ssion, the honorable larren l. lyttle, judge, presiding. >> rose: welcome to our program, tonight, everything you wanted to know about hedge funds but were afraid to ask. we talk to sebastian mallaby, author of a new book called "more money than god." >> finance is a system of complex promises about the future which is itself unknowable. so there will be bubbles and crises and problems b. the point is which kind of financial vehicle is the least bad at absorbing that risk and managing in the my answer is hedge funds. >> rose: we continue with the man who cooked mexican for the white house, chef rick bayless. >> i have to think that at this point in the history of the united states and our cuisine that somehow we have now just embraced all cuisines and to do mexican food from a white guy that grew up in oklahoma at the white house with a mexican president... >> rose: makes sense to me. (laughs) >> it sort of makes some sense.

>> rose: and we get a preview of the british open which opens tomorrow with jim gray, the man who did the big telecast when he interviewed lebron james. >> weather is a great equalizer there all of sports and golf is just the same case. if you have that wind howling and it was so cold today they couldn't play and we're expecting temperatures in the 50s and low 60s and wind and rain and it's not that normal rain, it's the sideways rain that hits you from the side, comes up from underneath the umbrella. there's no way to escape it over there in scotland. >> rose: hedge funds, mexican food, golf, basketball. wow. all of that coming up

captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: in 1949, alfred winslow jones scraped together $100,000 to set up the first hedge fund. 60 years later in 2009, the top 25 hedge fund managers earned a collective $25.3 billion. sebastian mallaby's new book called "more money than god" argues the future of finance lies in the history of hedge funds. he's a senior fellow for international economics and he's a columnist in for the "washington post." i'm pleased to have him here at

this table, welcome. >> great to be with you. >> rose: tell us for mexd and everybody else exactly what a hedge fund it, how it operates and how come it's been so successful as a device to make so many people so rich. >> it's a great question because if you put four or five financial experts in the room together you might get seven or eight answers. but i go with the definition created by the founder of the winslow journal. he had four things going on. he was secret. he didn't register with the s.e.c. he avoided regulation.ñi he had a whole background, by the way, clandestine anti-nazi undercover actions in the 1930s. so this secretiveness came naturally to him. the second thing was a performance fee. he used to say that merchants in ancient times kept one-fifth of the profits from a vessel voyage for themselves. >> rose: 20% of all... >> 20%. that was how he came up with this 20% profit share for the management which really

incentivized them to go out and hustle. >> rose: right. >> next thing was hedging, betting on some stocks going up, some going down. you were long and you were short. the market risk didn't matter. the index would go up or down: didn't matter. and you could enlarge your stocks. if he thought ford was well managed and g.m. was worse manned. you bet but because you were betting both ways didn't matter what the whole market index. is. >> rose: that's it? >> the beauty of it is you can apply the same ideas to doing currencies, fixed income positions, all kinds of other complex stuff that alfred jones never dreamt of. >> rose: because even today you hear constantly financial people talking about i'm going to hedge mzr investment. whatever it might be, whether it's commodities or whatever it might be in. this idea of hedging everything has become part of almost the

custom. >> it gives you more freedom. you can express view that something is going to go down as opposed to being restricted to only betting when it goes up. and so you have double the number of opportunities to go out and make money. >> rose: so what's the relevance of hedge funds to what happened in terms of all of the disasters of the subcrime crisis and all of the stories we heard of people having too much leverage, having too much risk and not enough conservatism having to do with their capital requirements. >> one of the amazing things with hedge funds is when it came to the crisis, the average leverage was about three times that capital. very, very low. i mean, the investment banks were up at around 25 or 30 times. >> rose: some up to 40. >> so to do three times that was very modest and it's not what people think about when you say hedge fund. they think ooh, big risk. but they were relatively conservative which is why in 2007 as a group they were up 10%. in 2008 they were down but much

less than the market average. they basically came through the crisis when insurance companies were bailed out, banks were taken over, investment banks failed money market failed. but the onces that didn't fail, the hedge funds, they didn't need taxpayer bailout, no government backstop. so i think the future of finance does to some extent lie with the history of hedge funds because they've proved that they know how to manage risk. >> rose: so why aren't more people in hedge funds? >> well, i think they will be over time. i mean, between 2000 and 2010 the assets in hedge funds probably tripled. and i think in the next ten years they could easily triple again because people he l see this is the best way to manage it. >> rose: most of the commercial banks or most of the banks were, in fact, in hedge funds, were they not? that's one of the things paul volcker and others have said. we need to separate proprietary trading and certain risk-taking with traditional deposit-bearing accounts. >> correct. that's right. and i think paul volcker has a

very good point which is that you don't want this risk taking to be under the umbrella of a sort of deep-pocketed parent that can bail you out if you go wrong. part of the reason why hedge funds did so well is that they're typically small entrepreneurial boutiques where the managers have skin in the game, their own money is in the fund. so if they mess up, they're not going to be bailed out by the government and it's their own money which is on the line. when you put a hedge fund in five golden sacks or inside some other big institution there's a deep pocketed sugar daddy there might bail you out. >> rose: but wasn't that, in fact, the hedge fund run by bear stearns the first indication the subcrime crisis was on its way? >> you're exactly right. in 2007 the best hedge funds went wrong and they were bailed out by the parent. and that's why it's worth making a big distinction between free standing entrepreneurial boutique hedge funds, basically good in my view, and hedge funds subsidiaries of big financial

institutions which have all the typical too much risk kind of problems that big financial institutions tend to have. >> who should the public be angry about in terms of the financial community? >> one instinct we've seen with the reaction against goldman sachs is to be angry with the people who got it more or less right. goldman sachs wasn't entirely right. it did have to be saved in the end. but it was less wrong than bear stearns or lehman brothers so now there's sort of a temptation to beat up on the guys who were right. i would prefer to look at the math and say we should be angry with the people who were flatout wrong, who didn't do their jobs at assessing risk properly. that's why we got into the mess. so my view of hedge funds on the whole is they didn't get it wrong. they didn't need taxpayer injections in money so we should basically be embracing them and trying to encourage more risk to be manage by hedge funds because

risks won't go away. currencies will go up and down. interest rates will go up and down, there will be complicated decisions about how you allocate savings in a complex economy. so finance is going to be risky. finance is a system of complex promises about the future which is itself unknowable. so there will be bubbles and crisis and problems. but the point is which kind of financial vehicle is the least bad at absorbing this risk and my answer is hedge funds. >> who are the big names in the hedge fund world? >> in the past some of the big names have been george soros julian robertson, michael stein heart. >> rose: these are all men who started back in the '70s and' 80s. >> that's right, in the late 60s in the case of michael steinhart and george soros. in julian robinson's case he set up the tiger fund in 1980 and road that to extraordinary success over 20 years. >> rose: but then came to a bad day when he had too much money invested in one company. >> that's right. he lost a lot of money. first of all on a bad bet on the

yen then he got stuck in one of the airline positions. >> rose: usair. >> you remember it better than i do. and finally he was run over by this crazy technology bubble. >> rose: he missed it? >> he could see it didn't make sense. so he wouldn't go betting on it and ultimately when everything else was going up and you can be run over, people lose faith in you, you're missing this big thing and that was his undoing. >> rose: it seems there have been more than one instance of that. people who saw the bubble were worried about it and some of them finally out of exasperation and pressure jumped in and by then it was too late and they got caught when the bubble bursts. >> one of the craziest examples is the man managing george soros ian tum fund. in early 1999 he thought this technology stuff was going to burst so he was betting on the... he was short.

then in the middle of the year he went out to sun valley and came back with religion saying well, this is going to work. and plus everyone was worried about wikt. they believed everything would go up. then he went long... >> rose: this was 1999? >> yes. so he went from being down in the middle of 1999 because he was betting against technology up by the end of the year. then about march of 2000 he said "this has gone crazy, i'm getting out." so he got out for a few days and then he couldn't stand it because everybody else was still making money. he went back in, then the bubble burst and his funds went down and he ended up leaving quantum because of that. >> rose: some argue that hedge funds are good for us because it's entrepreneurship. others argue that hedge funds are simply financial engineering. these are transaction people. they're not creating new products. they're not creating new businesses, they're simply

investors using superb knowledge training, guts, to make a pile of money for themselves. but have they made us better because of what they do? >> it's a great question. the benefit they bring is often quite abstract. so i'll take a second to explain it. but here's an example if you want people to invest in risky assets, which is essential for capital formation, companies are risky so their stocks will be risky and people have to have an appetite for risk. and to take a risk by buying a stock you you need to be assured if you want to get out you can. and that when you get out you won't pay an enormous penalty because, you know, it's not as if the buy is 10% different from the sell price. and what massive hedge fund trading does, high frequency trading, is it narrow it is costs between that buyer and the sell. it narrow it is spread. it creates liquidity. people will say well, liquidity, what's that? why does it matter?

is it matters because if i can get out of my bet i'm more likely to go into that bet. ifly demand a smaller risk premium, buying the stock in the first place, and the company will ultimately get my capitol capital cheap without all these hedge funds sloshing money around in this apparently useless manner. >> rose: hedge funds also, as they found out in the crisis, faced the question of redemption. people who invested a lot of money, pension funds, endowments universities. all kinds of people. and as the time comes in which they say this thing is not going well, i want my money out and they're locked in. give us a little primer on redemptions. >> it's a good point and it became sore point in 2008 because just as you say, a lot of investors were trying to get their money out and they were locked in and they thought they had a deal where they could get out. the fine print in the agreement between the investor and the

hedge fund gave the hedge fund the right to do this otherwise they would have been pseudoforever. so the hedge funds were acting within their right. i also believe they were acting in a way that was good for the financial system. and the reason is that if you've got a liquidity pan tlik's a couple things that can happen. either you force people to give up the liquidity and they have to hang tight for a year or six months or you give them the money but then you have to turn around to the government and say "help, fed, bail me out." so you can choose between the goldman sachs model of turning around to the fed and say now give me access to that lender of last resort facility or you can have the hedge fund model which is tough on the investors, they'll have to be stuck for six months. i forever private sector solution which doesn't turn to the government for that help because the help ultimately creates a moral hazard. >> rose: if you wanted to make a ton of money right now, being a smart young man, would you go into the private equity business or would you go into the hedge funds business? >> i'd go into the hedge fund business. the reason is that the academic

research suggests that... well, there's two kinds of private equity. there's a venture capital which the academic research suggests delivers real value. venture capital they do find companies that then... but private equity seems to be basically you buy a bunch of companies, put more debt in and it ends up the risk return you generate is pretty similar to the s&p 500 index. of course there are exceptions but taken as a whole, private equity doesn't seem to generate a special value. hedge funds do. academic research shows if you take... there's a study of 15 year's worth of data, 8,000 something hedge funds and looking very carefully and correcting for biases hedge funds do deliver value for clients. >> rose: what was the rate of failure for hedge funds during the recent economic crisis. >> they do fail a lot. even when there isn't a crisis you might have 500 hedge funds go out of business in a typical year. so in a decade, 5,000 go out but none of them need to be bailed

out by the government. in the crisis it probably went up to about a thousand or 1500 in a year. so it is risky. but it's actually risk glee a way that capitalism ought to embrace because it's the people who put their money in the fund who are at risk. it's not the broader financial system. which is threatened. >> rose: how will financial reform that is now in the congress, the dodd bill, affect hedge funds? >> it's a great question. so first of all all the hedge funds above a very small amount, $100 million of assets... of equity, i mean, will have to registered with the securities and exchange commission. to me this is ridiculous. i mean, at $100 million in equity you are so unsystemic. it doesn't matter in you fail. in terms of the whole system. >> rose: what's wrong with registering with the s.e.c.. >> it means you have to go hire a lawyer, you have to register with them then you have to be potentially subject to visits, you have to have a compliance

team. you could argue what the cost is. i just think anything... >> rose: from that argument, understanding that argument you also on the side of sort of many of the financial institutions who argued against financial reform because they did not want to be regulated? >> no. >> rose: they refused to accept the fact that if we'd had a better regulatory system and more enforcement we might have avoided the kind of crisis we hit up with? >> no, it's precisely because i do want to have tougher regulations for systematically important institutions that i don't think these stretch regulators who've got too much to do should waste their time on tiny hedge funds which can be just allowed to fail. i mean, the dodd bill, the dodd bill which is just emerging is going to be 2000 something pages. it's going to require huge amounts of rule making. much of that i believe is necessary. but it's going to be tough for regulators with limited time to do all that stuff. >> rose: i hear you in terms of saying all... announcing the reasons that we're writing about more money than god, all the reasons hedge sfrundz a productive and can play a

productive role in the economy. what is your criticism of hedge funds? >> well, i think one thing is they could be taxed more. i mean, there is this thing which goes back to the 1950s where they've managed to persuade the tax authorities the the money that they earn is really a capital gain. >> rose: right. >> so they effectively are taxed at a rate which is lower than the folks... >> rose: so-called carried interest. >> exactly. so they're taxed at a rate that is lower than folks that clean out their kitchens. >> rose: most of them i know believe they could live with that if that was changed. even though they will argue against it because it ma l make them less rich but they could live with it. >> yeah, they could. and for people who are really successful in this business they have more money than god, frankly. they don't like this title. a lot of people say "i wish you hadn't chose than title." but tough. the fact is when you've got the top 25 hedge funds managers making on average a billion bucks each i don't mind calling it more money than gone.

j.p. morgan when he died in 1913-- and he, by the way, was known as jupiter because of his god-like power over wall street-- when he died his total lifetime accumulated fortune was $1.4 billion of today's dollars. and these guys can make that much in a single year. it is literally more money than jupiter or more money than god. so i think taxing them at a higher rate makes perfect sense and i agree with you. in private they will say that's okay. >> rose: one of the central criticisms against goldman sachs by many was this they were betting against themselves, betting against their clients, in fact, does that argument have legs as far as you are sdmrnd >> i think there is an issue about... and that... go ahead. >> the big integrated investment banks, goldman sachs, morgan stanley, they have conflicts of interest all over the place. they are trying to serve their clients, they're trying to bet their own money. >> rose: so therefore we need new regulations to restrict those conflicts of interest? that's the question. >> devising those regulations

are so difficult. the volcker rule is part of that. trying to reduce proprietary trading to reduce one conflict of interest. >> but think about what you just said. the part of the problem was they had so many conflicts of interest and i just simply said if you had more regulations could you have dampened those conflicts of interest which may be unfair. >> i think thing is if the right idea to try with regulation but we should be modest about what we've achieved because we've seen this movie before. after the dot-com bust and people said we're going to have this macro settlement with equity researchers and did it fundamentally change the nature of investment banks? maybe at the margin. but i think we need a different approachings which not meerly to fix this complex kind of beast, this multipurpose multistrategy investment bank which is trying to do all these different things. we also, as i said before, need to embrace alternatives types of

company that are single-issue companies. the great thing about hedge funds, to go back to that, is that they have one purpose: to manage money and make a profit. they're not advising people, they're not underwriting securities, they're not market makers on the whole. their one objective and they're focused on it and that's why they're good. >> rose: sebastian mallaby, thank you. >> great to be with you. >> rose: rake bayless is here. in 1987 after research in kitchens across mexico he published hiss first book cook. it was called "authentic mexican." "new york times" food critic craig claiborne called it "the greatest contribution to the mexican table imaginable." that same year bayless opened his first restaurant that has become one of america's most famous mexican eateries. today he commands a food empire that includes three chicago restaurants, a television series seven cook books, a line of food products and now a new radio series, here is a look at his pbs program: mexico, one plate

at a time. >> one of the reasons i just love to shop in the huge merced market in downtown mexico city be s because of this, the enormous variety and quantity of dried chiles, herbs and spices that you'll find here. oh, you really did that! so now just start peeling the bark off of those things. long about april you'll be able to harvest the green garlic or you can let it continue to grow until say around 4th of july when the heads are fully formed. i'm going to scoop them into a saucepan and then measure in about a half cup of the liquid. okay. when those guys cool down, then chop it up into little pieces. to match the potatoes kind of irregular like you did the first time.

then you have to chop up these guys. this is a little bit complicated but take the chorizo out of the casing and cook that through. got that? >> just that? >> that's all you've got to do, good luck. there will be just enough for me to spread on some garlic bread. how about all that parsley now >> okay. looking good. >> yes. >> so everybody what do you think of the mole? (applause) >> rose: this past may he was invited by the president and the first lady to cook his signature cuisine at a state dinner for the president of mexico. i am pleased to have rick bayless at this table for the first time. welcome. >> thank you very much. pleasure to be with you. >> rose: thank you. two things that are interesting about you. one is that you cook for the president who had been a chicago native and had eaten at your

restaurant a lot. what was unusual about it also, you're cooking mexican food for the mexican president. not the way they normally do it. >> no, they usually just feature regional foods of the united states. some way to celebrate for the visiting dignitary what the riches are in our country. so this is a big departure. but i have to think that at this point in the history of the united states and our cuisine that somehow we have now just embraced all cuisines and to do mexican food from a white guy that grew up in oklahoma at the white house for the mexican president... >> rose: makes sense to me. >> it sort of makes some sense. >> rose: (laughs) so what is it like to cook at the white house? >> oh, you know, it was just magical experience for me partly because chris couple ford, the chef of the white house, is so welcoming. that's not an easy thing for most chefs to do, to welcome another chef... >> rose: and that's not part of

the tradition, is it. white house state dinners are not where they invite some... some outsider to come? >> as far as i know, this is the first administration to ever do that. usually it's the white house chefs so actually the white house chef now is taking a step back and saying we have great chefs in the united states and let's celebrate that and that's really mrs. oob's lead. >> rose: in fact, a new york chef was there for the indians. >> marcus samuelsson. >> the fellow born in ethiopia, raised in sweden and does american food in the united states. >> rose: why do all you famous chefs, you star chefs, have empires? i mean, t.v., radio, books, restaurants. it's not one restaurant it's ten restaurants. >> well, my restaurants are sort of one restaurant because they're together in one spots. >> rose: oh, that's just today, that's today. >> well, it's been for a long time. i don't like to commute very much and doing the rest of it from my office that's right there. so i have kind of focused right there on that one corner on

clark street in chicago. but i have to say, for me the desire to share stuff with people through books and television, to enrich their lives is really what motivates me all the time. >> rose: okay. this book is called "fiesta at ricks." what's a fiesta? >> a fiesta... to me the reason i used the word fiesta there is not just because it's the spanish word for party but because in mexico the whole idea of celebration is really a big part of the culture. way more involved than what it is in the united states and it's getting people together to basically... i have to say it's like celebrating life. it's not about just saying, oh, it's somebody's birth say so we should get a cake. it's about oh, my gosh, there's something in the market we have to make because it's this special day. or we're going to have this three-day wedding feast because we're going to bring the entire family together and we're going to celebrate the uniqueness of our family with these foods and these people and this place.

>> rose: you have said that i do not fully appreciate the potential of party until i moved to mexico. >> well, and the truth is that that word "party" in the united states has really taken on a specific kind of connotation. you know, you say oh, they're partying. it really kind of means they're drinking. and the whole notion of party is... it's definitely broader and... well, it touches your life in a very more meaningful way i think than the word party does in the united states. >> rose: julia child, he had a huge influence on you? >> she did very much because when i was a kid she was... i grew up in a restaurant family in oklahoma city and we did regional barbecue but i was even at a young age interested in a broader aspect of cooking and cuisine and what food really meant. so at ten years old she came on to our educational channel back then, 1963 and i sat in front of our little black-and-white

television... >> rose: you're on our educational channel right now. >> i'm here. and i watched her shows and took notes at ten years old. and i made those things that she made and she taught me that there was a lot love integrity to cooking that i didn't realize existed outside of my little family unit. and she basically told me that at that age i could think about having a career in food and it was an honorable and respectable profession. >> rose: if i go to a rick bayless restaurant-- of which there are three there and they're all joined? i've never been. >> yes, they're all joined. >> rose: if i'd been eating there, what would i expect other than a good food and a good experience? what would be the rick bayless thing that i would be going for? >> when you walk in the door, the first thing that you would notice is the aroma. because i want the aroma of the kitchen to get all the way to the front door. >> rose: fans in the kitchen

pushing it forward? >> it's the way we set it up with an open kitchen and a wood-burning grill. so that's the first thing you get when you walk in the door. the second thing you'll notice is there's an art collection there that is all mexican art. but it's really good mexican art. so you're going to find that you're put in another place because you're seeing all of this art. now mexican art, the kind that i collect anyway is a little bit representational but in the same way that garcia marquez does the... that sort of unreal... creates that unreal world. the same thing for the artists, especially southern mexico where they just... they take that next step beyond what is just simple representational art and show you a different perspective on life. so you'll get that. and then what you'll notice, i hope, because this is what i go for all the time, is that the service staff is incredibly

personal because they know exactly what's going on on those plates, what the history of all those dishes is, how we create them, where the ingredients are grown and they can tell you from total firsthand experience what makes a dish special. they'll probably tell you what their favorites are, too, and i don't mind that. but they can tell you every little detail about a dish. but they do in the a loving way because they eat that food all the time. as [ñaposed to most restaurants that have what's called a staff meal where a certain person in the kitchen is usually responsible for creating something that everybody eats right before service starts, we all eat after service and we all eat food that's right off the regular menu. so that everybody's relationship to the food that they're selling the wait staff's selling, is a first-hand experience. >> rose: so if you're having a last supper, you don't know what it would be, do you? >> well, somebody asked me that question and i thought long and and hard about it because i do

like to tackle new things, taste new things, experience. and what i came up with was be t place which was actually one of the inspirations for this book "fiesta at ricks." it's a place in the southern part of mexico city called arroyo. and when you go there you walk right into the kitchen, everybody has to walk through the kitchen and then you go into the dining room after having taken in the smells and the sounds of all this beautiful cooking. it's super rustic. huge caldrons, frying car nitas, big pits that they put whole lambs in to cook for six to eight hours and you sit down at a table and the entire place feels like it's just about to burst apart at the seams because there's roving bands, there's huge multigenerational families that are sitting at big tables. just whiling away the hours celebrating. if i wanted to have a last meal,

that's where i celebrate it. >> turning to politics and public health, have you signed on to michelle oob's anti-obesity... childhood obesity cam pain? >> of course. of course. and actually i've been sort of that whole movement for many years long before it became an initiative of the white house. i believe that what we have to focus on is helping kids to understand what real food is because so many kids are raised either with a diet that's almost exclusively pizza and pasta or it's all of this sort of fast food processed foodstuff that doesn't relate to stuff that you buy at a farmer's market. so from the time my daughter was really young i was involved with her friends, her school, and all that just teaching basic simple "you can make this thing at home." and when the kids make it, they want to eat it. and it's getting the kids involved in cooking that i think is a big part of... >> rose: do we in america also

eat way too much? >> yeah. plain and simple. >> rose: are you doing your part by serving smaller portions? >> actually, we don't serve really large portions in our restaurant. >> rose: because it's so good you don't want to eat snooch >> we work with a cuisine that's very full-flavored and you can't eat too much of it, i think. >> rose: (laughs) full flavored. what's the definition of full flavord? >> you know, spice city food, there's a lot of... tomatillos are mexican husk tomatoes that are so tangy and citrusy that they just create... what i consider brightness of flavor in practically anything that they touch. >> rose: are margaritas an american... >> (laughs) yes, basically. >> rose: (laughs) >> they were developed in mexico but in a beach community. >> rose: (laughs) yes. i thought they were developed in key west by jimmy buffett. >> they could have been, but the story-- and it may be totally apocryphal-- is that it came

from one of the beach communities along the western coast of mexico and it was developed for ladies who wouldn't combine the tequila and the lime and the salt which was sort of typical canteen that style. so they salt it had rim of the glass, put the lime and the tequila together in the glass but then the women said "but it's too tangy, it's to too asisic." so they added a sweet orange liqueur and the next thing you know you have a margarita. >> rose: there you go. "fabulous food for great times with friends." rick bayless, thank you >> my pleasure. >> rose: great to see you. back in a moment. stay with us. >> rose: the british open, golf's oldest championship, begins tomorrow morning on the links of st. andrews scotland. tiger woods, who calls that course his favorite, is hoping to reprise his wins of 2000 and 2005. all eyes will be on his performance this year following his admission of marital infidelity. he returned to golf in april after five months away from the game. he arrives in scotland with a

lot-to-prove and a growing chorus of doubters. he underachieved at the master's and the u.s. open this spring. he failed to break par at any round of the at&t national two weeks ago. joining me from los angeles is jim gray, a long-time sportscaster and contributing to the golf channel. i am pleased to have him on this program. size up this british open. i love the fact that justin rose is on a roll. i love the fact that westwood has won. >> well i think you hit it right there. justin rose is the hot golfer, he's one twice, almost three times. he had an opportunity to win a third tournament and, of course, he won very big the at&t a couple weeks ago and he has been playing some great golf. of course we remember when he broke on the scene at the british open back in 1998, he was just a young man at 17 at royalbergdale and he struggled up until this year and now he has it going. lee westwood is one of the best golfers in the world.

unfortunately he has a calf problem. he said today he probably wouldn't be playing in this championship if it weren't the open so he's down. but we also have rory mcelroy who won at quail hollow where tiger woods missed the cut and so he is a guy who's going to have to be contended with as well. steve striker and, of course, ernie elz won a couple times this year. so it looks to be a turnment that's wide open. els. today they couldn't play because they were supposed to have a choofrp i don't knows tournament all the former champions... not all of them but many living came back but it was too cold, too windy and too much rain had had to be postpone. >> rose: you didn't mention my man tom watson. >> well, tom watson boy did he give us a thrill last year. he almost won the tournament, he was leading the tournament after 71 holes, went into the playoff, had a chance to win it on the 2nd hole. he was just oh, so close. tom said today that his game is not in the shape that it was

last year at this time so he doesn't know if he'll be able to contend. but there's something real magical about tom watson and the british open and he has been a guy who's just played so well this year as well. he did just terrifically at pebble beach and the u.s. open and gave us all a thrill just to see him back out there where he had won all those years ago. so you can't discount tamm watson but he's also been a little disappointed. he expressed concern with what they've done to the 149 hole by lengthening it. so i don't know that tom will give us the ride that he had last year but boy was that something else and at 60 years of age, don't count him out but i wouldn't put him up amongst the favorites. >> rose: of course. what about phil mick on? >> he finished 11th in 2000 and 60th in 2005, the best finish he's had there was in '04, that wasn't at st. andrews but that's his best british open finish when he finished fourth.

his game, really, isn't best suited to what goes on with the weather over there and the trajectory in the flight of his ball he could win. he loves st. andrews, he said as much all week and it's one of his favorite places to be and obviously it's one of the great places on the planet. when you think about it, charlie they've been playing golf at st. andrews before they knew the world was round. before christopher columbus even sailed over to america they've been hitting a ball over there so don't discount phil mickelson but i don't see him as one of the favorites, either, just because of his history there and his history is indicated that this isn't where he does best. >> rose: and so there is tiger woods. jup >> and you summed up his year when we started. he had the miscut at quail hallow. he had the neck player and then went away from golf and came

back and finished fourth at the masters and finished fourth, i believe at the u.s. open is where he ended up. but they weren't the kind of performances where he was really contending. he was just kind of up there and had a shot. now in the past when he was in that position he would have been able to push ate little bit further and get over the hump and win. but tiger woods really... and if you look at his preparation coming into here, he did not have an under par round, as you mentioned, the last tournament he played just outside of philadelphia at the at&t. he had to go over to ireland, he played over there in a tournament, an exhibition and then flew back. he flew back because he had to see his children. of course he's in the bitter divorce going on now with his wife lynn and custody of his children is one of the matters. he said he loved being with his children and he enjoyed it but he's taken a trip overseas, come back, now he's taken a trip back

over. all of this within the last week. so that doesn't tend, i wouldn't think, to bode well. he's not playing very well. he's changed his putter for the first time since 1999. he's won 14 major championships, 13 with the putter he has been using and now he's going to use a new nike putter in this tournament because he says it comes off the face a little better. he's had trouble putting on the slower greens and feels that's cost anymore the past so we wanted to change it. i don't know. it doesn't sound good to me. his whole year has been so much different than what has gone on in the past because of the circumstance that he finds himself in. so i don't think he's going to win this tournament. we talked about this couple months ago before he played in the u.s. open. i think it's problematic. but if ever a course sets up for tiger woods-- and he still is tiger woods, the great, great golfer-- it is st. an druce. >> rose: why is that? >> if he's going to get on this mark with jack nicholas, this is

one he can ill afford not to take. >> rose: meaning if he's going to win more majors than jack nicklaus he has to start wining? >> correct and this is the place he can do it. he's won there twice and it's his favorite place on the planet. >> rose: what's with his swing? >> (laughs) dqpgey and those peo analyze but i think a lot of this is mental. he has a lot of time on the course to think about what has gone on. the guy has lost so much. he's lost his family, he's lost endorsement, money, he's lost the respect, adulation, admiration of himself, so much

respect gone down the drain. and i think with this... anybody who gets divorced-- and i'm fortunate that i have not been in that circumstance but i have had family members and friends, anybody who gets divorced will tell you it's the most trying, the most difficult thing you can go through in life short of dying. so all of this is very, very difficult i'm sure. he's put himself in this circumstance, it's self-induced and that doesn't bode well to having a clear mind and you need a clear mind to play golf, charlie, you know that, you play. >> rose: i don't know whether he'll win at st. andrews or not. i guarantee you he'll win again. >> oh, he will win again but there's the other things you have to take into consideration. weather is the great equal eisner all of sports and golf is just the same case. if you have that wind howling... and it was so told today they couldn't play and we're expecting temperatures in the 50s and low 60s and wind and rain. and it's not that normal rain. it's the sideways rain that hit grouse the side and comes up underneath the umbrella. there's no way to escape in the

scotland. and the other thing to take into account is the tabloid media and the british and scottish media. they have peppered tiger woods with these question which is he basically had stopped getting over here. the they were few and far between. people had basically let him get on with his life. particularly the golf press when he was in the press tents they started asking him about his golf. he's been asked all kinds of questions about infidelity, about his divorce about steroids and so on and these guys aren't going to stop. this is their chance, this is what they're known for, this is what they do and he's had to answer this question almost any time he's been in front of the press. and that's not going to end. let me tell you something, if you're going to try to concentrate on golf one way to have it brought back is to be asked about it and that's the way it's happening. >> rose: as he talked about anybody to all of this that you know? >> i think he probably has with his closest and dearest friends. note a beg gay who works with us at the golf channel and i'm sure

know a and him have had a number of deep and close conversations. nota hasn't shared that with anybody. hank heaney was about the closest one to tigher that we've been able to talk to who has opened up and told us on camera, who has told "golf digest" among other publications just exactly what it has been like to be in the inner circle with tiger. >> rose: tell us what he said. what did hank heaney say? >> well, hank said that tiger had... was dysfunctional and that a lot of the things that were going on with tiger were very, very difficult and obviously mentally draining to him and he believes that everything that has gone on with this golf game isn't because of the golfer that he is but it is because of the scandal he's involved in. and he's gone on into some detail about some of this and that he probably would even still be his coach had this not all gone on. but the fact of the matter is is dealing with this is very, very

difficult and it's not going to go away any time soon. he's going to have these children for the rest of his life. and he's going to have to explain it to them and they'll have to grow up in the environment and eventually he'll get divorced and one can hope that he'll move on in his life and we can see the great golfer that he was. but all of this is so very, very soon. all of this just happened thanksgiving and we're wondering why he's not winning golf tournaments and there shouldn't be any wonder at all. >> rose: let's turn basketball. >> okay. >> rose: you were the guy there. lebron james on espn. there he is announce his dramatic choice where he was going to take his talent. he told it to jim gray. how did that happen? >> well, he is best friends and he is managed by a man who represents shim a man named maverick carter. >> rose: i know maverick, he's a

great guy. >> he's an honorable upstanding guy with a whole lot of integrity. i approached him at game two of the n.b.a. finals at the staples center between celtics and lashgs and he was sitting with a man namedar i emanuel who is a super agent who is the president and the owner of william morris and i asked him how the free agency stuff was going to go on, they were sitting in the front row together, i approached them... i don't remember if it was the pre-game or half time and we got to talking about it and i said maverick, can i do the first interview with lebron james after he decides where it is he's going to stay and maverick said yes, that's no problem. well, i had had a history with lebron, i interviewed him once hen he was in high school. i was there the night gordon gunn drew the card. of course, mr. gunn owned the cleveland cavaliers at that time. then i was with him the night he drafted lebron james and i did first game that lebron james

played. and they traveled to sacramento to play the sacramento kings so the kings and the kavs, i was on the crew that broadcast that first game. so i had a history with maverick and lebron and we got to talking and by the end of the time we were talking i said, in fact, here's a better idea, maverick, why don't we go buy an hour of network television time and you make the announcement-- you meaning lebron james-- of where he's going go on live television. ari heard this come out of my mouth and he turned to maverick and said "that's brilliant, that's great, you ought to do that." so maverick said let's put it together, let's do it. maverick then said i can raise a ton of money, a ton of money for a charity and we can have lebron contribute some funds and it turned out that the boys and girls clubs made multimillion dollars the other night, more than they had been able to make in the past two years of their fund-raising just because of this lebron james special and maverick carter and ari came up with that plan.

so it was a huge thing for the boys and girls clubs and that's basically the story. it took a lot of twists and turns and they believe able to find a network and espn ended up donating the time so they didn't have to purchase time so the rest of that money as well went to the boys and girls club. >> rose: i want them to come to new york! >> absolutely. >> rose: and bring his best friend dwayne with him, by the way. >> rose: well, they... >> well they fell a little short. >> rose: maverick could have his own investment banking private equity fund. >> maybe that would have been a greater consideration. >> rose: i'm just asking... take one small thing. why couldn't he have done this from cleveland? and started with... starting with this... >> rose: >> if he's leaving... charlie, if he's leaving cleveland and he does this at the boys and girls club of akron or downtown cleveland, you might have a security issue. >> rose: fair enough. >> you might have an issue where

people start booing and one of their favorite sons has turned villain and that's not the audience you want they have to in front of so to do this in cleveland and to have a live show and do in the a setting where there are people involved in the studio who are listening to the show, that wouldn't have been good. that would not have been good for lebron or the people who were in there because it could have turned into something not secure. >> rose: and he said all the good things he should have said about his time in cleveland? >> look, i mean, you know, dan gilbert was just fined $100,000 yesterday by the commissioner of the national basketball association. and i think everybody out there can understand his disappoint and i think everybody can understand he was hurt. it was a disgrace what he said. here was the guy that put him on the ma'am. he wouldn't be an owner in the n.b.a. if it weren't for lebron james. gordon gunn wouldn't have soeld sold time team if it weren't for lebron james. then 20 minutes before he's going to sign the guy to $130 million contract, he'll all fine

and good with all of this. 22 minutes later he says he's a traitor, he lacks the courage, he quit, that the team he's going will never win a championship, he's putting curses on the guy. come on, it's despicable what dan gilbert did. it's outright wrong. this play play very well to the people in cleveland but why not just say the following: hey, we're very upset that this is the decision that lebron has made. we thought we did everything we could and we have been a good partner and a good place for them to work. we're very upset but while we understand he's going another place, we wish him well. we wish it was here but we wish him well. he'll always be ohio's child and we welcome him back when he comes back. good-bye and good luck. what's the matter with that? the guy sold more tickets, the guy sold more sponsorships, sold

more boxes, put them on the air on espn, abc and teen teen more times than they've ever been on in the history of their franchise these past seven years and he's throwing darts at him and taking a letter to the fans? it reeks to me. i don't think they've ever seen anything like. people appreciate people who are honest and sincere. you must say it's honest and genuine reflex for them to say this but it's so poorly thought out and obviously the commissioner agrees. why are you going to hire a quiter? it's hypocritical. >> what was his second choice, lebron? >> i think his first choice... he really wanted to stay in cleveland and he wanted to get chris bosch to come to cleveland and he wanted to get a sign and trade and he worked like heck to get it done. i would couldn't get worked out

thinl it became miami. >> if iadn't been cleveland and miami, it would have been chicago next. >> i believe chicago, correct. >> >> i think he wanted to figure out how to get to the clippers. if you look at it they had the best roster in the best it is city with the best building. he could have picked his own coach, could have had a rivalry with kobe bryant. he loves music and entertainment but in the end for whatever the reason the clippers couldn't get it figured out and he didn't want to come to that organization. but i think they were initially i don't know where energy and new york where. i think it was intriguing to him but it doesn't seem to me that those rosters in the end and in the beginning it was the exact same thing. he wanted to win. he said it all along, he said it to me privately, he said it publicly. winning. and this he feels gives him the

best chance and who amongst us can argue with that? because to play with dwayne wade and chris bosch certainly on paper, certainly at the start of this looks like this gives time best opportunity. >> rose: hell, i'm moving to miami. >> well, come on down! you better hurry, they have a wait list i understand for tickets. >> rose: i'm sure. i'm sure. if it accentuateed it is rivalry between kobe and lebron for who's the greatest player in the game, only the fans benefit >> i feel for cleveland. they tried to get the right players in place and certainly you have to feel for the fans and for all those people who have supported the team because they absolutely did nothing at you will. for them to suffer this loss, unfortunately cleveland has had

this type of thing, you look at the drive of john elway and the fumble of earnest buyer in and you look at what art modell and moving the franchise out from cleveland to baltimore and edgar renteria in the world series against if indians when the marlins were able to win that series and you just look at all of those and they have a hometown guy who elects to leave. it is a punch in the gut and probably will take them sometime to get foefr they ever do and you know you have to feel for those folks. >> rose: but they've got the rock 'n' roll hall of fame. >> (laughs) and it's a great place to visit. >> rose: you are a walking encyclopedia and it's a pleasure to have you grace our stage. >> great to be on with you and i that you can for the high complement. >> jim gray on golf and lebron. thank you for joining us. see you next time.

rozat k. sabich.

and they're gonna charge me. don't be seen with me, man. they' your own autopsy notes? you dictate them you may stop answering questions at any timnt? any feeling that you might be a political scapegoat? is now in session, the honorable larren l. lyttle, judge, presiding.