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CNN IN THE MONEY
Anti-American Sentiment Is Hurting American Business Around World; Shoulder Fired Missiles Pose Danger For Commercial Jets; Millionaire Admits To Chopping Up Victim But Is Not Convicted
Aired November 16, 2003 - 15:00 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.
SUSAN LISOVICZ, CNN CORRESPONDENT: Welcome to IN THE MONEY I'm Susan Lisovicz, Jack Cafferty is off this week and I'm in the hot seat.
Coming up on today's program:
Slamming Uncle Sam: Around the world more and more people think less and less of the U.S. We'll look at how anti-American sentiment is hitting business where it hurts.
Plus, fire down below: Shoulder launched missiles can turn a flying plane into a sitting duck. Find out why the threat is keeping passenger jets out of Baghdad.
And, you can't buy justice -- or can you? As the millionaire real estate heir shakes off a murder charge we'll see whether the wealthy get a smoother ride in court.
Joining me today, two members of our usual court "Fortune" magazine editor-at-large Andy Serwer, and Allen Wastler, managing editor of "money.com."
And, can I say gentlemen, there is big excitement in Sacramento tomorrow, it will never be the same.
ANDY SERWER, "FORTUNE" MAGAZINE: Arnold Schwarzenegger officially swears in, becomes the governor of Cali. Right?
LISOVICZ: Thirty-eighth governor of California. The nation's most populous state.
ALLEN WASTLER, "MONEY.COM": Oh, I hope he keeps listening to Warren Buffett. Because, now the real work begins. You know, and I think Mr. Buffett had very reasonable proposals about property tax and fixing it. Now, the Hollywood glitter's got to go away and that, you actually got to make...
LISOVICZ: The honeymoon could be short.
SERWER: Well, you look at what happened to Jesse Ventura in Minnesota, and -- you know, that was not exactly a slam dunk, it was not exactly a home run, LISOVICZ: One term.
SERWER: It was not exactly whatever sports metaphor you want. You know, this is real tough work, like you're saying, Allen, and we'll have to see, I mean, and he's got an even tougher environment than Jesse the "Bod" did, right?
LISOVICZ: And, of course it's a presidential election year, we're just coming off those terrible, terrible brushfires in Southern California.
SERWER: I expected to be out on the front lines fighting the fires, I mean, that's what Arnold the superhero should have be doing.
But, we've got other people thinking about running for office, we've got Al Franken talking about it, Pat O'Brien from the Dakotas, and Charles Barkley, my body's always been talking about running for office in Alabama. And, Charles, if you're going to do that, I am ready to go for you, guy. I'm ready to be a campaign manager, something like that. I mean, more and more celebrities getting into the game.
LISOVICZ: We're a celebrity-obsessed nation.
President Bush heads for Britain next week and a big angry chunk of the local population just can't wait. Tens of thousands of protesters are expected to jam the streets of London. They'll be out to show the president what they think about America's moves in Iraq and around the world. CNN's Robin Oakley joins us now from London for a look at what's ahead. Hi, Robin.
ROBIN OAKLEY, CNN CORRESPONDENT: Hello, Susan. Well, it's certainly going to be a hot reception for President Bush when he comes to London. Remember, that a million people took to the streets in London and other big cities before the Iraq war. The biggest demonstrations we'd ever seen in this country. And although, we won't see a protest on quite that level, obviously with the failure to find the weapons of mass destruction, with the feeling that -- expressed by two-thirds of the British population when pollsters ask them, that Tony Blair misled them about the reasons for going to war in Iraq, there is still high feeling running on that issue. And 5,000 police officers are going to be out in the streets, the biggest contingent that we've ever seen for any visiting leader.
All police leave has been canceled and there is, of course, a real security threat. London's been under a high alert for some months now, and although there's no specific threat to President Bush, the worry is that demonstrations could get out of hand and that could give terrorists an opportunity while he is here in London -- Susan.
LISOVICZ: Robin, the fact that there are significant changes in how the U.S. is dealing with Iraq, trying desperately to turn over the government to the Iraqis sooner than expected, has that appeased the British at all? OAKLEY: I don't think people are aware of the detail of the change yet, Susan. I think that's the problem. And probably, that will have some effect over a period on the continent, where France and Germany have been among those countries pushing hardest for America to hand over, more swiftly, to the Iraqis control of what's going on in their country. But in Britain, I don't think it's really registered as yet, and there's still talk of more British troops being sent -- Susan.
SERWER: Robin Oakley from London. Thank you very much, Robin.
The storm President Bush is expected to fly into next week is just one sign of a growing trend: anti-American sentiment around the globe. For a look at the numbers and what's behind them, let's hear from Andrew Kohut, he's the director of re -- Pew Research Center in Washington.
Andrew, thank you very much.
After 9/11 you heard talk around the globe that everyone was an American, now. We had a lot of goodwill. Has that been squandered, do you think?
ANDREW KOHUT, PEW RESEARCH CENTER: Well, it's certainly gone away. We did -- I've done 60,000 interviews in 50 countries over the past 18 months and we saw, in 2002, that goodwill slipping away in most countries in our 44-nation survey and then after the war in Iraq we saw the image of America really plummeting, going from the 80 percent favorable level in Germany, for example, to the 40 percent level. And, in the Muslim countries, it's not lack of favorably it's real hatred and it's a global phenomenon in the Muslim countries. We're seen as a threat. We are not only loathed, we're feared. So there's fear and loathing with a respect to us in many places.
Now, in Europe we've had discontent with American policies before, never on this scale and never where it's translated into dislike of the American people, as well. Now, not hatred and not strong dislike, but it's begun to rub off on the American people because this is really a very serious thing and much different that we had in the '80s where there was discontent with our cold war policies.
LISOVICZ: Andrew, but when people dislike a policy or a people or a country or they hate, in fact, the same, they express it with boycotts, for instance. Are there any boycotts that are ongoing? And are they meaningful? Is it possible to really boycott all things American?
KOHUT: Well, there's so much of America in the world, are you going to boycott personal computers and not use Microsoft, a great American product? Not really possible. And, you know, there's always a push-pull between your political views and your preferences for Kentucky Fried Chicken and Coca-Cola. But, I think the important point is not liking America makes, in many places, makes it -- it makes it more difficult for American business and certainly makes it more difficult for American policy-makers to convince leaders of other countries to go along with us on the kinds of things that we think are important to do.
WASTLER: Andrew, Allen Wastler from "money.com" here. Can you tell us a little bit about what's going behind this anti-American stance? I mean, I understand some of it might be the current policy, the current conflict in Iraq, but is there also economic reasons, I mean, the world, like America, everybody's had an economic downturn and we being the rich kid on the block, is there a little bit of that going into it of -- hey it must be their fault?
KOHUT: Well, we are city hall, in a global sense, because it's a uni-polar world, we're the most powerful country, and we're blamed for increasing the rich-poor gap, we're blamed for not doing enough to deal with global problems, and the Bush policies are seen as unilateral. But, a large part of this, I also think, has to do with the resentment of American power. Never has one country been so much more powerful than every other country. And, so there's resentment, there's suspicion -- you know, after 9/11 there was a lot of sympathy for the victims of those attacks. But, we found in surveys, as soon as December of 2001, people saying well, maybe it's good that the Americans know what it's like to feel vuln -- be vulnerable. And, that's a measure of resentment of American power, and we have to learn to deal with this. We have to find a way to communicate that while we're powerful, we're thoughtful, and want to deal with the issues that worry and concern people.
SERWER: Well Andrew, that leads to my next question. What do we do about it? I mean, is it all Iraq? If we simply withdrew from there or turned the government -- turned it over to the local government or got more multinational -- multilateral I should say, I'm sorry -- that would solve problems? Is it a partisan issue? What's your take?
KOHUT: Well, it's not only Iraq, it's seening, our policies as -- are going it alone and not caring about our partnerships and multilateral approaches to things. And, you know, in the Muslim world it's Israel and the Palestinian conflict and the view that the United States takes sides is not -- and there's not an even broker, the war on terrorism in the Muslim world is seen as picking on Muslim countries, not as a genuine war on terrorism. There's a lot of work to do. This is not a problem that's going to go away if we leave Iraq or even if Iraq turns out to be a very successful operation and things go better there. We're going to have to deal with this problem for the indefinite future.
SERWER: All right. Andrew Kohut, we'll leave it at that.
Andrew Kohut, is the director of the Pew Research Center in Washington. Thanks very much.
KOHUT: Well, you're welcome.
SERWER: Up ahead on IN THE MONEY:
Loaded for bird: The threat of shoulder fired missiles has airlines steering clear of Baghdad. Find out who's taking aim. Plus, beating the clock: Some mutual fund managers thought they could outrun the market. See the scandal that followed means for your money.
And, turning a computer into a casino: We're looking at what's driving the boom in online gaming.
ANNOUNCER: In 2001, Legend Group chairman, Liu Chuanzhi made "Time" magazine and "CNN's" list of Global Business Influential. Despite new of the SARS outbreak, the computer maker performed well facing challenges head-on and turning out a gross profit of 15.63 percent in the first quarter of this year. Liu Chuanzhi, a 2001 global business influential.
Beginning Monday, November 24, tune in to see who has impacted the business world this year.
SERWER: Many hoped after the war that Baghdad would become a hub for business. But, it's hard to cut a deal if your plane can't land at the airport, and that's the problem at Baghdad's International Airport where the threat of shoulder fired missiles has kept air traffic to a bare minimum. Since July security officials say there have been 30 attempts to shoot down aircraft, none successful. Joining us to talk more about this is Vivienne Walt, a journalist for the "Boston Globe." She joins us from Baghdad.
VIVIENNE WALT, "BOSTON GLOBE": Thank you.
SERWER: Just how big a problem is this? Can you lay this out for us, please?
WALT: Well, they're not quite sure how big a problem it is, which is a measure of how great the problem is. There are probably a hun -- hundreds of thousands of shoulder fired missiles lying around Iraq. Iraq has perhaps, the biggest weapons store that we've seen anywhere since the second World War, and one of their favorite items was something called the Strella which is a Russian-made missile which is very light, very cheap, it costs about a hundred -- a thousand bucks on the open market, and you can essentially run around all day with it on your shoulder and not get tired. And, it is actually deadly enough to bring down a commercial jet. It's not very accurate, you'd have to fire a number of them. But, since they're so cheap you can go through a dozen or two before you make your hit and -- you know, people fear -- some people fear that this is what, in fact, the guerillas or whoever they are in Iraq are attempting to do, now.
WASTLER: Vivienne, for obvious reasons, this is putting a pall over traffic at Baghdad airport. Can you give us a sense of how big that airport is and how important it is to Iraq's comeback, economically?
WALT: Well, it's really quite striking, when you land in Baghdad, you're in an airport that looks something like LAX. I mean, it's enormous. Actually it's twice the size of LAX in area. You're in a huge modern terminal, it was built in the '80s with oil money. It was modeled partly after Charles de Gaulle airport in Paris, so theoretically, it could handle millions of passengers a year and that's obviously what the coalition hopes will happen here in Iraq. It's essential to Iraq.
LISOVICZ: Vivienne, these missiles are cheap, they're readily available, and they're powerful. I had no idea that a missile could shoot down a 10-ton helicopter, and there's a real possibility that planes are within target, as well. Is this a danger outside of Iraq, as well? I mean, obviously they have much more of these weapons stored, as you said, but how real of a possibility is it outside of Iraq?
WALT: It's a real possibility actually, I mean, the Israeli jet that very nearly got brought down in Kenya a year ago, you might remember, was filled with Israeli tourists going -- leaving Mombassa. That was fired at by a shoulder fired missile. And of course, the 10- ton Chinook helicopter that went down just west of here two weekends ago, so it certainly is a problem in Iraq. Outside of Iraq, a lot of airports, even in the U.S., have very vulnerable spots that people have been worrying about for a lot -- a long time. For example, Kennedy Airport has a runway which goes over a major freeway, I think it's the Long Island Expressway, if I'm not mistaken, where theoretically somebody could, from the expressway, launch a missile at a jet, just sit there and wait for the jet to pass by. You've got a slow-moving, enormous aircraft right in front of you. Things like that actually, astonishing enough, these days with Homeland Security, are still essentially possible.
SERWER: Vivienne, fascinating stuff about how big the airport is, there. I had no idea. What efforts are underway though, right now to secure that airport? Can you actually see, or is it -- or is that even not possible to do?
WALT: It's a little difficult and of course the security officials here don't like to talk about what they're doing because it's so sensitive, this is essentially a war zone right now. There are explosions going off every single night here in Baghdad. But, there is a large security team around the airport. When you go to the airport, which I have done, I've flown in and out of there a few times in recent months on little charter aircrafts, you go through ditches which have been dug to stop suicide car bombs from driving up. It's very, very heavily guarded, you have to have your car searched several times. It's essentially a very closed military zone, so it's not like any airport that you might, on a regular flight, land at or take off from, it's more -- you ready do feel like you're in a war when you go to Baghdad airport.
LISOVICZ: And, we thank you for taking time from all your assignments to enlighten us on this very disturbing topic. Vivienne Walt, correspondent with the "Boston Globe." Thanks for joining us.
WALT: You're welcome.
LISOVICZ: Coming up on IN THE MONEY:
Maybe, baby: Lots of baby boomers are in for a shock at inheritance time. We'll tell you why.
Also ahead, clock watchers: They call it market timing, and it's rocking the mutual fund business. See what that means for your investments.
And, defense spending: As a millionaire beats a murder charge, find out if big money gives rich people an edge in court.
LISOVICZ: And, now let's take a look at the week's top stories in our "Money Minute." The $100 million lawsuit against Rosie O'Donnell ended in a split decision with neither getting any money. Publisher Gruner & Jahr sued O'Donnell blaming her for the failure of "Rosie" magazine. O'Donnell responded with a $125 million countersuit. The judge in the case had harsh words for both sides and said the matter shouldn't have never gone to court in the first place.
Applications for mortgages fell last week to their lowest level in nearly a year and a half as mortgage rates rose. The boom in new mortgages and mortgage refinancing has given the economy a major boost over the last few years and a prolonged drop off could threaten the economic recovery.
And, the biggest segment of the U.S. population isn't expecting to get much of an inheritance. A new survey by the AARP shows only 15 percent of baby boomers expect to get any inheritance from their parents. Another study shows that in 2001, 95 percent of all people who did get an inheritance received less than $100,000. I wonder if it was because of the stock bust.
SERWER: Our stock of the week is Johnson & Johnson, a huge company that combines prescription drugs with consumer products, like shampoo and band-aids. J&J's latest crusade is to get permission to sell some of its cholesterol lowering drugs over-the-counter. Johnson & Johnson shares are staying close to 52 week low right now though the stock has been relatively stable over time.
So what do you think about this, guys? Clearly one of the bluest of the blue chips. Had some tough times lately over the past couple years. But, you know, it's just one of those really stable, great companies, isn't it?
LISOVICZ: Well, Johnson & Johnson doesn't only benefit for being in healthcare with an aging population and an obese population, as well, but it has all these consumer products with an unmistakable J&J name: Band-aids, baby oil, Neutrogena products. So, I think it may be better diversified than some of the others.
WASTLER: I'm a little bit worried about it, though. I mean, its latest hot thing has been its new -- you know, drug coded Stent (PH), but recently the FDA was warning that -- there might be deaths related with that, and that's pretty detrimental. LISOVICZ: Huge set back.
WASTLER: Its product line is getting a little bit stale, it's trying to move to the generics, but at the same time everybody else is moving there, too. And, essentially it's big thing is cholesterol lowering, everybody's there already and this week's Pfizer scored a big win coming out with a study that said,
WASTLER: Hey, not only is ours good, it will reverse the process, you know, so everybody's fighting with that. It's a really competitive and volatile field.
LISOVICZ: And, expensive. It's expensive to go those drugs in the pipeline and go through the process.
SERWER: It's truly how old this company is. It was found in 1886 by the Johnson brothers, and you know, that whole thing that the family went through and young Jamie Johnson's made that film "Born Rich"...
LISOVICZ: Yeah, I read that.
SERWER: ...about, his family and about having all this wealth. But, you look at the products, your Band-Aids, baby care products, Pepcid, Motrin, Tylenol, get this, remember, St. Joseph's Aspirin for Children. Who can forget that? But, you talk about long in the tooth, that's long in the tooth product which is what Allen was concerned about. And, you know these drug companies, you look at a company like Merck, they're having a tough time, too. You constantly got to keep coming up with new things to fill the pipeline even though this is not strictly a pharmaceutical company, per se, but they're moving that way and it is a very competitive business, you've always got the government to worry about coming in and -- you know, clamping down. They have a good little bit of news last week though, some changes in Medicare has made the stock pop at the end of the week.
LISOVICZ: And, it's not that bad, it hasn't taken that much of a fall, maybe near its 52 week trading low, but not that far off from -- you know, from its all-time high.
SERWER: All right, so you're saying it's going to double in a year. We're going to hold you to that.
Just kidding, Susan.
When we come back:
Tipping the scales of justice: We'll find out whether the rich get richer and the poor get jail. A fresh look at the price of justice in America.
And, talk about a stacked deck, we'll give you the lowdown on the growing mutual fund scandal that's left millions of investors on the short end of the stock chart. (COMMERCIAL BREAK)
SERWER: New York real estate heir Robert Durst was acquitted this week in Texas of charges that he murdered his neighbor Morris black. But in a case where Durst admitted cutting up his victim's body, dumping it in Galveston Bay and fleeing the police, some are asking an old question, do the rich, with their fancy lawyers, have a better chance at winning in court than the poor?
Joining us to talk more about this is Harvard law professor and author Alan Dershowitz. He was part of the defense teams representing O.J. Simpson, Mike Tyson and Leona Helmsley.
Welcome, Professor Dershowitz.
ALAN DERSHOWITZ, PROFESSOR OF LAW, HARVARD UNIVERSITY: Thank you.
SERWER: So this is an old thing we've heard here, a two-tiered legal system in the United States. What evidence do you have to really back up this point, though?
DERSHOWITZ: Well, we have a two-tiered legal system, we have a two-tiered medical system. If you're rich, you're likely to get better medical treatment. We have a two-tiered educational system. If you're rich, you're likely to go to better schooled.
That's the tragedy of America is we have a two-tiered system. And the answer is not to deprive rich people of excellent medical care or excellent legal care, but to make sure that poor people, who might also be innocent or get the benefit of a reasonable doubt, have available to them excellent lawyers, excellent scientists, people who can probe the DNA.
The problem is not that Durst gets a very good lawyer, which he did. It's that there are hundreds and hundreds of people on death row today who have equally plausible defenses who don't have a chance to present them because they have inadequate lawyers, inadequately paid, and no opportunity to get scientific expertise in their corner.
LISOVICZ: Professor Dershowitz we know that a very sizable part of your business is done free, pro bono, and that you've also freed many innocent people because of all the science that you've discovered with DNA. But having said that, you also represented O.J. Simpson. And there's plenty of people in this country that still think he, like Robert Durst, got away with murder.
Can you take us through what you're thinking when you represent someone who is seen to many people as a criminal of a heinous crime? How you separate your legal work from, perhaps, your feelings?
DERSHOWITZ: Well, first of all, when you first get the case, you really don't know whether the defendant is guilty or innocent. They always tell you they're innocent. And I'm talking in general.
They always tell you they're innocent. And many of them are not innocent. I always start out every case with a personal presumption of guilt. That is, I assume my client is guilty, and that's why I don't let them talk to the police, and I don't let the house be searched.
Because even if he tells me he's innocent, I have to assume he's guilty. Just like if you go to the doctor with a chest pain, the doctor shouldn't presume you're healthy. He should presume you're sick and having a heart attack. You always take the worst case scenario.
And then what your job is to do is to try to question and criticize and challenge the government's case. You're doing a professional job. You don't become a friend of your client or your patient.
You try to do whatever you can to help them. It's the job of the system to find guilt or innocence, and it's the job of the defense lawyer and the doctor to be the advocate and supporter of the person who is on trial or on the operating table.
WASTLER: Professor Dershowitz, isn't it true when you walk in to the jury, everybody says, well the millionaire is going to have everything on his side. But you're there, ladies and gentlemen of the jury, meet my filthy rich client, and I'm the high-priced legal talent here to defend him. Let's bond.
I mean, aren't you sort of going against a stacked deck to begin with?
DERSHOWITZ: Sometimes that really does operate. And sometimes, when you have a fancy, high-priced lawyer, the jury will assume that you're guilty. And remember, that's the difference between medicine and law.
In medicine, it's you against nature. You against the tumor. So it doesn't matter what people think.
But in law, perception matters, too. That's why sometimes I'll advise a client to let me work behind the scenes and have somebody who is local, somebody who is more familiar with the area, somebody who's more like the jurors and somebody who is less visible present the case to the jury. So you have to think about all of those issues.
And it depends where you're litigating cases. In the Durst case, he had an extraordinarily able Texas lawyer who comes in with a strong reputation and did an exceptional job. And you just have to have praise for the lawyer in a case like that.
SERWER: Professor, let me throw this out at you, though, and ask you. I mean, what do you think? Do you think Robert Durst was guilty?
DERSHOWITZ: Well, I can tell you this, Robert Durst was certainly guilty of having dismembered the body. What I think nobody could know is what happened that led to that. Whether or not it was an accidental killing, whether or not it was a premeditated first- degree killing, or whether or not it was a killing that resulted on the impulse of the moment.
SERWER: But how can you...
DERSHOWITZ: And you can't speculate about that.
SERWER: ... dismember a body in this country and not be found guilty of murder? Even if it was an accident to begin with.
DERSHOWITZ: Well, they charged him with the wrong crime. It they had charged him with dismembering the body, he would have been found guilty. He admitted that.
But it is certainly plausible, and there was no evidence to contradict this, that it could have been a second-degree murder and still he would have dismembered the body to get rid of it. Less likely, but the defense argued that it could have been in self-defense and he panicked and he dismembered the body and got rid of it.
Remember, the key moment is when he shot that victim. Did he shoot him in a premeditated way? I mean, the challenge I would throw back to you or the jury is, if you think he's guilty, is he guilty of first-degree or is he guilty of second-degree murder?
Was it a premeditated murder or was it a murder on the spur of the moment? You can't know that because there was no evidence of what happened. The only evidence is what happened afterward, and you can work backwards on the basis of the dismembering the body.
You can assume he had something to hide, but what did he have to hide? Was it first-degree murder or second-degree murder? Once you plant that doubt in the minds of the jury, they say, second-degree murder, first-degree murder, hmm. Maybe self-defense.
Better 10 guilty go free than one innocent be wrongly confined. Proof beyond a reasonable doubt, it's not there. Were I a juror in the case, I might have come to a different conclusion. But I wasn't the jury in the case and I didn't hear all of the evidence.
LISOVICZ: Boy, we could continue this conversation for some time, but we have to wrap it up. Alan Dershowitz, professor of law at the Harvard Law School, thanks for coming by. We appreciate it.
DERSHOWITZ: Thank you so much.
LISOVICZ: Up next on IN THE MONEY, keeping your cash on the straight and narrow. Find out whether the mutual fund scandal is going to cost you money.
And virtual Vegas. Find out why online gambling is one of the top draws on the Web.
LISOVICZ: Americans have more than $40 billion hanging out with a babysitter called strong mutual funds, founded by a guy named Richard Strong. He's the latest money titan caught up in the scandal sweeping the mutual fund business.
Now, unless you're the kind of person who needs to get out more, phrases like "mutual fund scandal" don't exactly make your pulse raise. Not until you remember that your money is at stake. So we'll give it to you straight, starting with a look at Richard Strong.
And for that, Andy Serwer's on deck. You spent at few memorable days out in Milwaukee?
SERWER: That's right. I was out in Milwaukee, spending a few hours with Dick Strong, got an exclusive interview with this guy. And, you know, he really is a mutual fund titan.
Founded the company himself, built it himself, runs it, and now he is under the gun. And the reason why is because he's suspected of some of this market timing. He's been accused by Eliot Spitzer and company.
But I looked in and checked out his history. And there really is kind of allegations going back about professional and personal behavior that pushes the edge of the envelope. You know, not treating people well, having temper tantrums, and also running into problems with regulators before having to fund a money market account and put money into that.
So he sort of has a history. And now an environment like this, not a surprise to a lot of people that he's running into trouble, Susan.
WASTLER: Andy, I read your piece. OK? And you played it fairly straight down. But I walked away from that thinking, this guy's a titan?
He's a yahoo! I mean, this guy, he's like floating on the edge. And up and down, his logic is completely out the window.
And for the allegations you're talking about, we're talking about $600,000, which, you know, in the industry is chump change. Is his an anomaly, or are you thinking this is what we're seeing from all the titans?
SERWER: Well, first of all, Dick Strong is a very singular guy. And he's always been called different. I think he was a little bit on edge because of the stuff going on.
He doesn't really care about the money. That's not the big issue. He lives pretty simply. And it's a mystery to people why he would risk it all for that $600,000.
LISOVICZ: OK. Well, this is a perfect segue to bring in Janice Revell, staff writer at "Fortune" magazine, who has covered this issue extensively and can give us sort of a primer on why investors should care. It's our money and we're talking about trillions of dollars, something that was considered, up until very recently, very safe.
JANICE REVELL, "FORTUNE" MAGAZINE: Right, absolutely. And yu know, Susan, that's the real problem with this. I mean, for so long, when the market crashed in 2000, people flocked to mutual funds because they were viewed as kind of the last safe haven. And the people like Dick Strong and the people at Putnam were viewed as guardians of the money, and your money was safe as long as it was in their hands.
And that's why this is such a disturbing thing. And it's looking like it's not just one or two or even a dozen isolated cases. As Spitzer said, it looks like the whole crate is rotten.
LISOVICZ: And that is -- as disturbed as investors are about public companies, where you have this egregious behavior, when somebody says it's systemic, what happens next?
REVELL: Right. Well, that's the big question. Now, the one thing, a lot of people are saying, well, gee, should I pull out of mutual funds altogether?
SERWER: Yes, that's the thing people really want to know. If they have money in one of those companies that's been named, Janice, talk about that.
REVELL: Right. And you know, I think the most important thing is, don't panic if you're an investor. The losses that are being estimated from all this market timing activity and the late trading activity are not insignificant.
We're looking at about $5 billion a year. OK? But when you consider that there are $7 trillion in the industry and 95 million investors, the loss to individual investors is not huge.
So what you don't want to do is just flee out of your mutual funds because you see a headline. What you want to do is take a calm, reasoned approach, look at the return that you've been getting in your mutual fund.
If you're happy with it, if you're happy with the manager, if you're happy with what's been happening, don't just flee to another fund, because you're going to be looking at taxable capital gains, you're going to be looking at maybe exit fees on your money. To be throwing away unnecessarily a lot of cash by getting out of your fund. So take a close look at it.
SERWER: Can you have a run on one of these mutual funds, though? Like a run on the bank, though, Janice?
REVELL: Well, that's the big fear because mutual funds -- the mutual funds themselves, you can have a criminal managing a mutual fund. But that doesn't mean the fund itself is going to decline in value. To get a run on big fund like that, right now the possibilities are remote.
LISOVICZ: Well, Putnam did see a decrease. I mean, it saw outflow, did it not?
REVELL: It saw outflows from big institutional investors. And that money is being managed separately. So it's not affecting our -- you know, you and me, the average investor.
Putnam has $263 billion under management and something like 12 million individual shareholders. So there would have to be just a tremendous run on the Putnam fund to have any real impact. So from what I'm hearing, don't panic yet. We're not there yet.
WASTLER: How about money that isn't in there yet? You're thinking about, where should I go? Are we going to see a decline in money going to actively managed funds and more into index-type funds?
REVELL: Absolutely. And that's another thing that's coming out of this issue, which is actually a good thing. And people are actually starting to concentrate on the fees that they pay, and that's what people are saying is the real scandal here.
I mean, the average actively managed mutual fund charges about 1.5 percent in operating expenses and another 1.5 percent or so in trading costs. You're looking at...
SERWER: That's a lot, right?
REVELL: ... three percentage points right off the top. When you consider that the average equity fund is going to return 7 percent or so, (UNINTELLIGIBLE) gone up in smoke. Whereas the average index funds charges about .3 percent. And if you look over a 10-year time horizon, about 75 percent of all actively managed mutual funds fail to even do as well as an index fund. So I absolutely think...
LISOVICZ: Read the fine print.
REVELL: ... these are good times for Vanguard I think, and the folks who actively market index funds.
SERWER: All right, Janice. Well, this is obviously an issue we're going to be following closely over the next couple weeks and months I think.
REVELL: There's more to come I think.
SERWER: Janice Revell, my colleague at "Fortune" magazine, thanks very much.
REVELL: Thanks, Andy.
Time to step out for a minute. But when we come back, getting lucky on the Web. No, we're not talking about that. We're talking Internet gambling, and we'll tell you why more and more Americans are rolling the dice online.
And if you feel like trying your luck with this particular program, send us an e-mail. The address is email@example.com. Back in a flash. (COMMERCIAL BREAK)
LISOVICZ: Online gambling sites are some of the most popular places to go on the Web. The only trouble is they're not always profitable, and there's always the legal hurdles to clear. Oh, that.
But brick and mortar Casino owner Harrah's is hoping to reverse that trend. Webmaster Allen Wastler has more on that plan and the whole online gambling -- oh, lucky me.
WASTLER: Oh, lucky me. That's their new grand plan. OK?
Now, it's illegal in the United States to be playing online games.
SERWER: I didn't even know that.
WASTLER: It's illegal. But you can get around it. That's why these big American-based casinos, like Harrah's haven't been to thrilled of it because they go -- they'll start an offshore site, which is what a lot of people do. However, when you come and you give them the credit card, the credit card companies say, wait a minute, no U.S. citizens, so you're going to have to figure something out.
You can still do it, Andy. You can start your Cayman Islands bank account. Get your credit card there.
LISOVICZ: It sounds like you're very familiar with the process, oh webmaster.
WASTLER: I do my research thoroughly, thank you very much.
SERWER: How big is this thing?
WASTLER: According to these people, the U.S. government, they came out with this report late last year, late last year. They figures about $5 billion this year that's going to be pulled in.
Now, half of that comes from U.S. sources, even though you're not supposed to do that. Which means it's going to the offshore guys, not the American guys, like Harrah's. OK?
They figure by 2006, it's going to be a $14 billion market, but three-quarters will be coming from Asia, Europe, everywhere but the United States. So Harrah's says, well, how am I going to get some of that money? I want that money. OK?
SERWER: All right.
WASTLER: So what they're doing is Lucky Me. And what this is, a few differences. One, they're not going to give you a straight cash payback. It will follow the cash for prizes kind of model that some outfits have been pioneering. OK?
LISOVICZ: And that's legal? WASTLER: And here's number two. You pay a subscription fee. OK? And they're starting it off -- they've priced it pounds, because they're going to pilot it over in England to try to convince America. See, we can do it there, we can do it here.
So it's about $30 and upwards. You pay your monthly subscription and you can go play all the games of chance you want and cash in for wonderful little prizes. OK?
SERWER: That's the bargain.
WASTLER: You can go there. And they're going to take away the casino veneer, the vampy women and the big flashing lights.
LISOVICZ: Right, because they want to attract women.
WASTLER: Right. They want to attract women to the base and get them in there.
LISOVICZ: OK. So it's great that the big boys are trying to get in because they feel that it's being stolen piracy yet again. But will it cannibalize their traditional bricks and mortars or bricks and neon business?
WASTLER: Well, there's a general feeling, probably not. Because if you look at the buses that load up for Atlantic City right now, that's not typically your Internet crowd. OK?
SERWER: Yes. That's a little senior.
WASTLER: It's a little senior, so they're not really counting on that right now. And they did make a foray earlier, but it sort of (UNINTELLIGIBLE) profitable.
SERWER: You know what though, Allen? You've got to know when to fold up.
WASTLER: Yes. Know when to hold up.
LISOVICZ: Our webmaster, always ahead of the curb. Thanks, Allen.
Just ahead, if you send us an e-mail, it's a sure bet someone will read it. Drop us a line at firstname.lastname@example.org.
LISOVICZ: Now it's time to check your answers to our question about how long the U.S. should stay in Iraq. Colin from Ohio wrote: "I think we should stay in Iraq for as long as necessary. I don't think we can abandon these people before we help them form a new government. This is our duty as a wealthy country with a lot of power."
Ed in Louisiana wrote: "We did not turn over self rule to Japan and Germany until 1951. What would have happened if we had left after only one year?
But Lloyd in Seattle wrote: "We'll stay in Iraq until George Bush is reelected and then Karl Rove will tell him it's OK to get the troops out."
Now for our e-mail question this week. If you were on trial in America, would you rather be guilty and rich or innocent and poor? And you have to answer it that way. And you send us your answers at email@example.com.
You can also check out our show page at money.com/inthemoney. And I know I'd rather be rich and innocent. But that's not the question.
SERWER: Yes. I want to get back on that Iraq thing, because to me, that's really, really fascinating stuff. And I think it's going to be a situation where we leave Iraq but we don't leave Iraq. In other words, we won't have this military force, we'll be part of a multilateral thing. And it's just going to be so fascinating to see this thing out.
LISOVICZ: It will still be dangerous.
WASTLER: And the moment you have your little provisional government there, and they start going at it with the factions, which side do we take up? It's going to be a (UNINTELLIGIBLE), and it's probably one of the worst things...
LISOVICZ: It's such pent up frustration probably for the Iraqis after years of a brutal dictatorship and then a war and then this rising resentment over foreign military force there. You've got to feel for the Iraqis, too.
SERWER: And it's not like Germany or Japan. I mean, we're talking about a very hostile situation right now, increasingly hostile, I should say.
LISOVICZ: No question about it.
And thanks for joining us for this edition of IN THE MONEY. My thanks to "Fortune" magazine editor-at-large Andy Serwer and money.com managing editor Allen Wastler.
Join us Saturday at 1:00 p.m. Eastern, and Sunday at 3:00 p.m. Eastern time for 2 new editions of IN THE MONEY. And the rumor is Jack may be back. Enjoy the rest of your Sunday.
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