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CNN IN THE MONEY

How Much Will Safety Drill Planned for Next Week Cost?; Does North Korea Want Washington to Pay Up?; Turner Dumps AOL Time Warner Stock

Aired May 11, 2003 - 15:00   ET

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

JACK CAFFERTY, HOST: Good afternoon. Welcome. Happy Mother's Day. I'm Jack Cafferty. This is IN THE MONEY. For the next hour or so, we'll explore issues relevant, we think, to your financial situation.
Coming up on the broadcast today as we begin, the price of safety. With the biggest homeland security drill ever planned for next week, we'll find out what it is going to cost to protect America and how well is this drill is expected to work.

Also ahead, would you buy a used weapons of mass destruction from this man? We'll see whether North Korea's Kim Jong Il wants Washington to pay up in order to keep nuclear weapons material off the world markets.

Plus, fire sale or hot opportunity? Ted Turner, founder of CNN, dumps more than half his stake in AOL Time Warner. With the stock stuck in the basement, we'll take a look at whether that's a vote of no confidence from the former boss man around these parts.

Sitting with me, a couple of good reasons to keep your eyes glued to the screen. Well, one, anyway, that would be Susan Lisovicz, CNN financial correspondent. And the other guy is Andy Serwer. Well, now, Andy Serwer, "Fortune" magazine editor-at-large. A little humor at your expense there.

And it is Mother's Day, and I thought we'd have a little more humor at your expense. Tell the story of what you did for your mom on Mother's Day.

ANDY SERWER, FORTUNE: I sent flowers to my mother on Friday, instead of Sunday, and the reason I did is I called up the florist and I said, how much does it cost to deliver flowers on Mother's Day? And he said, 15 bucks. I said, how much does it cost on Saturday? He said, 10 bucks. I said, how much does it cost on Friday? He said, seven bucks, and I said, I'll take the seven bucks.

SUSAN LISOVICZ, CNN FINANCIAL NEWS CORRESPONDENT: That's because they don't work on weekends.

SERWER: I don't want to spend money unnecessarily, and why should these florists gouge me and gouge the rest of America charging more on Mother's Day? I mean, that's terrible.

LISOVICZ: They don't want to work on weekends. Anyway...

SERWER: It's their job. It's their job. They deliver flowers. They make the arrangements and they deliver them. I delivered flowers as a summer job. I know about this stuff. And if you get those things delivered on Sunday, not only do they cost more, but they will be old flowers and they'll get delivered at 6:00 in the afternoon.

CAFFERTY: Now, it occurs to me that there is a downside to your efforts.

SERWER: There is no downside.

CAFFERTY: ... to save $8, and here's what the downside is. Your mom gets the flowers on Friday.

SERWER: That's a good thing.

CAFFERTY: If they're like most flowers that come from the florist, they will be dead by Sunday, today, which is Mother's Day.

SERWER: That's a bad thing.

CAFFERTY: Now, if your mother would have guests come into her home, they might say, so what did you son Andy get you for Mother's Day? And she could say, that a vase full of dead flowers over there.

SERWER: That's another bad thing.

CAFFERTY: So you see, there is a downside.

SERWER: I don't think about that stuff.

LISOVICZ: But you have to talk about the upside, that Mother's Day is the most wonderful time of year for florists, for restaurants, for candy shops, and for good reason.

CAFFERTY: That's true.

LISOVICZ: Mothers all across the United States should put their feet up, should be honored and feted, and I'm doing the ultimate as a career woman today, I am cleaning and cooking in my kitchen for my mother.

SERWER: That's great.

CAFFERTY: Can we come over to your house?

SERWER: Yes, I'll come over.

(CROSSTALK)

LISOVICZ: Well, maybe not. You are not that adventurous.

CAFFERTY: You could just see the fear cross her face.

SERWER: I don't think my mom is going to let me come over after your little (UNINTELLIGIBLE).

CAFFERTY: On to more serious issues.

A dirty bomb attack with everything but the bomb. Tomorrow, federal officials planning to start a five-day test of the much vaunted and highly costly homeland security system. They're going to manufacture two fake disasters in two major cities. Seattle will pretend it's been hit by a radioactive dirty bomb, and Chicago health workers will face a strange flu-like illness. Officials in Washington will respond as if it's the real thing. The cost of all of this make believe mayhem -- $16 million. That's pocket change compared to the total cost of making America more secure in the face of terrorism. And probably a small amount compared to the cost of this economy of the events that happened on September 11. Things like new machines for checking airport baggage, since that fateful day, don't come cheap either.

More security means more people watching the borders, watching the airports, patrolling our streets. In all, the price of heightened security across this country, tens of billions of dollars. Even patrolling the ports and seacoasts.

For a look at next week's exercise in protecting America and what it's likely to teach us and cost us, we are joined from Washington by CNN's homeland security correspondent Jeanne Meserve. Hi, Jeanne, nice to have you with us.

JEANNE MESERVE, CNN HOMELAND SECURITY CORRESPONDENT: Hi, Jack.

The governments of Canada and the U.S., 25 federal agencies, two states, 76 hospitals, an estimated 10,000 people, all participating in this soup to nuts preparedness exercise called TopOff 2, parts of which have already begun behind the scenes.

The goal, find out what is working in the realm of homeland security, and even more important, find out what is not working so it can be fixed. The first TopOff exercise was conducted three years ago, and it did highlight some weak points. Communications was a problem. There were issues of command and control and coordination. Participants discovered there were problems getting enough pharmaceuticals to the cities involved and getting them distributed.

This time around, there will be a simulated detonation of a radiological device or a dirty bomb in Seattle, Washington and a release of bubonic plague in Chicago. Officials are taking great pains to let the public know this is not a real thing.

(BEGIN VIDEO CLIP)

TOM RIDGE, SECRETARY, HOMELAND SECURITY: This is simulation, this is a test, this is an exercise. You may see real first responders actually working at simulated scenes and treating volunteers who pretend to be victims. If you happen to be visiting one of the local hospitals in these communities, you may see some of the hospital staff wearing masks or protective gear as they treat these volunteer victims, or simulate a pharmaceutical distribution. But again, the attack is not real.

(END VIDEO CLIP)

MESERVE: TopOff 2 will involve only two cities and the national capital region. The concept is that what is learned there can be applied elsewhere, but after the first TopOff exercise, no comprehensive after-action report was ever publicly released. The government said it didn't want to give terrorists a guide book to our weak spots, but some participants tell me another factor was embarrassment at how badly some aspects of the exercise had gone. Whatever the reason, the result is that some first responders feel they did not reap much benefit.

Back to you.

CAFFERTY: Jeanne, how do they pick the two cities? Was this a random thing?

MESERVE: No, they looked at cities where they thought there actually was some significant threat of a terrorist attack. Seattle, as you know, has several significant landmarks. It's a port. Chicago, as well. That was one factor into choosing those two cities.

CAFFERTY: Do they plan to release the results this time around and let the public know whether or not their tax money is being usefully spent?

MESERVE: Well, they say they're going to tell us more than they did last time. We're expecting some early reports perhaps as early as the week after the exercise. The final after-action report, probably a sanitized version, would be released some months after that.

The total cost of this is going to be $16 million. I asked one state level homeland security official if that was a boondoggle; he said, yes. He thought the money could be much more effectively spent on equipment and training, but there are others who say that this is a really good way to focus leaders at all levels of government on this specific problem and work out any kinks in the system, discover the friction points, particularly interesting this time around, because we have this new Department of Homeland Security, was merged 22 separate agencies into one. They want to find out if, indeed, it is going to work, and I guess we'll find out eventually if it does.

CAFFERTY: This is the first, I guess, big exercise since they did coordinate all those agencies under the banner of Department of Homeland Security. I'd forgotten about that. Before it was all these individual agencies, so first time to see how the synergy for want of a better word works or doesn't.

MESERVE: That's right. And not just within the department, but how that department is going to interface with the other federal agencies that will be involved, like Health and Human Services and the Department of Defense and the CIA and the FBI and so forth. And also, how they relate down to the state and local governments.

CAFFERTY: All right, Jeanne, thanks. Good to have you with us on IN THE MONEY. CNN's homeland security correspondent Jeanne Meserve joining us from Washington, D.C.

For a look at how well the United States security push is working and whether our budget can handle the high costs, we are joined now by Howard Safir. He is the former New York City police commissioner, and now chairman and CEO of his own company, security firm of Safir & Rosetti. Mr. Safir, nice to have you with us. Thanks for joining us today.

HOWARD SAFIR, FORMER NYC POLICE COMMISSIONER: Glad to be here.

CAFFERTY: Is this a question of whether or not we can afford to have all this protection or is it a question we can't afford not to have all this protection?

SAFIR: We can't afford not to. The fact is, we're faced with an enemy that has great resolve, great patience, who's waiting for us to lose our resolve. You know, it's not a coincidence that from '93 to 2001, the same group of people attacked the World Trade Center. They are very patient, they are very committed, and there is no reasoning with them. So we cannot afford not to.

LISOVICZ: Mr. Safir, let me get this straight. These kinds of drills have actually done before. In fact, there was one done a year before the September 11 attacks. But one of the things that's different about this one is that the details won't be known to the people who are participating. Is that correct?

SAFIR: That's correct. It is going to be an operation that is not divulged to the participants until it happens so they can have as much reality in their reaction as possible.

LISOVICZ: And is that a good thing in your view?

SAFIR: It is a good thing, because one of the things you want to find from these drills is where you're weak, where you don't have the (UNINTELLIGIBLE) ability between communication, between agencies and, you know, the most important thing is to make sure that the first responders who are going to be state and local police and fire can coordinate with the federal responders, who are going to be the second wave that comes in. And they're going to have the technology and the equipment that is necessary to support state and local police and fire.

SERWER: Howard, keeping ahead of the mind-set of these terrorists, I mean, to me that's a big problem. We never anticipated or imagined someone crashing airplanes into the World Trade Center. Number one, is that really possible to keep ahead of what they're thinking? And number two, is this really a sea change in the history of America? Will we forever be facing this kind of threat?

SAFIR: I believe this is a never-ending war. The fact is that, you know, we talk about al Qaeda, but the truth is there are 10 or 12 other organizations out there that wish us just as much harm, that are just as well organized, so this is a battle that is going to be on for the long term. It's not going to change. And these drills are very important. I believe the reason that so many people got out of the World Trade Center is because we did a number of these drills in New York City prior to September 11. And when you think about the fact that 99 percent of the people below the impact floors were evacuated from that building, drills are very important.

SERWER: But are we really anticipating what they might come up with next?

SAFIR: Well, I hope we are. I mean, the fact is, nobody can always anticipate everything, as much as you try, the truth is that very few people anticipated that a commercial airliner would be used as a weapon of mass destruction, and it was. But you have to anticipate how you do consequence management from any kind of attack, and these drills are very critical to that.

LISOVICZ: Mr. Safir, point well taken on not being able to anticipate attacks, but one of the most recurring complaints is that our port systems are so vulnerable, something like less than 3 percent of the ships that come into port are inspected. Doesn't that need improvement?

SAFIR: That needs tremendous improvement. And that's a different issue. I mean, that's an issue of the government getting their act together, and devoting the resources. There are 12 million containers that come into this country each year. Less than 3 percent of them are inspected, and even those inspections are often cursory.

So we really need to get our act together, not only on ports of entry, which are very vulnerable, and coastlines, but you know, trains. I ride Amtrak all the time, and there's very little security on Amtrak. Our over the road truckers that are transporting hazardous materials, very few of them are vetted, although, you know, Homeland Security is working on all of this. But when you take 22 agencies, 170,000 people, and a bureaucracy in Washington, it's going to take a long time to get organized.

CAFFERTY: Yes, a long way to go. Howard Safir, I appreciate you joining us today. Former New York City police commissioner and chairman of Safir, Rosetti, security firm. Thank you for your perspective.

SAFIR: Good to be here.

CAFFERTY: All right. Coming up on IN THE MONEY, as we continue, a sweet deal for the dear leader. Washington reportedly changing its game in order to block a nuclear garage sale by that man and his North Korean cohorts. We'll tell you what's at stake.

Also ahead, find out why California might set new limits for companies that break the law. We'll tell you about a new idea; three strikes and you're out, cracking down on corporate crime.

(COMMERCIAL BREAK) CAFFERTY: The White House this week reportedly changed its game plan in dealing with North Korea's nuclear threat. The "New York Times" reports that instead of trying to stop Pyongyang from making nuclear weapons, Washington wants to keep the weapons off the world market.

North Korea got America's attention big time last month when it claimed it had reprocessed enough spent nuclear fuel rods to make plenty of nuclear weapons. U.S. intelligence isn't sure whether that's true or not, but it's just one of the latest hints from the North that its nuclear program is alive and well.

Of course, North Korea also happens to be seriously strapped for cash. This is a an oppressive economy. They are very poor. Much starvation there. The standard of living extremely low, and that raises a question, is North Korea talking tough, or are they simply running a blackmail scam trying to get some money out of the United States and/or food?

Joining me here to talk a little about it, of course, Susan and Andy.

North Korea insisting on unilateral talks all along. They only want to talk to the United States. Washington saying, hey, wait a minute. Nuclear weapons in North Korea is a problem for South Korea, for Japan, for China. What's your take on this? What are they after? They wants truckloads of peanut butter sandwiches, or do they want to go to war?

LISOVICZ: Well, I think it just points to a continuing problem for the United States, which is the lack of good intelligence. Is North Korea really generating this type of plutonium? And if it is, how valuable is it? Why can't we get really good information? That just seems to be one of the things that we need to be asking.

SERWER: And you have to look at North Korea. I mean, it's incredibly crafty of them. They put themselves in a situation where they can't be attacked, because they have a million men in their army, they'll send them streaming over the border into South Korea.

To me, the biggest point, though, is, 50 years after the end of the Korean War and we're still mucking around with this stuff. Nothing has been solved. I mean, it really is true, isn't it?

CAFFERTY: That is true. That is a good point.

LISOVICZ: And the other thing is that it points to just a discrepancy in foreign policy. If the U.S. ends up paying North Korea for not making weapons of mass destruction after it invaded Iraq for making weapons of mass destruction, that seems a little weird.

(CROSSTALK)

CAFFERTY: Very good.

Well, I'll tell you what; let's get this solved right now once and for all, and we can go on to other issues next week. To find out whether North Korea is in fact looking for trouble or money, we are joined from Washington by James Lilley, and he's eminently qualified to discuss these problems, senior fellow with the American Enterprise Institute and a former U.S. ambassador to South Korea. Welcome. It's nice to have you with us.

JAMES LILLEY, FORMER U.S. AMBASSADOR TO SOUTH KOREA: Thank you for having me.

CAFFERTY: So, what's it really all about? Is it food, is it money, is it blackmail? What's your take on this, and more importantly, perhaps, what do we do about it?

LILLEY: This is the usual North Korean tactic. You're just named all the things that they're doing at the same time, but underlying that is absolute desperation. They're flailing out because they see the world closing in on them, because we're getting an alliance structure with China, Japan, South Korea and the U.S. They can't handle that. So they're lashing out at the last minute to get what they want.

But we have to be very clear on what we're trying to do, and I think we're getting that right now. It's not North Korea's latest playing with plutonium reprocessing, and those little games they play constantly, it's getting alliance management, to get together with China, South Korea, Japan, and build up a series of incentives and disincentives to make these people shape up. And disincentives, I'm talking about economic leverage, cutting oil and food, stopping their shipping of drugs and missiles, cutting back on remittances from Japan. A combination of factors that will make them very, very uncomfortable.

Then, I think you start talking with them, not in an unilateral way. That would be, I think, very foolish. You talk to them with the countries involved, and you lay out a real program for them, economically, to bail them out of their mess.

SERWER: Mr. Lilley, let me ask you a question, though. I'm sorry to interrupt. And that is, how did they get in this situation to begin with, with this nuclear material? I mean, we're monitoring this situation closely over the years, back when you were ambassador. How did they ever get this stuff to begin with?

LILLEY: They decided way back, about 30 years ago, they were going to become a nuclear power, and they got their scientists and engineers trained in Dubna Institute in Russia, they got the basics, they got the megawatt reactor from Russia, the five megawatt. They did a number of things, and then they (UNINTELLIGIBLE) put money, engineering and talent into building a nuclear capability, instead of feeding, clothing and warming their people.

SERWER: So we were asleep at the switch this whole time?

LILLEY: Pardon?

SERWER: Were we asleep at the switch the whole time? LILLEY: No, no. We discovered them while I was there. We found out about this. We went to them and said, you're doing it, let in inspectors, sign the Nuclear Nonproliferation Treaty, which they did in '85, accepted IAEA safeguards agreements, which they did. Do a number of things, which they did, but then, of course, they got more desperate and they hit up the Clinton administration with a huge bill to stop doing what they were doing and they got a very, very generous deal.

LISOVICZ: So, Mr. Ambassador, we knew, the U.S. knew that North Korea was making these weapons, or making the materials for these weapons.

LILLEY: Right.

LISOVICZ: But yet we still don't have the intelligence after all these decades to document how much and where it is. North Korea's been called the black hole of Asia. Why is this still so?

LILLEY: Well, we know that they have this Yongbyon processing facility. We photographed it. We've got it. We know they're building 250 megawatt reactors, which they've stopped building. We know they're using the five megawatt. We know where the fuel rods were hidden, and we knew where they have the nuclear waste dumps. We don't know what their secret intentions are. The highly enriched uranium program, they can spread that all over the caves of North Korea, and they'll never find it. What you have to get at is changing the intentions of the government, and that's exactly what we're trying to do.

CAFFERTY: If they put together -- if the United States leads a coalition, for want of a better word, of nations in the region that have a vested interest in this, Japan, China, South Korea, et cetera, to what degree -- and it's probably difficult -- it is -- to what degree can you assess the heightened risk of something catastrophic happening if this coalition begins to tighten the screws on them, as you suggested in the earlier part of this interview, cutting off the flow of oil and other things, setting up, you know, sanctions against the country.

You know, Iraq (sic) can be most dangerous when it's cornered, and they're very bellicose and there are threats to unleash a nuclear holocaust if they are pushed to it.

LILLEY: First of all, you don't cut off things. You reduce things. You do it in the Chinese way. Delicate reduction when they don't play the game. You give them a choice, guns or butter. You can move in the butter way and we'll supply you. You move in the guns way, we'll cut back.

What you have, the other thing, is to neutralizing their military capabilities. They know perfectly well, even President Clinton said to them and we said it repeatedly, if you ever use your weapons of mass destruction, your country will be eliminated. And they know from the Korean War that's exactly what happened to them. They're very concerned about this. They aren't concerned about smart weapons in Iraq. They're concerned about alliance cohesion, and we can give them a military retaliation capability that offers them no chance to play games with weapons of mass destruction used against us or our friends and allies.

CAFFERTY: James Lilley, former U.S. ambassador to the Republic of Korea and senior fellow with the American Enterprise Institute, thank you for your perspective this morning. We'll speak with you again on these matters, I'm sure.

LILLEY: Thank you.

CAFFERTY: Nice having you on the program this afternoon.

You can learn more about North Korea tonight. There's a special planned on CNN, it's an one-hour show, called "North Korea: The Nuclear Gamble." It's hosted by my buddy Anderson Cooper, and it's scheduled to air at 6:00 p.m. Eastern time, that would be 3:00 out on the West Coast. And at other times in between if you live like in the mountains or the Great Plains. I can't do the math. I don't know what the time is.

Still ahead on IN THE MONEY as we continue, AOL Time Warner's biggest single shareholder and CNN founder, Ted Turner, dumps more than half his shares. We'll look about -- see what Mr. Turner's move says about this company's future, as IN THE MONEY rolls forward.

Plus, more muscle than brains. Find out why the Hummer came in last in a new survey of SUVs. Stick around.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

HENRY BLODGET, FORMER MERRILL LYNCH ANALYST: The reason we like Amazon over long time is it's still one of the best management teams in the industry. They have executed very well, and this has been a tough year for them, building and growing as quickly as they have, but they seemed to have come through it well. We think that over the next couple of years, they will start to get a lot of the costs under control and start to focus more on the bottom line. So long term, we still like the company.

(END VIDEO CLIP)

LISOVICZ: That was infamous analyst Henry Blodget back in the days when you could use the words "Internet" and "boom" in the same sentence without laughing.

Last month, 10 Wall Street firms agreed to pay $1.4 billion to settle conflict of interest charges. Out of that settlement, about $387 million was earmarked for compensating investors, but if you divvied it up among America's reported 85 million stockholders, you'd get a hefty $4.55 per person. The Senate has been holding hearings on the settlement and whether it goes far enough in reforming Wall Street. Just after the deal was announced, we spoke with shareholder advocate Jacob Zamansky. I asked him whether small investors will still be able to sue these brokerage firms, and get their money back.

(BEGIN VIDEOTAPE)

JACOB ZAMANSKY, SECURITIES LAWYER: Yes. What we have had is the biggest fraud in Wall Street history. And now, investors are looking to see, do they have legal rights to sue and try to get the money back? The answer is absolutely. If you have a loss of over $100,000, you should consider bringing your own arbitration case, which goes through the New York Stock Exchange or the NESD. That's what most investors will do if they have larger losses.

Smaller losses will be part of the class action, which are big cases and will take about five years. Unfortunately, historically, they have only gotten about three to five cents back on the dollar for people. So that's not so great.

SERWER: Jake, the $1.4 million settlement, I know you've been critical of it. Last year, by the way, those 10 Wall Street firms earned or had revenues of $190 billion. So it's less than 1 percent of the revenues of those firms. How big should the settlement have been?

ZAMANSKY: I think it's outrageous that these firms are getting away with essentially a slap on the wrist. I think they should have put aside billions of dollars each to compensate the victims of this fraud. Now, what's going to happen is we're going to have a war between brokers and their customers for the next five years. They're going to win some cases; they're going to lose others. Eventually, it's going to cost in the billions.

If they wanted to restore trust, then they should have put some real money, not $100 million a firm, which is really nothing for them. So that's unfortunate.

SERWER: Yes, but, if they put up more money than that, than you would be out of a job, right?

ZAMANSKY: I wouldn't mind. I have plenty to do, helping victims of broker abuse. This is a specific problem, is this Wall Street research. I would have welcomed a global restitution fund, because I hear the stories every day of people that have been victimized. So I would have been happy to give away the money to the people, and the Wall Street firms are going to end up doing that.

CAFFERTY: What message does it send if a guy like Jack Grubman, that oily telecom analyst who made some $20 million a year for the nine or 10 years of the big Internet run-up and stock market boom, if he made $100 million and paid half of that in taxes, he's got $50 million in the pocket. Now, at the end of the day, he has to pay $15 million and he can't participate in the securities business anymore.

Make me the same deal. Let me have $35 million and I'll never go on TV again as long as I live. I mean, what the hell kind of message is that? And then the guy lost his life savings is going to wait five years to get $8 back. ZAMANSKY: Jack Grubman and Henry Blodget are laughing at everybody right now. I've got a challenge for Mr. Spitzer. Send one of these guys to jail in a real prison for a long period of time. That's the only message that will deter further fraud on Wall Street. These analysts are laughing at us and saying, if I get in trouble, my firm's going to pay a fine, and I go on and do business as usual. Send Quattrone to jail. He obstructed justice, allegedly, hiding things, destroying documents. That's the only way to stop these guys.

CAFFERTY: Yes, it's been, what is it, 550 some days since the Enron story broke. We have got all these other corporate stories that have come since then. Tyco, and Enron, nobody's in jail. Nobody. Mr. Zamansky, thank you very much for your time. I appreciate your perspective on the stories. Zamansky & Associates is actually his firm.

ZAMANSKY: Thank you very much.

CAFFERTY: Good to see you.

(END VIDEOTAPE)

LISOVICZ: That was securities lawyer Jacob Zamansky, who we had a chance to speak with last week.

Up next on IN THE MONEY, California could be on its way to setting a limit for companies that break the law. Find out whether it's an idea that could catch on across America.

And Ted Turner takes the money and walks. He sold more than half his stake in AOL Time Warner. We'll look at what that says about the state of the company.

(COMMERCIAL BREAK)

(NEWSBREAK)

CAFFERTY: Corporate bad boys have been the talk of America since the Enron scandal and before that. Now, in California, they're not just talking about the crook in the gray flannel suit, they are trying to take him out of action. A Senate committee in Sacramento has passed a bill that would apply the three strikes rule to corporations. If companies doing business in California racked up three or more felony convictions, they would effectively be shut down and unable to do business in California. For more about the three strikes idea, we're joined now from Los Angeles by Carmen Balber, she's a consumer advocate with the Foundation for Taxpayer and Consumer Rights, which is a non-profit advocacy group based in California. Carmen, nice to have you with us.

CARMEN BALBER, FOUNDATION FOR TAXPAYER AND CONSUMER RIGHTS: Nice to be here.

CAFFERTY: Aren't there laws on the books now presumably designed to prevent corporate malfeasance? I mean don't we have enough laws on the books against evildoers and wrongdoers? Do we really need more? BALBER: There are certainly laws on the books to prevent corporate crime but we've seen time and again is that fines simply aren't enough. You can't put a corporation in prison and that's usually the ultimate punishment for individual crime. We need a corollary in corporate crime, and this three strikes you're out law here in California will be exactly that.

SERWER: Carmen, I think this law, this proposed law, you've got very good intentions here, but I mean come on, how practical is this thing? I don't want to be defending corporate greed or corporate malfeasance here, but companies do stupid little things all the time where they might be convicted, they might even be felonies. For instance, take your giant utilities. This is another example of how I think it might be impractical. They've done some bad things. What are you going to do, kick the utilities out of your state? I mean, you can't do that.

BALBER: I'll take that utility example and tell you that, as far as I've been able to find at least here in California, none of the three major utilities have been convicted of a felony crime. Sure, companies do small things that maybe they didn't mean to do and they get fined, or maybe they even get convicted of a misdemeanor crime for that, but this law really focuses on those most egregious acts, felony crimes, huge violations of consumer protection, environmental protection, labor law that is really the heart of the most egregious corporate crime here in California.

CAFFERTY: If it focuses on major crimes, why three strikes? Why not one strike? I mean, if you do something to destroy the environment, if you rip off a bunch of people, I mean, why three strikes?

BALBER: We think there's a corollary here with the three strikes and you're out for individuals. We think everybody deserves a second chance, and the same thing may just be the case with corporations. We want to give companies a chance to reform their actions and be good corporate actors here in California.

LISOVICZ: You know, Carmen, I have looked at some of your research and some of these companies that have felonies, which are obviously very serious crimes, are some of the bluest of the blue chip companies, including United Technologies and IBM, which are both members of the Dow 30. You actually have a company in California that's been convicted of four felonies. Is that correct?

BALBER: That is correct, and that company is Teledyne, which is a military contractor. Over the last, I'd say, 10.5 years, maybe 12, they've been convicted of four felony crimes, most of which involved lying to the U.S. government.

SERWER: Carmen, just to follow up on this. A lot of people, you're talking about a corollary to the three strikes and you're out for individuals, but a lot of people have problems with that law, too. Mistakes are made. It is sort of like a death penalty in a way. You are locked up forever, you're kicked out of the state of California forever. What if there's a mistake? BALBER: I think that there are pretty good distinctions between what we're doing here with the corporate three strikes act and that individual three strikes act. The problem people have with that bill -- or with that law, if you're here in California, is that it punishes people for small crimes when it's their third strike, so we have got the famous example of the guy who went to jail for 25 years to life for stealing $150 worth of Disney tapes. That's not going to happen with corporations. Corporations, when they are tried for criminal acts, are tried for the most egregious, the most blatant, the company- wide problems. That's not falling to the level of the problem people have with the three strikes act for individuals here in California.

CAFFERTY: We'll be interesting to see how it works out. Carmen, thanks for taking some time to join us on IN THE MONEY today. I appreciate it.

BALBER: No problem.

CAFFERTY: Carmen Balber, consumer advocate, Foundation for Taxpayer and Consumer Rights, and they're looking at a three strikes and you're out corporate bill in California.

Time now for a quick detour to Madison Avenue here in New York. We have to pay the rent. Coming up after the break, the media giant you're watching right now, not me, this company, says its biggest individual shareholder sell off over half the stake. Ted Turner is selling a bunch of his AOL Time Warner shares. We'll find out what the implications of that might be.

Here's your chance to put words in my mouth. Send us an e-mail and we might read it on the air. Our address is inthemoney@cnn.com. Back after this.

(COMMERCIAL BREAK)

SERWER: Our own company, AOL Time Warner, was back in the news this week. CNN founder and outgoing AOL Vice Chairman Ted Turner dumped more than half of his shares in the company at a discount price of about $13.15 a share. Turner's still the company's biggest individual shareholder, but the move is being interpreted as a big vote of no confidence in the company's current management. The news makes AOL Time Warner our stock of the week. And joining us to talk about that is my colleague at "Fortune," Stephanie Mehta. Stephanie, welcome.

STEPHANIE MEHTA, FORTUNE: Thanks, Andy.

SERWER: I want to talk to you about why you think him dumping the stock at this price is a good thing or bad thing.

MEHTA: Well, I think it's important to put this into context. AOL was told by Ted Turner that he sold the shares to diversify his portfolio, and in some ways, that makes sense. I mean, we all know it's a bad idea to have too much of your net worth tied up in any one stock, and in Ted's case, in a stock he's apparently doesn't believe very much in. He's been criticizing the company for the last year. So why would you want to have so much of the holdings in an investment you don't feel very good about?

The other thing that I think is important is this is really the culmination of what's been kind of a long, drawn out divorce between Ted and the company. First he lost his day-to-day management responsibilities, then he stepped down as vice chairman. Now he is selling a substantial portion of his stake, which clearly reduces the voice he has in the company, and I think this is sort of the apex of something that has been happening for a long time.

CAFFERTY: Isn't this kind of an expensive post-it note, though? I mean he is selling $800 million worth of stock at $13 a share to communicate the fact that he doesn't like the way the company is being run. I mean, why at 13? This is a $50, $60 stock two years ago. Some people are saying it's a matter of time when the market turns up; the stock will certainly sell for more than $13. Why now at this price, do you think?

MEHTA: Well, first of all, better than selling at 10, right?

CAFFERTY: Well, that's true, can't argue with that.

LISOVICZ: Or eight.

MEHTA: Or eight. Right?

(CROSSTALK)

MEHTA: I think the other thing to keep in mind is, you know, Turner has a lot of financial obligations, and a lot of his various investments haven't worked out that well. He's a big landowner in Argentina. I can't imagine that that investment has done very well for him. He invested heavily in the bison market and the price of bison has gone from something like, you know, $1,000 a head to $100 a head. So another investment that has not worked out. So, it wouldn't surprise me if he was trying to get a little liquidity here while he can.

CAFFERTY: Sort of the Anti-Warren Buffett.

LISOVICZ: But you know, Ted Turner is obviously an entrepreneur at heart, and he is a restless man. Is it possible that he is also dumping his shares to do yet another project?

MEHTA: Well, far be it for me to try to get inside Ted Turner's head. We all know that's a very dark and scary place, possibly, but you know, I suspect -- my hunch is that at this point in his life, he's almost 65 years old. He is nearing an age where he's probably starting to think about his legacy beyond just his business legacy. It wouldn't surprise me if some of this is also designed so that he can begin to spend more time and fulfill his philanthropic obligations, which, we all know, are many.

LISOVICZ: To the U.N., for instance. That $1 billion pledge.

MEHTA: The pledge to the U.N., he has got a lot of environmental interests and he is interested in this issue of bison, and he's got these Ted Montana grill restaurants that are trying to promote bison meat, which is apparently healthier than beef.

CAFFERTY: It was interesting that the day the sale of the shares was announced, the stock didn't really go down all that much. I think it was down maybe 5 or 6 cents.

(CROSSTALK)

SERWER: We talked about that, and the thing is, I feel -- I mean, everyone says and everyone knows that Ted is a really smart guy, but he wasn't smart enough to sell when the stock was very high. So maybe he's stupid in selling when it's low. I mean, no one really knows, no one is perfect. He hasn't been infallible in his business career. I mean he has made mistakes, you just pointed some out. So, it's hard to really see, you know, where's the stock going to be in two years, Stephanie? No one knows, right?

MEHTA: No one knows, right. And with all due respect to Mr. Turner, who is indeed a very smart man, and an entrepreneur. He reminds me a little bit of the Democrats in Washington these days where he is not happy with the current administration, but he hasn't proposed anything really positive to change the company. He complains about the fact they're selling the sports teams, he complains about the fact that they sold their stake in Comedy Central, and perhaps behind closed doors, he's offered a lot of great suggestions for how to fix AOL, but I haven't heard them.

CAFFERTY: Let's hope he stays somewhere in the public arena, because he's pretty interesting to talk about and keep track of and report on. Stephanie, good to see you. Thanks for being with us.

MEHTA: Thank you.

CAFFERTY: Stephanie Mehta, senior writer, "Fortune" magazine.

Still ahead on IN THE MONEY, as we continue, a gas station owner's best friend, we'll tell you how the thirsty Hummer ranks in a new survey by drivers.

And if you're a Hummer owner who wants to honk his horn or you just want to sound off a little, here's our e-mail address. You're welcome to correspond, inthemoney@cnn.com. We're back in a minute.

(COMMERCIAL BREAK)

CAFFERTY: Just ahead, Hummer's TV ads encourage women to buy these massive SUVs, and, quote, "intimidate men," unquote. Well, it certainly does that, but only for the man that's paying for the gasoline.

And don't forget to let us know how we're doing. You can e-mail us at inthemoney@cnn.com. We'll either read your e-mail on the air, or if not that, and you're rotting somewhere in prison and want a pen pal, our producer Jay Novack (ph) will write back to you. INTHEMONEY@cnn.com.

(COMMERCIAL BREAK) CAFFERTY: Who says there's no such thing as miracles? Sometimes, sometimes, not often, but sometimes politicians can be role models, after all. To wit, the speaker of the Michigan state legislature is ordering every state representative to take a 3 percent pay cut. The state senate's majority leader also taking a 3 percent cut; Michigan's governor, Jennifer Granholm, pledging to give back 10 percent of her salary. It's all part of an effort in Michigan to help overcome a big budget deficit.

Here's a news flash -- the bigger the SUV, the crummier the gas mileage. But you knew that. The most recent survey by JD Power and Associates shows that Hummer H2 owners' number one complaint is the low gas mileage. It's awful. The vehicle is 6,400 pounds. It's a big seller for GM, but it only gets about 11 miles per gallon. It is a good thing for General Motors that current government rules allow the company to avoid showing the Hummer's mileage on the window sales sticker at the show room.

But I mean, you'd have to know that those things are not going to get great mileage. Right?

SERWER: The thing is about the Hummer is -- the people who buy Hummers, this is a news flash for Arianna Huffington, my good friend, and all the people out there that don't like Hummers, they don't care about the JD Power thing; they don't care about the gas mileage. I heard about a guy who bought a Hummer down in Mobile, Alabama, and drove it up here to New York. It cost him $400 in gas. Gas. He doesn't care; he can afford it, I guess. More power to him.

LISOVICZ: Well, that's true. But you sort of lose your street creditability when you buy a Hummer, and the only place you're going to is the strip mall. And that's people I know who have them, that is where they're going.

CAFFERTY: Sure. When you see them in the streets of New York City, I mean it's ludicrous. You can't drive over five miles an hour down any street in New York.

LISOVICZ: Anybody driving any vehicle is automatically a road warrior in New York City.

CAFFERTY: And they say sometimes that psychologically, people get those great, big SUVs because they want to assert their space and trying to dominate those around them.

LISOVICZ: I think that's just a natural inclination in New York, anyway.

CAFFERTY: I got some other theories about why they are buying those big SUVs.

SERWER: That's enough. I like that pay cut story. I have got a question, if every governor and every legislator in the country took that pay cut, here is a question; maybe we will answer it next week. How much money could be saved?

(CROSSTALK)

CAFFERTY: However, we don't want it to apply to hosts of business and financial programs on television.

SERWER: No, this is a volunteer job anyway.

LISOVICZ: I thought government was the only part of the economy that was actually growing.

CAFFERTY: That's true, because they never run out of money. They just print more.

All right, remember, if you want to get in on some of these illuminating discussions, you can. All you have to do is e-mail us at inthemoney@cnn.com. We'll read the e-mails. Some of them will be answered on the air. Actually, Jake's (ph) pretty good, he does try to answer all of them, even though we can only read a few on the air.

That is curtains for this round of IN THE MONEY. Thanks to our two regulars, CNN reporter Susan Lisovicz and my pal Andy Serwer, editor-at-large of "Fortune" magazine.

I'm Jack Cafferty. Thanks for joining us. We'll see you next week.

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



Does North Korea Want Washington to Pay Up?; Turner Dumps AOL Time Warner Stock>


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