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Bailout Fatigue: Billions Going to Banks and Possibly to Automakers Next; What Will Barack Obama Do as President to Save the Financial System and the Economy; Looking For a Job? Try the Education Sector
Aired November 23, 2008 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN HOST: Welcome to YOUR MONEY. I'm Christine Romans.
We begin today with bailout fatigue. Let's start with the $700 billion bailout. It's all your money and here's where it's going. Half of the $350 billion will wait for the next administration to spend, but the Treasury Department has already doled out billions, $33 billion to banks this week, $125 billion to big banks previously, $91 billion is waiting and another $40 billion went to AIG and $60 billion is left over and all your money and that is just the beginning.
The Fed loaning $2 trillion to banks, but they won't tell us whose borrowing, remember, Fannie Mae, Freddie Mac, Bear Sterns, tax payers to the rescue. How do we pay for it? The way we always do. We borrow it.
And Ali Velshi, the automakers want a part of your money, too.
ALI VELSHI, CNN HOST: They are next in line and whether we want to say the automakers or whether we want to say the jobs that are held by people who work at the automakers is the big question and let me tell you what the concern is.
Right now, we think that General Motors is in the most precarious position, the most possible bankruptcy of the three. But Chrysler is no longer a public company, it's privately owned so we don't know how bad things are there and Ford is probably in the healthiest position, but if there's failure at the others it could affect them too.
Let me show you how this affects the jobs. The three Detroit auto makers together employ about 240,000 people so if there were failures of all three, that's the number of jobs that would be lost. But not just those, there are almost a million people employed by the people who supply parts to the automakers and they supply parts in many cases to all three.
So, failure of one of them could trigger a failure of the suppliers and that could actually cause one of the other automakers to go bankrupt. So we're not over a million combining the auto workers and the parts suppliers.
There are another 1.7 million people employed supporting those industries, they might be hair dressers or school teachers or convenience store owners or truck drivers that work around the auto industry who would lose their jobs. If there was a critical failure of one of the major automakers it could trigger an effect that would lose 3 million more jobs.
We've already lost 1.2 million jobs this year alone and we're expected to lose another 1.5 million jobs. This may be a bigger concern than whether or not they remain an American brand on the retail landscape.
ROMANS: Set aside the question of who is to blame, instead is bailing out the auto industry really the best way to save the millions of jobs tied to the big three? If you're willing to let the auto industry fail then how will we create jobs to replace those that are so closely tied to Detroit?
VELSHI: Well, joining us now is Stephen Leeb, he is the president of Leeb Capital Management and Dan Mitchell, senior fellow with the CATO Institute.
Gentlemen, what we have here is a potential failure and loss of a few million jobs in the auto industry, but we have seen more than four million jobs lost in manufacturing in the last decade alone and frankly, with each one of these jobs that is lost, Christine and I have discussed this before, I would say there is zero chance that any of those people will be re-employed in the manufacturing sector.
So, I am wondering why we are talking about saving the auto industry when in fact we could be talking about an opportunity, Stephen, to revamp our entire, maybe our manufacturing industry, but at least put these people to work doing something productive.
STEPHEN LEEB, PRESIDENT, LEEB CAPITAL MANAGEMENT: Ali, I think it's a question of time and competence. I think if we let the oil -- the auto industry just go down the drain right now it would be a terrible blow to confidence and we'd have all these people unemployed immediately.
If we were to give them a bridge loan, I'm not talking about bailing them out. I'm not talking about just writing them a blank check. Give them a bridge loan for whatever it is, $25 billion let them play with that money and maybe they have a chance at saving themselves for the next six months so we have the next administration online and give them a chance to kill two birds with one stone.
ROMANS: But haven't they proven that they can take the money even loans and do anything about it? They have $4 billion or $5 billion a month is what they would need to go ahead.
LEEB: Right and I don't think they have a chance, what I'm saying is we are in a very serious situation right now. It's a crisis of confidence and money. Both are very important. I'm not saying save the auto industry, but I'm saying create a new industry.
Let's say, alternative energy infrastructure. Train these workers to be part of that new industry which would improve America, but you need a little time too do it. If you have the potential of 3 million people out of work this could be a body blow to an economy that is already reeling. I'm not saying save them, give time.
VELSHI: Dan, Barack Obama says that he has a plan that will cost $150 billion. Others say it will cost $300 billion, but for this new green economy and that means building a new electrical grid, connecting it to the solar and wind attached to it, taking some of the plants in the Midwest, using them to build materials and products that will be useful in a solar or nuclear or wind energy environment. What if we did retrain all those workers and put them to work in this new green economy?
DANIEL MITCHELL, SENIOR FELLOW, CATO INDUSTRY: I think Barack Obama's plan is going to be just as much of a failure as Jimmy Carter's synfuels corporation back in the 1970s. Government doesn't have any ability to plan and figure out what sort of products and services are going to be valuable in the economy.
That's why bailout of Wall Street have failed miserably, that's why a bailout of the auto industry would fail and that's why the government trying to retrain workers for jobs that might not even exist would be a big failure. Our problem is we have too much taxes, too much spending and too much regulation already, Bush has made things worse.
VELSHI: Did you just say we have too much regulation already? You might be one of enough people to have a meeting in phone booth in this country who think we have too much regulation in the financial industry. You don't really believe that, right? You're kidding me.
MITCHELL: Look at Freddie Mac and Fannie Mae those were government created entities that ---
VELSHI: That was because of bad regulation.
MITCHELL: No, it's because of government being involved. If government was the solution then Cuba and North Korea would be economic paradises and countries like France and Germany wouldn't be basket cases. We need more laissez-faire, we have seen under Bush's big government polices he has made things worse. Now I am afraid we're going to get more of the same under Obama.
ROMANS: This is really a unique picture. I understand the free market perspective of get government out so that we can let the private sector fix things, but we are in a kind of situation now where you need the steady hand and the right policies to fix things.
LEEB: We absolutely do. This is not the time for ideology. There are right times to get ideology. But to just as to what the government can and can't do, the government won the Second World War. The government built the interstate highway system. Sometimes the government has to have a role and when there's a massive crises, and I put this crises, this resource, monetary, competence crisis right up there with the Second World War.
If we lose this battle, and I will call it a battle, you can flush down capitalism. I mean, what this ban is saying is yes; we have our own ideologies, but if you adhere to his own ideology, guess what? That's the shortest road to socialism, communism, anything you want to call it, capitalism will not prevail if we follow his advice.
ROMANS: Dan, here is a big irony. I mean a lot of people I know who are big free market thinkers say unfortunately we've dug ourselves this grave where we need the government to save capitalism and free markets. It sounds impossible to believe, but will you concede that the free market can't do it on its own here?
MITCHELL: Government has caused this problem and the idea that giving politicians more power as a solution is like giving an alcoholic another drink or giving an arsonist a book of matches. Let's look at the Wall Street bailout as an example. When Paulson said we need the government to get involved, the Dow Jones was at 11,350, where is it now?
I'm not being ideological, yes, I believe in freedom and I'm not a shamed about that, but let's simply look at the facts on the ground that government intervention has driven the market down, it's created uncertainty and its driven investors out of productive private sector assets and into government bonds. I'm just looking at the facts and look at countries all over the world. The more government you have --
VELSHI: Dan, you got the last word in there. We're going to tweak our suggestion and come back to you with another idea and see if we can finally get you to agree that there's some role government can play in rebuilding this economy, particularly for laid off manufacturing workers, but we take your point.
Thank you for being with us. Dan Mitchell, senior fellow at the CATO Institute and Stephen Leeb is the president of Leeb Capital Management. Thanks to both of you for joining us.
ROMANS: All right. This is the worst financial crises since the great depression. What Barack Obama must do as a president to save the financial system and the economy?
VELSHI: We're trying to take a broad look at exactly what is going in this economy and how it can help you. General Motors, Ford and Chrysler are the latest in a long line of faultering companies to ask for federal bailout money, meanwhile layoffs continue across country. This week Citi Group announced it would cut, I could not believe this number when it came out 50,000 jobs.
ROMANS: Unbelievable. Nothing gets better until confidence returns. Confidence so business can grow and companies can start hiring again and there are many who think that president-elect Barack Obama can take a page from FDR's playbook to create more jobs. The confidence can come from leadership.
VELSHI: We definitely need that leadership. Joanne Lipman is the editor and chief of Conde Nast Portfolio. Chrystia Freeland is the managing editor of the "Financial Times" and David Gergen is CNN senior political analyst. Thank you to all of you for being with us.
Joanne, we had a conversation a few minutes ago where we discussed whether or not this administration could take some leadership in combining its need to build an alternative energy infrastructure with the availability of all of these unemployed workers and we had someone saying that's not a job for government to get involved in.
Maybe government doesn't need to be retraining and maybe government doesn't need to be rebuilding, but government can certainly provide the leadership incentive and backing to do that. Is that an answer?
JOANNE LIPMAN, EDITOR IN CHIEF, CONDE NAST PORTFOLIO: Well it's the beginning of an answer. The fact is that when Barack Obama comes into office he has to immediately, immediately take action with a big bang and that includes a major stimulus package and he's going have to help put all of these unemployed people back to work.
You were talking earlier about the 1.7 million jobs possibly lost for the auto industry. It could be far, far more than that, because what you're talking about the people directly affected by the auto industry loss, but think about the other industries. About our own industry, the media industry, the auto industry spending $7 billion in advertising last year that supported television, magazines, newspapers.
VELSHI: And possibly our salaries in some cases.
LIPMAN: Absolutely. As well as they're the single largest sponsor of professional sports. So you're talking about ripple effects that go well, well, well beyond the core economy that has to do directly with the automotive industry.
ROMANS: Does a government bailout make them more efficient and able to compete. Some people said you need a bailout simply as a jobs program until we figure out what to do next with all of these people.
CHRYSTIA FREELAND, MANAGING EDITOR, FINANCIAL TIMES: I think what Joanne was talking about something quite different which is a major fiscal stimulus from the government and I think you are definitely going to see that and I think some of that will be money directly in the pockets of people aiming to stimulate consumer spending.
I think judging from what you heard from Obama's economic team they will do what economists recommend which is target that money at poorer people who have a greater marginal propensity to spend it rather than save it because they're poor.
I think what we will also see is infrastructure projects and that is something that the government has to do. It's not a job for the private sector, and I think anyone who lives in America today can't deny the fact that America infrastructure builds things like roads but also the energy infrastructure could be rebuild, so that could be a win-.
But I think before the president does any of these things he's going have to stabilize the financial system and what's really scary right now is it's looking much shakier than it has done since September.
VELSHI: David, you have been in the White House when these sorts of decisions have been made. There's been an absence coming from both this White House and the incoming administration. Let's concern ourselves with the in coming Barack Obama administration and what do they need to do right now? And hearing what Joanne and Chrystia have just said, what advice should they be taking?
DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: I agree with Joanne and Chrystia about the need for a big bang in effective, when he comes into office after January 20th, but the issue that's right in front of us is what do we do in the next two months because given the fragility and the catering that we've seen and the spreading fierce not only in this country, but over sea.
It is clear that there is a vacuum of power and leadership in Washington as Paul Crivern (ph) wrote about in the "New York Times" on Friday and as Politico quickly followed up on it, encouraged a dialogue about that, and I think there is a widespread understanding now that action needs to be taken now, not only by the Bush administration, but very importantly by Barack Obama himself in a couple of ways.
Clearly, there is pressure on him now to name a treasury secretary, someone who can be talking to Hank Paulson now and could be putting into place and clearly there is pressure on him now and naming a treasure secretary, someone who could be talking to Hank Paulson now and could be putting him in his place, like sub cabinet that is ready to hit the ground running come January 20th, but also can be talking to Hank Paulson and to the Congress and to Detroit about whether we need some bridge action.
With the Congress coming back here just after Thanksgiving, a bridge action that preserves the automobile industry long enough for a bigger policy to take place in January, February and March. And I think there has to be -- you have to figure out, are there other steps, substantive steps, policy steps that need to be taken now that the Obama could have encourage behind the scenes and his treasury -- the secretary designates working behind the scenes to do things now.
I think the FDR analogy doesn't work in one sense and that is FDR stayed totally out of things until he was inaugurated as president and this case does appear given the seriousness of the situation and the absence of leadership that it would be helpful for Barack Obama to put on informal pressures right now to get some things done and get Congress back into place and look at what the treasury can do right now that would help shore this thing up. So it doesn't -- we could have irretrievable damage between now and February 1.
VELSHI: Chrystia is nodding enthusiastically in agreement with you on this one.
FREELAND: No, I absolutely agree with David, and I think that there was this sort of feeling that maybe the financial crisis has stabilized from the middle of October when you had the equity stakes taken in all of the big banks and what has changed is that it turns out that's not the space now that we see this new real terror in the credit markets, I think that Henry Paulson's hope that he was going to be able to hold fire, leave the rest of the money in the tarp for the new Obama administration to spend is turning out to be overly optimistic.
ROMANS: Do you think people who get it? Do people know just how serious it is this time? People are starting to lose their jobs. Do people understand that the financial system is on the brink here?
LIPMAN: No, I actually don't think people understand the full extent of the crises here, and I do believe that the crisis will get far worse before it gets better, and what we need is for Obama to step up. I know that he's been staying behind the scene intentionally.
But I do think that at this point there is such a leadership vacuum as David points outside that you do need to hear from Obama to hear -- we understand that he's working. His transition team is working along with Paulson. The psychology of this is so, so important, because there is a genuine financial crises, but exacerbating it is this panic take has spread from the credit market to the stock market and now to the consumer.
VELSHI: Joanne, thank you for joining us, Joanne Lipman is editor in chief, and Chrystia Freeland is the managing editor at the "Financial Times," and David Gergen of course of CNN senior political analyst. Thanks to all of you.
ROMANS: All right. Enough about job loss. We're going to tell you where you can get a job right now.
ROMANS: Every week on YOUR MONEY, we try to dig through the wreckage of the week and find out who is hiring. This week: education.
VELSHI: It's not just about hiring teachers with bachelor's degree. The field is exploding with new opportunity. There may be a job in it for you or someone you know.
ROMANS: We are joined by Jennifer Merritt, career journal editor at the "Wall Street Journal." Jennifer welcome to the program. We know there is a lot of demand for education jobs. Because when I look every month at that employment report I often see education category has job gains even when almost everything else is hemorrhaging.
JENNIFER MERRITT, CAREERJOURNAL EDITOR, "WALL STREET JOURNAL:" That is absolutely right. There is so much need for educators in all levels from elementary school to college to community colleges and all sorts of educators, nurse educators, accounting educators, everything.
VELSHI: This is growing, you can transfer in many cases, you can move around the country with it. Let's start with what you just said. Elementary or secondary school teachers earning about $35,000 a year. What do you need to get there? MERRITT: You know what in a lot of states you don't need anything, but have a bachelor's degree and or some experience in something. So for many people they will give you sign-on bonus and give you a year and a half to get certified. And often will even pay for the certification.
VELSHI: You see them in the subway, ads for teachers.
ROMANS: Adult educators, these are career trainers. What is that exactly?
MERRITT: You know adult educators often do job re-training. So when folks are laid off or if they're given an opportunity to get retraining, states run retraining, cities run retraining so that's part of it. The other part is community colleges. Community colleges need a lot of adjunct teachers to come in and do English as a second language, teach personal finance courses these days. So that is what an adult educator does.
ROMANS: The fiscal stimulus. If there's retraining as a part of fiscal stimulus, I can only imagine that there would be so much need for these kind of jobs.
MERRITT: There's already to be expected to be about a 12 percent growth in the next few years and it would just explode.
VELSHI: Let's talk about test preparation. You can earn $15 to $40 an hour and that's about training people to take standardized tests.
MERRITT: Absolutely, from S.A.T. which would be a low-level pay to the GMAT and the LSAT, if you have a specialty and made a great score on your GMAT, you are going to get a job paying $40 to $50 an hour. Tutoring is a side operation of this and a lot of times tutoring can become full time and pay $30 or $40 an hour once you become experienced.
ROMANS: Up to $35 an hour for something called enrichment teacher. I would like to be an enrichment teacher.
VELSHI: You are my enrichment teacher!
ROMANS: Enrichment teacher for Ali. What is it?
MERRITT: You know for a lot of people you have a hobby. You have something you love, something you are great at. You're a chef, you're a cook, and you're a photographer. Self enrichment teachers go out and teach at community colleges and sometimes even teach full time or teach at something like a Jewish Community Center or a YMCA program and they can last a couple of days or six or eight weeks.
ROMANS: How do I get that job?
MERRITT: If you have a proven expertise in something like, say, media, you might go and do media training classes or understanding the media. It's something that people get passionate about, so usually it's a career that they find a niche for themselves.
VELSHI: You can literally find a listing in those courses in the area and call them up and say I can teach one of these. What a great idea.
ROMANS: Here's my expertise, here's what I've done. A lot of people who are personal chefs will go and teach cooking courses.
VELSHI: Why not do one about how to get along with your coworker.
Let's take a look at high school counselor. Good pay there.
MERRITT: The pay there is very good. An experienced counselor can make $60 or $70,000 after five or ten years. You do have to have a master's degree. Right now there will be a gap in the number of people graduating with masters in counseling versus the people they need plus there's a lot of retirement coming.
ROMANS: It is the time to be thinking about education, the traditional education, high school educator and high school counselor? Is there a lot of fatigue in these instances, a lot of people are retiring now and a there's a lot of demand on their time? What's the morale like?
MERRITT: You know I think as things turn over and younger people come in, the morale boosts up. Plus I think the next generation is a little smaller than the current generation of schools so there's a little bit less of the packed schedule to deal with and I think people can really feel good about being a high school counselor. You're helping someone reach their potential in a lot of cases and that's rewarding especially when you get to start fresh.
ROMANS: All right. Jennifer Merritt, career editor of "Wall Street Journal" thank you so much.
VELSHI: We're going to keep doing this. I just love these. Letting people know exactly where jobs are. So we will continue this every week.
Whether its job security or finding a new job, millions of Americans share the same concerns that you have.
ROMANS: We put together quite a special edition of YOUR MONEY for Thanksgiving Day; it is called "Jobs 2009, Help Wanted." It's an hour you can't afford to miss. If you want a want job, better advancement at your job, better pay or a better future.
VELSHI: You really don't want to miss this. It's got information that you are going to need for next year, don't just watch it; watch it with a pen and paper. It's Thanksgiving Day, 1 p.m. Eastern right here on CNN.
ROMANS: Zeroing in on the crisis in the American auto industry, why the big three is on the brink of collapse. Can it even be fixed?
ROMANS: With the U.S. auto industry on the brink of collapse we want to take a look at the real reasons, the unthinkable may occur.
VELSHI: That is a complicated story and that is why we are bringing our friend Peter Valdes-Dapena from CNNMONEY.com to help us sort through the fact and fiction. These are things that people think are the reasons for the demise of the auto industry. Are they fact or fiction? Number one, we were addicted to SUVs and trucks.
PETER VALDES-DAPENA, WRITER, CNNMONEY.COM: Well, look, bottom line is this, if we're talking about reasons that car companies are in financial trouble right now, building a lot of products that were extremely profitable and that a lot of people wanted to buy probably isn't the reason.
Basically, you know, they made the vehicles because they made money on them and people really wanted them. Small cars are the first cars that people buy. You have a lot of first-time car buyers entering Honda and Toyota.
VELSHI: You said maybe a perception of lousy quality. Satisfaction ratings indicate that the U.S. auto companies aren't as bad as we think they are.
VALDES-DAPENA: They are not. Chrysler is still lagging behind. Ford in a most recent "Consumer Reports" surveyed the quality of Ford cars, putting aside the big trucks and SUVs areas good as Toyota and Honda. GM is also getting better. The problem is for a long time they were not there and a lot of people still have bad memories and they're not going let go of that easily at the time that they bought a car and it broke down and broke down.
ROMANS: You often here that there was a lack of hybrids and that union workers were expensive and union contracts hobbled these companies and that CEOs have been paid a lot of money, fat executive paychecks. What about these?
VALDES-DAPENA: The fact of the matter is, Toyota, no company makes a lot of moneymaking hybrid vehicles and it's also a small part of the market. We may like hybrids, but GM would sell the hybrids that Toyota sells and GM would not be in any better financial shape then they are right now. Gm is pursuing them because they've seen the PR benefit that companies like Toyota get.
So it's important and they're going there, but it's not going to go to the bottom line. In terms of UAW workers, something often overlook side the figures here they were seeing out there now $76 an hour versus $42 an hour. Those figures are from before the last round of UAW negotiations in '07. Those figures are now much closer that what the Japanese automakers are paying for their labor and finally on fat executive paychecks, you may have a point there, but let's face it CEO pay across the board, a lot of people think is out of line. ROMANS: What was the reaction from Rebecca Lindland now she is director of Research at IHS Global Insight? Rebecca thanks for joining us.
REBECCA LINDLAND, RESEARCH AT HIS GLOBAL INSIGHT: Thanks for having me on.
ROMANS: First your reaction overall. We'd like to ask you what part of this do you think is true, fair? The criticisms of the industry, where have we gone awry?
LINDLAND: I think a lot of what Peter said is true, in terms of large vehicles and Detroit's addiction to SUV. I would contend that it's actually an American addiction to SUV. I was looking at some numbers back from 2002 and doing some comparisons and the big three Asian manufacturers, Toyota, Honda and Nissan actually sell almost 800,000 more SUVs in 2007 than they can in 2002. 2007 -- Almost 800,000 more. It's an American addiction. It's not just a Detroit addiction.
VELSHI: Let's talk about the hybrids. That's interesting because a lot of people think hey why wouldn't these companies just do what Toyota did in selling the Prius and selling hybrids. Peter said this is not the silver bullet that it appears to be.
LINDLAND: You know, it's really not, Ali. As we talked about before, it's -- a hybrid is not appropriate for everybody. First of all, up until very recently and probably not even right now with gas prices under $2 a gallon, they don't always make economic sense. You do pay a premium of $3,000, $4,000, as much as $5,000 to buy a hybrid vehicle. Sometimes you can't just get a hybrid version or a nicer version, so you do see significantly higher sticker prices on them and it takes a long time to pay off that differential.
Also, if they're not the right size for your family, it's not going save you any family. So they typically seat no more than five. The Chevy Tahoe hybrid does seat six or seven, so that's an appropriate vehicle, but a lot of times they just don't make economic sense for everybody.
ROMANS: What does this industry look like a year from now with a bailout, without a bailout? Before this credit crisis, this was already an unhealthy situation in terms of these companies.
LINDLAND: Exactly right. And it continues to be an unhealthy situation. If they do get the bailout, it is not a panacea at all. We are still going to see a market that's struggling. What is the bailout or what are the loans are really designed to do is help the economy help the automakers to get through so that the assumption and this is a very dangerous assumption is that credit markets will loosen up and they can start borrowing from more traditional sources. That's a big if and it's getting bigger every day because the economy is just crumbling.
ROMANS: Rebecca, we have to leave it there. Rebecca Lindland, IHS Global Insights. Thank you, Rebecca. LINDLAND: Thank you.
VELSHI: Good point Rebecca makes. Not only can they borrow money, people who want to go buy those cars can't actually get the credit for it. So it's a double whammy, despite what you think that got them into this, there are other things affecting it. Peter Valdes- Dapena thanks very much for joining us as well.
All right. If you're strapped for cash, don't even think of using your retirement savings as an ATM. It's dangerous and we'll tell you why.
VELSHI: The bills are piling up and you're looking for more than a few extra bucks to get you through the holiday season. So where do you turn?
ROMANS: Not your 401(k)! Let me say it again. Do not raid your 401(k).
VELSHI: We got phone calls about this when we were doing the radio show.
ROMANS: This woman wanted to raid her 401(k) and put in a bank CD, take all of the penalty, all of the loss and put it in a bank CD and making nothing. Because she was so worried about exposure.
VELSHI: Not a good idea.
ROMANS: Ryan Mack president of Optimum Capital Management is here to explain why tapping into your retirement is not a good idea and for that woman who called us, she was just so worried about the stock market she didn't want to have any exposure. She didn't understand that she could be safe in the 401(k) by going into something else.
RYAN MACK, PRESIDENT, OPTIMUM CAPITAL MANAGEMENT: I'll tell you right now, I have a lot of buddies on Wall Street and they're looking for jobs right now. This market is looking great for them. If there is any positive thing right now, they with buy stocks on the cheap and they're putting money in proprietary accounts to start to purchase stocks right now. This is not the time. The best part about the 401(k) is the dollar cost average. We can continue to purchase, don't try to time the market.
VELSHI: This also means, let's be clear, that does not mean the market doesn't go lower.
Definitely. We have to understand to time the market is one of the worst things we can ever try to do. If we're long-term investors, we have to have that long-term outlook and the long-term prospects. Understanding that we'll take our bumps and bruises as time goes on, but even as Warren Buffett said, let's try to buy stocks over a five year prospect.
ROMANS: Timing the market that means people who jump in and think that this is the bottom and I'm going buy now and I'll go up and there's this great phrase on Wall Street where they say that the market can remain irrational much longer than you can remain solvent.
So for the advice for people, for example a young woman who is on our staff? Should she be putting less money in her 401(k) and I said no. You're 25! Load it up. Is that the right advice? I don't know.
MACK: I got a call from someone who had about $25,000 stated on her 401(k). She said I have about $20,000 in credit card debt and I want to take this money out of my 401(k) and take money and pay off my credit card debt. After we looked at her 401(k) and found she was not fully vested and most of the money was not hers and after the 10 percent penalty and after the federal and state taxes come out and she had about $6,000 to $7,000 that she would have to put toward the credit card debt. There are a lot of penalties.
VELSHI: As our friend Doug Flynn often says if you carry a certain amount of credit card debt it's quite possible that you have a psychological affinity. You take the loss; you pay off your credit card debt and guess what? You don't have any cash.
MACK: Sometimes we have to go back and look at the root of the problem. Yeah. We were talking backstage and sometimes I'm really concerned about this market and the affinity to debt as a whole. The financial institutions and automotive companies.
VELSHI: And the government.
MACK: You know from '95 to 2000 when times were good they weren't worried about paying off their debt. They're worried about handing out bonuses and that's trickled down to even Main Street and individuals paying things with credit card debt that they don't even have.
MACK: So in good times let's use the good times to start paying off some debt and put away eight months of living expenses. The silver lining about the whole thing was the decrease of retail sales. That retail sales number was not a bad number. That means people are saving money.
VELSHI: Or at least they are not spending money they don't have.
MACK: It's going hurt the economy, but we're going to adjust to it and we're going to be just fine.
VELSHI: Nothing hurts the economy more than a whole bunch of people with no money.
ROMANS: You know. The greatest advice I ever got was from my dad who was not in the -- who says it's all your earned rate and your burn rate. You look at companies, you look at our government, you look at us as individuals and our earn rate was surpassed by our burn rate. And that is the fundamental thing when people, you're looking to tap into their 401(k) they need to understand, how much money am I bringing in and how much am I spending out and why am I going raid my future, my retirement for something that should be fixed in the near- term.
MACK: Looking at the market as a whole from 2003 to 2007 was one of the longest bull market cycles that we've had in the history of the market, but what was it built upon? It was on inflated assets and it seemed like we just erased it and started over again.
VELSHI: Let me show our viewers something. We put up a chart here of the crash in 1987 which is pretty severe and by the way, if you chart this market that we've got it looks a lot like the beginning of this.
We're maybe six months into this. If you take the first six months of that chart, that thing goes for about a year it looks very, very similar. Within one year of that market bottom, the market had returned to exactly where it was. After September 11th which is obviously a different scenario, the market was back in two months. That said, there are people who say this is now officially the worst situation we've had.
MACK: It's a rough market. Times are tough. We have to be close to the vest and making sure, but at the end of the day we can get through this and we cannot let economic conditions change the principles of our investment strategy.
ROMANS: Who should raid their 401(k)? Because there are some people I think that there is a case, under what circumstances should somebody think about taking that money out?
MACK: The ultimate last resort. If you're thinking about I can't keep my lights on. I can't pay my bills. I might get evicted. Nobody's asking you to say let's start thinking about retirement when your household emergency bills that are crucial at that point in time. Nobody is going to say that, but most -- more than likely, if you look at your budget and I do a lot of budgets and refiguring and calculations we can find money somewhere.
VELSHI: You're saying do not take that money out to pay consumer credit.
MACK: Absolutely not.
VELSHI: OK. Ryan good to talk to you. Great advice keeps on bringing that to our viewers.
ROMANS: We love Ryan Mack.
Don't give up yet on visiting your family or taking that much- needed vacation. If you're traveling this holiday season we have three deals you cannot afford to miss. (COMMERCIAL BREAK)
ROMANS: According to AAA Thanksgiving travel will decline for the first time since 2002.
VELSHI: I can believe it. Tough economic times are forcing many Americans to stay closer to home. Those who are planning to fly can find some deals this holiday season and for that we turn to our old friend Rick Seaney of Faircompare.com. Rick, we used to talk a couple of times a week about those rapid increases in airfares earlier this year. They have stopped. In some cases they started to come down. Is that because of fuel comes down or is that because of the recession?
RICK SEANEY, CEO, FARECOMPARE.COM: I think it's a combination of both. We saw 33 attempted airfare hikes in the summer of 2007. Everything sort of ended on July 4, and that is basically when oil prices started freefalling. What's happening right now is the airlines have traded fuel crises for an economic crisis and we're seeing some softness and some sales and where there are empty seats there will be some discounts.
ROMANS: You know, Rick, in so many cases the consumer is sitting pretty here right now and I know we talk about all this gloom and doom, but if the consumer is flexible, whether it be at the mall or at the air line ticket counter, there are some deals to be had if you're traveling. How do I get those deals and what do I have to do to get the best advantage of what is a tough situation?
SEANEY: If you're traveling for the holidays, you can still get tickets for Thanksgiving right now. Stay away from Sunday and you will pay $300 more just for the privilege of returning on a Sunday. Christmas falls on a Thursday this year just like Thanksgiving so the days are about the same.
You leave on a Tuesday or a Saturday, and if you can fly the day of the holiday, that's the best time to fly and really, honestly, up through the end of February, just this morning Southwest Airlines extended a sale for the next two weeks for travel all of the way to the end of February. So there are really good deals out there.
VELSHI: Rick, it's good to hear this kind of news from you. I'm glad to have you on. You're about the only person with any positive news for anybody. Thank you very much for being with us. Rick Seaney is the CEO of Faircompare.com.
ROMANS: You just might need a vacation after all this. I booked a trip in February and I said to my husband should we be traveling at a time like this.
All right. Congress may put the brakes on a new stimulus plan until they have a new president, but can you afford the wait? First this week's "Right on Your Money."
ROMANS (voice over): Gift cards, incredibly popular during the holidays, but this year more than ever a gift you should probably avoid.
TOD MARKS, "CONSUMER REPORTS:" More than 60 percent of people will be giving gift cards this year. That's an awful lot of money and 25 percent of folks who received a gift card for the holidays in 2007 have yet to use them.
ROMANS: And with retailers filing for Chapter 11 left and right, it's hard to know who will be the next to go.
MARKS: But I would suggest people do, if they have a gift card from a Circuit City or another store that happens to be in Chapter 11 right now, I would say run, don't walk to that store, and buy something quickly, because you just don't know when the plug may be pulled.
ROMANS: For now, your Circuit City gift card is safe. A judge said the retailer could continue to accept them, and even issue more cards while it reorganizes. But you can consider alternative gift ideas this year.
MARKS: I think you should either forget the idea of a gift card, gift cash or a check or something else, or just simply give them gift cards from a company where you know it's not going to expire.
ROMANS: And that's this week's "Right on Your Money."
VELSHI: Not only do we want to know what the next round of stimulus will look like from the government, we would love to know when we can expect it. Guess what? We're going to tell you.
ROMANS: With a lame-duck Congress and outgoing president really put this on hold for the new administration? For the answer, we turn to CNN's business correspondent Stephanie Elam and our friends at CNNMONEY.com. Jeanne Sahadi and Paul La Monica.
VELSHI: You know which one is gong to tell us?
VELSHI: Jeanne tell us when we will get out next stimulus checks.
JEANNE SAHADI, SENIOR WRITER, CNNMONEY.COM: That's what they are talking about. All I know is what they are talking about this week. God knows things are changing so quickly, I can't predict the future. What we think this week is that is this week they did pass unemployment benefit extensions. That was something Democrats wanted. But frankly, for a big stimulus package, that's probably not going to happen until president-elect Obama takes office.
ROMANS: How big can it be? I mean I heard $150 to $350 billion? And then I was told no, dear, it will be more than $350 billion. SAHADI: Larry Summers who is considered a leading candidate to be treasury secretary, he said at a "The Wall Street Journal" conference this week, that he is expecting $700 billion but he's a bazooka of stimulus checks.
ROMANS: He's a fan of overkill. Policy you need to throw it out there and make sure that policy is ahead of it because the criticism is we have been behind. Policy people have been telling me in the past few weeks, no, no stimulus checks.
SAHADI: That hasn't been on the table now. But if things change really rapidly, that might come up. What they really want to do is fund infrastructure. They want to give aid to states. Democrats want tax relief and energy form measure. It's a debate.
ROMANS: We're going to spend an awful lot of money, aren't we?
PAUL LA MONICA, CNNMONEY.COM: Yes and I think in some respects the whole stimulus package is a bit of a misnomer. This isn't going to be a tax rebate sugar rush that quickly fades what everyone is talking about, even though it's overly used, the new, new deal. It will be something hopefully has longer term for infrastructure.
VELSHI: Let's get the economy out of this crunch it's in now.
STEPHANIE ELAM, CNN BUSINESS CORRESPONDENT: The other thing that factors into this thing, too, if you look at it, it's something that has to have long reach, obviously.
ELAM: So everyone's wondering, is it going to come during this Congress or is it going to come during the next one? Once they pass and they say this is what we're going to do, it's not like tomorrow we will see this effect. It will take some time to work through the system and that's the other reason why so many people are pushing to get done. Because it's still probably not going to be until next year anyway.
ROMANS: The criticism is it takes so long but we are looking at -- Goldman Saks said 9 percent unemployment by the end of next year. We have time to get people worked out.
SAHADI: Except states right now are making their budget decision for their next fiscal year. They don't have confirmation they are getting aid. They will be making some cuts and some tax increases that they might not otherwise have to make.
VELSHI: I want to get the last word in here.
VELSHI: I want to tell you about the auto stimulus and I want do talk about guess who? Bob Nardelli, the boss over at Chrysler. I remain fascinated that Chrysler has the gall in asking for a bailout. Bob Nardelli used to run Home Depot, you recall. Which he systematically did a lot of damage to, he got paid great gobs of money while shareholders there continued to loose value and this is before we had any recession, by the way.
Then he moves over to Chrysler to run the company. What Chrysler did, of course, is when Daimler sold it to Capital Management, it went private. So they don't have to report on anything they are doing. I don't get to see their books and I can't insist on talking to executives like Bob Nardelli. I talked to the CEO of Ford the other day before they testified. Can't do that with Nardelli. If he doesn't want to talk to me he's --
ROMANS: Well he's not going to call you back now.
VELSHI: No, he's not.
Why was a company that was so insistent on privacy now want public money? I think that is appalling.
ROMANS: That is a good point. It is a private company. We don't have to see the books and they want our money. The whole idea of these guys going with the tin cup and so many metaphors that have been used but going and asking for our money, private jets. Let me ask you, do you guys agree about Bob Nardelli? I mean Ali seriously has issues about Nardelli.
ELAM: I think what has to happen here is a complete overall in how things are done. When I look at the auto sector in general, it's going to lead to really break it all the way down to the beginning and start again. The way things have been done before, it's outdated. By going private you basically are saying we're over here. We will hunker down and make it happen. It flies into the face of that if you go and say, please, can we have public money, please.
SAHADI: I think systemically, I don't know you can separate Nardelli out from the other two.
VELSHI: I can. Want me to show you again? I can. I have in problem with that.
SAHADI: I think you have to make a decision than just based on one company.
VELSHI: I can say further, Ford doesn't need the money. Why doesn't Ford buy Chrysler and GM? Why don't we subsidize Ford buying those two companies because they show a little bit of ability in five years?
SAHADI: Stick to the big one.
VELSHI: Detroit's big one.
LA MONICA: The big uno. We have to realize that Ford is in the best shape of the big three but its all relative.
VELSHI: Sure. LA MONICA: Ford doesn't take the cash crunch so it's not in risk of bankruptcy, but it's not as if Ford is as flush with cash as, say, Toyota or Honda, or many of the other Asian and European automakers that are doing quite -- not doing well, but they are doing better than the Detroit's big three.
I agree with you that Nardelli has done a terrible job and given his track record at Home Depot, it is somewhat astonishing that he got the job at Chrysler in the first place. All that said, all of the big three auto CEOs really need to take a hard look at their companies and realize that beyond just this awful economy where we are right now, they made a lot of mistakes that got them in this position.
ROMANS: Paul, Jeanne, Stephanie thanks so much
VELSHI: Paul gets to come back. Thank you for joining us this week for YOUR MONEY.
ROMANS: Make sure you catch a special time, YOUR MONEY, Thanksgiving Day 1:00 p.m. Eastern. Whether it's job security or finding a new job your concerns are shared by millions of Americans.
VELSHI: Jobs 2009: help wanted. We are going to give you the information you need to take charge of your job situation right now that is Thanksgiving Day at 1:00 p.m. Eastern.
ROMANS: We will see you then.