Mastermind Behind the Ponzi Scheme
PHILLIPS: Right now it's 1:31 Eastern time. Here are some of the stories we're working on in the CNN NEWSROOM. President Bush says he hasn't decide what he might do to help the U.S. auto industry, but his press secretary says today the president is considering what she described as an orderly bankruptcy. Chrysler is shutting down its factories for the next month and GM is also temporarily closing some of its plants. President-elect Obama says federal regulators dropped the ball when it comes to regulating the financial industry. He made his remarks made as he named three veteran regulators to his team, including the first woman to lead the Securities and Exchange Commission. Meantime, the Bush administration has issued a new federal rule strengthening legal protections for doctors who refuse to take part in abortions because of religious objections. Critics argue that the rule is too broad and will limit a patient's right to get care and accurate information. Barack Obama has vowed to make Afghanistan the central focus of the war on terror more than seven years after 9/11. There's still no complete victory over the Taliban and reaching that point could be years down the road. Here is CNN's Pentagon correspondent, Barbara Starr, with a "Memo to the President."</s>BARBARA STARR, CNN PENTAGON CORRESPONDENT (voice-over): Mr. President, some say the war in Afghanistan isn't going well. It's one of the reasons you asked Bob Gates to stay on as Secretary of Defense.</s>OBAMA: As Bob said not too long ago, Afghanistan is where the war on terror began, and it is where it must end.</s>STARR: But how to end it? You will soon be to asked to approve sending an additional 20,000 troops to join the 30,000 already there.</s>ROBERT GATES, DEFENSE SECRETARY: We are hopeful that we will be able to send an additional two combat -- brigade combat teams by late spring.</s>STARR: The first wave arrives here in southeastern Afghanistan where there hasn't been enough U.S. troops or Afghan police to provide security. The Taliban now controls some towns and villages, moving about unchallenged in some cases.</s>BRIG. GEN. MARK MILLEY, U.S. ARMY: They got areas where they can sleep, where they can eat, where they may have contacts and curriers come and deliver money.</s>STARR: It's an insurgency fueled by a thriving poppy crop. Your top military adviser warns with all of these challenges, even 20,000 more troops won't be enough for all-out victory.</s>ADM. MIKE MULLEN, JOINT CHIEFS CHAIRMAN: I think there needs to be a considered effort economically and a considered effort in the governance rule of law, diplomatic, political side.</s>STARR: Billions of dollars in aid is urgently needed, so are more troops from our allies. But NATO countries have been resisting getting more involved. In the Afghan security forces the U.S. is training, the U.S. will pay the tab for them for decades to come. Your not-so-new secretary of defense seems frustrated.</s>GATES: I think everybody would agree that holding your own isn't good enough.</s>STARR (on camera): Mr. President, the clock will be ticking as soon as you take office to try and to get those troops into Afghanistan as quickly as possible. Why? Afghanistan is set to have its own presidential election in September 2009. The U.S. troops will be vital for providing security for those elections. Barbara Starr, CNN, the Pentagon.</s>PHILLIPS: Just a month from Saturday, Condoleezza Rice exits the world stage. In our next hour of the CNN NEWSROOM, the secretary of state talks with our own Zain Verjee about her job, the good and the bad times and she offers us a glimpse into her life away from work. It's been 10 years since Bill Clinton was impeached. Has Washington moved on? Or, is it the same old town? CNN's special correspondent, Frank Sesno, takes a look back at the</s>UNIDENTIFIED MALE: William Jefferson Clinton, President of the United States, is impeached for high crimes and misdemeanors.</s>FRANK SESNO, CNN SPECIAL CORRESPONDENT: It was 10 years ago...</s>UNIDENTIFIED MALE: -- Perjurious, misleading and untruthful.</s>UNIDENTIFIED MALE: Mr. Speaker, this is wrong, wrong, wrong.</s>SESNO: The impeachment of a president. It had been tawdry and tortured, this becoming this.</s>W. CLINTON: I did not have sexual relations with that woman, Ms. Lewinsky.</s>SESNO: But it was really about truth and consequences.</s>CLINTON: I never told anybody to lie, not a single time. Never. These allegations are false.</s>STARR: But they weren't.</s>UNIDENTIFIED MALE: The I's (ph) have it --</s>SESNO: Monica Lewinsky, a young White House intern, and the president had what was politely called "inappropriate contact." He got into trouble for what are he told investigators.</s>CLINTON: It depends upon what the meaning of the word is is.</s>KENNETH STARR, FORMER SPECIAL COUNSEL: The evidence suggests that the president repeatedly used the machinery of government and the powers of his high office to conceal his relationship.</s>SESNO: The scandal divided the country.</s>REP. DICK ARMEY (R), TEXAS: A nation of laws cannot be ruled by a person who breaks the law.</s>REP. CHET EDWARDS (D), TEXAS: When will this mindless cannibalism end? How many good public officials must be destroyed because of their private sins and human imperfections?</s>SESNO: It paralyzed the presidency, and made their private lives, and foibles, painfully public. It became about survival. So the Clintons circled the wagons and went on the offensive.</s>HILLARY CLINTON, WIFE OF WILLIAM JEFFERSON CLINTON: The great story here for anybody willing to find it and write about it and explain it is this vast right-wing conspiracy that has been conspiring against my husband since the day he announced for president.</s>SESNO: The impeachment hearings live and in graphic detail capped a year of this. The House voted to impeach, but the Senate did not convict. He's worked every since to reclaim his reputation. She's run the marathon and has gained influence. But there will always be that history. And private lives will always be the quicksand of American politics.</s>SESNO: So the quicksand of American politics, Kyra. They made it through that, obviously. They did it because they circled the wagons, as I said. They stayed together, they adopted a really tough strategy and they made this a political -- a political battle. And in the end the country and the Senate said, you know what? A sex scandal and all the lives surrounding it, not enough to bring a president down.</s>PHILLIPS: Wow, you know what's wild? And -- I do have a couple questions for you. But just seeing Hillary Clinton, Frank, and talking the way she was talking and how she handled all that, and then you fast forward 10 years, and here she was running for the presidency. I don't know. It's just fascinating to kind of see her then and see her now.</s>SESNO: Well, you've got to give her incredible credit. She has taken her lumps -- and we know this -- from all across the spectrum. People have said she should have left her husband, people have said she is part of the vast left-wing conspiracy. And she hung in there, and she deserves a lot of credit for that in the American political system, just to kind of stay with the fight, and stay in the game, and put herself out there. I mean, regardless of what you think about the Clintons' politics, and they remain divisive by the way, of course, is they are in this game and they are one tough political couple.</s>PHILLIPS: Now if I remember correctly, I think you were a bureau chief at that time.</s>SESNO: Yes, you had to remind me.</s>PHILLIPS: Back in the day. Yes, that must have been hell.</s>SESNO: Yes.</s>PHILLIPS: What do you remember?</s>SESNO: What I remember is being taken in places, Kyra, that we had never been taken before. We had to figure out what kind of language to put on television, how to describe the sexual scandal. When the president said it depends what your definition of is is, it was -- he was talking about the definition of sexual relations. We put things on television, and we put things out there to the public that we would never have imagined doing. But in this particular case, it came down to whether a presidency was going to survive. And it was day in and day out of this trying to get information, trying to figure out -- there were leaks all over the place. What could you go with? What couldn't you go with? But really it was about seeing a constitutional crisis built around an intensely personal and really tawdry, nasty scandal like that.</s>PHILLIPS: And you sort of wonder if that would have happened to a woman, you know, what would have happened to her reputation? It happened to a man, and the guy's still a rock star. He went through a tough time, but he kept his popularity.</s>SESNO: The questions about the political implications of it, the social implications, the double standards, as you say, the issues of governance and propriety -- I remember we had a lot of conversation about other presidents and people saying, like, Ronald Reagan and others who never took their suit coat off in the Oval Office, and this had somehow, sullied the Oval Office beyond belief and by itself was enough for the president to resign. Others said the presidency needs to be stronger than this, and this had a lot to do about our institutions of government. And of course, the way the world looked at us. Some people thought we were out of our minds because -- the French, they have traditions of their own as we know -- and the Europeans. And they thought the Americans have just gone off the deep end. It was a very -- it was a bizarre, surreal time.</s>PHILLIPS: Yes. I think in some ways we did go off the deep end. But I can't believe it's been 10 years. Frank --</s>SESNO: Well, it's -- you know, you're right. And what's interesting, if I may very quickly, it really is fascinating to see where the country came down on these issues of privacy and sexual behavior and private lives of public officials. Because I think that may have been the big surprise. People, I think, in the end, especially observers and people here in Washington, surprised where the country came down on that.</s>PHILLIPS: And how crafty politicians can be with one or two words.</s>SESNO: There's that.</s>PHILLIPS: Thanks, Frank.</s>SESNO: Thanks, Kyra.</s>PHILLIPS: All right. Well they've held the highest office in the land. Barack Obama will soon be turning to President Bush and the men who came before him in the Oval Office for advice. More on this big meeting of the minds in the next hour of the CNN NEWSROOM. Well accused investment guru, Bernard Madoff, is under house arrest in his $7 million Manhattan apartment with a special hi-tech accessory adorning his ankle. He is accused of ripping off investors to the tune of some $50 billion. He wanted to go free on $10 million bail, but despite all his friends in rich places, he couldn't get four to sign his bail request. Donald Trump sure as heck wasn't going to do it. And here is what he said on CNN's "AMERICAN MORNING."</s>DONALD TRUMP, REAL ESTATE MAGNATE: The people in Palm Beach, many of those people have been just ripped off by this sleazebag. And they'll never see the kind of money that they've seen. You have some people that gave 100 percent of their net worth to him, in trust, because they trusted him, they trusted his family, they trusted everybody. And now they literally are selling their houses in order to live and some of them mortgaged their houses in order to give that money to this Madoff. And it's really a terrible thing. I'd see him around Mar-a-Lago, I'd see him around Palm Beach. And he's a disgrace.</s>PHILLIPS: Madoff is accused of creating a massive Ponzi scheme. So what exactly does that mean? Josh Levs at the CNN magic wall to kind of talk us through how it works, what it means, and where the word Ponzi comes from.</s>JOSH LEVS, CNN CORRESPONDENT: There you go. Yes, we're going to break this down Schoolhouse Rock style, Kyra. You like that?</s>PHILLIPS: Oh my gosh are you taking me back. I'm just a bill. A lonely -- OK, I won't go there.</s>LEVS: All these years later we remember it because this stuff works.</s>PHILLIPS: I do.</s>LEVS: And the Ponzi scheme is a perfect example. A lot of people hear the term, you hear pyramid scheme. I want to show you how this works. So we're going to start off with this one right here. This right here, this is the guy who's creating the Ponzi scheme. And he will be very recognizable to you as I talk from this Pac-Man face. Everyone over here is potential investors. This guy, Mr. Ponzi Scheme, is saying to everybody, hey invest $1, and you'll make $1,000 off of this. Now, it's not always that extreme. But the basic idea here is it starts with the promise of a ton of money from a simple investment. Hard to believe that you can actually get that much money that fast. But people line up, they start to invest. They say, you know what? I want to get in on this. I want some of that money. So these are the investors. Now, this is where your Ponzi scheme gets under way. Right here. Check this out. This means it's happening because more people come along, they say, I want to be a part of that scheme. So here is what they do. They buy in, they pay their money to him, he then gives their money to these guys, which means they're starting to get everything that was promised to them. So they start to say, hey, this is actually working. Then even more people come in. Check it out. This is the -- we're going to end (ph) the pyramid. These people come along, and they're like, I want in, too. They take their money, they buy in, these people and these people get their return. But that is when everything falls apart, Kyra. That is why, ultimately, these things fall apart. Because even if every person in America bought in, in the end, it wouldn't work out, because eventually you'll run out of investors. So the people who were at the bottom wrung are left with nothing. Everybody who was ahead of them on the pyramid runs away with their money. And that is how -- that's what a Ponzi scheme is. And that is how to not fall for it. Watch out for those huge promises in the first place. Investigate.</s>PHILLIPS: I liked your --</s>LEVS: Make sure you know.</s>PHILLIPS: -- your gingerbread Pac-Man there. Real quickly, Ponzi, it came from an Italian name, right?</s>LEVS: Yes, it is. It's an Italian name. He's the guy who in the 1920s got away with it. And guess what? We have his mug shot right here. That's him back in the 1920s, in the U.S. We have his -- I didn't know they had mug shots at the time. We have his actual mug shot from all those decades ago. And it was named after him because he managed to bilk investors out of so much money at the time, Mr. Charles Ponzi (ph).</s>PHILLIPS: Slick Italians. Josh, thanks.</s>LEVS: A little. Thanks, Kyra.</s>PHILLIPS: Well the men who made history are about to witness it. The Tuskegee Airmen head to Washington for the presidential inauguration. And one of them joins me live, right here in the CNN NEWSROOM.