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CNN LOU DOBBS MONEYLINE

Farouk Hijazi Detained Near Iraq/Syria Border; North Korea Claims Nuclear Capability

Aired April 25, 2003 - 18:00   ET

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

LOU DOBBS, HOST: Wolf, thank you very much. Have a great weekend.
Tonight, the man who may have been Saddam Hussein's link with the al Qaeda is in U.S. custody. David Ensor will have a report from Washington.

The SARS virus claiming more victims. Dr. Donald Burke from the Johns Hopkins Bloomberg School of Public Health will join us.

And shareholders growing increasingly angry over corporate greed and they're doing something about it. Stephen Shepard of "Business Week", Rik Kirkland of "Fortune", and Paul Maidment of "Forbes" join us tonight.

But first, we go to Sophia Choi at CNN Center for the latest headlines. Sophia?

(NEWSBREAK)

DOBBS: Sophia, thank you very much. Good evening, everyone.

Tonight coalition forces are questioning a former Iraqi intelligence official who may have been involved in a plot to try to assassinate former President George Bush in 1993. Farouk Hijazi was detained near Iraq's border with Syria. Hijazi may also have been Osama Bin Laden's contact with Saddam Hussein's regime.

National security Correspondent, David Ensor, with the report.

(BEGIN VIDEOTAPE)

DAVID ENSOR, NATIONAL SECURITY CORRESPONDENT (voice over): Farouk Hijazi was Iraq's ambassador's to Turkey and then to Tunisia. But before that, he was number three in Iraqi intelligence, chief of espionage operations for Saddam Hussein.

DONALD RUMSFELD, SECRETARY OF DEFENSE: He is significant. We think he could be interesting.

ENSOR: "Interesting" may be an understatement. There is evidence, U.S., officials say, that Hijazi traveled to Afghanistan in 1998 and may have met there with Osama Bin Laden and other al Qaeda leaders. There were also unconfirmed reports he may have met Bin Laden and Saddam in the early 1990s. JAMES WOOLSEY, FORMER CIA DIRECTOR: It's a big catch. And this man was involved, we know, in a number of contacts with al Qaeda. So, this would be a very, very interesting development, the biggest catch so far, I would say, of any of the people that we've gotten.

ENSOR: In the unsuccessful plot to kill former President George Bush, the 41st president, during in a visit to Kuwait in 1993, Farouk Hijazi is a suspect. In fact, U.S. officials say he may have directed the operation. Hijazi will also know, officials say, whether the Iraqi embassies in Ankara and Tunis, where he served, were used by Iraqi intelligence as bases as operations to, for example, obtain items needed to construct weapons of mass destruction.

Hijazi was taken into U.S. custody Thursday in Iraq near the Syrian border after U.S. officials complained to Damascus that they knew he had flown there from Tunis and was being sheltered by the Syrians. Apparently, Syria got the message.

U.S. officials are also pleased to be talking to Tariq Aziz, the regime's deputy prime minister, who turned himself in in Baghdad Thursday. They are hoping he might know where other officials may be and whether Saddam Hussein survived the air strikes.

RUMSFELD: He clearly is a very senior person -- was -- in that regime, and we intend to discuss with him whatever it he's willing to discuss with us.

ENSOR: Rumsfeld said he does not favor sending Iraqi prisoners to Guantánamo, where al Qaeda and Taliban prisoners already are.

(END VIDEOTAPE)

ENSOR: But will captured senior Iraqis be treated as prisoners of war with rights under the Geneva convention or, possibly some of them, as war criminals? That is something Rumsfeld said that U.S. lawyers are now trying work out. He made clear, though, that people like Hijazi and Aziz are being asked for much more than their name, rank, and serial number - Lou.

DOBBS: David, thank you very much. David Ensor, our national security correspondent.

More details tonight about an incursion by a team of Turkish special forces into northern Iraq. "Time" magazine reports the heavily armed team was stopped by paratroopers of the 173rd Airborne Brigade on the outskirts of Kirkuk Tuesday. "Time" reports the Turkish soldiers were wearing citizen clothes, and they were trying pass through a U.S. checkpoint behind an aid convoy. The Turks were escorted back to the Turkish border without incident.

The Pentagon tonight defended the use of cluster bombs during the war against Saddam Hussein. It published new figures to demonstrate the cluster bombs are not used indiscriminately. Senior Pentagon correspondent, Jamie McIntyre, has the story for us - Jamie.

JAMIE MCINTYRE, SENIOR PENTAGON CORRESPONDENT: Well, Lou, the United States has come under a lot of criticism from you human rights groups who argue the Pentagon's use of cluster bombs results in indiscriminate civilian casualties, especially from unexploded bomblets that can be left over even after the fighting stops.

Today the Pentagon released its first statistics on the use of cluster bombs in Iraq. In claims of the nearly 1,500 dropped, only 26 fell within 500 yards of civilian neighborhoods and that only one documents case showed any collateral damage where citizens were killed or maimed.

While that case is under investigation Joint Chiefs Chairman, General Richard Myers, defended the weapons, saying the U.S. had to make tough choices about hitting targets in residential areas.

(BEGIN VIDEO CLIP)

GENERAL RICHARD MYERS, CHAIRMAN, JOINT CHIEFS: Because the regime chose to put many of these military assets in populated areas, and then from those areas fired on our forces, in some cases, we hit those targets knowing there would be a chance of potential collateral damage.

Coalition forces used cluster munitions in very specific cases against valid military targets and only when they deemed it was military necessity.

(END VIDEO CLIP)

MCINTYRE: Cluster bombs are most effective against radar sites, aircraft and airstrips, armor, and artillery in the field. Depending on the weapons, each bomb dispenses hundreds of submunitions, or bomblets. The Pentagon admits the failure rate of those submunitions can be as high as 5 percent. Some Iraqi citizens who have these bombs in or near their homes have asked for the U.S. do more to clear them.

Meanwhile, there's a lot of conflicting information floating around. One incident initially reported as a young Iraqi girl turning over a cluster bomb to some American troops and then it going off. The U.S. says it's now reviewed that case, and it believes the munition was some other kind of munition, perhaps a grenade - Lou.

DOBBS: Jamie, in the interest of some balance here, the fact of the matter is that a lot of the Iraqi forces were placed in civilian areas. Did the Pentagon establish the number of areas in which that occurred, for example, putting munitions and so forth, anti-aircraft, in residential areas, hospitals schools?

MCINTYRE: Well, in this one incidence, for instance, where they believe that there may have been civilian casualties, that was apparently against a couple of radar trucks that were part of a missile defense system that very close to citizen neighborhoods.

They say this happened all over Iraq and they only hit the ones in civilian neighborhoods when they felt it was a military necessity. And as General Myers said, it was often a tough call.

DOBBS: Indeed. Jamie McIntyre, our senior Pentagon correspondent, thank you very much.

Defense Secretary Donald Rumsfeld will be visiting the Persian Gulf region this weekend. Rumsfeld said yesterday the United States will not allow an Iranian style religious government to take hold or take over in Iraq. The defense secretary said Iran, Syria, and other countries in the region will not be allowed to influence Iraq's future.

The brutality of Saddam Hussein regime is becoming clear to many Iraqis and, in fact, to many people around the world for the first time. Many people who dared to oppose the regime of Saddam Hussein were summarily executed, others given harsh punishments that scarred them for life. John Vause reports from Basra southern Iraq.

(BEGIN VIDEOTAPE)

JOHN VAUSE, CNN CORRESPONDENT (voice over): Take a good, close look right Falah Nori Watban's right ear. The soft outer cartilage and tissue have been cut away. He says Ba'ath Party officials did this as punishment. They held him down, and without anesthesia, inflicted not only pain and deformity, but a lifetime of shame.

In Saddam Hussein's Iraq, this was the mark of the disgraced. It meant a lifetime ban from government jobs, little prospect of work anywhere else, no bank account, no chance of ever leaving the country.

FALAH NORI WATBAN'S, PUNISHMENT VICTIM (through translator): When they cut my ear, they make you feel inferior, like you are nothing. When go into the market or public places, people look at you like you're a thief, like you're something bad.

VAUSE: Falah has been this way for almost seven years. While on leave from the army, he was at the market, he says, and was angered because all the good produce was set aside for Ba'ath Party officials. When he spoke out, he says his leave pass was taken, he was charged with deserting. First he was tortured, then his ear severed.

Dr. Mustafa is the administrator at Basra General. He says, at first both he and his doctors refused the order, but they, too, were threatened a similar fate.

(on camera): How difficult was it for surgeons to inflict such pain and deformity on people?

DR. MUSTAFA AL-ALI, IRAQI DOCTOR: Very, very difficult. And it is an injury for the (UNINTELLIGIBLE). It is very difficult, and they did it, and they are crying.

VAUSE: At this hospital in Basra, Dr. Mustafa says about 150 young men had their ears cut over a period of eight years. And across Iraq, he estimates the number to be in the thousands.

(voice over): Falah has survived by selling matches, juice and cookies by the side of the road. It has been a bleak existence. He says, while Saddam may be gone, the stigma remains. WATBAN (through translator): I look at myself in the mirror, and I hate myself. All I want is to settle down and get married. But I cannot get married because no one will marry a guy without an ear.

VAUSE: He's heard about plastic surgery and wonders if maybe the Americans can help. But right now in the midst of so much chaos and confusion, that seems a distance unlikely hope. For now, one man's pain must wait while the entire country struggles to recover from 24 years of brutality.

John Vause, CNN, Basra.

(END VIDEOTAPE)

DOBBS: Turning now North Korea, the United States today said it still hopes that it can settle nuclear standoff peacefully. Yesterday, U.S. sources said North Korea claimed for the first time to have nuclear weapons. White House correspondent Chris Burns reports.

(BEGIN VIDEOTAPE)

CHRIS BURNS, WHITE HOUSE CORRESPONDENT (voice over): It has three-stage missiles was the potential to reach the West Coast of the United States.

And in renewed talks with the U.S. and China, U.S. officials say North Korea now claims it has a nuclear arsenal and the potential to produce more from reprocessed nuclear fuel rods. That worries some observers.

WOOLSEY: If they're producing enough plutonium for several a month, they have a product that they can sell for substantial amount offers money to terrorist groups, and no one doubts that they would do that.

BURNS: The White House, however, questions whether North Korea is bluffing on its nuclear capability. The Stalinist state of Kim Jong Il is struggling to fight off mass starvation and economic collapse. It has secured aid from Washington in the past and is seen as simply trying to raise the stakes.

AIR FLEISCHER, WHITE HOUSE PRESS SECRETARY: The North Korea way of dialogue is often to engage in as bad a behavior as they can possibly engage in with the expectation that the world will reward them for ceasing their bad behavior.

BURNS: But a word of caution from the military machine that just crashed the Iraqi regime.

RUMSFELD: Clearly, the recent discussions have not moved the ball forward, but Secretary Powell and the President are working on the matter, and the hope is that he can ultimately be resolved through diplomatic means.

BURNS: Washington sees the next step as consultations with allies in the region and will continue to try to pull Japan and South Korea into future talks.

(END VIDEOTAPE)

Though President Bush rejects what he calls blackmail, the key leverage in these negotiations, in trying to get Pyongyang to accept nuclear nonproliferation, would be more aid. The Bush administration says it also has a powerful negotiating partner, North Korea's biggest benefactor, and that's China. >> Lou.

DOBBS: Chris, thank you very much. Chris Burns from the White House.

Still ahead here, putting a stop to the SARS virus, a leading expert there is a brief opportune to eradicate the virus altogether before it overwhelms containment efforts. Dr. Donald Burke of Johns Hopkins joins me

Then Casey Wian on the devastating impact that disease is having on a number of U.S. businesses. And an emotional home coming for thousands of U.S. sailors returning from the Persian Gulf. Frank Buckley aboard the USS Mobile Bay. We'll have that story coming up next. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Airmen of the 419th Fighter Wing came home to their families today. Fifty-five Air Force reservists, including pilots, support specialists, and maintenance crews, returned to Utah's Hill Air Force Base planes. Six Air Force F-16s used in the war also landed at the base.

The reservists were sent to the region in January to help enforce the no-fly zones over southern Iraq.

Two guided missile cruisers returned home from the Persian Gulf, as well, after the longest naval deployment since the Vietnam War. The USS Shilo and the USS Mobile Bay arrived in San Diego after nearly 10 months at sea. Frank Buckley reports from San Diego.

(BEGIN VIDEOTAPE)

FRANK BUCKLEY, CNN CORRESPONDENT (voice over): The USS Mobile Bay and the USS Shilo steamed into San Diego and the heroes' homecoming, heroes to family and friends who waited nine long months to see them return from war.

UNIDENTIFIED FEMALE: We're very proud of our daughter. We're very proud of everybody on that ship and everything that they've done to protect our freedom here.

BUCKLEY: In January, the guided missile cruisers were halfway home from a six month deployment when they were recalled to the Persian Gulf. It meant babies were born while their sailor-dads were still at sea.

UNIDENTIFIED MALE: She's a lot heavier, and I guess she walks now, which before, she was just barely the length of my forearm, and now she's huge.

UNIDENTIFIED MALE: We did our job, we're back, we're back to this, our families, my lovely wife, my kid, my newborn kid.

BUCKLEY (on camera): Newborn kids now just beginning to recognize their fathers' faces. After nine months and a day apart, 255 of those days at sea.

Frank Buckley, CNN, San Diego, California.

(END VIDEOTAPE)

DOBBS: A great homecoming and more of them ahead.

Turning now to Canada, today Canada reported three more deaths from Severe Acute Respiratory Syndrome, all of the deaths in Toronto. The death toll is now 19 in Canada, 279 around the world.

Canadian officials continue to insist that the SARS virus outbreak in Toronto is contained and that Toronto is safe for travelers. Canadian Prime Minister Jean Chretien, today blasted the World Health Organization for warning travelers to stay away from Toronto.

(BEGIN VIDEO CLIP)

JEAN CHRETIEN, CANADIAN PRIME MINISTER: To demonstrate in a very public way our commitment to the people of Toronto, I am announcing today that the cabinet will meet in Tuesday in Toronto instead of Ottawa. And I will be staying at a Toronto hotel on Monday night, and I will sleep with very, very, very well.

(END VIDEO CLIP)

DOBBS: The Philippines today reported its first two deaths from SARS. Officials say there are two other people with the virus, infected with that virus.

And Chinese officials report five more deaths; that raises the death toll in China to 115.

Officials in Beijing today sealed off a third hospital this week. They ordered 4,000 more people who might have been exposed to the virus to stay home.

My next guest says there's a real chance to eradicate the SARS virus if public health officials move quickly. Dr. Donald Burke, one of the first doctors to join the fight against the AIDS virus in the 1980s. He's now the director of Johns Hopkins Center for Immunization Research, and Dr. Burke joins us now from Baltimore. Doctor, good to have you with us.

DR. DONALD BURKE, JOHNS HOPKINS CENTER FOR IMMUNIZATION RESEARCH: Same to you.

DOBBS: This disease appears to continue to spread rather rapidly. It's difficult to tell whether it's the spread of the disease or the reporting in China catching up with the disease, but this has been described variously by health officials as one of the most dreaded diseases that they can imagine, a major health threat, one of the worst in 100 years, some have said, yet you think it can be eradicated. How?

BURKE: What we have working for us is the fact that most of the cases are ill and clinically apparent. That is, we can find them and diagnose them, as opposed to some of the diseases where there is a carrier state where they don't have any symptoms.

The other thing that's working for us is that this is a seasonal disease. Most respiratory viruses are at peak in the winter and early spring and then decline to almost disappearing in the summertime. And I'm expecting that we're going to see that the SARS virus will follow that pattern that's very typical of respiratory diseases. It will decline dramatically in the summer.

DOBBS: And what must health officials do to eradicate the disease?

BURKE: Well, the strategy would be this. If nature helps us by decreasing the rate of new infections because of the change in seasons so that the rate declines substantially during the summer, then we have a chance to, if we intensify our public health efforts on diagnosis and isolation of cases, we may be able to track down all of the cases and break the chains of transmission.

Actually, if you think about it, we're still very early in the course of this epidemic.

DOBBS: Absolutely. And, unfortunately, that's not necessarily reassuring when we're looking at a disease that is spreading, at least to this point, at a rate of somewhere around 25 percent growth each week. At that rate, we're talking about millions of people being infected, should it continue.

How optimistic are you that eradication can be a reality?

BURKE: I wish I could say I was optimistic that we can eradicate it. I'm not optimistic. The way I look at it is that there is a chance, but it's a narrow window. We have until now until next winter to eradicate it. If we don't achieve eradication by then, then the disease will follow the usual winter pattern, it will reappear, possibly as strong as it was this year or even worse. And if that's the case, we may have SARS with us for years and years to come.

DOBBS: And the implication of that is?

BURKE: The implication of that is that if this is our last chance, if we don't eradicate it in the next six months, we may never eradicate it.

DOBBS: Dr. Burke, a very sobering assessment, and at the same time, a hopeful at least, message in terms of the opportunity to eradicate the disease. We, obviously, appreciate your time, and we thank you. Dr. Donald Burke of Johns Hopkins.

American businesses dependent on Chinese manufacturing says SARS virus-related disruptions could soon raise consumer prices. Now 64 percent of this country's footwear and toy imports all come from China, 63 percent of household items, 54 percent of stereo equipment, 53 percent of camping gear, all imported from China.

We take a look at how SARS is jeopardizing the relationship now between two American businesses and their Chinese manufacturing centers. Casey Wian reports.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN REPORTER (voice over): CenDyne CEO, Mo Vahdati, say he's should be in China right now. That's where 95 percent of his CD burners and other products are manufactured, but SARS keeps him away.

Instead, Vahdati brings Chinese factory managers to the United States. After a five day quarantine period, they meet here.

MO VAHDATI, CEO, CENDYNE: I think things will get worse before it gets better because airlines are stopping flying, we don't want to go there. They cannot leave the factories. The epidemic is becoming more and more scaring you from everybody from customer to vendors.

WIAN: Joseph Ko's company has five factories and 5,000 employees near China's SARS epicenter. TECHKO makes paper shredders and security lights for Home Depot and Staples. For the first time in 12 years, Ko is not attending a major trade show normally critical to his business.

JOSEPH KO, CHMN. & CEO, TECHKO: All my customers, 100 percent from Europe, Asia, U.S., all canceled the trip. Tremendous impact.

WIAN: Ko predicts a 20 percent drop in sales this fall. Like many manufactures in China, Techko has asked tech employees not to leave their factory compounds. The initial reluctance of Chinese officials not to admit the scope of the SARS epidemic has some U.S. businesses questioning their business dealings with China.

DONALD STRASZHEIM, STRASZHEIM GLOBAL ADVISORS: Many businesspeople have been concerned about the veracity of statements from China's government about openness on a whole host of issues. This illness has really called into question the behavior of much of China's leadership.

WIAN: Long term, CenDyne is thinking about alternatives to China. For now, SARS threatens to delay the holiday launch of two new products, a portable TV recorder and a digital video storage device.

(END VIDEOTAPE)

For companies with manufacturing operations in Asia, SARS is the third crippling blow in less than two years that follows September 11th and last year's west coast port shut down. Casey Wian, CNN, Santa Anna, California.

DOBBS: Stock prices have dropped to devastating levels over the course of the past three years. Now, shareholders are fighting back. Jan Hopkins will report on what is a grassroots movement that is beginning to shake things up in corporate board rooms.

In editors circle tonight, editors of the nation's three premiere business magazines coming to talk about this economy, the markets, the impact of geopolitical events all around the world on this economy and this country.

All of that, a great deal more still ahead. Please stay with us.

(COMMERCIAL BREAK)

DOBBS: On Wall Street today, stocks finished lower. The Dow down 134 points, mostly on the first quarter GDP report, showing a little less9 than expected growth. For the week, the Dow, the Nasdaq, and the S&P 500 all basically flat.

Christine Romans joins me now with the story on the day and the week - Christine.

CHRISTINE ROMANS, CNNfn CORRESPONDENT: Well, Lou, today it was transports, semiconductors that led the Dow Jones Industrial Average and the S & P 500 lower. Lighter than average volume here today. Two stocks fell for every three that rose.

We wrapped up the second big week of second earnings reports now, Lou. And S & P 500 profit growth up 11.2 percent. Revenue up 6.8 percent.

Among the movers today, Amazon.com up 15 percent after it raised sales targets. 3M led the Dow lower after Banc of America cut it to a neutral. A downgrade of Ford shaved 5 percent off that share price -- excuse me, Lou -- and tobacco stocks tumbling after RJR cut yearly profit targets in half.

Five more of the Dow components report next week, of them Procter & Gamble and ExxonMobil expected to show profit growth.

DOBBS: Your voice broke only one time. We need to tell all of our viewers, Christine has been struggling throughout the week here with the flu, and like a good soldier, is here even though not fully recovered.

The New York Stock Exchange has a new board member.

ROMANS: Absolutely. They are nominating Madeleine Albright to the board. This from a source close to the situation. As you know, there's been a lot of talk lately about just what kind of corporate governance the New York Stock Exchange itself has. It looks like Madeleine Albright will be nominated to an open seat on that board.

DOBBS: Christine, thank you very much. Rest up this weekend. We don't want you to miss any days of work next week. Thanks, Christine.

Coming up next, our editors circle. Stephen Shepard, editor-in- chief of "Business Week" along with Paul Maidment, executive editor of "Forbes", Rik Kirkland, the boss of "Fortune" all will join me to share their insights into the state of this recovery amid dramatic developments on the world stage.

Our CEO of the week who engineered a dramatic turn for the better using some pretty unconventional characters.

And the record industry surface a stunning defeat at the hands of a Los Angeles judge.

Stay with us.

(COMMERCIAL/NEWSBREAK)

DOBBS: Sophia, thank you very much. Anger about executive pay at American Airlines cost the company CEO his job. Donald Carty stepped down after questions about his and other executives' exorbitant pay packages. Now, the issue of excessive executive pay has made its way onto the agenda of many of this year's shareholder meetings.

Jan Hopkins reports.

(BEGIN VIDEOTAPE)

JAN HOPKINS, CNNfn CORRESPONDENT (voice-over): Employees and shareholders are mad about executive pay. These Northwest Airlines workers took their complaints to the annual meeting in New York.

UNIDENTIFIED MALE: Give the money to the workers once in a while.

MOLLIE REILEY, NORTHWEST FLIGHT ATTENDANTS REP.: This executive management team just approved bonuses for themselves justifying that by saying, you know, look that's part of their contract. Well, we've got a contract too and I don't hear anybody talking about performance bonuses for these people.

HOPKINS: This year, shareholders filed a record number of resolutions to be voted on at annual meetings. One-third of them were about executive pay. That's 200 percent more than were filed a year ago.

CAROL BOWIE, INVESTOR RESPONSE RESEARCH CTR.: I think, you know, you can really just spell it E-N-R-O-N. I mean we're still obviously seeing the residual effects of these scandals.

HOPKINS: Not only are shareholders proposing resolutions, those resolutions are passing. Today, the majority of Delta shareholders said they want to vote on some senior executives' severance packages. A similar proposal was passed by a majority of shareholders at Verizon and U.S. Bancorp. The votes are not binding. They go to the board of directors for consideration. WILLIAM PATTERSON, AFL-CIO OFFICE OF INVESTMENT: But it sends a message. Shareholder opinion matters when a majority of shareholders tell a company to do something, a company better do it or face the consequences, and we're seeing companies starting to react.

HOPKINS: For example, after meetings with shareholder groups, General Electric and Coca Cola scrapped parts of their executive retirement plans rather than face shareholder votes on the issue.

(on camera): Shareholders are still reeling from the market decline. They want executives to get the message that they expect them to share the pain.

Jan Hopkins, CNN, New York.

(END VIDEOTAPE)

DOBBS: Well, market shareholder backlash, I'm joined now by Stephen Shepard, editor-in-chief of "Business Week;" Rik Kirkland, managing editor of "Fortune;" Paul Maidment, executive editor of "Forbes," gentlemen good to have you with us.

Let's start with the issue of excessive, egregiously excessive executive pay. Is it really going to change here?

STEPHEN SHEPARD, EDITOR-IN-CHIEF, "BUSINESS WEEK": Well, I think actually it is, partly because the gains from those big stock market options that executives had are not going to be there in the future because the market isn't going to do what it did during the boom.

So, I think that will go down. I think the public pressure will help to keep it down and I think, yes, we're going to see a downward trend, particularly of the most egregious pay packages at the top.

RIK KIRKLAND, MANAGING EDITOR, "FORTUNE": The most egregious is going to go down so the average goes down, but the median that was up 14 percent last year, even though the market was off 23 percent, I mean it's a little bit - CEO pay is a little bit like that "whack a mole" game.

You slap it down one place, it pops up somewhere else and we've seen this law of unintended compensation that goes on and on. You try to block it one way and they find some other way to play. So, I'm a little more - I do think the big packages are gone but I'm a little more cynical than Steve about whether we're really going to control it.

PAUL MAIDMENT, EXECUTIVE EDITOR, "FORBES": You've certainly seem the big numbers come down. I mean executive - CEO pay is down what 35 percent in aggregate last year or the year before. But indeed you're seeing new stock option plans being written, new ways of writing stock option plans. It is very hard to keep (UNINTELLIGIBLE).

DOBBS: You know we've heard for so long, all of us, shareholder value that's what it's all about and the shareholder, as long as those shares were going up through the '90s, just didn't care, and now shareholder value declining there's no correlating decline in things they could pay.

SHEPARD: Yes, that's because options are a one-way street. You can only make money. You can't lose money.

DOBBS: These boards have got to it seems to me, get serious at some point about a lot of things, audit, governance, and certainly compensation.

SHEPARD: The other thing that, you know, if we start expensing stock options under the new accounting rules, that will tend to keep some of the excess out too.

DOBBS: Absolutely.

KIRKLAND: But you really need to put the capitalists in this situation, which are the big institutions to exert pressure. That's where the power is. They're the owners and that's why we need some sunshine and this rule coming out in 2004 to show how they vote, keep - let us know where they stand.

DOBBS: You don't want to intrude on the privacy of mutual funds (UNINTELLIGIBLE).

SHEPARD: I do.

DOBBS: Oh.

SHEPARD: In fact I do.

MAIDMENT: I think the thing is you might risk actually waking them up. I mean they've been scarily noticeable by their quietness and absence. I mean they should have been shouting loud and they should have been shouting loudly the last two or three years and there's barely been a peep heard out of them.

DOBBS: Well, speaking of quiet, this market looked like it was going to take off this week. It looked like we might have a post- Saddam rally, ended up flat. Are we going to see much of a move in this market?

SHEPARD: I think probably yes, not a boom, but I think we're going to see a movement up. It didn't gain traction as you say. It started to look good because earnings came in good.

DOBBS: Right.

SHEPARD: Mostly from cost-cutting not from revenue growth but still improved earnings are improved earnings. Then we got a bad number today on the GDP, which I think is ancient history because it reflects the war rather than going forward.

DOBBS: Right.

SHEPARD: So I think we'll get something of a movement up.

KIRKLAND: Two steps forward and one and a half steps back. I mean we could actually, I hope we go up. We could go sideways. You know part of the joy early this week was that people were beating expectations but that's that old game and analysts had lowered their forecasts so low that they beat the expectations.

But to really see the kind of earnings growth you want to see, we have to see the real economy recovering and there are good signs but it's not going to be, it's not going to be a blockbuster.

MAIDMENT: I'm not sure about that. I think the colony is going to grow very slowly for, you know, well through the rest of this year. When you look at some of the forward statements being made with the earnings that have been announced over the last couple of weeks, it's a very, very mixed outlook. I mean you've got some very worrying trends out there.

SHEPARD: Now, you see there are two issues here. One is the growth in the economy which I do think will be fairly decent, that is two and a half, three percent for the second half of the year. The other thing to watch is unemployment. Now, we can have decent growth and still not get a reduction in unemployment because productivity is so strong.

DOBBS: Right.

SHEPARD: So, people won't feel better even if we're growing at a decent rate.

KIRKLAND: But we're not going to get that 50 percent bump in the market that some of us were predicting.

MAIDMENT: And also there's a huge political risk premium to everything going forth (UNINTELLIGIBLE), equities to oil. The whole international situation is very uncertain. Everywhere you look you can see another potential war. You can see problems with oil. Everywhere oil comes from in the world virtually has political problems.

KIRKLAND: And SARS.

MAIDMENT: And SARS.

KIRKLAND: And SARS as you were saying earlier.

DOBBS: But against all of this, the backdrop, and you're right, Steve, earnings have improved but principally as a result of cost reductions.

SHEPARD: Right.

DOBBS: But we've still seen a six percent, a bit more than two- thirds of the companies in the S&P 500 reporting so far, we've seen about a six percent increase in revenue.

SHEPARD: Yes, that's encouraging.

DOBBS: And that's a surprise to a lot of people. SHEPARD: Yes, that's encouraging. The other thing that's encouraging is we're starting to see a turn in the tech sector. I'm not talking about the stocks. I'm talking about capital spending on technology which declined six percent over the last two years cumulatively. It looks like it's growing right now about two and a half percent annual rate which is very good.

KIRKLAND: When you stop beating your head against the wall it feels pretty good so, you know, if you stop going down you're going up.

MAIDMENT: And, also, a stop start, a little money release. People get some budget authority, let it go out. That budget authority gets cut back again.

KIRKLAND: That's true.

MAIDMENT: You're not seeing it flow out in any consistent way that would encourage you.

DOBBS: Well, we have some reason for excitement. We know that the president is going to put forward a strong effort to have a $550 billion tax cut to stimulate and grow this economy. We have Congressman Dick Gephardt proposing a new health plan. The Democrats have their own stimulus plan. Happy days are here again, right guys?

SHEPARD: The tax thing is complicated. I think the president will get some of what he wants but he's not going to get what he first asked for and he's not going to get all of the dividend tax cut.

So, I think we'll get an acceleration of the marginal tax rate cuts, you know, the '04 and '06 rates will be pushed forward but he's not going to win on the dividend or not completely win on a dividend tax cut. So, it's going to be a mixed bag and then you get into the whole debate about how much tax cut is a good thing anyway.

KIRKLAND: I think he's going to get more. The sort of conventionalism in Washington now is he's going to get the minimum, the 350 billion that is sort of the floor. I think the president he needs to swing two votes in the Senate to get toward the bigger 550 number, and the president who just won a war can't get two votes, that's hard to imagine.

MAIDMENT: This whole thing is going to be cast in terms of the election next year and what he's really going to need to do is to get - he's going to have to stand very firm on the tax concessions that will boost individual's confidence, boost consumer confidence, and what the absolute overall number is probably doesn't matter too much. And, also, he's going to get the benefit of the upswing of the economic cycle as it is.

DOBBS: And we just saw a bump in the most recent University of Michigan survey in consumer confidence, so that's some good news.

We'll be back in just a moment to talk about more good news. We'll be hearing a lot more from our business editors and what's ahead in this week's editor's circle.

Then, our CEO of the week who led his company through treacherous economic conditions for a remarkable turnaround and while doing so more than doubled the company's stock price. Stay with us.

(COMMERCIAL BREAK)

DOBBS: We're back with Stephen Shepard, the editor-in-chief of "Business Week;" Rik Kirkland, managing editor of "Fortune;" and Paul Maidment, executive editor of "Forbes."

A lot of discussion about these deficits, a number of people questioning now these tax cuts, whatever the size they turn out to be, what are your thoughts, Steve?

SHEPARD: Well, I think there have been a number of studies lately that cast doubt on the supply side argument that big tax cuts will pay for themselves or nearly pay for themselves. The Congressional Budget Office just came out with a study and it's headed by a supply (UNINTELLIGIBLE) which showed that it isn't going to do what...

DOBBS: So they're not anti dynamic scoring at the...

SHEPARD: They're for dynamic scoring. It just doesn't show what they thought it was going to show. So, there's more reason to be concerned about the size of the deficits.

KIRKLAND: There's reason to be concerned, I agree, and I think one of the lessons of the Reagan years versus now is, one, you do need to cut taxes and marginal rates. They were too high then and cutting taxes on capital does have some long term benefits for growth but you can't just pay for it and wish away the deficit.

And so, that debate is coming back. That said, I guess I feel like the president's got enough clout that we're going to have that debate probably after the '04 election when we have to figure out how to deal with it then. I don't think we're really going to come to grips with it now.

MAIDMENT: And to an extent you can't escape it anyway because even if you get cut at the federal level it just gets pushed, the spending gets pushed down to the local and the state level and you get hit there instead.

DOBBS: It's a remarkable turn politically in this country because now we have the Democrats worrying about deficits after some three decades of let's say nudging them along, and the Republicans insisting upon them after more than three decades of struggling against them.

SHEPARD: That's because the debate is not about economics. It's about politics.

DOBBS: Do you think? SHEPARD: It always was and it still is and all these economic theories are designed to show deficits don't matter or deficits do matter don't sway anybody really.

DOBBS: Well, politics, the president coming out of the military operations against Saddam Hussein, the war against Saddam Hussein with over 70 percent approval ratings, the significance geo-politically in terms of the political economy?

SHEPARD: Well, very good news in the short run. I think, you know, oil prices will come down, already have some. There's a lot of good stuff. I think that those Bush numbers are bound to come down as well as we see the tough part of nation building in Iraq and we come face-to-face with some of the economic issues in the United States.

KIRKLAND: There's a little confusion about the impact, the economic impact of the war though. People sometimes suggest that, you know, we're going to help stimulate our economy but now by rebuilding Iraq and I think that's the wrong way to look at this.

I mean whatever this war was about it was not about the economy (UNINTELLIGIBLE). Steve said we're going to get a benefit because oil prices came down and they came down from having been driven high by war fears.

So, the real question is can we - have we changed the game internationally? Are we beginning to change the game in the Middle East? Are the enemies of America less likely to take actions and therefore is our peace more assured? If that is all true then we're going to have a lot of long term intangible benefit from this.

MAIDMENT: Lou, one of the things that would worry me is what America has the attention span to see the war against terrorism through. I mean, all the experience from fighting terrorism in Europe in the '70s and the '80s against the IRA and against the Red Brigades in continental Europe is that it takes a long time. It takes 20 years.

You know terrorism does get beaten but does America have the political will to continue year after year after year and then reap the long term benefits that it can?

SHEPARD: Also, what emerges in Iraq? You saw the Shiites demonstrating in favor of a fundamentalist Islamic state. If that were to happen, which would be anti-American, anti-Israel, you know...

MAIDMENT: The Saudis aren't going to allow it. The Saudis will not allow an Iranian-aligned Shiite government in Iraq.

SHEPARD: What are they going to do?

KIRKLAND: But this is interesting. They're going to suggest...

MAIDMENT: They've got the world to bargain with.

KIRKLAND: When you get down to the '04 election, this may be the first election in a long time. We always say it ends up being about the economy. I mean, one of the things that's changed post-9/11 is this one may not be about the economy.

SHEPARD: Right.

KIRKLAND: The economy doesn't have to be great if the debate is about these other issues.

DOBBS: Coming out of the 2002 elections, we saw that struggle on the part of a number of candidates and it's also - we can't leave this without discussing also North Korea, the likely impact, that uncertainty. Obviously, it's having a devastating impact right now on South Korea.

SHEPARD: Yes, that's a really tough one to call because they're very crazy and the intervention of the Chinese has got to play a very, very big role. We can't do this on our own.

KIRKLAND: I think the fact that we've got the Chinese involved though this is one of the benefits of the post-Iraq war success. I think they sort of looked up and said let's play.

MAIDMENT: I don't think actually North Koreans are crazy at all. They're like Gadhafi in Libya. They make very logical decisions from very imperfect information and that's why it's so hard to call what they do and that's why it seems that they're always changing their mind and doing unpredictable things. They're just not working any frame of reference that we naturally understand.

DOBBS: Gentlemen thank you very much, as always, for being here.

KIRKLAND: It's a pleasure.

DOBBS: Coming up next we will share your thoughts about, amongst other things, Kofi Annan and his inflammatory remarks against the United States.

And, we'll be discussing the war against Saddam Hussein in your view.

And, our CEO of the week, how he managed to steer his company back from the brink and is now ahead of the pack. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Reebok's Paul Fireman is our CEO of the week.

(BEGIN VIDEOTAPE)

DOBBS (voice over): Reebok's Terry Tate was the star of the Super Bowl, so popular the company used him again in this group of Nike Streaker ads. Reebok is back. The athletic wear company fell apart when this man gave up day-to-day management of the business.

In the three years without Paul Fireman, Reebok's share of the footwear market was cut in half and its stock plunged 82 percent. In November of 1999, when Fireman took back the CEO title, the stock was at $7.

PAUL FIREMAN, CHMN. & CEO, REEBOK: We were concentrating on the past first, which was really watching what sold and trying to copy it and that was the last place I envisioned having Reebok be and it's the last place we'll ever be again.

DOBBS: Deals with the NFL and NBA are adding to Reebok's more than $3 billion in annual sales and with all the criticism of Nike's international operation, Reebok has an international code of conduct for its factories that manufacture products around the world.

FIREMAN: We've been able to be the leader of changing our industry on the conditions in which products are made, the ability to have free speech, free prayer. We're doing all these things knowing that they won't sell another pair of shoes but we'll be proud of who we are and what we stand for will mean something in the world.

DOBBS: The company is double dipping in the youth market with an ad campaign that features Allen Iverson and wrapper Jay-Z.

FIREMAN: We're mixing the two cultures together, which is really what the culture of where the young people are buying from. That's - they're either in a music store or they're in a sports store or they're eating something discussing both.

DOBBS: Reebok stock has rebounded 230 percent since Fireman returned.

(END VIDEOTAPE)

DOBBS: Congratulations to Paul Fireman, our CEO of the week.

Coming up next we'll take a look at your e-mails. Stay with us.

(COMMERCIAL BREAK)

DOBBS: It's time now to take a look at your thoughts. William Meyersohn of Florida wrote in: "I couldn't care less what the rest of the world thinks of the United States. The very same countries that are busy bashing the U.S. now are the same countries that were more than happy to take our money, technology, humanitarian aid, et cetera, in the past. In the history of this planet, no nation has ever done as much for the rest of the world as this nation."

Rory in New Mexico said: "It is the ultimate irony that the secretary general of the United Nations lectures the coalition about living up to its responsibilities to the Iraqi people. The coalition was formed precisely because the United Nations refused to live up to its own responsibility to the Iraqis."


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