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LOU DOBBS MONEYLINE

Bush Faces Dissent on European Trip

Aired May 23, 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.
ANNOUNCER: This is Lou Dobbs' MONEYLINE for Thursday, May 23. Sitting in for Lou Dobbs, Jan Hopkins.

JAN HOPKINS, CNN ANCHOR: President Bush's European trip hits a couple of snags. He tries to focus on the fight against terrorism. Germany tries to focus on global warming. Next stop, Moscow. We'll have a live report.

I'll discuss the new cozy U.S./Russian relations with Russian affairs expert Dimitri Simes.

And hijackers aboard Flight 93 were heading straight for the White House. That according to the highest-ranking captured al Qaeda fighter. Terrorism expert Bruce Hoffman will discuss the potential threat of suicide bombers in the U.S. and how to defend against them.

Stocks ended higher on Wall Street, but in these uncertain markets, many investors are returning to an old safe haven. Mutual fund manager Frank Holmes will explain why gold is a top market performer.

President Bush arrived in Russia today on what was supposed to be a historic bonding mission, but his trip to Berlin was anything but. There, the president was criticized for considering a war with Iraq and for pulling out of the Kyoto global warming treaty. Before leaving Berlin, the president appeared to start a potential quarrel with Russia.

Moscow bureau chief Jill Dougherty is in Moscow with that story -- Jill.

JILL DOUGHERTY, CNN MOSCOW BUREAU CHIEF: Well, Jan, you know, that quarrel actually has been going on for quite some time, and it concerns Iran. It's a subject that both countries have very strong feelings about. Russia is helping Iran to build a nuclear power plant at Bushehr, and the United States says that that technology is helping the nuclear program of Iran.

Now President Bush, when he was traveling in Europe, said that this is one of the key issues, that he's going to be very overt about talking about it with President Putin, and the Russians are indicating that they are going to stand firm in the way they look upon it. In fact, the foreign minister, before Mr. Bush arrived, Mr. Igor Ivanov came out and said that that is not correct, that what the Russians are doing at Bushehr is within bounds, within the agreements that they have signed, and that it is a mistake to say that they are actually helping any type of proliferation.

So that could be one area that they are going to agree to disagree on, but it is a -- it is one major area of contention.

At the airport here in Moscow, President Bush actually didn't say anything. It was all pomp and ceremony. We're going to hear a lot more tomorrow, though.

They will be signing two agreements here in Moscow. The first one is an arms-control agreement which will cut the number of deployed warheads by two-thirds over the next 10 years. Then there will be a second agreement signed tomorrow, a broader one, on a new strategic relationship between the United States and Russia.

Now there is some opposition to this. Not everybody here in Russia is happy that the summit is taking place or happy that President Bush is here in Moscow. Among them are the Communists. They organized a demonstration over at the American embassy, not very large, but extremely vocal. And they were criticizing not only President Bush but President Putin. They say that he has essentially sold out the interest of Russia to the United States.

It is partially a ploy for a little PR for the Communist Party because it does have some internal problems, it's got a lot of dissension and splits in its ranks, but it does express, Jan, what is an undercurrent of some anti-American feeling that continues, in spite of the feelings that Russians had after the September 11 attacks on the United States -- Jan.

HOPKINS: Thanks. Jill Dougherty reporting from Moscow.

One thing the president's trip highlights is the relationship between Russia and the United States is now light years away from what it was in the Cold War. It's a new era of cooperation between the two nations. In fact, Russia is currently one of this country's strongest allies in Europe.

Kitty Pilgrim takes a closer look at this blossoming friendship.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): It's a world away from the old Cold War Russia. Parts of Russia are now nearly indistinguishable from the capitalist system it once reviled. U.S. relations are cordial, cooperative, and even warm.

ASTRID TUMINEZ, AIG: I would put Russia today in born-again status. I think two things made a big difference. First, the personal diplomacy and the personal dynamics between George Bush Jr. and Vladimir Putin. Secondly, the September 11 attacks really made a huge difference. PILGRIM: President Putin was the first world leader to call President Bush after the World Trade Center attack. Russia assisted in getting humanitarian aid to Afghanistan and has shared intelligence on al Qaeda and weapons of mass destruction. The United States and Russia even worked out differences about arms reduction.

Americans like Russians these days and the new best friend approach of President Bush. Seventy-two percent in a recent poll approved of the way the president is handling relations with Russia. More than six in 10 Americans hold a favorable view of Russia.

Russia's economy has gone from the disaster of the ruble crisis in 1998 to three years of solid growth, with GDP growth expected to average about four percent. And Russian companies are trolling for Western investors. Ads for Russian companies appear in New York newspapers. A handful of Russian companies, mostly oil and telecom, are listed as ADRs on the New York Stock Exchange.

KAREN MONTAGNE, U.S. RUSSIA BUSINESS COUNCIL: General Motors has started a new investment with Optivas (ph) in the automobile sector. Ford has launched a large investment as well. Philip Morris, International Paper -- these are all companies that have made large investments in Russia recently.

(END VIDEOTAPE)

PILGRIM: Now Russia really has its own agenda in this new cooperative attitude. It does want to be considered a legitimate player in the global economy, attract more investment, and fighting terrorism serves its own political agenda as well -- Jan.

HOPKINS: Thanks.

Kitty Pilgrim.

HOPKINS: Coming up later on MONEYLINE, a leading expert on Russia, the president of The Nixon Center, Dimitri Simes, will join me.

When President Bush returns home, he'll find a new bill waiting for his signature. The Senate today, as expected, passed a bioterrorism bill. That legislation provides more than $4.5 billion to stockpile vaccines, improve food inspections, and boost security at the nation's water systems. The bill passed the Senate by a vote of 98 to nothing.

Intelligence officials say that they have new reasons to believe that United Airlines Flight 93 was heading straight for the White House.

David Ensor has that story.

(BEGIN VIDEOTAPE)

DAVID ENSOR, CNN CORRESPONDENT (voice-over): The White House was, indeed, the target of the terrorists on United Flight 93, according to the senior al Qaeda prisoners, say U.S. officials. The fourth hijacked plane instead ended up in a field in Pennsylvania, killing all on board.

On balance, one official said, American interrogators tend to believe Abu Zubaydah on this one, though they look at everything he and other prisoners tell them with skepticism, suspecting some of it may be lies designed to sow panic or test the nation's defenses.

DONALD RUMSFELD, SECRETARY OF DEFENSE: They want to learn how we respond to that kind of a warning, and they jerk us around, try to jerk us around, and test us, stress our force in a way.

ENSOR: However, officials say Abu Zubaydah has told his interrogators things that have not been made public that U.S. officials have been able to corroborate using other intelligence methods. The warning that New York landmarks like the Brooklyn Bridge and the Statue of Liberty might be targeted came in part, other officials say, from Abu Zubaydah.

Former CIA operations officers say, when the U.S. or its allies are interrogating a prisoner abroad to try to avert terrorism, some of the techniques can include isolation, no visitors, no television, no daylight; rewards and punishments, cigarettes, favorite food versus bread and water; creating a new false reality for the prisoner using false newspapers or radio broadcasts, for example, designed to convince them that Usama bin Laden is already dead. The techniques do not include torture.

(END VIDEOTAPE)

ENSOR: Current serving officials will not comment on where they are holding Abu Zubaydah or how they are trying to convince him to talk, but they do underscore the urgency of doing so. He could save lives if he tells what he knows -- Jan.

HOPKINS: But, David, if you have this reward system, better food, better conditions, isn't that an incentive for some of these prisoners to make things up?

ENSOR: That is why they have to be crosschecked, and it is only after they have other intelligence from other sources that U.S. officials put out information that Abu Zubaydah is giving them. For example, this idea that the fourth plane was aimed at the White House -- that they have from other sources as well. They're reasonably convinced that that is, in fact, what the target was.

HOPKINS: Thanks.

David Ensor in Washington.

A bomb exploded under a tanker truck near Israel's largest fuel depot today. The explosion near Tel Aviv was set off by remote control. Israeli police say that they suspect Palestinian militants. No one was hurt in that attack. It follows a suicide bombing yesterday that killed two Israelis and injured about 30 others south of Tel Aviv. And meanwhile, Palestinian leader Yasser Arafat today promised to hold elections by early next year. Arafat also backed away from his earlier condition that Israel must first pull back from Palestinian territories.

The increasing tension between India and Pakistan may hurt the U.S.-led war against terrorism. U.S. intelligence officials say that they expect Pakistan to begin moving some of its troops from its border with Afghanistan to its border with India. Pakistan has kept hundreds of its troops along the Afghan border to help seal off escape routes for al Qaeda fighters fleeing Afghanistan.

Defense Secretary Donald Rumsfeld says he's been talking directly with officials in the region to try to diffuse that crisis between India and Pakistan.

For the third time in 15 days, Iraq has tried to shoot down aircraft in the southern no-fly zone. U.S. and coalition aircraft responded to the attack by bombing a missile control center 100 miles south of Baghdad. U.S. officials are concerned about Saddam Hussein's increasing aggression. President Bush has been trying to build support in Europe for future action against Iraq.

Stocks reversed earlier losses and finished higher for the second straight session. A jump in April durable goods orders and a decline in unemployment helped lift the markets. Volume relatively ahead of this Memorial Day holiday weekend. The Dow gained 58 points, the NASDAQ added 24, the S&P 500 up 11. We'll have complete market coverage later in the program.

And coming up on MONEYLINE, a special report on the security lapses at our nation's airports. Why the systems in place are not enough to protect us.

Then America on alert. Why awareness alone could stop an attack. Terrorism expert Bruce Hoffman will join me to explain.

And later, a good showing, but will it produce results? A look at President Bush's trip to Russia with Russian expert Dimitri Simes.

(COMMERCIAL BREAK)

HOPKINS: Since September 11th, efforts have been made to improve airline security. Cockpit doors have been fortified, air marshals have been placed on many flights, and passengers and baggage are being more closely scrutinized. But, when it comes to airline personnel, there is an alarming lack of security, leaving the door open to potential terrorists.

Steve Young has that story.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): At Washington area airports, at Logan Airport in Boston, and Salt Lake City's airport, about 200 workers have been arrested on federal charges of using phony ID permitting them to get to restricted areas, such as the tarmac. It's not enough.

At almost all airports, old-fashioned doors with punch combination locks are the only thing protecting tarmac security. A terrorist on the tarmac could plant much more explosives on the plane than a passenger could. He'd have more access and time, working with caterers, baggage handlers, and fuel workers.

There are high-tech biometric recognition technologies which measure unique body characteristics that could stop would-be terrorists, but the percentage of airport workers required to undergo rigorous biometric checks is tiny.

RICHARD DOHERTY, PRESIDENT, ENVISIONEERING: It would be well under a tenth of 1 percent by the spot surveys we've done around the country. It's very, very low for the tarmac level, and it's much higher for strategic offices, air traffic control centers, that sort of thing.

YOUNG: Two companies that manufacture fingerprint devices say at least 100 airports have placed orders, but few of the scanners have been installed yet. San Francisco Airport is the one place ahead of the curve. It's been using hand scanners to screen all of its employees for a decade.

A Dallas/Ft. Worth airport executive says the industry understands improving security is critical.

KEVIN COX, DALLAS-FORT WORTH AIRPORT: We have a brand-new organization, the Transportation Security Administration, who is working daily to try to enhance safety and security at our airports. It's going to get better.

(END VIDEOTAPE)

YOUNG: The Federal Aviation Administration is supposed to test biometric censors for employee screening, including fingerprint scanners, hand readers, and face-recognition systems, but that won't start for five years -- Jan.

HOPKINS: So there is technology. Is it that expensive? I mean, does it need somebody to...

YOUNG: It's expensive...

HOPKINS: ... say, "You have to do this right away."

YOUNG: If you look at it as a, you know, return on investment, except if you take a really wide view, biometrics has been a backwater industry for 30 years. Now everybody's focused on it. Orders have been placed. Checks are slow to be written.

HOPKINS: So that's the problem?

YOUNG: That's a key part of the problem.

HOPKINS: Thank you. Steve Young.

Many Americans believe there is virtually no way to stop another terrorist attack. Bruce Hoffman agrees it would be difficult, but he says that recent warnings could actually help.

Bruce Hoffman is a vice president at the Rand Corporation and author of the book "Inside Terrorism." He joins us now from Washington.

Bruce, let me ask you first, from what you know, is it basically inevitable that there's going to be another terrorism attack in the United States and perhaps soon?

BRUCE HOFFMAN, RAND CORPORATION: Well, I can't say whether it will be soon or far in the future, but I think, indeed, it is inevitable, and the reason I say that is we have seen an upsurge in al Qaeda activity in recent months. There's been an attack against a Jewish synagogue in Tunisia, another attack halfway around the world against French engineers in Pakistan.

And what that suggests is that, even though we've made great inroads in destroying the al Qaeda infrastructure in Afghanistan, destroying their training camps and training ba -- and operational bases, destroying their headquarters, nonetheless, there are still cells out there that are capable of engaging in acts of terrorism.

HOPKINS: And you think that the fact that we are being warned about the possibility can actually help rather than just scare people?

HOFFMAN: Well, one has to remember, too, that we're coming up to the summer holiday period, and perhaps the two most significant American holidays on the calendar, Memorial Day and July 4.

So it could only be prudent firstly to take increased security measures, and, at the same time, one would anticipate if that the terrorists want to strike another blow against the United States, what better time to do it arguably than the holiday period.

So I think if we' were behaving very complacently, if we weren't ratcheting up our monitoring, if we weren't more vigilant, terrorists, I think, would then conclude that the United States is still a very soft target.

And don't forget before September 11th, al Qaeda -- it sounds astonishing, but al Qaeda, nonetheless, regarded the United States as a benign operational environment. So anything we do to counteract that image, I think, is to the good.

HOPKINS: But you think that we're particularly vulnerable to suicide bombers, right?

HOFFMAN: Well, I wouldn't say particularly, but I take the FBI director's point, as I do take the point about threats to apartment buildings, because we're not talking about hypothetical terrorist scenarios. We've seen these types of events occur in other countries. We shouldn't assume that we would be immune to them, and, indeed, looking back, that was one of the assumptions before September 11, that terrorism was a problem that affected Americans elsewhere, that affected other nations, but, somehow, we could remain hermetically sealed off from this threat, and I think we know better now.

HOPKINS: And in terms of terrorist -- or suicide bombers, we should be thinking about them differently than the way we think about them?

HOFFMAN: Yes, absolutely. In the past, we've tended to look at this as very much of an individualistic phenomena and, consequently, have investigated ways of psychiatric and psychological interventions, ways of preventing individuals from becoming terrorists and from becoming suicide bombers.

What we see now, I think, unfortunately, but the reality of it is a transformation of something that was done by a select small number of individuals that had to be actively recruited, got to be talent spotters getting them into organizations, to now there are people coming forward now to be suicide terrorists.

Indeed, there is a DVD circulating by al Qaeda welcoming Muslims throughout the world to become suicide terrorists and to respond to a Web site. So we have to view this as an organizational problem, not just as an individual one.

HOPKINS: And are we more susceptible to things like chemical weapons, biological weapons, possibly nuclear weapons?

HOFFMAN: Well, the -- I think the profoundest lesson from September 11th is to keep all possibilities in mind literally at all times and that we can't just focus on one narrow set of particular targets or particular threats, but, rather, we have to do our best to a have flexible, adaptive, and very nimble response, as I believe we have, in really attempting to cover the waterfront of all possibilities and contingencies.

HOPKINS: Thanks very much.

Bruce Hoffman, the author of "Inside Terrorism."

And coming up on MONEYLINE, a new era of cooperation between the United States and Russia, but can it produce results? Russian expert Dimitri Simes gives us his word on that.

And then a positive day on Wall Street for the second day in a row. We'll head to Wall Street for the latest.

Firefighters are hoping a springtime snowstorm will help them gain control of a wildfire raging in Colorado.

We'll have all of those things coming up.

(COMMERCIAL BREAK) HOPKINS: The Cold War is over, and relations between the United States and Russia are the best that they have ever been. President Bush is in Moscow tonight. He and Russian President Vladimir Putin are preparing to sign a treaty that will dramatically reduce the U.S. and Russian nuclear arsenals.

Dimitri Simes is a Russian expert and the founding president of The Nixon Center. He joins us from Washington.

So, Dimitri, how significant is the signing of this treaty?

DIMITRI SIMES, PRESIDENT, THE NIXON CENTER: It is not very significant in terms of substance of the treaty. It is basically a kind of dramatic but predictable cut in clear arsenals which was negotiated during Bill Clinton's term in office.

But what is significant is that the Bush administration have agreed to sign this treaty because the initial position of the Bush administration was Russians and Americans are now friends, so all we need is a handshake, why would we waste time on old disagreements, congressional confirmation, ratification, and et cetera?

But now the administration decided to (UNINTELLIGIBLE) the Russians, Putin wanted the treaties being signed. It is clearly a goodwill gesture toward Putin on President Bush's part.

HOPKINS: But it is one of these relationships where each person needs the other one. President Bush really needs Mr. Putin for the war on terrorism, right?

SIMES: Absolutely. And that is the nature of the new U.S./Russian strategic partnership. I think it -- clearly, Russia is not a superpower. It is not a great economic power, but Russia -- because American considerable intelligence capability -- Russia's has presence in the Middle East, and Russia can be very helpful to the United States in the variety of ways fighting terrorism.

HOPKINS: We were just hearing that already, though, there's a bit of a spat over some things that Mr. Bush is saying about Iran and Russia's role with Iran. Is this something that the U.S. president really has to make a point about and really try to get Russia to pull out of some of its contacts with what we would consider countries that are harboring terrorists?

SIMES: Iran is one of the most difficult problem since the U.S./Russian relationship because, for the United States, it's about security, and, for Russia, it is about money. They are getting a lot of money from Iran.

So we have to find a way to pressure them not to do things which are really detrimental to American security, to allow them to do some things, which will bring them cash, but are relatively innocent and, of course, to give them an economic stake in the relationship with the United States which will not allow them to disregard American concerns. HOPKINS: Well, that's one of the things that Mr. Putin needs from President Bush. He needs economic support, trade support, and yet Mr. Bush is not really taking anything with him, is he?

SIMES: Well, the time when Russia was begging the United States for loans is over. Russia, of course, is weak economically, but it is now number one oil producer, it is now number two oil exporter. They want to join World Trade Organization. The United States can be helpful to them, but, actually, they have to do more at home to encourage foreign, in particular American investment.

HOPKINS: So you think that it's -- wouldn't be right thing for President Bush to have some kind of economic carrot with him on this trip?

SIMES: I think it is unfortunate the administration was not able to get rid of the (UNINTELLIGIBLE) amendment, which was passed almost 80 years ago when the Soviet Union was a totalitarian state, and it was connecting trade benefits for the Soviet Union with Jewish immigration.

This is totally obsolete, and it is too bad that we still carry this amendment on the books. But it is largely symbolic. It doesn't do anything to punish Russia economically. What the administration has to do, in my view, is to help Russia to join World Trade Organization, not by relaxing World Trade requirements, of course, but working with Russia, working with World Trade Organization, being a good facilitator.

HOPKINS: Thanks very much.

Dimitri Simes of The Nixon Center in Washington.

Thanks for joining us.

SIMES: Glad to be with you.

HOPKINS: Coming up on MONEYLINE, a closer look at relationships between White House officials and Enron executives. It looks like there were more connections than originally thought.

Then we head to Houston for the latest in the Andersen trial and the government, today focusing on reams of documents that Andersen shredded last fall. We'll be back.

(COMMERCIAL BREAK)

HOPKINS: Here is a look at today's top stories. President Bush arrived in the Russian capital a day ahead of signing a landmark nuclear arms treaty with Russian President Vladimir Putin. Both nations have agreed to reduce their nuclear forces by roughly two thirds.

Earlier today, President Bush told Germany's lower house of parliament that America and Europe need each other to fight the global war against terror. U.S. officials say the captured senior al Qaeda leader confirmed hijacked United Airlines flight 93 was intended to hit the White House on September 11th. U.S. officials say they believe Abu Zubaydah -- quote -- "on balance."

It turns out that White House officials had much more extensive contacts last year with executives of Enron than previously disclosed. Responding to a subpoena from the Senate Government Affairs Committee, administration officials acknowledged numerous meetings, but insisted there was nothing improper about them. More from Tim O'Brien in Washington.

(BEGIN VIDEOTAPE)

TIM O'BRIEN, CNN CORRESPONDENT (voice-over): Former Enron chairman Kenneth Lay, a friend and supporter of President Bush, was also a frequent visitor at the White House, showing up at numerous White House functions, from the inaugural to T-ball games and the Easter egg roll.

The White House also says that Lay and other Enron officials had at least 19 meetings with White House officials, including five meetings and half a dozen telephone calls to Vice President Dick Cheney's energy task force.

LARRY KLAYMAN, JUDICIAL WATCH: It's very disappointing. The information that had been given by the White House up to this point in time led the American people to believe that there were far fewer contacts between Enron and the White House. So they haven't been honest in that regard.

O'BRIEN: Lay and other Enron officials apparently had no qualms pressing their views on energy policy and personnel with the White House, Lay alone recommending 21 people for jobs in the administration, including Patrick Wood, who was named chairman of the Federal Energy Regulatory Commission.

But in a letter to Governmental Affairs Committee Chairman Joe Lieberman, White House counsel Alberto Gonzalez says neither Lay nor anyone else at Enron approached any person within the White House seeking help in connection with Enron's financial difficulties.

Much ado about nothing, say the president's defenders.

SEN. THAD COCHRAN (R), MISSISSIPPI: It does make you wonder, what is the purpose of all this? To attract attention to the suggestion that there was some kind of culpability on the part of the White House? When there is no evidence at all that there was.

O'BRIEN: No dispute there, although the summaries the White House released might raise questions about the impact Enron may have had on U.S. energy policy.

(END VIDEOTAPE)

Meanwhile, in a related matter, a federal judge here in Washington rejected Justice Department efforts to dismiss a lawsuit against Vice President Cheney and the energy task force he headed. The case, brought by Judicial Watch and the Sierra Club, also seeks information about the role that Enron and the energy industry in general may have played in the formulation of the administration's energy program -- Jan.

HOPKINS: Thanks, Tim O'Brien in Washington.

The state's accounting board in Texas moved to revoke Andersen's accounting license today because of its role in Enron's collapse. The state is also seeking at least $1 million in fines and penalties.

Meanwhile, day 14 in the Andersen trial, the government is still putting on its case. And today it introduced for the first time evidence of the volume of Enron documents shredded by Andersen last fall. Peter Viles has the latest from Houston.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): For the first time in the Andersen trial a blow-by-blow account of how the shredding system worked at Anderson's Houston offices, and the flurry of shredding that took place late last October.

The government witness was Shannon Tebot (ph), who oversees record keeping and shredding at Andersen, and testified that 18 to 20 of these steamer-sized trunks of Enron documents arrived for shredding in a three-day period last October.

She described a system in which documents from Enron headquarters were put into trunks, taken by courier several blocks to Andersen headquarters, then stored, to be shredded by a contractor, which showed up with a shredding truck once a week.

She said late last October a member of the Enron team called and asked for a handful of empty steamer trunks. I said, "That's never good. When you ask for empty trunks, it usually means you're going to shred."

"That's exactly what we're going do," the staffer responded. In three days, 18 to 20 trunks arrived. By one estimate, the trunks weigh 100 pounds each when full, which would put total shredding at that period to nearly 2,000 pounds, or one ton.

A cross-examination, though, Andersen attorney Rusty Hardin tried to minimize that volume. He pointed out that those trunks were never weighed, that Anderson shredded up to 38 tons of documents in Houston in a recent year, and that the spike in activity could have resulted innocently, if the Enron auditing team had simply fallen behind in shredding, leaving documents to build up over a ten-month period.

Jan, back to the news you relate at the top of the story. The Texas board of accountants here in Texas and Austin has moved. This is the beginning of the process, moved to revoke Andersen's license to practice accounting here in the state. Also, to fine the firm at least $1 million. One of the things they cited was the alleged document destruction. Another thing they cited was -- quote -- "that Andersen, in its work for Enron, lacked independence, objectivity and integrity." This certainly bad news if anyone at Andersen has any hope of keeping this firm alive as an audit-only, accounting-only firm after this trial -- Jan.

HOPKINS: Pete, there have been a lot of fireworks in this trial. Any today?

VILES: There are fireworks every day, Jan. We had plenty today.

I'll tell you about one. We had one of these private conferences at the bench with the judge and the attorneys, that's supposed to be out of earshot to the jury. But the judge got so exercised in yelling at Rusty Hardin that we could hear it in the press section. I think some members of the jury could hear it.

She said at one point to Rusty Hardin, waving her finger at him, "You are you so off base it's unbelievable." Now, these are things the jury is not supposed to hear. But I can tell you, we sit further away than the jury. It was loud and clear to us, Jan.

HOPKINS: Peter Viles in Houston, thanks.

Up next, gold prices on the rise. We'll find out if the commodity is a good place to put your money.

Then, skyrocketing insurance premiums are forcing some doctors out of work. A special report on the growing crisis for our nation's health care providers.

And later, farmers fight for irrigation water to protect their crops. That story when MONEYLINE continues.

(COMMERCIAL BREAK)

HOPKINS: It was a crime of huge proportions, investors defrauded out of $125 million over a 15-year period. Today Congress looked into how the stockbroker accused of that crime actually pulled it off, and whether the existing regulations are enough to prevent it from happening again. Louise Schiavone has more on that story.

(BEGIN VIDEOTAPE)

LOUISE SCHIAVONE, CNN CORRESPONDENT (voice-over): Investors told Congress how their broker raided their accounts. The broker, Frank Gruttadauria, a multimillion-dollar performer at Lehman Brothers in Cleveland, is now in jail.

CARL FAZIO, DEFRAUDED INVESTOR: He took my money and misappropriated it in order to grow his commission income, all the while sending me false statements which reflected the trades I sought in the market. He did this while encouraging me to deposit more and more money. SCHIAVONE: His was one of at least two dozen accounts Gruttadauria is accused of tapping. The broker faces federal charges of draining roughly $125 million from clients' accounts over the course of 15 years.

LORI RICHARDS, OFFICE OF COMPLIANCE, SEC: The SEC alleges that Mr. Gruttadauria forged clients' signatures on withdrawals, made unauthorized transfers of funds, and took customer funds, purportedly to open accounts. But he never actually opened accounts.

SCHIAVONE: The SEC says broker dealers are obliged to regulate themselves, and offers advice to investors. Check out the broker. Don't settle for a verbal description of documents. Read the fine print. Examine your account statements carefully. Write checks to the brokerage, never the broker. Watch out for irregularities like a delay in withdrawals or statements. And address any problems right away.

Because of the complexity of this case, it could be many months before the victims recover their losses. But...

DAVID DOHERTY, V.P. FOR ENFORCEMENT, NYSE: We have made it very clear to member firms that we expect them to deal fairly with their customers and reimburse their customers.

(END VIDEOTAPE)

SCHIAVONI: The call that emerged from the hearing was not for more regulations to protect investors, but for greater vigilance and enforcement of regulations already on the books -- Jan.

HOPKINS: Louise, in this case, though, this broker used blank sheets to give people their statements, that he basically made up. But they would look like statements from the brokerage firm.

SCHIAVONE: That's right. What happened was the real accounts would be sent to post office boxes that Gruttadauria set up, and that he had control of. While phony account reports were sent to his clients.

HOPKINS: Very interesting. Louise Schiavone, thank you.

Stocks climbed for a second day, erasing early losses. News that durable goods surged more than a percent in April helped boost stocks. The Dow gained 58 points. The Nasdaq added 24. The S&P was up 11.

Christine Romans is at the New York Stock Exchange and Greg Clarkin is at the Nasdaq marketsite, with some of the day's biggest movers -- Christine.

CHRISTINE ROMANS, CNN CORRESPONDENT: Well, Jan, the buying came late and by the end, advancing stocks beat decliners almost 2-1. IBM began issuing pink slips today. Analysts expect at least 8,000 job cuts by the time it's all said and done. The stock up 35 cents.

Halliburton soared seven percent on fading concern about asbestos liability. As for retail movers, Williams-Sonoma hit an all-time high. Profits soared this quarter and they raised guidance for the year. Home Depot, though, suffered a third day of heavy selling on worries about its growth rate. And Kmart said in a filing, April same store sales fell 16 percent and it lost more than a billion dollars in that month.

Watch GlaxoSmithKline in the drug stocks tomorrow. It lost patent protection on a key drug and it will lower earnings targets for the next two years, if its appeal fails.

Now for the Nasdaq and Greg.

GREG CLARKIN, CNN CORRESPONDENT: And, Christine, those Nasdaq stocks reversed course in late afternoon trading as well. And leading the charge were the biotechnology stocks. That, after reports that an FDA panel has recommended approval of Biogen's drug to fight psoriasis.

That stock was halted during the day while this review was under way. But keep an eye on that one tomorrow. Again, it was halted, down four pennies. But that stock shorter, reactivist news which came late in the trading session.

WorldCom, up 14 cents on the day. The company announced $1.5 billion it secured in financing. Priceline.com, a nice pop there. It was up better than 10 percent. The company's CEO saying they are on track to meet the quarterly estimates. On top of that, he says, they are seeing a rebound in leisure airline ticket prices.

Sun Microsystems, after the bell, had a mid-quarter update for Wall Street analysts. The stock was little changed, gained seven cents. Sure to be active tomorrow, though. A lot of discussion about technology spending on that update.

And then Oracle shares are a big pop today, up better than 6 percent, a gain of 57 cents. All in all, not a bad showing for the Nasdaq. It makes it two in a row -- Jan.

HOPKINS: Thanks, Greg Clarkin at the Nasdaq.

An executive shuffle at J.P. Morgan Chase today. Jeffrey Boise, head of investment banking for the past 2 years, is out. He'll be replaced by David Coulter, the current chief of consumer banking. J.P. Morgan has recently suffered massive credit losses, including Enron and Kmart. Mr. Boise was brought in to boost investment banking at Chase Manhattan shortly before it acquired J.P. Morgan in the year 2000.

Despite today's rally in the market, the broader market is down nearly 5 percent so far this year. As stocks slide, investors look for safe places to put their money. Gold prices jumped another 4.5 today. Deficit spending lower. Interest rates and the high cost of war have lifted prices to 2 and a half year highs.

Mutual fund manager Frank Holmes joins us now from San Antonio. And before we start talking, I should point out that your gold shares fund is up 105 percent so far this year, and the world precious metals fund that you run is up 104 percent for the year. Can you top that kind of performance, going forward?

FRANK HOLMES, U.S. GLOBAL INVESTORS: I hope we can, but past performance is no guarantee for future results. But we in a new market, in a gold secular mark. And on a historical basis on these cycles, from bottom to top, stocks increase by 200 percent. So there is a -- appears to be more on the upside.

And we think the dynamic equilibrium for the price of gold would be around 370 to $400 an ounce.

HOPKINS: It's now about 320 or something like that?

HOLMES: Yes, so we feel there's another 50 to $75 on the upside, where mining companies can start to make a decent return on mining and start exporting again. Otherwise, for the next four to five years we're going to have a shrinkage in mine supply, couple with them covering their hedges. And you're going to see higher gold prices.

HOPKINS: It's interesting, though. We've had times in history where people have been nervous, times of crisis, and gold has been in a bear market for about 20 years. What's different?

HOLMES: Well, based on our studies, what we find, there are some real critical drivers. And they're usually deficit spending coupled with zero rates of return on your money market funds. T bills are 1.75 percent. And after you take away taxes and the CPI number, you've got a negative rate of return on your money.

And then that triggers people to start to diversify, because there's a concern that the U.S. dollar will start to decline. So you have the Japanese become massive buyers in the first part of the year. They also have insurance issues they're concerned about. They're the largest holders of U.S. government securities, particularly government notes. So gold is a natural hedge if they're worried about the U.S. dollar declining.

Then you have convergence taking place with demand because of hedging. Gold money companies are stopping their hedging. They're unwinding their hedging. They're becoming natural buyers in the marketplace. And this is driving the price of gold up.

You have huge mergers taking place in the mining industry. So you have a complete new paradigm going forward.

HOPKINS: So, which stocks are your favorites? Which are your biggest holdings?

HOLMES: We have a very adaptive model. And we look for what stock is under, relative to the other, on a daily basis and a weekly basis. We feel that the mid-tier gold stocks offer the best upside potential. Because the big gold mining companies, it's very difficult to replace 5 million ounces of (UNINTELLIGIBLE) production.

It's hard to find that type of a deposit. So they're going to acquire the mid-range stocks, and that's where we've focused. And I believe that's where we have been able to generate far better performance against the average gold fund, year to date. I think we're about 50 percent above the average gold fund because we focused on unhedged gold stocks in this category.

So recently, we've been buying companies like Wheaton River, which is now becoming a major producer of (UNINTELLIGIBLE) mines out of Mexico. It trades in the stock exchange.

Companies like Northgate also trade there. These companies are -- have, to us, lots of upside potential.

HOPKINS: Thanks very much. Frank Holmes, U.S. Global Investors, joining us to talk about gold.

And up next, we'll have a special report on rising malpractice insurance rates and the devastating effects the increases are having on medical care.

(COMMERCIAL BREAK)

HOPKINS: Now a follow-up to a story that we brought you a couple of months ago. Many of the nation's doctors are dealing with skyrocketing prices for medical malpractice insurance. The situation has forced many doctors out of business, creating a shortage in several states.

Nevada is one state dealing with the situation and it's obstetricians are hard hit. Casey Wian has a story from Las Vegas.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN CORRESPONDENT (voice-over): Kim and Jack Christenson are expecting their third child. Because of a common medical condition, Kim's first two were delivered by Caesarean section. Now the doctor who performed those operations refuses to take her case.

KIM CHRISTENSON, EXPECTANT MOTHER: They called me and said, you know, he's decided that he just can't afford to continue seeing O.B. patients. I ended up going to see him that day. And when he came out I instantly started crying. And he started crying, and...

WIAN: Kim and her former doctor are victims of Nevada's medical malpractice insurance crisis. Soaring premiums are forcing doctors to either stop delivering babies or reject high-risk patients.

(on camera): There are 93 doctors who practice obstetrics in southern Nevada. This year a dozen of them have stopped, and many of the rest have sharply cut back the number of babies they'll deliver.

DR. JOHN NOWENS, PRES., CLARK COUNTY OB/GYN SOCIETY: It's a heartbreaking experience to have to tell a patient that you've delivered her children before, and now you can't assume that risk. There's going to be patients who will not have a doctor all the way through her pregnancy, and most likely will not have a doctor for her delivery in Clark County.

WIAN: So what do they do? Do they just show up at the hospital, or do they have to go somewhere else?

NOWENS: I don't know what they're going to do.

WIAN (voice-over): Malpractice insurance premiums have about doubled in the past year for Nevada obstetricians, and can exceed $100,000 a year for those who don't reduce their patient loads. Insurance companies say they're simply raising rates to cover the growing cost of lawsuits.

For every dollar's worth of malpractice coverage, American Physicians Assurance wrote in Nevada last year, it paid out $1.71 in claims. The company has raised premiums in 14 states.

WILLIAM CHEESEMAN, PRES & CEO, AMER. PHYSICIANS ASSURANCE: Companies have literally gone broke riding this line. You're seeing companies being downgraded by the rating agencies, based on losing tens and hundreds of millions of dollars. So it's a problem nationwide.

WIAN: The American Medical Association says Pennsylvania, Florida, Texas, Mississippi and West Virginia also face doctor shortages because of malpractice premium costs.

DR. RICHARD CORLIN, PRES., AMERICAN MEDICAL ASSN: This will affect over 100,000 doctors by the end of the year. And there's a real question as to whether anybody else will step up to offer that insurance.

WIAN: A congressional proposal would limit pain and suffering damages to $250,000 in states without existing limits. Nationally, the media and medical malpractice jury award doubled to $1 million from 1997 to 2000.

Still, attorneys say bad insurance company investments, not lawsuits, are the problem.

LEO BOYLE, PRES., ASSN. OF TRIAL LAWYERS OF AMER.: When insurance companies aren't making the money off their investments that they used to make, they will increase the premium. It doesn't matter what's happening in court.

WIAN: To Kim Christenson, what matters is finding a doctor. After 16 turned her away, number 17 took her case. Casey Wian, CNN Financial News, Las Vegas.

(END VIDEOTAPE)

HOPKINS: "CROSSFIRE" begins in a few minutes. For a preview, let's go to Paul Begala in Washington -- Paul.

PAUL BEGALA, "CROSSFIRE": Jan, we know that the war on terrorism is going well, because "CROSSFIRE" is going to be about Gary Condit tonight. I believe the chief of police is going to be here, Terrance Gainer. So I think they have done a terrific job on this, and that Gary Condit has not behaved very well.

Believe it or not, my friend Tucker disagrees. He thinks it's the cops who have let us down, and that Condit somehow has been wronged in all of this.

TUCKER CARLSON, "CROSSFIRE": As a longtime resident of the area, I know that to be true.

And then, it's almost the one-year anniversary of the one-man coup staged by Jim Jeffords, turning the Senate over to the Democrats. Paul spends a lot of time complaining about the Florida recount, and thinks it's great. I see it as what it is, a tragedy. That's our second segment.

HOPKINS: Thank you. We'll be watching.

In Colorado tonight, a wildfire continues to rage out of control 50 miles southwest of Denver. Seven cabins at a youth campground and two summer homes destroyed by wind-whipped fire. Between 4,000 and 5,000 acres of forest have been scorched. Badly-needed snow and rain are expected, but until they arrive, the high winds are expected to make the situation worse.

Meanwhile, wildfire in New Mexico has scorched 430 acres in northeastern Santa Fe County. Air tankers are dropping fire retardant on the planes, and they've had some success containing the fire. But again, heavy winds are expected to fan the flames later. Those fires are being made worse by a severe spring drought.

And that drought has brought tempers to a boiling point along the Texas-Mexican border. Angry U.S. farmers today blocked an international bridge over the Rio Grand river. They say their crops are dying because Mexico is not diverting irrigation water to them as part of a 1944 agreement. Water officials blame the weather. They warn that if dry conditions persist, reservoirs may dip to record-low levels.

Up next, we'll hear what you have to say and we'll hear from some of today's newsmakers.

(COMMERCIAL BREAK)

HOPKINS: Now let's take a look at your thoughts.

Raghu Bala in Washington says before September 11, the Bush administration took terrorist threats too lightly. Now he says they've gone to the other extreme. His suggestion: "They need to seek some middle ground, which is informing the public only in the event of confirmed threats. Otherwise the markets, consumers and the economy will forever stay jittery with no recovery in sight."

With the Justice Department's case against Andersen well into its third week, Robert Muller of Illinois writes, "I'm an employee at Andersen in Chicago. Thank you for your ongoing coverage of the Andersen story, especially since it has brought criticism from your peers." And finally, from Felicia Williams in Washington, D.C., who writes in about our story this week on recycling programs around the country that are not working as well as first thought: "I believe the public will recycle more if they are given notice about convenient times and locations and if they can recycle things for a reasonable price. There's a limited supply of natural resources. We should have learned this in the '70s during the oil embargo."

We like hearing from you. You can e-mail us at moneyline@cnn.com. Please include your name and address.

Now from your words to "In Their Words."

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, SECRETARY OF DEFENSE: Millions of people would die in the event there was a nuclear exchange between those two countries. Water supplies would be damaged. Agriculture would be damaged. Their economies would both go into the tank.

Neighboring countries would be adversely affected. We have troops, hundreds of troops, in Pakistan, as you know.

UNIDENTIFIED MALE: And Afghanistan.

RUMSFELD: And Afghanistan. And of course, depending on which way the wind was blowing and what kind of bursts were used with a nuclear exchange, it would be a perfectly terrible, terrible thing for that part of the world and indeed for the entire world.

(END VIDEO CLIP)

HOPKINS: That's MONEYLINE for this Wednesday evening. Thanks for joining us. I'm Jan Hopkins, in for Lou Dobbs. Good night from New York.

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





 
 
 
 


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