Bush, businessman, independent oil and gas producer, and now a candidate for Congress.


KING: He would lose and not run again for 16 years, for Texas governor in 1994. His business career made it into the ads then, too.


ANNOUNCER: He says he's a successful businessman. But official records show that every other Bush venture has lost money, big money, net losses of $371 million.


KING: Two very different takes on the same snapshot. Critics see a man whose company struggled, but was carried by others because of a famous name. Friends see a man who stepped out of the shadow to make a name of his own.

BOB MCCLESKEY, CHILDHOOD FRIEND: Certainly it got him through the door of some places. But then you have got to perform, because it's not a giveaway game. People are not giving things away out here.

KING: In 1982, his father was vice president. The son took his small company public. Bush Exploration was in business just a year.

MCCLESKEY: I spent a lot of money with him. And everything we drilled was good solid geological prospects. Just some of them didn't work out.

KING: A company called Spectrum 7 bought Bush Exploration in 1983. Mr. Bush was given a seat on the board. Then in 1986, Harken Energy bought Spectrum. And again Mr. Bush was named to the board. His actions back then are center stage in the corporate responsibility debate now.

Twice Mr. Bush received low-income lows from Harken. It is a common corporate perk. But the president says such loans are being abused now and should be outlawed. In June, 1990, he sold more than 200,000 shares of Harken stock for nearly $850,000 and reported the sale eight months late. Now Mr. Bush says such insider transactions should be reported within two business days.

Back in 1994, he insisted the government must have lost the form. Now the White House blames Harken attorneys.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I still haven't figured it out completely.

KING: The Securities and Exchange Commission investigated Mr. Bush for insider trading, but concluded there was no case. Old news is the president's complaint when asked about it now. GREG VALLIERE, POLITICAL ECONOMIST: But this is a different climate right now. It is a climate where every CEO is under scrutiny. And the president has to expect questions.

KING: Baseball is a Bush passion, his chance to buy into the Texas Rangers ownership: a dream come true.

MARY MATALIN, ADVISER TO VICE PRESIDENT CHENEY: He said to me what he has since said publicly: "I would rather -- I wanted to grow up and be Willie Mays." So he loved the baseball business.

KING: And he profited from it. He put up $600,000, enough for 2 percent of the team. But his partners raised Mr. Bush's stake to 12 percent. And he made $15 million, 25 times his initial investment when the team was sold in 1998.

Again, two views of the same picture: Bush friends see a reward for hard work. He took the lead as the team's managing partner and had brought two competing factions together back when the team was on the market in 1989.

O'NEILL: He was able to lead the two groups. And that shows George's best strength. He can get competing factions together and on the same page.

KING: Bush critics see more favoritism, noting that when he reaped that huge windfall from the sale of the Rangers, he was the Texas governor and already emerging as a serious prospect to someday follow in the footsteps of his father.


KING: And Democrats believe, so long as corporate corruption is in the headlines, the president's business record works against him and for them. The White House disputes that.

But one reason the president will call in his radio address tomorrow for quick action in Congress on that corporate responsibility legislation is, he hopes for a big bipartisan signing ceremony here at the White House soon. He hopes that the markets will rebound a little and that this issue will be put behind him -- Judy.

WOODRUFF: That's right, John. That's one issue they want to get behind them as fast as they can.

John King, thanks very much.

The Texas Senate race is among the headlines in our "Campaign News Daily." Houston was the first stop on today's travel itinerary for Vice President Dick Cheney. The vice president headlined a fund- raiser luncheon for Republican John Cornyn.

Later, Cheney headed to a fund-raiser for Congressman Saxby Chambliss in Georgia. Chambliss is one of two Republicans battling to challenge incumbent Democrat Max Cleland. Congressman Chambliss must still win the nomination, but he will soon match Senator Cleland in one very important category. The Atlanta ice cream shop Orange & Scarlett's plans to name a flavor for Chambliss. Earlier this month, the shop unveiled its Double Chocolate Max Madness flavor in honor of Senator Cleland.

In Massachusetts, state lawmakers have finally funded the state's Clean Election Law, which was passed in 1998. The law calls for public money to be given to state candidates who limit their spending and fund-raising. Earlier this year, clean-election advocates obtained court permission to seize and auction state vehicles and other property in order to fund the candidates who are running under the guidelines of the Clean Election Law.

Investigators in the killing of a California 5-year-old dropped a bombshell today and then clammed up. Coming up next, we'll have an update on the Samantha Runnion case and the suspect who is now in custody.

And I'll talk with Governor Gray Davis.


WOODRUFF: In Southern California today, the announcement came suddenly at the end of a news conference by the Orange County sheriff: An arrest had just been made in connection with the kidnapping and murder of 5-year-old Samantha Runnion.

The suspect was identified as 27-year-old Alejandro Avila. More details are expected when the sheriff holds another news conference a little more than four hours from now.

CNN's David Mattingly is at the command center in Stanton, California.

David, what else can you tell us about this suspect?

DAVID MATTINGLY, CNN CORRESPONDENT: Well, Judy, the 27-year-old man arrested here apparently one of the people that police had had their eyes on at least since early yesterday.

He was arrested this morning after searches last night of his home, his business and four cars. He's identified as Alejandro Avila. He lives in a neighboring county in the area where Samantha's body was discovered on Tuesday -- authorities confirming today he had been accused in the past, but acquitted of molesting a child. That happened back in January of 2001 -- his mother today telling CNN that, again, her son is not guilty in this case involving Samantha.

Now, today, the arrest is not exactly the all-clear that people here had been hoping for, authorities telling people to remain vigilant and to continue sending in tips to that all-important tip line, presumably as they sort out all that information behind the arrest today.

In the meantime, an outpouring of emotion in the neighborhood near to us: A memorial set up outside the home of Samantha Runnion's family continues to grow, flowers, dolls candles. We were over there a short time ago -- entire families coming by to share in their grief, this murder touching many parents very deeply.

And these are emotions, Judy, that will not be going away anytime soon.

WOODRUFF: David, separately today the police released a 911 audio tape. Now, this was on Wednesday when they got the call from a person who found the body of Samantha Runnion. Here's an excerpt from that tape.


CALLER: I'm so scared right now. And it was a little kid.

DISPATCHER: Calm down.

CALLER: I'm sorry, but I have a 3-year-old son.

DISPATCHER: Do you a 3-year-old son with you?

CALLER: No, but there was...

DISPATCHER: Justin, Justin, hey, hey. Was this an adult?


DISPATCHER: Was it an adult body?

CALLER: No, it's a baby. I think it might even be the little girl that's been on the news. It's a little girl. I swear. We just looked. And as soon as we seen her, we left.

DISPATCHER: OK. OK. Now, how far off of Killen?


DISPATCHER: OK, Justin, do this. As soon as you get home, I want you to dial 911 and ask for Mary, OK?

CALLER: I can't really hear you. I'm freaking out. I'm sorry. I'll stop, all right?

DISPATCHER: That's OK. That's OK.


WOODRUFF: David, why did they decide to release this today?

MATTINGLY: Well, we can only speculate, since we weren't able to ask the authorities directly today. But they have been very aggressive in the past few days of keeping the public in the loop, virtually deputizing all of Southern California to be their eyes and ears in this case.

Today, they were making the point that this was the call that turned this from a missing-person case into a murder case, so, again, trying to tell the public that what they were doing out there, their vigilance, was important to this case.

WOODRUFF: All right, David Mattingly, thanks very much.

Elsewhere in California, Republican gubernatorial challenger Bill Simon is calling on California Governor Gray Davis to issue an executive order instituting a so-called AMBER alert system in the state. Now, such alerts are named after Amber Hagerman. She was a 9- year-old Texas girl who was abducted and murdered in 1996.

It is a statewide emergency broadcast alert that goes out to the public about kidnapping suspects as soon as a kidnapping by a stranger is reported.

Governor Gray Davis is with us now from Los Angeles.

Governor, before I ask you about the AMBER alert issue, what more, if anything, can you tell us about this investigation into the murder of Samantha Runnion?

GOV. GRAY DAVIS (D), CALIFORNIA: Well, I talked to Sheriff Carona this morning. He gave me an update on the investigation.

They do have a number of -- a lot of evidence and a lot of information to go over throughout the balance of today. But I think, by 6:00, he'll have more information to share with the public. He is pleased that so many tips have been called in. He does want people to continue looking, in case the person they have turns out not to be the right person. But he's looking forward to making a more definitive statement on the subject come 6:00.

And you can understand, given all the evidence they collected at the scene where Mr. Avila was found, they need to go over that with a fine-tooth comb to see how solid his alibi is, look at the forensics, look at the physical evidence, and see how strong their case is.

WOODRUFF: Now, Governor, about this AMBER alert system that would, in effect -- it would become a broadcast alert to the entire state or even beyond whenever a kidnapping occurs.

Your Republican opponent is saying that you should do this in the form of an executive order; you shouldn't wait for the state legislature to pass this. Why not do as he's asking you to do?

DAVIS: Well, as usual, Mr. Simon is a dollar short and a day late.

Last year, Assemblyman Runner passed a resolution asking my emergency -- my Office of Emergency Services to set this system up. It is functioning in many counties in the state. It is functioning in Orange County. And, on my own phone call with Sheriff Carona, he volunteered that the AMBER alert system worked well for him. He said he accessed it in 15 minutes, had all the information he wanted to input on the system in an hour, and was perfectly satisfied with the response to the system.

So, we do have a system. We're trying to make it better. But, in this case, it worked perfectly.

WOODRUFF: All right, we're going to have to leave it there, Governor Gray Davis. And I believe we're going to be talking to you again on Monday about some other matters political. But thank you very much for being with us right now.

DAVIS: My pleasure.

WOODRUFF: We appreciate it.

The "Bite of the Apple" is coming up next.


JEFF GREENFIELD, CNN SR. ANALYST: I'm Jeff Greenfield in New York.

One of the reasons life is getting more complicated for Mr. Bush and Mr. Cheney is that they both come from business backgrounds. That also makes them distinctly unusual for our national leaders.



WOODRUFF: On this day when the stock market fell to its lowest level in 3 1/2 years, we go to New York, where our Jeff Greenfield has been keeping tabs on the president's corporate connections and on the headlines.


GREENFIELD: The president meets the president with Poland's president, and the press wants to know about the companies Mr. Bush and Mr. Cheney used to work for. CNN and ""The New York Times"' polls both show voters are saying that the Bush administration is too close to big business.

What's going on? It is not just the state of the markets or of corporate ethics. It is also both that both Bush and Cheney made their money as corporate executives. Those are highly unusual backgrounds for our national leaders. Just think about it.

(voice-over): Harry Truman? A failed haberdasher who became a career politician. Dwight Eisenhower? A career military man who made money from his World War II memoirs. The IRS wrote a special tax break so that he could keep a decent chunk of it. Richard Nixon? Made his money as a lawyer and an author. During Watergate, his tax deduction for his vice presidential papers stirred up a lot of controversy.

Gerald Ford? A congressman for most of his adult life. Jimmy Carter? Ran his family's peanut business. Not too many big stock options there. Bill Clinton? Lowest-paid governor in America. He did take a flier in real estate once: Whitewater. Most of our presidents with a lot of money inherited it: Teddy Roosevelt, Franklin Roosevelt, John F. Kennedy. Critics called Kennedy's father a bootlegger and a tough businessman who bought his son a political career. And Lyndon Johnson amassed a fortune with radio and TV stations in Texas. They were his wife's, he claimed. His biographer, Robert Caro, says LBJ used his political clout to get and to enrich those stations. But, by and large, the media never followed that trail.

(on camera): What also makes political life more complicated for Bush and for Cheney is how drastically the climate has changed in the last two years. When they were running, they could plausibly claim -- in the words of that old political cliche -- that they knew how to make the government run like a business. These days, that doesn't sound all that tempting.

Jeff Greenfield, CNN, New York.


WOODRUFF: Bill Schneider joins me next with the "Political Play of the Week," but now let's take a look at what is coming up on "WOLF BLITZER REPORTS." Kate Snow is sitting in -- hi, Kate.


A stunning announcement: an arrest in the Samantha Runnion case. We'll talk to a sheriff involved in the investigation and hear why they are still asking for the public's help. Trauma on tape: Were police justified in the latest controversies made public? And a public health threat that could be in your kitchen -- it's all coming up on "WOLF BLITZER REPORTS," right after INSIDE POLITICS.


WOODRUFF: Senior political analyst Bill Schneider is with us now to talk about the political benefits of avoiding controversy.

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: Well, you know sometimes what's not an issue is important.

Well, this week, when the House of Representatives voted on spending measures, funding for the National Endowment for the Arts was not an issue. And that's important. It's also the "Political Play of the Week."


(voice-over): Remember back in 1989 and 1990, when huge controversies broke out over the National Endowment for the Arts funding Robert Mapplethorpe's homoerotic photographs, Andres Serrano's work, "Piss Christ," and Karen Finley's chocolate-covered body art? Conservatives went nuts.

(BEGIN VIDEO CLIP, SEPTEMBER 1989) SEN. JESSE HELMS (R), NORTH CAROLINA: If artists want to go in a men's room and write dirty words on the wall, let them furnish their own crayon. Let them furnish their own wall. But don't ask the taxpayers to support it.


SCHNEIDER: When Republicans took over Congress, they tried to do away with the NEA and ended up slashing its funding. Now there's a budget crunch and pressure from the White House to cut spending. So, what did the House of Representatives do this week? It voted to increase the Arts Endowment's budget for 2003 $10 million more than President Bush requested.

Amazingly, 42 Republicans voted for the increase, including some conservatives like Cass Ballenger of North Carolina, who had once voted to kill the NEA.

REP. CASS BALLENGER (R), NORTH CAROLINA: I'm supposed to be a right-wing nut myself. And my right-wing nut friends thought I had lost my mind.

SCHNEIDER: How did the NEA make itself not an issue? You've heard the saying, "All politics is local"? Take Republican Michael Rogers from Michigan. Last year, his district got $40,000 in matching grant money to support the Great Lakes Folk Festival. He voted yes.

Congresswoman Anne Northup of Kentucky, she got $15,000 last year for a children's theater in her district. She voted yes this week. And GOP Congresswoman Shelley Moore Capito secured $12,500 to support a symphony tour of rural communities. Another yes. Pork-barrel spending? Not exactly. These are tiny amounts of money, more like pork chops. But art spending has a larger economic impact.

UNIDENTIFIED MALE: It was surprising the effect it had on attracting new and better-class industry.

SCHNEIDER: The arts have wooed and won Congress, the noblest of causes...

UNIDENTIFIED MALE: I go back to Greek and Roman times. Governments did support the arts back in those days.

SCHNEIDER: ... and the "Political Play of the Week."


SCHNEIDER: "Ars longa vita brevis," Hippocrates said: Art is long. Life is short.

WOODRUFF: Well, glad you translated that.

And I think you've coined a new political term: pork chops.

SCHNEIDER: That's right.


WOODRUFF: Bill Schneider, thanks. Have a good weekend.


WOODRUFF: That's it for INSIDE POLITICS. "WOLF BLITZER REPORTS" is next. Thanks for joining us. I'm Judy Woodruff.


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