CNN IN THE MONEY
Blackout Covered: From Cause To Economic Impact
Aired August 17, 2003 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
SUSAN LISOVICZ, CNN CORRESPONDENT: Good afternoon, from New York, I'm Susan Lisovicz and this is a live edition of IN THE MONEY. And we start with the $50 million question. And the question, at least 50 million people in the Northeast, Canada, and upper Midwest are still asking: What causes the big blackout? They aren't the only ones who want answers or reassurances that such a power outage won't happen again. Michael Okwu is keeping track of the investigation.
Good to see you, Michael. And you know, the Sunday talk shows were full of talk about energy. What can you tell us? What's the latest that we know now?
MICHAEL OKWU, CNN CORRESPONDENT: Well, the basic fact is they just don't know at this point. If you look around Times Square, it certainly looks like things are back to normal, it is humming, there are people standing here, walking through, there are tourists and New Yorkers...
OKWU: ...back in town. It's a great sight to see. Things are certainly back to normal. But investigators are basically, at this, point focusing on three transmission lines in Northern Ohio. Now, it appears that these lines went down at some point about an hour before the power outage occurred, and they are trying to take a look at those lines to find out why this all happened. Now, First Energy, the local utility in charge of these power lines, say that an alarm system did not kick into gear, the grid should have contained the problem in this localized area. Mike Gent, the president of the North American Electric Reliability Council, said his people are looking at some 100,000 pieces of data right now trying to determine how all of this happened and trying to make sure that it doesn't happen again.
Here's Mr. Gent.
(BEGIN VIDEO CLIP)
MICHAEL GENT, PRESIDENT & CEO, NERC: It was at a line that relayed out for and for, yet unknown reasons, but we're examining the line closely, a second line relayed, a third line relayed, and then that should have separated that local system, like Cleveland and the rest of the grid should have remained intact, and that's what we're focusing on -- is why didn't that separate?
(END VIDEO CLIP)
OKWU: Now, it's unclear at this point whether it was human error or whether it was some sort of a technical glitch that occurred, but Mr. Gent's people will be meeting with representatives of the Homeland Security Department today, as a matter of fact. The Bush administration has made it very clear that they would like to have a swift, thorough investigation, and the energy secretary, Spencer Abraham, will be making his way, Susan, to Detroit on Wednesday to meet with the Canadian counterpart.
LISOVICZ: So, a lot of talking, a lot of meetings, a lot of strategizing, but the fact is there has to be a lot of nail biting before tomorrow, because tomorrow is the first big business day when, of course, the grid is going to be tested, again.
OKWU: That is absolutely right. There are millions of New Yorkers, and of course, there are hundreds and thousands of other people in the surrounding part of New York who come into work every Monday. They expect that the volume is going to be very high on Monday and that is going to be the real test. They would like people to continue keeping their energy use very low, conserve as much energy as possible, and they're really looking to see what happens tomorrow.
LISOVICZ: And, of course, you'll be covering. But, in the meantime isn't it interesting, Michael, that for some New Yorkers they've lived through, now, three major blackouts, '65, '77, and '03? Different causes for '65 and '77, but the end result is the same. The grid was down.
OKWU: You're hearing a lot about, sort of -- you know, the fact that this is a modern era and yet we've been using Edsel technology. That is a phrase that we've heard the past 24 hours, we'll likely hear that in the next week or so. And, I don't know whether the Edsel was around when the first -- the first power outage occurred, but certainly the technology has not been upgraded. The Bush administration wants to make that priority No. 1, the question is do republicans and democrats agree as to how we actually realize that?
LISOVICZ: OK, and that's a very good segue into our next guest. Michael Okwu, thank you very much.
Who is to bless and who is to blame for blackout 2003? The White House says there will be a joint U.S.-Canadian investigation. Now let's talk with White House correspondent, Suzanne Malveaux, who is near the president's ranch in Texas.
SUZANNE MALVEAUX, CNN CORRESPONDENT: Oh hi, Susan. It's a very good question because really, how is this going to play out in Congress, this debate over the national energy policy? Well, all you have to do is take a look at the talk shows, this morning, to get a pretty good sense of that. A big question, of course, is -- who should enforce, as well as, regulate the upgrading of this national energy, this grid system, this power grid system. A big controversial plan by the Federal Energy Regulatory Commission would set up regional areas that essentially would control moving power across state lines would also control enforcing and transforming this grid system. But, in doing so that would shift the power away from the states. A lot of members of Congress are dead set against this, as a matter of fact, they say they would not support the president's energy bill unless this was actually frozen, unless this plan was delayed. Well, today we learned that the energy secretary, Spencer Abraham, in fact said the administration will delay that regulation plan and, in fact, that is what is needed to make this legislation go forward.
(BEGIN VIDEO CLIP)
SPENCER ABRAHAM, ENERGY SECRETARY: It has been strenuously resisted, both in Congress and by the states, because they want to hold on to that power at the state and local level.
(END VIDEO CLIP)
MALVEAUX: Now, some critics are saying that this is counterproductive to actually changing the power grid system, but the secretary said there are other provisions within the legislation that would allow that to happen. But, as you know, Susan, of course, there are a lot of controversial issues; they're going to be dealing with this when Congress comes back from recess -- Susan.
LISOVICZ: Should be a very interesting and high-spirited debate. Suzanne Malveaux near the president's ranch in Crawford, Texas.
No matter who deserves the blame for the blackout, the reality is people suffered, and so did the economy. One of the places hardest hit was right here, in New York City. In fact, the city council estimates the power outage cost the Big Apple $750 million. New York City council speaker, Gifford Miller, joins us now to help us assess the damage.
GIFFORD MILLER, NEW YORK CITY COUNCIL SPEAKER: Thank you.
LISOVICZ: $750 million is a lot of money, near a billion dollars. But, that doesn't really even tell the full story because there's more.
MILLER: Well, I think that's right -- you know, first off, the city has its own costs in terms of additional overtime expenses and lost tax revenue, which is going to be about a $50 million hit just to the see at a time when we're recovering, hopefully, from the worst fiscal crisis in our history. About $750 million to our local economy, which is just a guess, really, but based on what we think is sort of a partial loss of 24 hours. That shows you how big the financial center of the world is.
LISOVICZ: We've seen the resilience of New York City in its most challenging times, and Times Square here today is filled with people. There are queues of people waiting to see Sunday matinees and movies and go out to brunch. How quickly is the city bouncing back, or is it going to take some time, yet?
MILLER: I think it's bounced back extremely quickly, and It really seems things are pretty much back to normal, subways, buses, travel, tourism. People are going about their business. It was a very, very tough 24 hours. Our police and firefighters handled it excellently. The people of the city really rose to the challenge, but we're going to take a hit for it, and it's a shame, because it's coming at a tough time.
LISOVICZ: There's no question that the people of New York handled it very well, and so did the medics and the police and the firefighters. But, there are some disturbing reports about the radios that these emergency personnel depend on. In the wake of 9/11, when people died because they couldn't communicate in the World Trade Center, how could this happen?
MILLER: You know, we don't know. We just heard -- I spoke with the union officials brought it to my attention first, right the day afterwards, that the radios were down, there was some considerable back up, and we're going to be doing oversight hearings to assess the whole thing, the good and the bad. But, that clearly is a very, very, very concerning factor.
LISOVICZ: You know -- are these digital communications available yet? Are they -- have they just not been introduced?
MILLER: Well, you know, I think it was actually the EMS. The firefighters and the police officers, their radios worked. It was the EMS workers who were down, and they have not had their system have proper backup, and that's a terrible thing.
LISOVICZ: What about evacuation measures? This, of course, is an island, millions of people live outside of this area and millions of people were trapped here. Has the city been able to handle so many people trying to get out? How would you assess it? After 9/11 that was clearly something that had to be studied.
MILLER: I think that we did better, although we don't have a uniform protocol, but there are lots of occasions where people did much better. I can give you just an example, my wife works on the 40th floor of a mid-town office building. After September 11th she was issued a battery-powered flashlight, she had her running shoes and a change of clothes, in order to be able to walk down the flight of stairs and get out quickly and safely. And, I think that there's some of that, but I think it's something we need to consider, whether there needs to be a more uniform approach, because it's sort of hit or miss with a lot of these companies.
LISOVICZ: There were so many jokes about duct tape; so many comedians had a field day with that. But, would you find that New Yorkers overall were prepared with transistors, radios, candles, flashlights?
MILLER: More prepared. I'll tell you that I think that a lot of information was not received because there weren't enough people with radios -- with battery-powered radios. I think that's something, certainly, we have to work on and make sure everybody has that, because when you went out it was really a tale of two cities between those who knew what was happening and those who didn't, and the real difference there was radio. There was no TV, obviously. There was -- and the only people who could be reached were people who could be reached through a battery-powered radio. So, I think we need to do a better job of that. But, certainly there were a lot of people who -- you know, like my family, we had -- you know, a couple cases of water after the last scare, and were able to take it, I think, more in stride, and regrettably, we hope nothing like this happens again, but it's good to be prepared.
LISOVICZ: OK. We're going to leave it at that. Gifford Miller, New York City council speaker and a very busy man.
Thanks -- thanks so much for joining us.
MILLER: Thank you.
LISOVICZ: The Golden State's next governor will have a tough job ahead. California's powerhouse economy is in dire straits. We'll have more on that later this hour.
Plus the blame game: All sides are pointing fingers over who's responsible for the blackout. What are the solutions and what are the costs?
And speaking of money, California's most famous contender for governor has plenty of it, but will it be enough to terminate the competition? You know who I'm talking about.
You're watching a special live edition of IN THE MONEY.
LISOVICZ: With power restored in most areas darkened by the blackout of '03, politicians on both sides are not only ready to lay the blame, but also ready to offer a solution. Our next guest says, however, current plans on the table could only make things worse.
Fred Smith is president of the Competitive Enterprise Institute, a non-profit public policy organization, and he joins me now from Washington, D.C.
FRED SMITH, COMPETITIVE ENTERPRISE INSTITUTE: Welcome to you.
LISOVICZ: Before we get to solutions and proposals, let's just go to electricity 101 for the moment, which is -- this is private enterprise with your ConEds (SIC) PSE and G's (PH) of the world that once was heavily regulated, but now is slowly being deregulated. Is that a correct thumbnail sketch of the industry?
SMITH: Yeah, we've had an industry that's been regulated for almost 100 years. In the last two decades we've partially deregulated. We deregulated the generation, one half of the system, but we left the grid, the wires through which the system travels still heavily regulated, no one makes any money through investing in wires, or capacity to carry more through the existing wires. And of course, lots of people pasture out their blocking generation, blocking cables. Attorney General Blumenthal for example, must feel a little differently about his blocking of that transmission cable from Connecticut down to Long Island, not a very good neighbor policy given what happened in New York.
LISOVICZ: But -- so your -- your overall conclusion is that deregulation is the way to go, it's just that right now it's neither fish nor fowl, it isn't there yet.
SMITH: That's right. Network industries have two points. The flows, the stuff that moves around, the electricity, and we deregulated generation of electricity. But, you also have the stuff over which it flows -- the grid, the wires, and so forth, and we've left that rigidly controlled, so we free up one, a lot of investment comes into that area. We got lots more generating capacity, all that new demand hits the rigid grid, we get congestion, we get blackouts. It was stupid. We should have completed the job, and it's well past time we start doing it, right now.
LISOVICZ: So, what is -- was certainly a, probably, vigorous debate is going to be highly contentious on Capitol Hill. What is the proposal being offered, and where do you stand on it?
SMITH: Well, never underestimate the ability of politicians to make bad situations worse. And, what we seem to be developing are two worse ideas. Those who want to rollback the limited economic liberalization we've had, go back to the good old days where government micromanaged the electric system -- that's a terrible idea, and let's -- hopefully that gets defeated. But, on the other hand, you have the new thinkers who want to rush out and build an electricity superhighway. Anyone who looks at America's highways realizes that whatever government's abilities, handling congestion isn't one of them, and congestion, overloads, or what happened on our grid, it's what caused blackouts. The last thing we want is government to rush in and try to create a federal superhighway. What we should do is eliminate the laws that have prevented the private sector from creating that inner -- that electricity superhighway, something called the Public Utility Holding Company Act, should be repealed, and steps are underway to go in that direction.
But, government should wait and ensure that we deregulate the grids so that private parties have every incentive to lay new wires, build new cables, but also to invest in the technologies to manage those flows more intelligently. We don't need as many wires as we need intelligent management of the wires we have now -- we need both. But, we're not going to get that innovative, creative technology through bureaucracy and government is bureaucracy.
LISOVICZ: Fred, we're almost out of time, but basically, what you're saying is let the private markets do their thing. What kind of chance -- what kind of options, what kind of likelihood is that about to become? Or, do you think it's just going to be more logjams in Congress?
SMITH: Well, there are many political reasons for neither, the deregulation nor the federalization, are going to happen. So -- you know, when all -- all bad ideas fail, good ideas have a chance. I think we have the best chance in history of making sure that New York blackouts don't happen anymore, and the way to do that is to create incentives for people to invest in electricity generation and transmission, so we don't have the low-quality systems that led to this disaster. This was not a (SIC) act of nature, this was an act of political blockage.
LISOVICZ: All right, we'll leave it at that. Certainly there are a lot of people interested in how -- in the outcome on this particular issue. Fred Smith, president of the Competitive Enterprise Institute joining us from Washington. Thank you.
SMITH: Thank you.
LISOVICZ: When we come back, old problems, new solutions. We will look at how the blackout is impacting the debate over renewable energy resauces -- resources. You're watching IN THE MONEY.
LISOVICZ: Welcome back to this special live edition of IN THE MONEY. I'm Susan Lisovicz in New York City's Times Square.
The blackout, which left 50 million people in the dark, has renewed calls for greater energy efficiency as a way to take some of the pressure off the nation's aging power system. Joining us from Sacramento, California, with more is John White, executive director of the Center for Energy Efficiency and Renewable Technology.
JOHN WHITE, CTR. FOR ENERGY EFFICIENCY: Thank you for having me.
LISOVICZ: You know, authorities -- and we're happy to have you. You know, authorities have been encouraging all of us, here in New York, to conserve on energy. Here we are in the dog days of August, it's hot, it's humid. Does that mean simply turning off your air- conditioner, or are there other ways that we can save energy in a way that can -- that won't tax the grid so much?
WHITE: Well, I think there's a lot we can do. We can, first of all, recognize the hottest part of the day is the afternoon, and that's when all the stress on the system is. So, to the extent we can shift over into the evening for any of the activities that we have that are discretionary, rather than shutting off the air-conditioning, probably raising the temperature a couple of degrees, particularly in all the buildings, would save a lot energy, and at the same time investing -- I think one of the things we haven't invested in nearly enough, given how valuable it is for us, is energy efficiency. When we save energy, we not only reduce our use, but we lower the price, and we increase reliability. And one of the things about this grid that has gone down is how slow parts of it are coming back up, and that's because we're dependent on an old antiquated system and not a smart, modern system that has a lot of diverse, renewable, and efficient sources of energy.
LISOVICZ: Before you -- we go on with some of these alternate sources of energy, John, let's just talk about the business aspect of this. You know, here we are, the economy struggling along, and I think it's your view that businesses are huge -- really waste a lot of energy, which will certainly add to their bills.
WHITE: There's a lot of energy that could be saved, particularly in waste heat in industrial and commercial buildings. We also need to recognize the interaction between lighting and air-conditioning, the more efficient your lighting the lower the air-conditioning load. There's a lot of experience, now, since the California crisis in better managing the load and the business owners and the business community have actually been extraordinarily resourceful in increasing their energy efficiency and shifting their load to other parts of the day.
LISOVICZ: You know, John, of course, with the Iraq war there was a lot of talk about other sources of fuel, for instance, for cars, and a lot of talk about fuel cells, but -- you know, the common argument is that these are years away from becoming reality. Is there an alternative source of energy that is close at hand, that is practical, that people can tap into now?
WHITE: Well, I believe there's a fuel cell in Times Square, actually. But, in the meantime we have much better appliance efficiency, new refrigerators, today, use a lot less energy than the ones that were built just even as late as 1990. So, we could do a lot with replacing out appliances, a lot of the retailers in California are offering, in coordination with utilities, rebates on new equipment. So, certainly increasing the efficiency of our equipment purchases and recognizing that as we go forward new technologies are available, like fuel cells, like solar photovoltaic cells, like wind and geothermal energy, all provide cost-effective alternatives to the centralized fossil fuel grid.
LISOVICZ: So, there's something in it for both the consumer, as well as, corporate America. We have to leave it at that, John, but I'm sure you'll be very busy at your association with these alternative sources of energy and how people can conserve energy. John White, executive director...
WHITE: Thank you.
LISOVICZ: ...of the Center for Energy Efficiency and Renewable Technology.
A check of the headlines is next. We'll update you on some of the top stories of the day. And, we'll update you also on what might be also another incident of sabotage in Iraq.
A heroic rescue turns to tragedy in Colorado. We'll have that story.
And later, we're no longer in the dark, but some businesses are definitely seeing red after last week's power outage.
LISOVICZ: Meat thawed, ice cream melted, theaters emptied out, and cash registers fell silent. Last week's blackout put a number of businesses in the red. Our Kathleen Hays has the numbers.
KATHLEEN HAYS, CNNfn CORRESPONDENT (voice-over): From shuttered shops to dark theaters and empty restaurants, it's clear retailers took a big hit from the blackout of 2003.
Starbucks said 600 of its 5,000 stores were forced to close when the power went out. And by Saturday, a spokesman said they were still not operating at 100 percent capacity.
Some stores may never recoup their blackout losses. Others may try to make up for it with special sales.
DANA TELSEY, BEAR STEARNS: But overall, you still have lost sales that will never be made up. When we'll know? Come Labor Day Weekend, when we see the discounts that are out there, how big those discounts go.
HAYS: Outside retailing, a spokesman for UPS, which delivers 13.5 million packages a day, said employees were still working to get rid of backlogs.
Airlines suffered losses in the millions, as flights were grounded. And together, the big three automakers saw a third of their plants shut down on Friday, which means thousands of cars did not roll off the assembly line.
But there are silver linings in the dark blackout cloud. Automakers had excess inventories before the blackout. Those are leaner now. And bars that stayed open made money throughout that dark night, as did retailers who were mobbed by customers buying flashlights, batteries, and extra bottles of wine.
DIANE SWONK, BANKONE CORP.: One of the ironies of catastrophes like this is that they inadvertently create economic activity because things like grocers, foods spoils. They have to all of a sudden order new food. Lobsters on ice no longer frozen on ice need to be replaced. And we see a lot of activity come from it. In a broader sense, this may actually also accelerate.
HAYS (on camera): A blip on the radar screen, that's how economists are assessing the impact of the blackout of 2003. A bigger worry is whether steps aren't taken to make sure the power grid doesn't break down again, because if one lesson has been learned it's that you can't keep running the economy when the lights go out.
Kathleen Hays, CNN Financial News, New York.
LISOVICZ: People in the northeast and Midwest will surely be recounting their tales of woe from the blackout of 2003 for some time. The same is true, no doubt, for corporate America. Joining us now to take a look at which companies are actually going to feel the pinch and how to spot wily corporation that might try to use the blackout as an excuse for already lackluster sales is Christine Romans from CNN's New York bureau.
Christine, I remember the wet spring, and we heard about this record wet spring from retailers for, it seemed, months. So will we be sort of getting an encore on the blackout?
CHRISTINE ROMANS, CNNfn CORRESPONDENT: Absolutely. I mean, we're going to be hearing about this blackout and what it means for corporate America, Susan, for months to come. It's already made excuses for all kinds of balance sheet ills. As you recall, blizzards, floods, patches of hot weather, stretches of cold weather. Even SARS often make it into a company's explanation for its quarter's performances.
So what companies are legitimately likely to see this blackout at play in their bottom line? The airlines, of course. Bad weather, high fuel prices hurt already beleaguered airlines earlier this spring. And many of the fast food restaurants had miserable Februaries. Remember, after that President's Day weekend blizzard in the northeast.
And the retailers, of course, all kinds of them. Remember Tupperware, for example? It got slammed by that same Presidents' Day storm because its famous Tupperware parties were canceled en masse.
Now, the trick, Susan, for investors is to watch out for the companies that use the blackout as an excuse for already weak performance. There's a little saying on Wall Street, SARS, it really stands for sudden acute revenue shortfall, because of all of the companies that use it as an excuse for their weak performance. Some of the analyst investors were starting to get a little bit skeptical of just how much SARS was affecting the bottom line. So as we go through the days and weeks with companies telling us what is going to happen to their bottom line because of this blackout, skepticism should rule the day -- Susan.
LISOVICZ: And of course, we have to remember that SARS, what it really stands for, when we listen to the conference calls and when their corporate earnings reports come in.
But Christine, let's talk about the financial markets. You were there on Friday. All the attention was focused on the world's biggest stock exchange, the New York Stock Exchange, opening as scheduled, closing as scheduled. But did that tell the whole story for the U.S. financial markets?
ROMANS: It was interesting because at the New York Stock Exchange for stock trading everyone said it was a big symbol, market barely moved, wasn't a lot of volume. But you look at the American Stock Exchange, Susan, it didn't open until 3:45 Eastern, and it closed shortly after 4:00. So that market had some trouble getting up and running. Bonds closed early at the request of bond market participants, who just said, listen, we're glad to be open today for a spell, but you know, we don't want to be open too long, we want to close this thing out early, a lot of people had commuting issues. Also you had metals products, metals trading that also had a short trading day. So symbolically opened full time routine it looked like at the New York Stock Exchange, but not necessarily everywhere. Monday will be the day that will be business as usual, Susan.
LISOVICZ: So what can we expect? If Monday is back to business as usual, what should we be looking for tomorrow on Wall Street?
ROMANS: Well, a lot of folks are saying that it's going to be interesting to see how the stock market reacts, because on Friday there were some stocks, just a few stocks, that really got big moves, like alternative power-related stocks or other kinds of power stocks, some of the airline stocks. So we'll see if some of those retrace their move a little bit, and we'll see if overall the market is going to be concerned about the fact that you lost one day of economic output in a very important part of the country and what that's going to mean for the economy.
We'll also watch bonds. Bonds had a big move on Friday, 4.5 percent was the 10-year note yield. Sometimes when you get the 10- year note up about 4.5 percent, that starts to make stocks a little bit concerned. But for the week last week, 1 percent gains for the Dow, S&P, 3 percent gains for the Nasdaq. We'll see what happens on Monday, but that will be, the experts say, the true test of the reaction to the blackout.
LISOVICZ: And you'll be there. Christine Romans, live from our New York bureau. Thank you.
Still ahead on this live edition of IN THE MONEY, film star Arnold Schwarzenegger's money adds muscle to his campaign. But will it be enough to crush his competition?
LISOVICZ: A very happy day for this couple, and of course for all the people of New York City now that power's been restored to Times Square. But we want to focus now on the recall race in California. There are the front-runners, the also running, and then all the rest, 135 of them in all. CNN's Miguel Marquez is live with us from Los Angeles to help sort it all out. And we need the help. Hi, Miguel.
MIGUEL MARQUEZ, CNN CORRESPONDENT: There is a lot of sorting to do here. For all the excitement of the last couple of weeks, the recall and its various campaigns will be all but on hold today. Governor Davis has no public events today, and the top contender to replace him, Republican Arnold Schwarzenegger and Democrat Cruz Bustamante, also have no campaign events today.
One thing that does appear to be going on, though, is there's a lot of positioning behind the scenes of these various campaigns. California's lieutenant governor, the most prominent Democrat in the race, is urging people to vote no on the recall, then also vote for him, just in case. When Bustamante announced his candidacy, Governor Davis said that's not such a bad idea, maybe it will bring more Democrats to the polls and help me defeat the recall. But on "Meet the Press" today, Bustamante said Governor Davis isn't exactly helping when it comes to his no on the recall, yes on Bustamante strategy.
(BEGIN VIDEO CLIP)
LT. GOV. CRUZ BUSTAMANTE (D), CALIFORNIA: If some of the governor's minions would stop trying to undercut my efforts, I think we could have a very coalesced opportunity for Democrats to be able to make sure that we clearly go after this position. And we have a possibility of having a win-win position on the ballot.
(END VIDEO CLIP)
MARQUEZ: Now, I spoke to a couple of Governor Davis's minions, as he calls them today, and they said they really don't know what the lieutenant governor is talking about. The governor, they said, is only focused on defeating the recall.
On the Republican side, there have been reports that the pressure's been put on some of them, some of the top candidates, or the bottom candidates to drop out of the race and support the top candidate, Arnold Schwarzenegger. Bill Simon, who lost to Gray Davis last November, said he's feeling no pressure.
(BEGIN VIDEO CLIP)
WILLIAM SIMON (R), CALIFORNIA GUBERNATORIAL CANDIDATE: I'm not under any pressure to quit. The bottom line is this -- what we need to do now is campaign hard for the next 52 days, give our citizens a message, a vision for the state of California. That's the most important thing. We should have a series of debates. We ought to let our people make a decision. It's up to the people.
(END VIDEO CLIP)
MARQUEZ: And although the major candidates may be waiting, the courts are not. Tomorrow, a federal judge will hear a federal case seeing if they will hold this election from October 7 to March 4 -- Susan.
LISOVICZ: Miguel Marquez, on the always fascinating recall election in California. Thanks, Miguel.
Now, he's the most famous name on the California ballot. From Bakersfield to Beijing, people know Arnold Schwarzenegger's face, and that means he's already ahead in this political race. But fame alone isn't all that Schwarzenegger needs to crush the competition. It also takes money. And boy, does he have a lot of it.
Jen Rogers has been looking into that, and she joins us now from L.A. with the details. Hi, Jen. JEN ROGERS, CNN CORRESPONDENT: Hi there, Susan. Well, you know, everybody knew that Arnold Schwarzenegger was rich. He made $30 million for his last movie. So that's not too shabby.
But what people didn't really realize until some recent campaign filings is how successful he's been off screen in the business world.
Now, there's no fill-in-the-blank on these disclosure forms for net worth, so we don't exactly know the tally of all of his assets, all of his investments. But there has been some interesting information, some tidbits to really take away from this.
First of all, some of his portfolio looks just like millions of Americans' except for a lot of zeros. He has a basket of stocks, really some of the bluest of the blue chips. Wal-Mart, you can see, over $100,000. Citigroup, Starbucks, both in that category as well. H&R Block, Weight Watchers, more than $10,000.
These individual equities, though, people that are close to his business dealings say are just a teeny, tiny sliver of his overall investments.
So what makes up the bulk of it? Well, he has investments in private equity, and also really some vast holdings in real estate.
Some of the more creative components of his portfolio, interest in a shopping mall in Ohio, a jumbo jet, actually a 747 that he owns and leases to Singapore Airlines. Investment in a cellular technology firm. He also runs an annual fitness competition out in Ohio. And he also dabbles in side venture capital.
So what would this all mean, though, if he's elected? Obviously, there could be some conflict of interest questions raised. Possibly a blind trust, though, could be set up, Susan, if he wins, and we're told that is being evaluated -- Susan.
LISOVICZ: Arnold Schwarzenegger with his very diversified portfolio. Thanks for bringing us the details. Jen Rogers in L.A. And IN THE MONEY will be right back.
LISOVICZ: It's going to take a lot more than a free for all recall race to fix California after the dot-com crash and the energy crisis. The Golden State's economy seems to have lost its Midas touch. Silicon Valley no longer buzzing with business. Half a million people out of work. And tax revenue have plunged 75 percent.
The economic slump in California affects business all over the country, from technology to entertainment, to agriculture. Joining us to talk more about California's impact on the nation's economy is Ronald Grover, "BusinessWeek's" Los Angeles bureau chief. Welcome.
RONALD GROVER, BUSINESSWEEK: Thank you.
LISOVICZ: Ronald, I guess that basically sums it up as to why we should care and the rest in the 49 other states in the union, why should we care about California, because we are not immune from California's problems?
GROVER: Well, actually, California is the largest single market in the country. We've got about 12 percent, 14 percent of the population. We buy a lot of stuff. We buy a lot of cars from Detroit. We buy a lot of computers from Compaq in Dallas. The rest of the country has a lot riding on California's people having jobs, working, making a lot of money, and buying their products.
LISOVICZ: You know, Ronald, 45 states at last count have some sort of fiscal crisis or another. Why has California spiraled so far out of control?
GROVER: Well, California has a pretty screwed-up system. As you probably know, we have ballot initiatives. We can pass all kinds of ballot initiatives for people to build schools or prisons or shelters for women, and we spend a lot of money as a result at the same time. We have a pretty good limit on how much money we can raise as far as taxes are concerned. And so the taxes haven't been keeping up with what the population wants to spend.
LISOVICZ: You know, one of the big pressing issues for California is this flight of business out of the state. Meanwhile, of course, the bond rating for California is close to junk status. Is this really something that can be repaired?
GROVER: Not anytime soon. It's going to take a long, long time to repair some of what you've talked about. We borrow a tremendous amount of money in this state. We're way over the limit in terms of what we borrow in the state. It's kind of like living on your credit card. And as any of us know, if you live on your credit card for very long you've got to start paying it back. We just don't generate the kinds of taxes to pay back the kind of debt we've piled up over the last three or four years. It's going to take a while. Whoever wins this gubernatorial race is going to have their hands full for many years, I think.
LISOVICZ: And that really raises the question. I mean really, it's an apolitical question. Given the dire straits that California is in right now, is it really just a delay and a distraction from these very pressing matters in California?
GROVER: Well, we're delaying the inevitable, if that's what you mean. I mean, we're going to have to pay some of these debts pretty darn soon. That means more than likely the state of California's going to have to grapple with the fact that either we have to cut services or we have to raise taxes. And that's fighting words out here when you raise taxes. And that's a huge political issue. But I think, and I think businesses believe that tax increases have to come. That doesn't make California a great place to consider putting new plants or businesses.
LISOVICZ: And Ronald, quickly, we're almost out of time, but the fact is that with this in California almost a staple on the nightly comedy shows, is this fueling yet more of an exodus from California in terms of business?
GROVER: Well, there are some people that worry about the fact that we're starting to look like a banana state, that we cannot keep our elected officials, that we elect them and then we depose them a year later. Stability is a great thing for business to want to have. We don't look very stable out here.
LISOVICZ: OK. Ronald Grover, we're going to have to leave it at that, but this is certainly an issue we will be revisiting in the near future. Los Angeles bureau chief for "BusinessWeek." Thanks, Ron.
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