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CNN IN THE MONEY

Bush to Talk Politics, Business with Chinese President; Congressman Moves to Cut Pork Barrel Spending; Will Alito be Good for Business?

Aired November 19, 2005 - 13:00   ET

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


FREDRICKA WHITFIELD, CNN ANCHOR: New video just in to CNN: Iraqi police say at least 25 people were killed and thirty wounded whena car bomb went off today at a funeral near Baqubah, north of Baghdad. Earlier today, another 12 people were killed and 30 others wounded in two separate car bombings in the Iraqi capital.
A powerful 6.5 magnitude earthquake strikes off the coast of western Indonesia, but there are no plans to issue tsunami warnings. According to Indonesian officials, the tremor was felt only in areas near the epicenter. There are no reports of injuries or damage.

International donors are now pledging at least $5 billion to help Pakistan rebuild. A magnitude 7.6 earthquake last month killed more than 73,000 in that country. Pakistan's president says an entire generation has been lost in the disaster.

The Sunshine State may have to face another major storm before the hurricane season officially ends at the end of this month. Tropical Storm Gamma is forecast to skim South Florida by Monday afternoon. It's not expected to become a hurricane, however. The region still dealing with the effects of Hurricane Wilma, which hit last month.

CNN is your Hurricane Headquarters. Look for frequent updates about Gamma on CNN and online at CNN.com.

Those are the headlines. I'm Fredricka Whitfield. More news as it happens. IN THE MONEY begins right now.

ANNOUNCER: From New York City, America's financial capital, this is IN THE MONEY.

SUSAN LISOVICZ, HOST: Welcome to IN THE MONEY. I'm Susan Lisovicz, sitting in today for Jack Cafferty.

Coming up on today's program, going nowhere fast. Alaska's so- called bridges to nowhere were the year's hottest piece of congressional pork. Now that they're off the table, see if pork itself is on its way out.

Plus, judging Sam Alito. You'd think a new conservative on the Supreme Court would be good for business, and you might want to think twice about that.

Plus, the rapper with the home loans. Meet a guy who's working mortgage sales by day and inspired a rap gig at night. We've got a couple rappers here joining us today on IN THE MONEY.

The veterans, Christine Romans of LOU DOBBS TONIGHT -- thank you, Lou -- and "Fortune" magazine Editor-at-large, Andy Serwer.

You know, if I were the president, and I saw those polls, I'd want to go far, far away, too. But it's not like it's easy sledding for President Bush in Asia.

CHRISTINE ROMANS, CNN CORRESPONDENT: No.

LISOVICZ: China, Iran, North Korea.

ROMANS: And he is really gung ho on China trade. He -- you know, he has been, the administration has been. But he's starting to get some pushback in his own party about a couple of things.

Freedom of religion, which is restricted very, very strongly in China. It's actually being cracked down on. Just last week, you had a Presbyterian (ph) minister and a couple of other people who were arrested three years for printing bibles. That doesn't make his base very happy.

And you also have concerns about democracy. China this week telling the -- for the president, after the president said we'd like to see more democracy in Asia, to go along with economic freedoms and economic trade, China says, we are a democracy.

ANDY SERWER, EDITOR-AT-LARGE, "FORTUNE" MAGAZINE: Well, I don't know about this.

LISOVICZ: We're in the WTO.

SERWER: It's going to be a very interesting sit-down with President Hu Jintao of China and I think the reason is, is because, interestingly, he's going to have more leverage over President Bush for some of the reasons you articulated, Susan.

He's not in the strong the position -- that being President Bush. Even though our economy is seven times bigger than the Chinese economy still, seven times bigger, they're the ones with the growth.

ROMANS: Right.

SERWER: He's the one with the leverage. So how is that going to influence decisions and discussions about Korea, trade imbalances, piracy, political freedoms? It's all going to be on the table, and it should be really interesting stuff, I think.

LISOVICZ: And China is the one with the factories, too, that makes all the stuff that we buy.

ROMANS: Right. Subsidized factories, right.

LISOVICZ: Plus also, they're buying all of our T-bills.

ROMANS: Right. SERWER: Yes.

LISOVICZ: They're propping up our government.

ROMANS: It's remarkable how -- how these two things go together. And everyone has been saying, especially in the president's camp, that economic freedoms were going to start to bring democratic freedoms. And that was sort of one of the things that they -- but we haven't seen it yet.

Some people say it's going to come eventually, but haven't seen it yet. And you're starting to get, you know, the people with democracy in their DNA starting to really push on this.

SERWER: Yes. But we can't impose our political values on them. We have to let them do their thing.

ROMANS: Right.

SERWER: We have to coexist with them. We have to be able to do that in a way that makes them happy and us happy. That's a tall order, I think.

ROMANS: A lot of complaints, too, that China, like I think you just said, is setting the agenda, that we're playing a little bit of defense here, and that makes people in Washington a little uncomfortable. That China is -- we are seven times bigger than its economy, but China is setting the agenda.

SERWER: Yes.

LISOVICZ: Let's go to Washington for our next guest. I bet he has something to say about this.

But first, we want to talk about pork, and as congressional pork goes, the so-called bridges to nowhere were prime cuts.

Two planned bridges for Alaska with a price tag of $442 million and a ton of negative publicity. They were just a couple of the roughly 6,000 tasty political treats tacked on onto the new highway safety bill, but this week, House and Senate negotiators yanked the bridges out of the bill. Imagine that.

For a look at whether this is the beginning of the end of pork, we're joined by Republican Congressman Jeff Flake of Arizona. He's out to reduce pork in Washington. And we salute you. In fact, Congressman Flake, is it true that you do not allow any special projects in your state?

REP. JEFF FLAKE (R), ARIZONA: Well, no. From my district, I don't request any earmarks.

LISOVICZ: Well, that's a real admiration in Washington. We salute you.

But we should also say this is a bit of a shell game. OK, so the bridges to nowhere Alaska, OK, they're not going to be built, but Alaska gets the same amount of money. So isn't -- I mean, so trying to reduce the deficit and getting the same amount of money, that's really not deficit reduction, is it?

FLAKE: It's not. What we need to do is have, you know -- the highway bill spent $286 billion -- really spent more than that when you take the gimmicks into account. And we ought to have an across- the-board reduction from it. And -- and allow every state, not just Alaska, to spend the earmarks as they wish. But just tell them you can do it with 10 percent less. And believe me, virtually every state out there would gladly take the 90 cents and spend as they wish rather than a dollar to spend as we wish.

As egregious as those bridges are, you know, when you look at the 6,000 earmarks in the bill, there's some awful ugly stuff in there still.

LISOVICZ: Yes.

FLAKE: And we ought to go after it.

SERWER: But Congressman, I mean, don't you sometimes need these bridges to nowhere? I mean, I'm going to be a little bit of a contrarian here. But I'm serious.

ROMANS: You love Alaska.

SERWER: You've got to have economic growth. I mean, you're not going to get people to live in places like that unless you get roads built, unless you build infrastructure.

I mean, you know, by this token, we'd never build a railroad across the United States. No one lives there. Why build a railroad across the United States?

You need these projects to spur development, don't you? I mean, how do you decide what's pork and what's going to help the economy?

FLAKE: I think trying to equate a bridge to an island with fewer than 50 people with the interstate highway system, I think, is a bit of a stretch.

SERWER: I said the railroads, and there was less than 50 people living in Wyoming at that point. Believe me.

FLAKE: I'm sorry. But this highway bill, what we could do, you know, 18 cents of every gallon comes to the federal government. And then we decide how we distribute it back to the states. It would take about three cents a gallon to maintain the interstate highway system. The states ought to be in charge of spending the rest of that. And that's what we need to move to before we reauthorize the next highway bill some five years from now.

ROMANS: Congressman, the thing that is just so attractive about pork, though, is that, you know, back at home, your constituents, when it's time to look at the little names on the list, well, they remember that that bridge is named after, you know, the guy that they elected the last time, or that that pet project is something that was brought home to them. It is a concrete thing that voters look at. So is it a tough sell with your colleagues?

FLAKE: Well -- it is. And I can tell you, if I'm going to get earmarks for my district, transportation earmarks, you know, I could look at it rightfully and say, well, you know, the 202 interchange really needs the $15 million I'm, you know, I'm promised in terms of earmark money.

But if I'm a real politician, I'm going to say, no, I'm going to take several projects. A bike path here for $200,000, maybe a transportation museum for a couple hundred thousand. And you get a list as long as you can. And in the end, you end up spending money on items that really don't have anything to do with reducing congestion on the roads or improving mobility. And that's the problem. We keep spending more and more on the highway bills, and less and less on actual highways that move people.

So it's a problem, but it is too attractive right now. We removed virtually all the earmarks from the Labor-HHS bill that we tried to pass earlier this week, and it failed on the floor, partly because too many members said, you took my earmarks out. I'm not voting for it.

LISOVICZ: Yes, just 5,800 earmarks to go after those bridges to nowhere. That's not a -- that's not a tall order.

But let me ask you specifically, Congressman, because I thought in my own naive way that after Hurricane Katrina, there were actual legislators, real legislators, from real places saying, take my pork. Put it toward these poor people, all these businesses that really need this aid in the Gulf Coast. Whatever happened to that kind of thinking?

FLAKE: There are still a number who are willing to do that. A number of people have come and said, hey, you know, I got 20 projects in the highway bill. I'd gladly, say, take that and spend it on, you know, the bridge over Lake Pontchartrain, something that we actually need to rebuild. That is our prerogative.

So no, there are people willing to do that. But there are many who are saying, no. You know? I ought to keep that money.

So we've just got to -- in the future we've got to remove these earmarks. It's really poisoning the process here. It cheapens the Congress, and it's just -- it's going the wrong direction.

SERWER: But didn't you just pass a $50 billion bill that would cut spending on food stamps and Medicaid? I mean, and also, how realistic is this? I mean -- you know...

FLAKE: The Deficit -- the Deficit Reduction Act that we passed about 2:00 a.m. this morning slows the rate of growth on many of the entitlement programs by a fraction of 1 percent. We need to do far, far more than that if we're going to get a handle on this deficit and this debt. LISOVICZ: Right.

FLAKE: But earmarks -- I should point out earmarks for the pork barrel projects, they simply leverage higher spending. Many members would not have voted for that bloated highway bill were their earmarks not there, and that's the case with many of the appropriation bills.

So if some people say, that's just a small amount of money, but it's leveraging much, much more money. And we Republicans have, you know, we ridiculed the Democrats, rightly, so in the mid-'90s for too many earmarks, but we've made it far worse.

ROMANS: That was my next question. You are fiscal a conservative. The Republicans are supposed to be the party of fiscal conservatism. Yet, if -- you know, American families take a look at this and say if they ran their household budget like Congress runs ours, they'd be in debtors' prison.

I mean, how can we -- how long can we go on like this?

FLAKE: We can't. We simply cannot sustain the trend that we're on in spending. Last night or early this morning was a good first step. But it's really only a baby step, if you will.

This prescription drug benefit that's going to start next year is going to add $11 trillion -- I'm sorry, $8 trillion...

LISOVICZ: Wow.

FLAKE: ... to unfunded liabilities. That's more liabilities than exist in all of Social Security, and we did that with one bill. And so we ought to, frankly, cancel that program or at least delay it or means test it and give it only to those that need it.

LISOVICZ: Congressman, just a yes or no answer on this. Would term limits solve this problem? You'd eliminate pork with term limits, yes or no?

FLAKE: No. No.

LISOVICZ: OK. And you're a third-term -- you're a third-term congressman.

FLAKE: Right.

LISOVICZ: And you have, for the record, declined any special projects for your district?

FLAKE: That's right.

ROMANS: Hip-hip hooray.

LISOVICZ: Congressman Jeff Flake, Republican of Arizona, thanks for joining us.

FLAKE: Thank you. When we come back, how to make a boardroom swoon. Some corporations think Sam Alito will give them an easy ride if he makes the Supreme Court. We'll hear from a guy who says not so fast.

Also ahead, salad days. With Whole Foods bringing its new numbers to Wall Street, see if the stock is looking fresh or a little wilted.

Plus, snowballs in July. Retailers really are putting out those Christmas decorations earlier every year. Find out why.

(COMMERCIAL BREAK)

ROMANS: Samuel Alito's nomination to the U.S. Supreme Court's been playing pretty well in the business community. The thinking is that having another conservative on the bench would work in corporate America's favor.

You know, it might not be that simple, though. For more about that, we're joined by Peter Lattman, reporter for "Forbes" magazine, who's been writing about the subject. Welcome to the program, Peter.

PETER LATTMAN, REPORTER, "FORBES": Thanks for having me.

ROMANS: So Wall Street's corporate America, the corporate suite, they so far like this nomination. You say not so fast. Just because he's a conservative, it's not a slam dunk for American business?

LATTMAN: That's right. Generally speaking, predicting the jurisprudence of a Supreme Court nominee is a dangerous sport, but when it comes to business cases, we think that ideological labels are really the least helpful.

And I think the reason for that is because when a justice takes on an abortion case, or a privacy rights case, or even a criminal case, he might bring his personal views or his political views to bear. But when you're dealing with a corporate case, that's probably more technical in nature, it's a lot harder to predict how they'll come out.

LISOVICZ: Yes. And some very interesting results, Peter. I mean, one of the most controversial decisions that came out of the Supreme Court in the last year was eminent domain. Conservatives did not side with big business.

LATTMAN: That's right. That's a great example. Last term, that probably was the most conservative decision in the Supreme Court. In that case, the court ruled that the city of New London, Connecticut, was allowed to take private property in order to build a posh apartment complex, and that massively expands the government's eminent domain power.

The liberals wrote the majority in that case, because it was a good way for the states to raise taxes, and the conservatives, as you said, went ballistic. And they basically said that the specter of condemnation hangs now over all private property. And there's been a real backlash, actually. Thirty states or so have passed laws to restrict the government's power of eminent domain as a result of that case.

SERWER: Peter, I'm always on the side of posh apartment complexes, actually, so I don't know where I come off on that.

I wanted to talk to you about another sort of counterintuitive outcome from rulings by conservative justices. That's because they often end up being states' rights advocates.

ROMANS: Right.

SERWER: And that would confer authority and power to attorneys generals like an Elliott Spitzer who might be more populous or end up being sort of liberal. Is that the case?

LATTMAN: Yes, that's absolutely right. You know, the great legacy of the Rehnquist court was returning power back to the states and limiting the power of the federal government. But that's not always a good thing for big business.

For instance, if you're a corporation that's trying to sell the same product in 50 states, the last thing you want is a Balkanized situation where you're dealing with conflicting regulations.

And to your point, Andy, if you have these bulldog attorneys general like a Spitzer or like a Blumenthal in Connecticut, corporations like safe harbors, and they don't want to have to worry about which states to avoid. And they'd much prefer a federal regulation that has consistency.

ROMANS: You know, how important, really, though -- we've talked about a few cases, especially the eminent domain case, but you point out that it's really the Delaware Chancery Court which is -- you know, a CEO more concerned about what happens there, necessarily, than in the Supreme Court?

LATTMAN: That's right. You know, it's funny. Even though roughly three quarters of all Supreme Court cases touch on business issues, they really don't get that much play. And I think you'll see that come January in the Alito hearings.

I mean, I think we'll be lucky if we get one or two questions from senators that will be related to big business. I mean, I think the hearings in January will be about three things: abortion, abortion and abortion. So you know, business cases, the business interests don't really have that much relevance in determining whether Alito actually gets on the court.

LISOVICZ: Peter, I've made the trip to Delaware Chancery Court, because so many corporations incorporated in Delaware that are pro- business or certainly very knowledgeable about business. And I'll tell you, I got a good day's sleep going into that court. It's incredibly complex, the cases that they hear. And one of the complex issues that will come up in business is intellectual property. We really don't have a standard set on a federal level yet. Is that right?

LATTMAN: That's right. And that's actually one area that we think will be a positive for business if you have a Roberts and Alito court going forward. What intellectual property is, it's really not an ideological issue. That's, after all, patents, trademarks, copyrights, usually pitting one business against the other.

So what businesses are looking for there, again, is clarity and consistency. And it seems to us that Roberts, who practiced privately representing business interests in the 1990s, and Alito, who sat in the Third Circuit, which includes industry-rich states like Pennsylvania, New Jersey and Delaware, have a certain facility with intellectual property issues. And in the past, that's really been a legal backwater. Justices really weren't interested in those issues. But we think Roberts and Alito will be, which will be a good thing for business.

SERWER: Beaches not bad in Delaware, too, by the way, Peter.

Quick last question. He's going to get confirmed, right?

LATTMAN: That's my hope. Look, it seems to me that this guy seems like an impartial, scrupulous jurist. And, you know, even though the left is going to focus on the abortion question, it's hard for me to believe that someone with his track record and his intellect won't get confirmed.

SERWER: All right. Peter Lattman of "Forbes" magazine, thanks for coming on the program.

LATTMAN: Thanks so much for having me.

SERWER: Coming up after the break, the retail sensation that talks like a hippy and thinks like a capitalist. We'll tell you how shares in Whole Foods are looking.

Also ahead, the personal finance expert who's rocking the house. Meet a guy who's using his expertise to write a better rap song. Oh, we need that.

And Sony slips a disk. Allen Wastler is going to update us on the fallout over some hidden software on Sony's music CDs.

(COMMERCIAL BREAK)

LISOVICZ: Now let's take a look at the week's top stories in our "Money Minute."

General Motors CEO Rick Wagner sent a letter to the company's 324,000 employees, strongly denying the automaker was headed for bankruptcy. But doubts are growing after GM's stock hit an 18-year low on Thursday. The company has lost nearly $4 billion alone this year.

If you're worried about job security, you're not alone. A new survey by Risk Management Consulting shows that workers are far more nervous about losing their jobs than they were just six months ago. Nearly a quarter of all U.S. employees say it's possible they'll lose their jobs in the next year.

But confidence is high for Web sites that sell advertising. Yahoo, AOL and MSN are sold out with enough big display ads on their home pages for months to come. As more advertisers shift away from print and TV, some popular Web sites are beginning to sell their ad space up to 18 months in advance. A real bull market.

SERWER: This is a big week for gourmet grocer Whole Foods Market as the holiday eating season kicks off in earnest. But shareholders probably feel like celebrating early, considering the year the stock has had.

Shares are up more than 50 percent since the start of '05, and that's even after the company took a big financial hit from Hurricane Katrina. As it nears its sixth straight year, sixth straight year of double-digit growth, Whole Foods Market is our "Stock of the Week".

And I mean, there are hot stocks. There are tech stocks. There are home builder stocks. This thing is a space shot. It was a $3 stock in 1993.

LISOVICZ: Wow.

SERWER: They now have 180 stores. People are always talking about the next McDonald's, the next Starbucks. This could be it. And who would have guessed?

ROMANS: Three dollars in 1993.

SERWER: Ninety-three.

ROMANS: A hundred and thirty dollars...

SERWER: A hundred and forty dollars now.

ROMANS: A hundred and forty dollars now, and its price to earnings ratio is a lot richer than the rest of the crowd.

SERWER: Yes.

ROMANS: But it's different than the rest of the crowd. This isn't a -- you know, a Safeway or a Kroger. This is a company that -- it has different layout, has different kinds of products and its clientele is different. Also, the caps on executive compensation. This is where the socially responsible investors come in and get happy.

SERWER: They get free asparagus.

LISOVICZ: Shares.

ROMANS: And also, they have, you know, English classes for their workers. I mean, they do a lot of things that other companies simply don't do.

LISOVICZ: Yes. And the other thing that you have to feel good about, Whole Foods, if you're an investor, is that it is such a tiny niche in the food industry, that organic, natural foods area. It's only about 5 percent. It's a $500 billion industry. So there's room to move. Even Wal-Mart looking for more, healthier choices to stock on its shelves, and Wal-Mart is the bigger grocer. And that could be a challenge.

ROMANS: If Wal-Mart gets organic, then suddenly you've got, you know...

LISOVICZ: Competition.

ROMANS: Absolutely. That could be trouble.

SERWER: It's interesting. You talked about how expensive the stock is, Chris. It's selling for 73 times earnings right now. Its market value is about the same size as General Motors, which is pretty amazing.

But here's some things I think. People are aspirational in this country. They want to live better. They want to eat better. And this company is doing something that the other grocery stores aren't doing. Other grocery stores are shrinking because of Wal-Mart, like you said, and they've got no earnings growth. Their profit margins are about 1 percent. In other words, from the revenues, they only make about, you know, a penny off of every dollar.

LISOVICZ: Well, that's typical. That's typical of the food business.

SERWER: Exactly. But this company has a 4 percent margin. So it's four times more profitable than the average grocery store.

ROMANS: Do you have to be careful about not building too many, you know, in the urban areas, about over saturation. I mean, I heard someone say that you could have 400 of these stores. There were 180 now.

SERWER: Right.

ROMANS: That's a lot of growth. I mean, do they need to be careful about not like being Starbucks and having three on every street?

SERWER: See, I still think there's a lot of room to grow here. I mean, they could put -- you know, how many could they put in Baltimore? Four, five, six? I mean, just that's one city. That said, they said the same thing about Starbucks, and they have a lot of room to grow. I think they really can do that.

LISOVICZ: There's one -- the largest one in the country, of course, is in the Time Warner building...

ROMANS: Absolutely.

LISOVICZ: ... where we work. And you would think that they're giving that food away for free, the lines are so long.

ROMANS: And it's not. And it is more expensive.

LISOVICZ: Premium price food.

SERWER: Right.

ROMANS: But you get addicted. You really do get addicted to it. I mean, I shop there quite often, unfortunately.

SERWER: Right.

LISOVICZ: And now you're shopping for two.

ROMANS: Yes.

SERWER: We're going to break -- we're going to break...

LISOVICZ: Or eating for two.

SERWER: We're going to break for lunch, I think. OK? We're going to stop.

ROMANS: Absolutely. Good to know.

SERWER: Coming up on IN THE MONEY, better get Santa some sun block. Retailers have figured out that starting the holidays early pays off.

And later, listen up. Shorties and jumbos. You know what that means? We'll show you a rapper who puts hip hop and home loans together. Get it?

Plus, Thanksgiving dinner talks back. Get the turkey side of the story on our "Fun Site of the Week".

(COMMERCIAL BREAK)

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