ANNOUNCER: Tonight on NOW WITH BILL MOYERS... the dawning of the Age of Arnold.

RIDLEY: The Terminator is here. Your problems are going to be terminated. We're in for a lot of surprises right now with Arnold Schwarzenegger. We have no idea what this guy is gonna do.

ANNOUNCER: And a NOW investigation continues. Federal tax dollars flowing to religious groups who help the needy.

ROSS: We're literally talking about the potential of billions of dollars of federal taxpayers' funds going into the political networks and institutions of the religious right.

ANNOUNCER: And… think your mutual fund — the one you hope will pay for your retirement — is in good hands?

BOGLE: When you have strong managers, weak directors, and passive owners, it's only a matter of time until the looting begins.

ANNOUNCER: That's John Bogle, founder of one of the world's biggest mutual funds.

And Bill Moyers on how big media conglomerates are thumbing their noses at the FCC.

All that tonight on NOW WITH BILL MOYERS, the weekly newsmagazine from PBS.

ANNOUNCER: From our studios in New York, Bill Moyers.

MOYERS: Welcome to NOW.

If you've wondered why we have kept returning to the story of big media on this broadcast, we have some answers this week. It's because the big media companies keep getting bigger — with more and more power over our politics and our lives. This week's deal between General Electric and Vivendi, for example, means that GE's NBC has just picked up not only Universal Studios but the USA, Trio and Sci-fi cable channels to go with CNBC and MSNBC, all part now of a $43 billion dollar empire.

And look what's happening to radio. The non-profit Center for Public Integrity is out with a new study showing that in each of 43 different cities a third of the stations are owned by a single company.

No company's supposed to own more than eight in any market, but companies thumb their nose at the rules all the time. In 34 of those 43 markets, one company owns more than eight stations.

The big daddy of all is Clear Channel Communications — twelve hundred stations altogether. You folks in Mansfield, Ohio, Clear Channel owns 11 of the 17 radio stations in your town. If you live in Corvallis, Oregon, over half of what you hear is decided by Clear Channel — seven of thirteen radio stations.

Cumulus Media is the second biggest radio empire, remember Cumulus, they are the ones who banned the Dixie Chicks. Cumulus owns eight of the fifteen radio stations in Albany, Georgia.

If that doesn't get your goat, let's turn to television. No single company is supposed to control more than one television station per city, except in some big markets. But look at what happened in Wilmington, North Carolina, where there are three network affiliate stations: Fox, NBC and ABC. This year, the Fox station changed hands. On paper, the new owner was Southeastern Media Holdings. But then Southeastern Media announced that Raycom Media would help manage the company. Raycom already owns the NBC station, so it combined the two news departments and laid off much of the staff.

But hold on — Raycom and Southeastern Media holdings turn out to be part of the same company. So there's not only one less independent news operation in Wilmington, there's also one less media company.

The flimflam-ery goes on. In 33 other cities, stations that are supposed to be competitors have found clever ways to undermine the existing rules, including mergers and takeovers. Remember when Viacom married CBS and Rupert Murdoch's News Corp ponied up for the television stations owned by Chris-Craft? Those deals put both conglomerates in violation of the rule that no one company can control stations reaching more than thirty-five percent of the total audience.

But so what? The FCC just rolled over, winked, and gave both conglomerates temporary waivers of the rule. A little time passed and this summer the FCC raised the limit to give the big guys what they had wanted all along. But that giveaway brought protests by mail and e-mail from over two million citizens, turning the FCC into a Bastille on the Potomac. Such indignation from the grass roots caused even the United States Senate to say "Whoa, something's going on — people really care about this." And the Senate stopped the FCC in its tracks. There are enough votes to do the same in the House.

But then... General Electric, owner of NBC; News Corp, owner of Fox; Viacom, owner of CBS; and Walt Disney, owner of ABC, brought on the hired guns — the lobbyists — to wage a Trojan War on Congress. A passel of former insiders moved through the revolving door, Rolodexes in hand, trading their influence for cash — top aides of the Senate Majority Leader, the House Majority Whip and of John Ashcroft himself.

Now the most powerful Republican in Congress — Tom Delay, the House Majority Leader — won't allow a vote to happen. The effort to reverse the FCC is dead in the water — taking democracy with it.

MOYERS: You couldn't have missed it if you wanted. It was all media all the time, as America's political capital moved for the moment, and maybe permanently, to the corner of Hollywood and Vine. Arnold Schwarzenegger — whoever he is — won big, and nobody was happier about that than his celebrity friends who escorted him to the winner's circle. John Ridley is here to review the new movie, "Mr. Schwarzenegger goes to Sacramento" and the prospect of a sequel to come.

John Ridley is a novelist and screenwriter...the perfect combination of talents to make sense of this new political order. He wrote the story for the movie THREE KINGS, is a consulting producer to NBC's THIRD WATCH, and has just written his fourth novel, THOSE WHO WALK IN DARKNESS. You hear him on NPR and you've seen him on NOW. Welcome back.

RIDLEY: Thank you very much sir. Nice to be back.

MOYERS: How do you explain that the big media, the celebrity media gave Schwarzenegger a free ride? They focused on him at the exclusion of everyone else. They turned Maria and Arnold Schwarzenegger into the king and queen of the media. Look at this excerpt.

[EXCERPT]
TOM BROKAW: Arnold, we can't pretend like we don't know each other. We've known each other a long, long time.

LARRY KING: It's always a great pleasure to welcome Arnold Schwarzenegger. He's been on this program frequently in the past...

OPRAH WINFREY: Arnold will be out in a few minutes, but first please welcome my dear friend Maria Shriver.

To have come from another country, building yourself up from zero, and to end up on the cover of TIME and NEWSWEEK in the same week, and you hadn't committed a scandal, that 's pretty darn good.

ARNOLD SCHWARZENEGGER: I know.
[END EXCERPT]

MOYERS: I mean, he is one of them.

RIDLEY: He is one of them. But, you know, I'll tell you something… if a bald-headed black guy was running for President, I'd be all over that. You know, part of this is about ratings. And there's so much competition out there to get ratings to pull some kind of an audience. I mean, you've got CNN, MSNBC, you've got Fox, you've got all of the networks. You have all these syndicated shows like OPRAH.

You know, you have DATELINE going against 20/20. How do you get people to watch? What's the story? Arnold Schwarzenegger, Maria Shriver are the story. Cruz Bustamante is not gonna get you a couple extra eyeballs. Tom McClintock is not gonna get people to tune in and tune away from, say, THIRD WATCH to check out what's on another network.

MOYERS: But what does this say about democratic politics? Small "d"... what does this say about democracy when the rulers of mass media control our images, control our agenda?

RIDLEY: Well, you know, is this really that much different than the Hearst era when you had individuals who were controlling the media back then? You know, major newspapers or, say, the NEW YORK TIMES or things like that.

MOYERS: But this is wall to wall. This is 24 hours a day.

RIDLEY: It's 24 hours a day in our world because we're used to this now. I mean, back in the days when you only got the newspaper, well, you got the newspaper three times a day. You know, that was wall to wall coverage. I think that there is a sense that it's this, "Oh, my gosh, how can this thing possibly happen in the greatest nation on the planet?"

But to me, as someone who works in and around the media, I'm never surprised when the media grabs a story and holds onto a story. I mean, it's all about getting people to watch. It's, for example, this rise in what people are saying, conservative talk and things like that.

Let's not forget that… I can't even remember his name… Bill whatever-his-name… Bill O'Reilly, that's how much I sort of tune out. Bill O'Reilly…

Ladies and gentlemen, that was not at all a scripted forget. I forgot that. It's out of my mind. But this is a guy, he hosted INSIDE EDITION, I mean, one of these sort of tabloid TV shows that was doing, you know, GIRLS GONE WILD in, you know, in New Orleans. And now he's a conservative spokesperson.

I think people's ideology right now stretches to the end of a dollar bill. People always talk about, you know, the liberal media or the conservative media. The reality is it's the rich media that needs to maintain its wealth. And it's all about ratings. So me, working in television, I'm not surprised.

MOYERS: What does it to do sorting out our priorities, solving our problems, getting to the core of the realities that we have to wrestle with?

RIDLEY: I don't know that in and of itself Arnold Schwarzenegger being on OPRAH really does anything to solve any problems. I mean, clearly, even the Brokaw interview on DATELINE which was just days before the election, there were a lot of softballs about…

MOYERS: And no follow-up questions.

RIDLEY: No follow-up at all. You know, for someone to say, you know, "I will deal with these issues after the campaign." Okay, well, then how are you gonna deal with them specifically? Which one of these allegations are true? Which are they not?

These are questions that I think deserve to be answered whether the public decides that they don't care about it, whether it's not important. The public has a right to not care. But the public also has a right to know. And I don't think it serves anyone's interest when any of these networks, when any of these news organizations, be they conservative, be they liberal, be they moderate, by they whatever, when all they're concerned about is getting those ratings. And, believe me that is paramount. It's getting the ratings.

MOYERS: NBC actually helped elect one of their own. I mean Brokaw and Maria Shriver work at NBC. Jay Leno works at NBC. Leno let him announce on his show, and then…

RIDLEY: Yeah.

MOYERS: …celebrated his victory on Tuesday night. I mean NBC helped elect this guy. GE.

RIDLEY: Well, absolutely. And it's not a bad thing for, say, like Jay Leno, at least in NBC's point of view, to be so close with the governor of California and get that story. I mean, when Mr. Schwarzenegger announced his candidacy on the Leno Show, second highest rating of the year.

MOYERS: Yeah.

RIDLEY: That's a good thing. That brings in money. That puts that distance between himself and NIGHTLINE and LETTERMAN. So, not that you do, but if anyone thinks that politics is not about entertainment, that news or information is not about ratings, they're sadly mistaken.

MOYERS: Let's show you this clip. We've got that clip.

[VIDEO EXCERPT]
SCHWARZENEGGER: This is why I'm going to run for governor of the state of California!

LENO: Tonight is a testament of just how important one appearance on the TONIGHT SHOW can be, ladies and gentleman. Ladies and gentlemen, the Governor of the great state of California, Arnold Schwarzenegger!
[END VIDEO EXCERPT]

RIDLEY: They're good-looking, aren't they, though? I mean, wouldn't you want them in charge of your state? I mean that is a good-looking couple. I don't care what they do, as long as they stand there and look good. I think it's like the Kennedy era all over again.

MOYERS: Pataki he's not.

RIDLEY: No. You guys, you know, he may be a good governor, he's not the best looking governor in the…

MOYERS: Yep. And look at this. It's not just television. This is how THE WASHINGTON POST…

RIDLEY: Oh my goodness.

MOYERS: "Lord of the Rings."

RIDLEY: Wow.

MOYERS: This is… Arnold Schwarzenegger is…

RIDLEY: He's all over the place.

MOYERS: Yeah, all over the place. "The Arnold Dress Watch." It's big. I mean…

RIDLEY: Look at this. Vanessa Williams is in here. Who is that? He's with all the hotties and everything. Who doesn't want to be this guy, though? Smokin' a stogey, hangin' out with beautiful starlets. I mean it really is.

I think this is sort of what California, what the country needs right now. May not be the best thing for us. But that feeling again like with Reagan, it's morning in America. Everything's gonna be okay. The Terminator is here. Your problems are gonna be terminated. We don't know how. We're not gonna have a budget increase where they're getting rid of the license fee on cars.

All of these things. You know, there is no money. There are no jobs. But everything is gonna be okay. Listen, if the robots come, I feel great.

MOYERS: But all they know about him is that he's an actor and what they see on the screen.

RIDLEY: He's an actor. He's married to a Kennedy. He talks tough. There were things that he said, you know, he said he was gonna go after the Indian gaming revenue which sounded really good except that money's protected by federal law. I mean, he can't go after it if he wants to.

So, the facts played no part in this election.

MOYERS: Why isn't Gary Coleman as qualified to be governor? No, seriously, except that he's short.

RIDLEY: Well, you know what? As far as qualifications, I mean, look Cruz Bustamante or McClintock probably were clearly the most two qualified of all the other individuals who were running. Gary Coleman didn't win because he doesn't have a hit show right now, you know?

Had he been more popular, had this been 1982 when DIFF'RENT STROKES was still on, he probably would be governor right now. What people want, I think, is that belief that someone is gonna affect change.

MOYERS: There are several paradoxes to this. Arnold Schwarzenegger made a fortune out of portraying anti-social behavior. I mean, the themes of his movies were beat them up, shoot them up and knock them up, right? And yet he is a hero.

And in real life, Schwarzenegger has views. You know, he's pro-gun control. He's pro-gay rights. He's pro-choice. I was watching on election night. There he was hugging his father-in-law, an old friend of mine, Sergeant Shriver, who was George McGovern's running mate in 1972. I mean, isn't this really a victory for the values of Hollywood? Not conservative ideology?

RIDLEY: Well, you know, it's funny. I think it depends on how you put that R in Republican. You know, I mean, if you change that R to a D, I think he would be assailed for everything that he's done. I mean, the movies that he's made, the other types of individuals as you're saying, this sort of Kennedy clan that he hangs out with, a lot of these stances in terms of, you know, gay unions and abortion, all those things are extremely liberal or at the very least moderate points of view.

But I think the idea right now for the Republicans to be able to land a governor in this state that is so important to the election, to fundraising, to all of these things.

MOYERS: Yeah, well, wrestle with this for a moment. Because what the conservatives have done, 1964 with the defeat of Goldwater, it was the beginning of the resurgence of the conservatives because their main argument was high moral standards, you know? Traditional family values, the role of a woman in society, the law and order. Now they have embraced right-wing talk shows out in California. They have embraced a man who hasn't taken the high moral road in both of his movies or in his private life.

RIDLEY: You know, I have to be… I think that that is not gonna matter. You know, working in television, there are really three main networks. And somebody every season's in third and they're all freaked out and people get fired. But, you know, it's cyclical. One day number three is gonna be number two and then number one and then number three is gonna be number one again.

So it's really not worth getting all upset about. To me, you've got the Republican Party, you've got the Democratic Party. Whoever is in power is gonna do some good things then gonna make a bunch of mistakes and get tossed out of office. And someone else is gonna come in from this other party and do the same thing back and forth.

Right now I think Arnold Schwarzenegger is in that middle ground. And I think that's what makes him so attractive conceptually. He doesn't have a track record. He hasn't per se messed up a lot in the past. He hasn't tainted his future with ideas that are repugnant to one party or the other. There are things about him that everybody can kind of like and sort of find interesting.

And, you know, he was a self-made man coming from another country. I mean, this is where Davis, Gray Davis was trying to sort of buy the immigrant vote, this guy is the immigrant vote. He's saying, "Anybody can come here and do well." You can be a bodybuilder, you can be, you know, quote, unquote, "the big dumb guy," and ending up running the fifth largest economy in the world.

What's not to like about Arnold Schwarzenegger? And having met him and having met his wife, they're really, really nice people. So, you know, there aren't a lot of politicians you can just say, "Well, gosh, if nothing else, they were really, really nice people weren't they?"

MOYERS: Buried at the bottom of a long story in the NEW YORK TIMES was the most revealing glimpse to me in the reality of American politics today. Let me read it to you. "At the victory celebration" — Schwarzenegger's victory celebration — "men in tailored suits drank Scotch and smoked Cuban cigars in the Century Plaza Hotel while Schwarzenegger swaggered around the penthouse surrounded by hangers-on." I mean, aren't we in this country just simply voting to change the levers of power from one set of privileged hands to another set of privileged hands?

RIDLEY: Well, unfortunately, if you look at the reality of politics it's always privileged hands. I mean, from my perspective it's always, you know, rich, old, white guys who are running the world. It doesn't matter if it's Democrat, Republican, whomever.

The next guy who's gonna be President of the United States is gonna be a guy. He's probably gonna be white. He's probably gonna be making more money than your average American individual. So the idea that there are going to be these sort of big shifts in policy and things like that, I don't think that's gonna happen.

MOYERS: If you were writing the great American novel now, as I know you will one day, or a screenplay for a movie that you wanted to get to the truth of politics, what would be your theme? What would be your plot?

RIDLEY: You know, I think my theme and my plot would be much like THE CANDIDATE, the Robert Redford movie from years ago, where you have a guy who wants to make a difference, but the idea is, "I'm just gonna go in and I'm gonna lose. I just wanna have my voice heard."

I think there are a lot of people, you know, had I think 135 registered candidates on the ballot in California. There may have been a total of 160. Clearly, a lot of those people didn't think that they were really gonna be elected. But I think the hope was that some small part of their agenda could be heard.

The great idea in this country is that like with Mr. Schwarzenegger, anybody can come from anywhere and become governor. No clearly, he's not just anybody from anywhere. It was a long time ago that he was an immigrant from Austria. He is not an indigent individual running for office, by any means.

MOYERS: And he arrived here Mr. Universe, you know. And…

RIDLEY: Mr. Universe on THE TONIGHT SHOW announcing your candidacy. I would like to think that out of this election somewhere there was the little guy who could put forth some kind of an agenda, and be heard in some fashion.

You know, would be great to do a Capra-esque kind of movie, where the guy that nobody thought had a chance in all of this says that one thing that the populace actually takes hold of. You know, where everybody else is saying, "I'll take care of it after the election, I'm gonna terminate this or terminate that."

Somebody says something that has resonance. Of course you'd have to get into the machinations in a movie of, you know, what happens with this individual, and when the power brokers come in. But I think there is — as long as we're talking about sort of that spirit of feeling well, where we're talking about something beyond the reality of the situation — that there is the little guy who can say something that really does strike the chord, and gives people not just the false sense of hope that they need, but that hope that inspires people to work harder and do better.

MOYERS: You think the little guy really has a chance?

RIDLEY: No, I don't think for a minute that the little guy has a chance. I think the days of the little guy are pretty much over, unless the little guy can get the backing of a large media corporation.

Somebody picks up that story and decides, "This is the story we're going to run with." The little guy can make it, but the little guy really needs AOL Time Warner, or Viacom, or somebody else behind him, saying, "We love the little guy. Give the little guy a five-year contract. We're making something out of this kid."

MOYERS: All the world's a media stage.

RIDLEY: The idea that politics and entertainment, this is some kind of a new thing and it's never happened before, I don't think that's true. I think, like a lot of things, every year, we're more and more frightened.

It used to be, you know, Elvis Presley was the worst thing that could possibly happen to America. Now it's Britney Spears. There's always that sort of doom feeling. You know, California's gonna survive this. I'm not particularly all that excited about the survival process. But we're gonna survive.

The country's gonna survive. There's gonna be somebody else. You know, Brad Pitt, you know, 25 years from now, is gonna be stumpin' with Jennifer Aniston. And my kid'll be going, "Oh my gosh, what's happened to this country?"

But I think we'll be okay. I don't think politics and entertainment are anything new. I don't think it's particularly helpful. But I do hope that when something like this happens time from now, four or five years from now, people will look back and say, "Well, we made a horrible mistake. We should change things." Or say, "You know what? The system really did work. Whether he was great or whether he was okay, we're still here, and everything's fine."

MOYERS: It is certainly a relief to meet an optimist.

RIDLEY: It's unusual for me to be one. But since I've got to go back to California in a couple a days, I've gotta be one.

MOYERS: John Ridley, thank you very much for joining us on NOW.

RIDLEY: Thank you, sir. Thank you.

ANNOUNCER: There's more to come on NOW. A mutual fund scandal. Is anybody looking out for your nest egg?

MOYERS: From politics and media to politics and God. Just about everyone knows President Bush credits his recovery from drinking to a spiritual experience. It's one of the reasons he wants the government to call on religious organizations to help the needy.

This raises serious Constitutional questions, of course, but the President is not waiting for answers. He's told six federal departments and more than 30 government agencies that it's okay to give religious organizations access to more than $65 billion of taxpayer money.

In the words of one observer this week, "the train has left the station on the President's faith-based initiative." But like faith itself, there's more to this story than meets the eye, as we reported two weeks ago. Here's our second report on the subject from NPR's Daniel Zwerdling and NOW's William Brangham.

ZWERDLING: This is where the founding fathers created America's government. People call it the city of brotherly love. When President George Bush came to Philadelphia last year, he set forth his own vision of government. And he said government is not about love.

PRESIDENT BUSH [December 12, 2002]: No government policy can put hope in people's hearts or a sense of purpose in people's lives. That is done when someone, some good soul puts an arm around a neighbor and says, "God loves you, and I love you, and you can count on us both."

ZWERDLING: The President says it's time to transform the way the federal government does business.

President Bush wants religious groups to play a much bigger role in carrying out government programs. He wants them to run health care clinics and job training centers. He wants them to build housing and promote economic development.

And for the first time in modern history, the government will give taxpayers money directly to churches and other houses of worship.

PRESIDENT BUSH [December 12, 2002]: And when government gives that support, charities and faith based programs should not be forced to change their character or compromise their mission.

ZWERDLING: Some people worry this means the nation's taxpayers will be funding religious groups that proselytize, try to convert people. President Bush says don't worry.

PRESIDENT BUSH [December 12, 2002]: I recognize the Government has no business endorsing a religious creed, or directly funding religious worship or religious teaching. That is not the business of the government.

ZWERDLING: The President calls it his faith-based initiative. And for him, it's partly personal. The President's been preaching for years that God can change people's lives. He says he used to have a drinking problem, and he quit in the 1980's when he found Jesus.

PRESIDENT BUSH [April 29, 2002]: I know firsthand. I know what faith can mean in somebody's life. That's why I remind people I'm just a humble sinner who sought redemption.

GADDY: We have a President who in his own personal experience, had a dramatic conversion. He knew by experience what difference faith made in rehabilitating his life. Why not do that for everybody?

ZWERDLING: Welton Gaddy says he knows the power of faith. He's a Baptist minister in Louisiana. But Gaddy says when the government pays houses of worship to do God's work, then America is in trouble.

GADDY: That's giving permission to houses of worship to use federal funds to introduce God to people in need of change. That is an establishment of religion which is forbidden in the Constitution.

ZWERDLING: The President disagrees. Back when he was Governor of Texas, George Bush became convinced that America would be a better country if the government paid more people religious groups to run social programs. And one of the people who convinced him this man, Marvin Olasky.

OLASKY [at National Association of Evangelicals Conference]: George Bush and I began talking about poverty fighting in 1993…

ZWERDLING: Olasky's not exactly a household name, but he's helped the President push for a whole new relationship between government and God.

OLASKY [at National Association of Evangelicals Conference]: I see evangelism as a key component…

ZWERDLING: Olasky's the editor of WORLD, it's a well-known evangelical Christian magazine. He's been advising George W. Bush since he was governor. In fact, he helped come up with Bush's slogan "compassionate conservatism." Olasky says that Christianity provides the answers that people want and need.

OLASKY: Most often, the way that people change, especially people who have been down in the dumps for a long time, the way most often that people change is through some religious transformation that changes their view of themselves and who they are and what's their purpose in life.

ZWERDLING: Olasky argues in his writings that back in the 1700s, churches and other religious groups did a better job helping the needy than the government does today. He says that's because they didn't just hand out bread, they also preached the word of God. Modern welfare programs are a failure, he says, because they're not allowed to preach the gospel.

ZWERDLING: Do you feel then that the only way, or at least the best way that people can rise out of their problems, is if they embrace God?

OLASKY: Well, that historically is the way that's often made the biggest difference.

ZWERDLING: Now, for decades, the government has funded social service programs that are affiliated with religious groups. Nonprofits like Catholic Charities and the Jewish Federation System have received billions of dollars to help people in trouble.

But over the years, a patchwork of court decisions and pronouncements by government leaders led to limits on how those groups spent taxpayers money. If your group got government funding, say, to treat sick people or help people find jobs, you had to keep religion out of it. You not only couldn't try to convert them, you couldn't even talk about Jesus or Moses or Allah.

Marvin Olasky says that approach made the programs less effective and it discriminated against believers.

OLASKY: To say that no religious group can be involved in any type of government-funded social service is to say essentially that the only groups that can be involved are groups that are without any religion. Why should secularism be funded and any kind of religious belief not be? Why? And how is that fair?

ZWERDLING: Marvin Olasky's mission to put God into governement programs is the latest chapter in a long struggle. Activists on the evangelical right have been campaigning for decades to turn their beliefs into law.

REV. JAMES ROBISON [1980]: We must begin to literally penetrate every area of society! Yes! Even the political area!

REV. JERRY FALWELL [1980]: We have three priorities in the 1980s: Number one, get people converted to Christ; number two, get them baptized; number three, get them registered to vote.

RALPH REED [Christian Coalition Recruitment Video, 1990]: I believe that if we carry this five part strategy out, with diligence and effectiveness, I think that we will be the most powerful political force in the next decade

PAT ROBERTSON [Christian Coalition Recruitment Video, 1990]: Christians founded this nation, they built this nation, and for three hundred years they governed this nation. We can govern again!

ZWERDLING: When George Bush ran for President in the year 2000, the evangelical right saw their chance. They mobilized to support him. Pat Robertson's Christian Coalition turned out millions of votes in key states.

ROBERTSON: I suppose we were much more successful than anybody dared hope. But in any event, before it was finished there was an Evangelical sitting in the White House, which made us very pleased.

ZWERDLING: And only months after he took office, this evangelical President called on Congress to turn his faith-based initiative into law.

PRESIDENT BUSH [July 4, 2001]: So today I call on the United States Congress to pass laws promoting and encouraging faith-based and community groups in their important public work, and to never discriminate against them.

ZWERDLING: But then came the debate.

[EXCERPT from House Resolution 7 Debate, July 19, 2001]
REP. MARK GREEN (R-WI): With this bill, we can make a difference in lives, in neighborhoods, in communities all across America. This is the right thing to do.

REP. MAXINE WATERS (D-CA): We should never allow commingling of the government and taxpayers' dollars in the collection plate. It is wrong, it violates separation of church and State, and we should stop it on this floor right now.

REP. GIL GUTKNECHT (R-MN): We have wasted billions of dollars over the last 20 or 30 years in failed social programs run by the Federal bureaucracy. All this bill simply says is, give faith a chance.

REP. CHET EDWARDS (D-TX): It will lead to government regulation of our churches, which is exactly why our Founding Fathers rejected the idea of using tax dollars to fund our churches when they wrote the Bill of Rights.
[END EXCERPT]

ZWERDLING: The House eventually passed the President's plan, almost straight down party lines. But there was so much opposition in the Senate that they never even voted on it. The way the press reported it, you might have thought the President's faith-based plan was dead. A lot of people don't realize that President Bush didn't let Congress stop him.

PRESIDENT BUSH [December 12, 2002]: But the needs of our country are urgent. And as President I have an authority I intend to use.

ZWERDLING: President Bush used the authority of executive order. He sidestepped Congress and he launched the faith-based initiative on his own.

The rules of the President's program say that faith-based groups cannot use taxpayers' money directly to fund "worship, religious instruction or proselytization." But other parts of the rules say that religious groups can use taxpayers' money, for example, to fund construction of parts of their buildings.

Reverend Welton Gaddy says, what's the difference?

GADDY: It's almost what gets referred to as "the Washington blink" method of doing work. "We're not going to allow federal funds to support proselytizing people," wink, wink. I think people in houses of worship, if they believe that the best help for a person is to introduce that person to their particular faith, they're gonna introduce that person to their faith regardless of their funding streams.

ZWERDLING: Gaddy says if taxpayers' money ends up promoting religion, it will threaten one of the principles that's guided this country for two hundred years, the separation of church and state.

Now, the Constitution never comes right out and says "there's got to be a wall between church and state." Thomas Jefferson used that term in a private letter, he said that's what he thought the Constitution means. And since then, the nations' leaders and highest courts have generally agreed: the founding fathers wanted to keep God and government separate.

But activists on the religious right say that's ridiculous. Pat Robertson owns one of the biggest evangelical TV networks in the world. He says liberal judges and politicians have distorted history. The founding fathers would have loved the faith-based program.

ROBERTSON: From the very early days of our nation, there has been a sense that one of the pillars of our democracy and our freedom was our faith in God. We've had oaths of office in God's name. We swear on the Bible. "And so help me, God." And in the old days, we all assented that this is a Christian country.

ZWERDLING: President Bush has set up special 'faith offices' now in seven of the most powerful government agencies: the Department of Health and Human Services, the Justice Department, the Agriculture Department. He's ordered them to help funnel taxpayers' money to religious groups that have never received it before.

The Labor Department's faith office put out this pamphlet to tell groups how to apply for money. That image on the government pamphlet cover is right out of the bible. It's the burning bush where God called out to Moses.

Critics like Al Ross say activists from the evangelical right have shaped those faith-based offices, so they can carry out their political and social agenda.

ROSS: Most of the American people have no idea who these individuals are. But if we lift up the cover, we see that some of the top strategists around Pat Robertson and his top ideologues are now moving into key decision-making positions in the U.S. government.

ZWERDLING: Ross has spent decades studying the religious right, for liberal foundations and think tanks. He tracks the right's financing and political networks. The path has lead him to the President's faith-based program.

ROSS: In the center is the White House Office of the Faith Based Initiatives, effectively run by this Deputy Director, David Kuo.

ZWERDLING: David Kuo worked at Pat Robertson's Christian Coalition. He was a top adviser to the coalition's main political strategist. And Kuo helped draft the coalition's manifesto, the "Contract with the American Family." It argues that the nation should "abolish all major federal welfare programs" and turn them over to "private and religious organizations."

Other officials who set up or run faith-based offices have worked for Robertson too, or they've worked for other groups that promote the evangelical right's goals.

ROSS: The agenda of the religious right, they are vehemently opposed to women's reproductive rights. Many of them consider homosexuality to be a sin. They believe that secular education is also problematic for our democracy and want to push prayer in schools. So part of the agenda here with numbers of Pat Robertson's followers in key positions in the federal agencies is that they will award federal contracts to these institutions of the religious right which ultimately will be furthering their agenda.

ZWERDLING: There are more than 100 federal programs that religious groups can apply to for money. And the White House says these programs give out more than $65 billion.

GADDY: I think the faith-based agenda is a powerful political tool for gaining loyalty to the administration and some of its other programs and to enhance the movement of the religious right in controlling social services.

ZWERDLING: Maybe you're being too cynical because…

GADDY: I'm not being too cynical.

ZWERDLING: Because President Bush's advisors, top federal officials, say they're gonna send money to the churches and other faith-based institutions that are doing the best job helping the poor and the needy.

GADDY: As long as faith-based monies are being distributed by people interested in advancing political loyalties, there will be discretion in where those funds go not on the basis of where the greatest need is, but where the greatest political potential is.

ZWERDLING: We wanted to find out exactly which religious groups are getting the faith-based money and exactly how much money they're getting. But spokesmen at most of the federal agencies say they can't tell us. They say they don't keep lists that break down that information.

And top officials who run the faith-based offices refused to talk with us. But there are some clues about the programs at one government agency:

The Department of Health and Human Services has named several dozen groups that it's funding under the faith-based program. Every religious group on the list is Christian, except for a couple of 'interfaith' groups. You won't find a uniquely Jewish or Muslim or Buddhist center among them. You will find Pat Robertson's.

GORDON ROBERTSON [700 Club, Christian Broadcasting Network]: I am pleased to announce that Operation Blessing is one of the recipients from the President's faith-based fund!

ZWERDLING: Robertson's family runs Operation Blessing. The group gives food and clothing to the poor. And the Department of Health and Human Services has promised to give them one and a half million dollars in taxpayers' money to do it.

ZWERDLING: Some critics have said, "Here's what we worry the faith-based initiatives are partly about. They're partly about payback." They say they think President Bush is giving Operation Blessing money partly because you helped elect President Bush and some other key Republican candidates in the last election.

ROBERTSON: That attributes to him motives which are not worthy of a great President. And I think he's a great President. And such motives are not his. You know, just the way it is. There's no thought of it.

ZWERDLING: Robertson says his group deserves taxpayers' support. He says, liberal causes have been getting government funds for years. It's time for the evangelical right to get taxpayers' money too.

ZWERDLING: Do you hope then that the faith-based initiatives will help correct what you see as an imbalance? And project more of your vision of the world and the Evangelical right's vision of the world into social services to balance all of that?

ROBERTSON: I think most of the radical left has an agenda. They have an agenda where they want to use government power to foster their point of view. The Evangelical Christians do not want to do that. On the other hand, the Evangelicals want to help the poor and the needy. And those who are destitute, those who need jobs, those who need training, and those who are on drugs and need to get help. That has nothing to do, in a sense, with a political agenda. It has to do with just helping the poor.

ZWERDLING: Critics say there's another clue that suggests that the President's faith-based program is a political victory for the religious right: administration officials have written the rules to allow religious groups to get around civil rights laws.

For decades now, the laws have said that when a group gets federal money, it cannot discriminate when it hires people. But under the new rules, faith-based groups that get taxpayers money can refuse to hire anybody who doesn't share their religious beliefs.

Administration officials say it just makes sense, religious groups will do a better job if they can hire employees who think like they do. But Chet Edwards, the Democratic Congressman from Texas, says the President's policy means that taxpayers will subsidize bigotry.

REP. CHET EDWARDS (D-TX): Well, the facts speak for themselves. Under the Bush Faith-Based Initiative, a faith-based group associated with Bob Jones University, known for its bias against Jews and Catholics could literally take tax dollars to run a soup kitchen and put out a sign that says, "No Jews or Catholics need apply here for this federally-funded job." Under this program, basically women could be denied federally-funded jobs for which they're completely qualified simply because the faith-based group that received a million-dollar grant said, "Our faith says that women should be at home, not in the workplace."

SHERMAN: I think there are a few critics of the faith-based initiative who essentially view religion as a toxin. They want to have a wall of separation between church and state that's so high that there's just no possibility.

ZWERDLING: Amy Sherman studies faith-based groups for the Hudson Institute, a conservative think tank in Washington. She says all this talk about church and state misses the point. The faith-based initiative is about helping people in trouble.

SHERMAN: I think we should be more worried about kids dying in the streets. Should be more worried about single moms trying to make it on $6 an hour jobs. We have a lot of problems in our… we have a lot of hurting people in our country. And I say it makes common sense to say, "Let's get all hands on deck."

ZWERDLING: Welton Gaddy says he couldn't agree more. Just about every Sunday, he asks his parishoners to help people who are hurting, for instance, they support a local food bank. He says helping your neighbors is one of the most solemn obligations in every religion. Gaddy says, of course it might be easier if the government paid churches like his to do it. But he says, that would threaten America's democracy.

GADDY: We are at a point, I think, a very dangerous point in our nation, where there is a lack of understanding of what federal tax dollars going to directly fund sectarian institutions is going to mean for the future of this republic and for the integrity of the First Amendment to the Constitution.

BRANCACCIO: Faith in God to faith in mutual funds? Maybe no more. The fresh scandal involving some Big Blue Chip mutual funds have left some of us struggling to believe. Mutual funds are where small investors put their money so they can sleep well at night. Is anybody on Wall Street looking out for the 'little guy' anymore? Is there a problem with capitalism?

We turn to a capitalist for some answers. John Bogle has some fire-breathing views on how the companies we invest in are governed. Bogle founded The Vanguard Group, one of the world's largest mutual funds. He's now the president of the Bogle Financial Markets Research Center. Mr. Bogle, welcome back to NOW.

BOGLE: Hi, David.

BRANCACCIO: You were here two years ago, summer of 2002. And you had thought at the time that maybe we had reached the bottom of the barrel on these financial scandals. Looks like some of your colleagues on Wall Street have exceeded even your expectations.

BOGLE: Yeah, it's not a very happy situation. Very unpleasant. And it really revolves around what has been called a 'pathological mutation' in capitalism. And the way I express it is it's a change from the traditional capitalism, owners' capitalism where the owners got rewarded if they had invested capital in the company, to managers' capitalism where the managers are simply controlling the system, corporate managers, CEOs, controlling the system and getting far too great rewards, totally disproportionate to their contribution to our economy.

BRANCACCIO: So essentially, companies, funds even, it looks like, are managing their interests too often in the interest of the folks who run the company.

BOGLE: Yeah. That's what we mean by manager's capitalism. This is something that never needed to happen. Because while a director, corporate directors who are invested with responsibility of watching over management have let us down, and let us down badly, the owners, the owners of all these corporations have let us down even worse.

Just think about this for a minute: the 100 largest financial institutions in America, the investment managers, own 56 percent of all the stock in America. These 100 institutions — it's actually kind of frightening — control corporate America. And what have you heard from them? Nothing but the sound of silence.

BRANCACCIO: So would you say the system is in crisis?

BOGLE: I don't think the system is in crisis, but I think the system is crying out to be fixed. I mean the system is broken. And you've heard it said, I'm sure, that there are just a few bad apples in the barrel. And that actually is probably true. But the fact is, there are some pretty bad cracks in the barrel of capitalism itself.

BRANCACCIO: Now, Mr. Bogle, I want to get your 'take' on a specific issue that may have many of the people watching us tonight concerned.

ELIOT SPITZER [FROM TAPE]: There have been a significant number of subpoenas served. This is a wide-ranging investigation….

BRANCACCIO: New York Attorney General Elliot Spitzer is not talking about the corrupt likes of Tyco or Wall Street middlemen. He's talking about mutual funds…the place where you, me, and 95 million others put our money on the expectation that it will be carefully nurtured on our behalf.

SPITZER [FROM TAPE]: These were market issues that deserved and warranted the SEC's involvement…

BRANCACCIO: But last month Attorney General Spitzer revealed that some mutual funds were letting a select few insiders play fast and loose with mutual fund money after the market closed. So what's the big deal about that? Well, let's say that right about dinner time news breaks that a company has come up with a cure for prickly heat. Wouldn't it be great to be able to buy that company's stock at that day's closing price, knowing that it's going to shoot up in the morning? If you were part of that select few, that is apparently what you've been doing for the past couple of years. Well, the Attorney General's probe is now widening, with about three-quarters of the industry now being asked or subpoenaed for more information about these kinds of practices.

SPITZER [FROM TAPE]: This is behavior that is flagrant in its crassness and that is why we are moving swiftly and will act with great determination to, to eliminate this conduct.

BRANCACCIO: Victimless crime here, do you think?

BOGLE: Oh, no way it's a victimless crime! It may be a small amount of money that's been taken. But taking a small amount of money is not right. There's an old saying I heard a few years about corporate America and that is, "When you have strong managers, weak directors, and passive owners, it's only a matter of time until the looting begins."

And the looting here, I'll be honest, I want to make sure it's clear; is very, very small. But it's wrong. It's like a clerk in the grocery store. A one-man grocery store who says; 'I can take $5 a week out of the till and the owner won't notice.' Is that right? No, it's not right.

Someone compared this with not putting a quarter in your parking meter. To demean this serious scandal that way is a big mistake and suggests the industry has got a lot of re-thinking to do.

BRANCACCIO: You, for many years, ran one of these big funds that essentially is a whopping owner of all these companies. You also have pension fund managers for very large states. California, New York, North Carolina. These are the people you're accusing of not reaching out to deal with this problem.

BOGLE: And I have to accept some of the responsibility myself. None of us are blameless. However, when I got out of the active management of our large institution, Vanguard, these corporate issues weren't really out there. They were not these giant option plans. Pay had not gotten out of control.

And we were, you know, to our own discredit, willing to sit by and watch what was going on passively and not willing to stand up and take a stand up and make our position clear. So I'll accept my share of the responsibility. Absolutely.

BRANCACCIO: Well, I was reading one of your recent speeches, and you called my attention to the 1940 Investment Company Act that said some very interesting things about the way Boards of Directors are supposed to run mutual funds, for instance.

BOGLE: In its very preamble, you can't even get through page one of the Act without reading this. And it says, in essence; that funds must not be organized, operated and managed in the interest of their officers, directors, distributors, and managers and brokers. But in the interest of their shareholders. The Act says very clearly a fund shareholder must come first. And that is not happening in the mutual fund industry.

BRANCACCIO: Well, who knew? I guess even the Boards of Directors can fire the management company if they feel that the people who run the mutual funds aren't doing a good enough job.

BOGLE: Well, of course you're right, but you have to understand that a mutual fund is really not much more than a corporate shell. Guess who appoints all the funds' officers and employees? And there aren't many employees for funds. It is the management company itself. The chairman of the board of the fund is usually the chairman of the board of the management company.

You can imagine what kind of a fee negotiation that creates. And that is zero. And also, up until a few years ago, the fund manager also appointed most of the directors. And so most fund directors today have actually been appointed or selected largely by the investment managers to those funds. So it's not an exercise in corporate democracy, it's an exercise in conflicts of interest.

BRANCACCIO: So when you go around saying that the chairman of the board shouldn't be appointed by the management company, I'm sure your colleagues in the industry just roll their eyes.

BOGLE: They roll their eyes. And a lot of people very close to me roll their eyes. They just don't understand why the funds that they're gonna live up to this mandate of putting the shareholder first, giving the shareholder a first, fair shake, have got to begin with structural reforms that put the fund directors in control and then lay out a whole series of actions that they should take to make sure the situations works fairly in the interest of the shareholders.

BRANCACCIO: And shareholders, the owners; exercising their right to really ride herd over the companies that they own. And the thing is, though, they're often regulatory hurdles. The Securities & Exchange Commission this week is proposing some new rules about that which would give owners some new rights to perhaps appoint independent members of the board in certain situations. Some very large pension fund managers from some states around the country are very concerned that these, in fact, represent unreasonable hurdles. There's a 60-day public comment period now. You're a member of the public, care to comment?

BOGLE: I am certainly going to comment. I'll comment to you and I'm gonna comment to the SEC. And that is they have just gone about it in too tortuous, too tedious, too cumbersome a way to allow shareholder democracy to work in corporate America. And shareholders have to be able to speak up for their own rights.

So I would take down those barriers. The waiting periods. And allow, for example, let's say any group of shareholders that owned more than 10 percent of a stock as a group, and who have held the stock for over two years; we don't want speculators in this game, to do anything they want. They ought to be able to depose a director at the first instance. They shouldn't wait for another hurdle.

BRANCACCIO: That is the counter argument, you know. That meddlesome shareholders with narrow special political interests will want to get in the way of the proper management of these companies.

BOGLE: Well, I would say that if meddlesome shareholders can get together as a group and put together a block of 10 percent of the stock, they probably ought to be permitted to meddle. I mean a 50 percent stockholder ought to be permitted to meddle. So what's the matter with a 10 percent stockholder doing it?

BRANCACCIO: What's at stake here though?

BOGLE: What's at stake, I think, is returning capitalism to its original roots based on trust, trusting and being trusted. And we've taken a system where I think you could ask any man on the street, and in particular any investor on the street in America; is that the way the system's working today? And he or she would say: "No, it is not." Capitalism has let us down.

BRANCACCIO: There are a lot of people in the industry who say we're barking up the wrong tree here. They say that, look, what a shareholder can do, if it doesn't like something a company is doing, or if a mutual fund doing… If it doesn't like what a mutual fund is doing, can sell the share. Can sell the mutual fund. It's the ultimate vote against the company that is doing something that they don't regard as right.

BOGLE: If I was an overpaid CEO, that's exactly what I would say. But let's face the facts here; to say, like it or lump it is not exactly sound public policy. The owners have rights to say, well look. They can go out and sell their stock irrespective of the price. The stock may be very depressed in value. Selling well under it's long-term intrinsic value. And the CEO says, well, go sell it if you don't like what I'm doing. I mean is that responsible? Does that make any sense at all? No!

Owners own companies. And start with a 100 percent owner. You know who calls the tune there. Go to a 50 percent owner. You know whose gonna help call the tune there. Go to three owners who together own 20 percent. Corporate democracy speaks at 100, at 50, at 20, and ought to speak at 1. Democracy is democracy. Or as Churchill says; 'It's not a very good system. Merely better than any other system ever devised.'

BRANCACCIO: Well, John Bogle, thank you for stopping by NOW.

BOGLE: Great to be with you, David.

ANNOUNCER: Next week on NOW WITH BILL MOYERS, the White House's tough new education law that calls for standardized testing in the nation's schools. It was based on the Houston miracle that boosted scores while George Bush was governor. But is it all smoke and mirrors?

NORIEGA: We have not seen a Houston miracle. In fact, we have seen a Houston misinformation campaign.

ANNOUNCER: NOW investigates the Houston miracle next week.

ANNOUNCER: And connect to NOW WITH BILL MOYERS Online at pbs.org.

The latest on the mutual fund scandal, the Supreme Court's newest case involving separation of church and state, and who owns what in your media market.

Connect to NOW at pbs.org.

MOYERS: That's it for NOW. David Brancaccio and I look forward to your e-mails, and will be back this time next week.

I'm Bill Moyers. Good night.