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CNN IN THE MONEY

How To Stop The Flow Of Cash To Terrorists; U.S. Goes Back To U.N. Looking For Help; Ethical Standards Up For Grabs In Corporate World

Aired September 13, 2003 - 13:00   ET

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

ANNOUNCER: From New York City, America's financial capital, this is IN THE MONEY.
JACK CAFFERTY, HOST: Welcome to the program, I'm Jack Cafferty. Coming up on today's edition of IN THE MONEY, blood money: in the Middle East and around the world cash keeps terrorism alive. We'll look at where teh money comes from and how governments can step in and stop it.

Plus, a helping hand or a cold shoulder. Months after Washington snubbed the United Nations on going to war on Iraq, America is back asking for help. We'll talk with a former U.N. Secretary General.

And from hard and fast to fast and loose, on Main Street and Wall Street, ethical standards are increasingly up for grabs across this country. We'll find out what's behind the new dishonesty.

Joining me on the program, as always, our two regular, Susan Lisovicz of CNN, financial correspondent, and Andy Serwer, editor at large with "Fortune" magazine.

The Israeli Parliament voted to clear the way for the removal of Yasser Arafat. Ultimately, it's Ariel Sharon's call whether Arafat stays or goes. I wonder when he'll make the decision, how he'll make the decision, and based on what decision he makes, what's going to happen next?

ANDY SERWER, HOST: Well, I mean, is he the cageyist guy -- this guy, Yasser Arafat, is a survivor. How many leaders of Israel has he outlasted? And he plays this game, you guys. I'm the leader, but I'm not the leader. I'm in charge, but I'm not in charge. He's sort of responsible, but sort of isn't. He's really calling all the shots, I think.

SUSAN LISOVICZ, HOST: You make excellent points. The fact is, he is now in charge something Israel doesn't want. The whole question is, where's that road block going? It really is nebulous.

CAFFERTY: And you wonder the vote they took, didn't just add to Arafat's currency, make him even more important on the world's stage than he might have been before they sat down and voted to kick him out of there.

SERWER: They talk about exiling him. I don't think that's going to happen. You can hear the egyptians saying they don't want that to happen. You have to sit down, deal with him. There is a power vacuum but he is there. Again, it is so difficult, so different from our political system, hard for us to understand.

CAFFERTY: Well, appreciate your thoughts. We'll probably have more on this as the weeks ahead unfold. No indication yet which way Ariel Sharon's going to go on this.

Osama bin Laden, meantime, may be on the run, but he's not off the radar. The al Qaeda leader and his right-hand man showed up in a videotape broadcast this week on Al Jazeera, right before the anniversary of September 11.

An audiotape came with the videotape, warning of big new attacks on U.S. targets with the focus on Iraq. That word comes as the United States is raising concerns about foreign militants crossing the Iraqi border to join in the fight against the United States.

Washington also says extremist groups with al Qaeda links may be behind some of the recent bombings in Iraq. For the latest, we're joined from Baghdad by CNN's Walter Rodgers. Walt, nice to see you. How many evidence is there that outside groups are getting in on the fighting over there?

WALTER RODGERS, CNN CORRESPONDENT: Not a lot. There's no question that al Qaeda terrorists, and that other Islamist militants have come in to Iraq since the power vacuum after the collapse of Saddam Hussein. But the preponderance of evidence, at this point, suggests that most of the attacks on U.S. soldiers that we're seeing, almost on a daily basis here in Iraq, those attacks are coming from Saddam Hussein loyalists, Baath loyalists, people who want to see the old regime and have the most to lose in its collapse.

Now, there's no question there are Islamist militants like al Qaeda in the country. As soon as the U.S. came in, as soon as there was a collapse, it has been reported through most intelligence services, that a thousand al Qaeda types came up from Saudi Arabia.

I was over on the border with Syria a week ago. The U.S. army told me they had apprehended two Sudanese Muslims and a Syrian Muslim again trying to get here.

Estimates are the number of terrorists, that is to say, those here to hurt U.S. forces coming in from outside Iraq, now range in the hundreds, perhaps over a thousand. So far, most of the attacks we're seeing against U.S. forces are coming from saddam hussein loyalists -- Jack.

CAFFERTY: What reaction, Walt, did you pick up in-country to those two tapes that surfaced this week, the videotape of Osama bin Laden and his lieutenant, al Zawahiri, but more importantly, perhaps, the audiotape purportedly made by Osama bin Laden, where he calls for attacks against Americans in Iraq?

RODGERS: When you call for attacks against Americans in Iraq, you do have a natural audience here. Remember, Saddam Hussein had an army of 450,000 men. The U.S. and coalition forces only killed 10,000 Iraqis during the war. So there are a lot of people out there with a grudge against the United States. And that -- there is a certain resonance, when al Qaeda types call for attacks on the Americans.

But, again, most of the attacks, so far, seem to be coming from Saddam loyalists. It's a difficult marriage to fuse together the al Qaeda and Islamist militants who come in to this country, marry them with the Baathists because, remember, Saddam Hussein was much hated by the al Qaeda type, the al Qaeda fighters. One are extreme religiousists. Saddam hussein was a secular leader here.

The coming together of those two faction, both of which have a grudge against the United States could occur. It hasn't occurred yet. Although there are some that say in the bombing of the United Nations building here several weeks ago in mid to late August, at that point, there is evidence, according to some intelligence officers, that there was a fusion of these two forces, these two anti-western forces at that point -- Jack.

CAFFERTY: All right, Walter, we're goint to leave it there. Thank you very much. CNN's Walter Rodgers joining us from Baghdad.

Terrorism feeds not just on hate, but of course on money. It needs money, lots of money. Part of fighting terror, then, means finding where the money comes from and stopping it cold. Rachel Ehrenfeld is here to talk with us about that. She's the author of "Funding Evil: How Terrorism Is Financed and How to Stop It." Welcome, nice to have you with us.

RACHEL EHRENFELD, AUTHOR: Thank you for having me.

CAFFERTY: So, where does most of the money come from?

EHRENFELD: There are two kinds of money, the money that was -- that is going towards the tools, the building of the infrastructure of Wahabists (ph) and other Islamic Muslims, other Islamic terrorists, or potential terrosists. And that is coming mostly from Saudi Arabia. And they spent by their own accord, in the last decade, $87 billion.

CAFFERTY: Billion dollars, right?

EHRENFELD: Billion, yes, with a B.

CAFFERTY: Yes.

EHRENFELD: To build infrastructure really from where to recruit later on, foot soldiers. And they'll spread all over the world, including here in the U.S., that's one kind of money.

The money for the operations is coming mainly from the illegal drug trade and from other illegal activities that are part of being in the underworld. And they do everything. They steal cars. They're on prostitution rings. They do counterfeiting. They do fraud. They do embezzlement. They do diamond smuggling. They do everything -- fraud in stock exchanges. They do everything. And they include, also -- this includes, also, legitimate businesses in many countries that they use as fronts in order to hide the sources of money. LISOVICZ: Rachel, those are two different types of pipeline. One of course is illegal -- well, both are illegal. One is more obvious than the other. Why isn't the U.S. going after Saudi Arabia, for instance? It's long been accused, or at least linked, with this type of financing. What can the U.S. do, in your opinion?

EHRENFELD: The U.S. could do a lot. The U.S. could use its political influence and its political and its economic power. After all, we are the major contributor to all international organizations. And we can use our political power in order to, first of all, acknowledge that Saudi Arabia is the biggest funder of terrorism.

We haven't done it yet, I guess, because of political reasons -- because of oil. And we should because the fact that we are not acknowledging who our enemies are is putting us in a point of weakness. And you cannot win the war on -- if you are starting off from a point of weakness.

Only with military power, we will not be able to win this war. What we have to do is cut off funds. If they don't have money, they cannot travel, they cannot plan, they cannot recruit, they cannot pay for, organize demonstrations, mostly against the U.S., hate demonstrations. They cannot produce videos. They cannot do anything.

SERWER: Rachel, we understand why the Saudis were financing these activities. It was a sort of blackmail. In other words, pay you to do things as long as you don't attack us...

EHRENFELD: Not necessarily.

SERWER: OK, well, answer that to. And why would other governments fund these activities? So two questions.

EHRENFELD: Because other Islamic governments, if you are talking about those, of Muslim governments, Arab governments, are funding it because they have an interest, now, since Wahhabism had become the prominent or, if you want, Islamist radicalism had become the prominent line, what is very troubling about the Islamic world -- and this is not to say everybody who is Muslim is against the U.S. -- but those few who are against are very afraid to raise their voices and say something, and they're in the minority.

These people are running their countries. These people are able to influence the mob. They give them hate instead of employment, instead of money, and those are radical governments. These are totalitarian governments, and they do what they want.

And the fear of having democracy coming into their own countries, democracy like in the U.S. or similar to the U.S., where people can actually vote their voices and choose, is something that is very scary for them, because it means they won't be in power any more. So here's one reason why they don't want democracy, a la U.S. and why they're doing everything against the U.S.

CAFFERTY: The book is "Funding Evil: How Terrorism is Financed and How to Stop It." The author is Rachel Ehrenfeld, thank you for joining us today on IN THE MONEY.

EHRENFELD: Thank you.

CAFFERTY: Mind-boggling, the United States continues to call Saudi Arabia a friend. This woman knows that they spend $87 billion to provide training facilities and superstructure for terrorist groups. Then one would have to assume that maybe Washington's aware of it, too. Why do we keep calling them friends? There's so much about this world I don't understand.

Coming up on IN THE MONEY, help wanted, Washington looks to some top U.N. partners for support in Iraq and gets the brush off, perhaps not surprisingly. We'll speak with former U.N. Secretary General Butros Butros Ghali a little later ahead.

Also ahead, grounds for celebrations. Grounds being a relation to the coffee grounds that they serve at Starbucks, a little play on words there. Starbucks is on a building binge. No sign of a slow down. Find out if the company that took espresso to Main Street in exchange more most of the money in your pockets is a solid investment.

And health food goes high end. The Whole Foods chain is proving there's a profit to be made in organic products. We'll look at how cutting out chemicals can boost a company's cash flow.

You're watching IN THE MONEY and we'll be back.

(COMMERCIAL BREAK)

CAFFERTY: Two fatal terrorist attacks in Iraq, first on the United Nations headquarters and then on a Shiite cleric. Both have forced the Bush administration to rethink some of its reconstruction plans in Iraq. Colin Powell now says he's going to go back to the United Nations and ask for money and international troops to help keep the peace.

This weekend, he's kicking off those talks with the five permanent members of the security council at meetings in Geneva. How will the U.N. Respond when the U.S. virtually ignored it when it decided to go to war against Iraq in the first place?

Joining us, from Paris, to talk more about this is the former U.N. Secretary General Butros Butros Ghali. Thank you for being with us.

BUTROS BUTROS GHALI, FRM. UN SECRETARY GENERAL: Thank you.

CAFFERTY: What do you see as the post-war role in Iraq for the United Nations?

GHALI: I believe that it will be a very important role. First of all, because Iraq is member of the United Nations. It means that the participation of the United Nation in the reconstruction of Iraq will be done with agreement of Iraq.

Secondly, that the sanctions which have been applied on the Iraqi people more than 12 years and which have destroyed infrastructure of Iraq is the responsibility of the international community and the international community is represented by the United Nations. So the participation of the United Nation in the reconstruction of Iraq is positive participation.

And finally, I believe that rather than to have a bilateral relation between the coalition and the government of Iraq, or the people of Iraq, we will have a multilateral relationship between the United Nation on one side, and the government of Iraq on the other side.

Now, the problem is -- and it had been done before -- is how the United States or the coalition will coexist with the United Nation.

SERWER: Dr. Butros Ghali, let me ask you -- can I jump in here and ask you --

GHALI: Yes.

SERWER: Will the United Nations agree to participate in Iraq, with the United States, with the United States playing a lead role? Could that happen?

GHALI: I hope so. Because it is in the interest of the United Nations, in the interest of the people of Iraq and in the interest of the United States. Now, I hope -- I don't know what will be the result.

And, again, everything depend on the way the coexistence between the two power will be arranged. This had been done In yugoslavia. This had been done before in Haiti. This had been done before in different other -- in Cambodia. And we have been successful. The problem is to find a modus operandi, where the competence will be divided between the United Nation on one side, and the coalition on the other side.

LISOVICZ: Dr. Boutros-Ghali, so the U.N. and the U.S. have to play nice. That's one hurdle. But then, another hurdle is that some key players have different ideas about how to proceed. For instance, there's two sets of amendments. One is from the French and the Germans, the other is from the Russians. How much of a barrier does that present?

GHALI: It means that this is the work of diplomacy. They will have to negotiate. They will have to find a solution, which will take -- which will be kind of compromise between the American position and the Russian and the French position.

What is important is the interest of the people of Iraq. The people of Iraq is suffering and the participation of the United Nations in the reconstruction of Iraq will help or will alleviate, the suffering of the Iraqi people.

CAFFERTY: Given that suffering that has gone on for a number of years, Mr. Butros Ghali, in hindsight, was it a mistake for the United States and the coalition forces to go into Iraq without the blessing of the United Nations?

GHALI: I believe it was a mistake, but let us forget the past. Let us see what ought to be done now for the future. For the reconstruction of Iraq, for stability in the Middle East for solving the Palestinian/Israeli problem, to contain terrorism in the region. Every single -- and we need a quick solution in Iraq, which will help us to solve the different, other problems.

CAFFERTY: Well, surely, you must have a thought, one way or the other. It was either a mistake to go it unilaterally or it wasn't. I'm going to try once more. Which was the proper way for the United States to proceed in light of some of the objections that were raised at the time, particularly by countries like France and Germany?

GHALI: I believe that this is past and we must not lose our time to discuss on what passed before. One of the classic rule is to respect -- is to take a decision or to take a military intervention only with the agreement of the security council. This had not been done. When you have a European intervention in Kosovo.

CAFFERTY: Sure.

GHALI: And then this had not been done when we had the coalition intervention in Iraq. In my point of view, it is a mistake, because it weak -- it discredited the United Nation. And we need the United Nation, not to re -- the international community need the United Nation and the United States need the United Nations.

CAFFERTY: And we have enjoyed having you and needed your thoughts here on this program. I appreciate you very much joining us today on IN THE MONEY. Thank you, sir.

GHALI: Thank you.

CAFFERTY: You're welcome. Boutros Boutros Ghali, former U.N. Secretary General joining us from Paris, France.

Coming up on IN THE MONEY, hot java. With Starbucks on a growth binge see if it's smart to put your cash on a coffee company that can get $3.50 for a cup of coffee that costs 10 cents to make.

Also ahead, true lies, from a class room to the board room, America's moral compass spinning up a storm. We'll look at what threw United States ethics into turmoil. And speaking of ethics, more people are getting angry aabout New York Stock Exchange chairman Dick Grasso's fat pay check. Fat's not the word for it. We'll have the latest, stay with us.

(COMMERCIAL BREAK)

LISOVICZ: Now, let's look at the top stories of the week in our "Money Minute." It took about two years, but there's finally someone going to jail in connection with the Enron scandal. Former Enron Treasure, Ben Glisan pled guilty to conspiracy and the judge sentenced him to five years in prison. The nation's biggest record companies have begun legal action against thousands of people they say have downloaded music illegally. The company's filed 261 lawsuits on Monday, including one against a 12-year-old girl that they settled a day later for $2,000, out of her piggy bank.

Just made that last part up.

Mortgage rates eased off this week, sending homeowners running back to banks to refinance. Applications for those refinancing soared 45 percent, but mortgage bankers are expecting things to slow down over time. Reports say mortgage lenders will cut more than 150,000 workers in the next six months.

CAFFERTY: And Susan, another big story this week, the growing controversy over New York Stock Exchange Chairman Dick Grasso and his enormous package, pay package. Joining us now with the latest on the story, CNN financial correspondent Christine Romans.

Christine, we keep hearing calls that this is just ridiculous. Ironic that people on Wall Street are complaining about somebody making too much money. But there's a growing chorus saying this just ain't right.

CHRISTINE ROMANS, CNN FINANCIAL CORRESPONDENT: You're absolutely right, Jack, that's what we're hearing. And the fireworks in the stock market having nothing to do with blue chips and stocks, all having to do with NYSE Chairman Dick Grasso.

Now, we knew about the $140 million payout announced a couple weeks ago. Now more cash and more questions. Grasso was entitled to another $48 million, which he said he will forgo. Now, at the request of the SEC, the Stock Exchange released some 1200 pages of documents pertaining to Grasso's pay over the past few years. A pile of data and SEC source characterized to me as a document dump.

Now amoung the details, Grasso's total pay climbed from $2.2 million in 1995 up to about $6 million in '98. And then look at the boom time 1990's, the end, more than $11 million in 1999 almost $22 million the next year, $26 million in 2001 and $12 million last year. And that doesn't include at least two $5 million retention bonuses two years in there as well that he said he's giving up.

Now, that's a lot of money, Jack, for a regulator, but Grasso defended his pay this week, saying much of his job is that of a businessman as well.

(BEGIN VIDEO CLIP)

DICK GRASS, CHAIRMAN NEW YORK STOCK EXCHANGE: More than two- thirds of the companies that we are, today, privileged to trade, have joined us in the last 13 years. And so it is both, and it is both that we are very proud to do, on behalf of America's 85 million investors.

(END VIDEO CLIP) ROMANS: Still, the sheer size of this pay has infuriated some NYSE members who said, Jack, they had no idea how much their chairman was being paid. Grasso last year, Jack, earned about $250,000 a week. More in one week than the SEC chief or the fed chairman earns in a year.

Now, he's paid more in line with financial service company CEO's. And depending on how you read the documents in this five-inch stack of material the NYSE sent to the SEC, he may have even surpassed many of the financial service CEOs in his peek earnings years, Jack.

CAFFERTY: How tough was it to get in and get a look at this 1500 page document? Did you get one of those embossed invitations special delivered to your door? How was that?

ROMANS: Well, it was interesting, because Carl McCall, who runs the compensation committe said, they wanted to sort of quipped, they wanted to save some trees. They weren't going to make copies for everyone of these 1200 documents. They were going to have it in a room of the Stock Exchange. You could make an appointment, 2 hours, to come and look at it.

CAFFERTY: 2 hours to read at 1500 pages.

ROMANS: Well, yes this is actually part of the problem. A lot of people are saying, in terms of the strategy from the Stock Exchange to do this. You're going to have stories every single day about the revelations in those pages, because reporters have keep having to go back over and over and over and dig through it.

A lot of folks were saying, why didn't the Stock Exchange just put all this information out back when it was $140 million pay package a couple weeks ago, and you might have this thing over by now. And another question, another reason why people think this story is giong to go on forever is because there are other top executives at the Exchange, those documents suggest, are paid about $1 million and they don't outline when there bonuses were.

So some of the members are grumbling, you could have a situation where the top management of the New York Stock Exchange, together, their earnings exceeded the actual earnings of the exchange some of those years. That's what some people are betting on.

CAFFERTY: To be continued, no doubt. Christine, thank you. Christine Romans who covers the New York Stock Exchange.

The other part of this story that's interesting to me is taking a look at decided he was going get all this money.

LISOVICZ: And where they were. What they were doing. You've got some public protestations now saying, they really weren't aware of the extra $40 million of all the perks. Well, why not? Well, why not? These are very smart people a lot of them coming from Wall Street where excessive pay packages are the norm.

CAFFERTY: So Andy, there's a bit of a conundrum here. On the one hand, people think there should be accountability, because it's the New York Stock Exchange. And they trade public shares of publicly traded companies, but in reality, it's a private enterprise down there.

LISOVICZ: Not for profit.

CAFFERTY: Yes.

SERWER: It is a mixed beast, but the bottom line is, the NYSE has been secretive. The people who work there have been vindictive to reporters, to floor brokers, to other people trying to get information. You can see the attitudes towards the SEC. And I think Dick Grasso is getting in touch with his inner pig.

And I tell you what, I don't think this looks good at all. And you wonder, how can this guy lead the NYSE at a time when people are so concerned about openness, so concerned about conflicts of interest, and so forth? I really think that this guy's got to really look at leaving.

LISOVICZ: And just a quick note before going on to our next subject, there is, right now a letter -- a letter to change the constitution. This is something that really could be a landmark because there's a lot of fear on the floor. Typically, you never say anything against the chairman of the New York Stock Exchange. The fact that there are over 100 signatures right now -- I believe it's 700, that need to be signed.

CAFFERTY: All right guys. We have to leave it there. Speaking of stocks, our stock of the week someone of those companies that just seems to defy logic in its success. Starbucks Coffee posted its 140th consecutive month of sales. How many years is that? Growth at stores open at least a year. Now the company is expanding its food menu and preparing to offer coffee at several national banks.

Starbucks shares are up almost 50 percent in the past year and there seems to be no end in sight.

LISOVICZ: I think that's a problem, though, right? For Starbucks? They're going -- now they've made this deal with a bank to go in all these banks, several hundred banks? Who hangs out at a bank any more? Don't you just go to your ATM, use your debit card?

SERWER: I don't think it's a problem. I think this company -- every once in a while there's one of these retail operations that comes a long. Every one's always saying, what's the next McDonald's? Hey, Starbucks is the McDonalds, and has been for the past decade.

CAFFERTY: Tell me though, what's the secret to what they do? We kid around about this. I make jokes about it all the time, that they can sell you a 20 cent cup of coffee for $3.50 and you're only too happy to wait in line and put your money on the counter and be waited on by some indifferent counterclerk and walk out, having in effect been ripped off. If you look at how much it costs for a cup of coffee. And yet, they've created this cache somehow. How did they do it? SERWER: Well, they were there first, Jack. They do do it better than a lot of place. I mean, some of these regional brands, they pour this flavored junk and spill some grounds and it's terrible. Whether you like it or not, think they've got a better product. They do it better. They do have these stores going. And, you know, it's just one of those things.

Why was McDonald's so much better? Why did they succeed? It's execution, getting out there, being organized, having a plan. I don't really think there's any stopping this thing.

CAFFERTY: Yes, but in the beginning, you could get a hamburger at McDonald's for 39 cent. There ain't nothing in Starbucks cost 39 cents.

SERWER: Inflation adjusted. It's still too expensive.

CAFFERTY: Any way, just ahead, student cheating is on the rise. We'll talk to an expert who says the kids are all right. That's from the who.

And for fresh profits, try fresh merchandise. We'll take a closer look at a company that's turning health into wealth with organic foods. Stick around.

(COMMERCIAL BREAK)

(NEWS BREAK)

CAFFERTY: Cheating is on the rise in this country. And we're not talking about what went on at Enron and Worldcom. New reports show that more kids from grade school right on through college are pledgerizing their papers using sophisticated crib sheets on tests and a whole lot more.

But our next guest says it isn't entirely the kid's fault. I'm not sure I agree with that. He says we should take a good look at the adults if we really want to solve the problem. Joining us now from Washington D.C., Gary Pavela, academic ethics expert at the University of Maryland. Gary, nice to have you here.

GARY PAVELA, ETHICS EXPERT, UNIVERSITY OF MARYLAND: Thank you.

CAFFERTY: What do you mean it's not the kid's fault. If I catch my kid cheating on a test, you bet I'm going to hold her responsible. It is her fault.

PAVELA: Well, it is her fault when she's cheating. She ought to be held accountable. Take the Jason Blair case as an example of "The Times." Jason Blair was responsible for he did. But "The Times" has followed through and made significant changes in their culture. That's what colleges and schools need to do as well.

CAFFERTY: More specifically, what kinds of changes?

PAVELA: Well, I think the biggest one is to give students more responsibility, more authority to manage the whole area of academic integrity. That may sound counterintuitive, but the man -- the researcher, Don McCabe, a friend of mine who did the research that was reported in "The Times," also wrote an article recently called "Some Good News About Academic Integrity." And that good news is schools like Maryland, Kansas State, Colorado State, Cal Davis, have this implemented modified honor codes. And by that it means, we keep some kind of proctoring, but we create a student honor committee and give them real authority. What McCabe found is there is less academic dishonesty at those schools. So we can make a difference

SERWER: Gary it's nice to hear about honor at the University of Maryland good to hear that.

PAVELA: Thank you.

CAFFERTY: Spoken like a real Terrapin.

SERWER: Being from the state of Maryland that is. One thing I want to ask, all this emphasis on testing -- I think this is has something to do with it. We place so much emphasis on tests year after year. Tests become more important. The be all to end all. Wouldn't it behoove the educational system to place a premium more on original thinking, trying to get kids to think originally, somehow testing them that way, which would be a more subjective test, rather than just a multiple choice thing?

And that's what people are cheating on, writing on the back of the hand kind of deals.

PAVELA: Exactly. And just like Jason Blair was kind of a canary in the mine shaft to tell "The Times" what it needed to do better, these higher levels of cheating, particularly in high school, indicate that we're relying too much on memorization. We're not challenging people to think.

People ought to, when they give a paper, for example, they ought to discuss it and answer questions about it in the classroom. If we approach with that kind of pedagogy, we'll reduce academic dishonesty.

And also, if we develop better relationships between students and teachers, if students and teachers get to know each other more -- we know one key fact is there is less cheating in smaller classes where teachers and students get to know each other better.

LISOVICZ: OK, let's talk about a really large classroom now, Gary. Let's talk about the real world. When you get out of school -- you mentioned Jayson Blair twice now. Well, Jayson Blair got fired from "The Times." But guess what, he just recently got a big book deal. And there are plenty of corporate crooks who still have not gone to prison as Jack remains his viewers every single day.

How influenced are students by this? Thinking, so what, I borrow a little bit -- I go to the Internet and I put something in my essay or term paper. How influenced are students by this?

PAVELA: Well, they are influenced. From time and memorial, people have wrung their hands about the upcoming generation. I tend to wring my hands about the current generation in charge. And -- but one interesting thing is that there is a significant cohort of this younger generation coming up, so-called Millennials.

By the way, they are good. They are very solid people. I think we're in good hands with them. A significant component of them sees the corruption you're talking about and is repelled by it. Those are the folks we have to work with and put them in leadership position and they'll do just fine.

CAFFERTY: Isn't this a copout, for the kids who say, oh, I cheated on my final because of what the guys at Enron did? Or i, you know, pledgerized my term paper because of what Bernie Ebbers and that crew over at Worldcom.

I mean, people know right from wrong. In your heart of hearts, when you're doing the right thing and when you're not. Laying it off on somebody else -- I can watch an old Edward G Robinson movie, doesn't mean I'll pick up a machine gun and walk into a bank and kill people -- isn't it a bit...

PAVELA: Of course it's a copout. People who make that argument should be held accountable. Those aren't the people I'm talking about. I'm talking about the kids kids who say I'm not gonna cheat because I'm repelled by the level of cheating I see in the larger society. that's what I'm talking about.

CAFFERTY: There you go. Good stuff. Gary, nice to have you with us.

PAVELA: Thank you.

CAFFERTY: Come back and we'll do this again.

PAVELA: OK.

CAFFERTY: Gary Pavela, academic ethics expert from the University of Maryland, in case you didn't get that Andy, from Maryland.

SERWER: I got that.

CAFFERTY: Coming up next on IN THE MONEY, turning granola into cash. We'll look at how the Whole Foods supermarket chain proves going organic can be good for the business.

And whether you are into Earth shoes or wing tips, send us an email and tell us what's on your mind. The address is inthemoney@cnn.com

(COMMERCIAL BREAK)

LISOVICZ: Looking for a way to beef up your portfolio? How about an organic food company? It sells beef, as well as vegetables. Whole Foods is a growing, fast growing grocery chain that's moved from a hippie favorite to national profit machine. Joining us now to tell us why is Julia Boorstin, reporter for "Fortune" magazine. Welcome.

JULIA BOORSTIN, "FORTUNE": Good to be here, thanks.

LISOVICZ: And I have to say that I have been to whole foods and disappeared for hours. It's not liking going...

SERWER: Jack's not been there.

BOORSTIN: We'll have to get Jack to go.

LISOVICZ: It is, as you described, it's like going to spa. I get lost in the candles the aromatherapy...

CAFFERTY: Oh, come on.

LISOVICZ: I swear. It's a whole experience, not just about the groceries.

BOORSTIN: It's holistic just going there.

LISOVICZ: Is that part of the success?

BOORSTIN: Well, it sells an experience. It's not just selling the food, but it's selling you the feel-good feeling you're doing something good for the environment, doing something good for your family...

CAFFERTY: Disregard Jack's laughter.

SERWER: It's a business that makes a lot of money, Jack, that's something you can chew on.

CAFFERTY: Well, let me ask you a question. Do they make money because the food is organic and people want to buy organic? Or do they make a lot of money because they don't have unions in that place?

BOORSTIN: It's a combination of the two.

CAFFERTY: Oh, oh.

BOORSTIN: Well first of all, there's a huge demographic shift, aging baby boomers wanting to take better care of their bodies, better care of their...

CAFFERTY: It's a little late now, isn't it?

BOORSTIN: Well, they can spill protect themselves by not having food with pesticides. And it's not just organic food, it's also natural food. So, you can go there and buy a steak or buy ice cream, but it won't have, you know, the chocolate mint chip ice cream won't be green because it won't have that green number 44.

CAFFERTY: But does it taste as good? BOORSTIN: It tastes great. People come back to the company and to go shop there, not because it's organic, but more people shop there because the food is gourmet, than because it's good for them.

SERWER: And the thing about is, you're used to these health foods store going back -- and again, this this is all news to you, Jack. You used to go to a store -- can you see him in a health food store? It cracks me up. A health foods store, you can buy a few things. You can buy some veggies and that's it. The thing about Whole Foods, you can buy everything. Buy paper towels, buy soap, buy everything, dog food even, natural dog food, I love it.

Here's the question, can this company -- how big can they get? Can they really compete against Kroger, Albertson, all the rest of them?

BOORSTIN: Well, it's not necessarily competing directly with those other companies. But it has plenty of room to grow. Right now, Whole Foods is only in 35 of the top 50 markets. Markets where people would want to go shop there. But it cannot only expand to those additional 15 markets, but it can keep adding stores within those 35 markets.

For instance, one store in Manhattan alreayd, and they're building another one in the new AOL Time Warner building.

CAFFERTY: We'll have one close by. When we move in a couple of years.

SERWER: Yes, finally get some...

LISOVICZ: And in the metro area...

CAFFERTY: Are they sensitive to the geography of the country? And what I mean by that is, there are parts of the country that eat overdone roast beef and mashed potatoes and that's what they eat and a little apple pie and ice cream for dessert and then go to bed and get up at 5 in the morning and they work in the fields and they come in and eat over done roast beef.

LISOVICZ: And his name is Jack Cafferty.

CAFFERTY: No, I mean, my wife's family comes from the midwest. That's what they eat there. You couldn't tell them you know, bean sprouts from sunflower seed. They say, you got any roast beef? Do they have to target like areas where there's a sensitivity to this? I would think they would.

BOORSTIN: They are very smart about how they target where they're going to put their stores. And in fact, Goldman Sacks and other investment banks look at where they put their stores to get a sense of where they should invest in different real estate areas because that's -- they're so good at finding hot real estate where there's a lot of traffic, where it's highly educated people with a lot of money to spend. They've done a fantastic job of finding those properties. CAFFERTY: Well this is interesting. I'll have to check out...

SERWER: Oh, come on, check it out one time, Jack. Expand your mind.

CAFFERTY: What did you say, it's a holistic experience? They got candles and everything. A lot of people take this seriously. I don't mean to make light of it.

Julia Boorstin, "Fortune" magazine reporter. Someone who learned a good deal of what she knows at the knees of Andy Serwer who taught her a lot.

SERWER: I hope not.

CAFFERTY: Up next, we'll get on to whether college football players ought to be paid. That was the question of the week last week.

First, Andy's got the skinny on index funds in this week's edition of "Fortune Fundamentals." Watch.

(BEGIN VIDEOTAPE)

SERWER: It may sound crazy to wish you were just average, but in investing, being just average makes you a winner. I'm talking here about the beauty of index funds. Let me explain. An index fund buys a basket of stocks that match a specific stock index, like the S&P 500 or the Nasdaq 100.

In other words, an S&P 500 index fund would own the exact same stocks as the S&P 500. So the performance of this index would almost exactly match the performance of the S&P 500, which is a pretty good indicator of the overall market. So if the market goes up, say, 12 percent, this index fund goes up 12 percent or actually slightly less because of fees.

So, you see the point. In this case if you buy the index fund, you're always going to do just what the overall index does. So why would you want to do that when you can go and buy some spicy hot mutual fund? Because 99 times out of 100, hot mutual funds go cold, meaning they underperform in the market overtime. One year fund A beats the market. The next year, fund B beats the market.

Overtime, there's little chance an investor can pick and choose the right mutual fund. That's why index funds and being just average makes such good sense.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

CAFFERTY: I don't have any cameras at my house. I don't take a lot of pictures. If I was going to have a Cafferty photo album that reflected this life, this picture would be in it. This is the Million Dollar Quartet shot at Sun Records back in probably about 1955, Elvis Presley, Jerry Lee Lewism, Carl Perkins and the late Johnny Cash. And Presley and Cash, in particular, were gods to this 13-year-old in Reno, Nevada, and all his buddies.

When Elvis sang, we all tried to be a little sexier. When Johnny Cash sang, we all thought we were a little tougher than we were. There was a line in "Folsom Prison Blues" that went like this, "I shot a man in Reno just to watch him die." Well, we all lived in Reno and we thought that was pretty cool when that line came over the radio. He's gone now, and there won't be anybody to replace Johnny Cash, or for that matter, Elvis Presley either.

When it comes to John Ritter, the other celebrity who died, his dad wax Tex Ritter, and he was a country and western singer I listened to as a kid, too. And he did a tune called "The Hillbilly Deck Of Cards". And it chronicled the previous generation of great country singers like Jimmy Rogers and Hank Williams and Bob Wills and people like that, and how when they passed there'd be nobody to replace them.

Well, they're all passing now. And that's a terrible thing. When it comes to Johnny Cash, there won't be anybody to replace him. And I take that loss personally. I really do. I couldn't wait, when we were taping this thing on Friday to get out of here, so I could get home, get my Johnny Cash CDs loaded into the car immediately and begin to remember how much he meant to me when I was growing up. And we all have figures like that in our younger lives.

LISOVICZ: And I think, that's one of the things that his music lives on and continuously is rediscovered. Who would have thought that Johnny Cash, nominate for MTV Video of the Year just a couple of weeks ago for a remake of this really, kind of avant garde rock band, Nine Inch Nails.

So it's something that a lot of people, a lot of musicians appreciate it. And going back 50 years, how many artists can you say, of this generation, are going to be around 50 years later?

SERWER: You're dead on. A couple things, instantly recognizable voice. Stoic, a real icon and an incredible amount of integrity. So many people in the music business who are so full of you know what. Here's a guy who wasn't. And to me, putting him on the save level of John Ritter -- I'm sorry they both passed away, but he's bigger guy than John Ritter was, I'm sorry.

CAFFERTY: I'm inclined to agree with you.

(AUDIO GAP)

Question of the week, when we asked whether college football players should be paid to play college ball. Nathan wrote this, "College football players should be payed for their services. The revenue generated for their enrollments and sponsorships is reaped by the schools and the coaches. College football is a business, not an educational tool."

C.G. wrote this, "Are you kidding? These jocks are already getting paid by getting scholarships while the rest of us have to pay back loans for 20 years."

And Jay in Washington checked in with this, "The schools should pay the athletes so their parents can not only afford tuition, but be able to retire in their 40's"

SERWER: Yes.

Now, for our e-mail question of this week. continuing the very high tone of this broadcast, in light of the continuing controversy surrounding NYSE Chief Dick Grasso's pay, here's the question, should he step down? Should he step down and give back the $140 million?

LISOVICZ: Those are two questions.

CAFFERTY: Actually, there are two questions. And you can answer either/or both or neither. Send your answers and other comments to inthemoney@CNN.com.

And with that we thank you for joining us for this edition of the program. My thanks, as always, to my good friends on the panel. CNN financial correspondent Susan Lisovicz and "Fortune" editor at large, Andy Serwer. Just back, by the way, from the Rio Grande valley and a great story to come in "Fortune" magazine on what's happening to the textile industry down in that part of the country.

Join us tomorrow 3:00 Eastern time as we reexamine Saudi Arabia's role in international terror. It's large. We'll talk to the author of a fascinating "TIME" magazine cover story on whether the Saudi's have changed course on the war against terror.

That's it for today. Enjoy the rest of your Saturday. And we'll see you tomorrow, I hope.

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



To U.N. Looking For Help; Ethical Standards Up For Grabs In Corporate World>


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