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Third CNN Money Summit

Aired March 6, 2009 - 23:00   ET



ANDERSON COOPER, CNN ANCHOR: And welcome to our third "CNN MONEY SUMMIT". A lot has happened since last we met and a lot of it is very bad, the stock market has been falling fast with no bottom in site, the DOW hitting 12-year lows this week, the economy still losing jobs.

Federal stimulus projects are getting under way, however, and the administration has detailed its homeowner rescue plan. They've unveiled a massive budget, they've pumped billions more dollars into AIG and other basket case banks and taken up healthcare reform.

So we have a lot to cover tonight, but we begin with the President.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Just this morning we learned that we lost another 651,000 jobs throughout the country in the month of February alone which brings the total number of jobs lost in this recession to an astounding 4.4 million -- 4.4 million jobs.


COOPER: President Obama kicking off the summit tonight; taking it from here with CNN chief business correspondent Ali Velshi and his money team.

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Thanks Anderson. Those numbers are staggering. So I want to go over to them one more time because that sets the stage for what we are doing today.

In February, the numbers just came out today -- 651,000 Americans lost their jobs. That's taken the unemployment rate in the United States to 8.1 percent. That means 12.5 million people remain unemployed.

Take a look at this. The job losses started in January, just a few of them but when you add them up all the way through the course of the year and now February of 2009, we're up to 4.4 million people unemployed.

And that is our bottom line for this summit. Who it affects, how, and what you can do about it and what the Obama administration is doing to help.

A distinguished panel will be with us throughout the hour. They'll be helping to bring you a new way of measuring how all of this actually feel. It's a little like the wind chill factor only for the economy, your economy, your economy, the real feel.

But first, let's get a quick rundown of where things stand right now.


VELSHI: The TV show "Survivor" picks a new location every year. Considering the state of the economy, maybe next season should be "Survivor: United States."

OBAMA: I want every American to know this. We will rebuild, we will recover and the United States of America will emerge stronger than before.

VELSHI: But to get stronger, Americans need to work together and some Americans just need to work. More than 12.5 million people are now unemployed -- the unemployment rate, 8.1 percent.

Jobs are tough to find, despite trillions of taxpayer dollars going toward saving this economy through the bank bailout, the stimulus plan, the mortgage plan and the not yet detailed bank and credit program.

Even the most optimistic projections show more jobs lost and higher unemployment, at least for this year.

BEN BERNANKE, FED CHAIRMAN: If actions taken by the administration for Congress and the Federal Reserve are successful in restoring some measure of financial stability, and only if that's the case, in my view, there's a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.

VELSHI: Any recovery has to start with job creation, but the recent trend isn't pretty. America is slowly shutting down production lines. And month after month, factory workers are the single largest group put out of work.

Still, the administration beats its drum of confidence and job creation.

OBAMA: I'm absolutely confident that credit is going to be flowing again, that businesses are going to start seeing opportunities for investment. They're going to start hiring again. People are going to be put back to work.

VELSHI: Americans could only get back to work when consumers start spending money. People are buying less, saving their money in case the economy worsens. That may help American households shore up their finances and pay down debt, but it's hurting businesses.

TIMOTHY GEITHNER, TREASURY SECRETARY: We're trying to again, reduce the risk that the economy shrinks by more than it needs to, that unemployment rises by more than it needs to, that more businesses failed than need to do. VELSHI: One business still getting hammered -- housing. Housing prices continue to fall with too many homes for sale and too few buyers. One in nine mortgage holders were behind in their payments at the end of 2008.

Finding a fix has been tough but the new administration is trying. There's already a tax credit for first-time buyers, a program to help slightly troubled homeowners to refinance at lower fixed rates and a program to help those in more serious trouble to stay in their homes by lowering their monthly payments.


VELSHI: Ok, that's the big picture. Let's break it down a bit and crunch our way to a bottom line index of what today's money climate actually feels like to you. This is our Real Feel Economic Index, we have worked on this with a panel of economists to try and find out why the economy feels the way it does to you.

Now, what we've done is we've gone back to 1980, an entire generation and compared a number of measures of the best they've been and the worst they've been in that time period.

Let's with jobs, because that's the topic today, the best jobs were in the last 30 years, would make it a ten on our scale, but right now it's only a 3.9 on our scale. So the comparison between the best it's been and the worst it's been in the last 30 years, this is where we are.

Income, personal income and we're comparing men, jobs that men have had because over the last 30 years, a lot of women have entered the work force, so it skews the numbers a bit. Men have been pretty steady in the work force. The best that men have earned in the last 30 years would have made this a ten on our scale, it's a 3.2.

Let's take a look at personal savings. Back in 1982, we were in a recession, but people were banking about 13 percent of their income so they could withstand a recession. That would have been a ten on our scale. But right now we're banking very little of the money that we make a 3.3 on our scale.

Industrial production, that's the measure of everything we make in this our country. We're not making very much. If we were making more than we where last year in the best of years, that would have been a ten. Take a look at that, it's a zero. I can't even put it on the chart.

And home price appreciation. The increase in the price of your home from one year to the next, again, the best we've had in the late 2000s would have made that a ten. As we know, we've seen the biggest drops in home prices on record. So once again, on a scale of zero to ten, home prices are off the scale.

So we've only got three measures that are actually on the scale and all three of them are well below the halfway point. That's why it feels so tough. But we're talking about jobs today, so let's have a look at the job situation. Again, the zero on our scale would have been the worst that unemployment has been in the last 30 years. And that would have been in 1982 when unemployment was 10.8 percent.

The high point on our scale, the best that unemployment has been, or the lowest it's been would have been 3.8 percent in 2000. Right now, as you know, as of today unemployment rate in this country is 8.1 percent. So we are edging up -- edging down toward the bottom of the scale.

And that's the problem that we've got right now. We need to deal with getting Americans back to work and that's where we bring our panel back into the situation to try and give you some answers as to where we are.

We're going to start with the Andy Serwer, managing editor of "Fortune". Andy, this seems to be a growing and more dire situation by the month.

ANDY SERWER, MANAGING EDITOR, "FORTUNE": Yes exactly, I mean, you have to see that these numbers are getting worse. That's the real scary part Ali, when you had the chart up earlier that we're seeing acceleration in terms of job losses, which is really disheartening right now.

VELSHI: All right, Stephen Leeb, is this picture correct? We're drawing a picture that makes people feel like things are really bad. Are we close to the bottom of this situation or is it going to get worst for 2009?

STEPHEN LEEB, ECONOMIST: You know Ali, if we get financial stability, this could end very, very quickly. But the way politicians are fighting among each other right now, we don't see it, the markets don't see it. That's the whole issue.

Getting the banks back on track and making it possible for these banks to lend. And I cannot emphasize enough how fast this could change if that happens.

VELSHI: Christine, you've spoken to other economists who say it could be 2010 before we even start to see a response -- a positive response in the market, which by the way, is the leading indicator.


VELSHI: That's the one that's going to start to improve first.

ROMANS: Look, level-headed smart people, who are tied into the administration and who are watching the economy are alarmed. They are very alarmed. And you noticed that Ben Bernanke in his comments, he said if all of the prescription that we are putting through are adopted and work, then we will have -- there's a big if on the front of that. And I know that they're probably pushing all of their measures but there's a lot of work that has to be done, Ali. There honestly is a lot of work. VELSHI: All right, let's have a look at the job losses every month this year that we have seen, since the beginning of this recession. Now, this recession goes back to December of 2007, but we're going to measure how it's affecting people.

Right now, we are at an 8.1 percent unemployment rate. We told you about that, and males in America share that rate 8.1 percent, females in America actually have a lower unemployment rate. And that might have something to do with the fact that they haven't been occupying the types of jobs that we have seen shed in such great numbers like construction and manufacturing jobs but there's growth in education and health care jobs. So you're seeing a lower unemployment rate amongst females.

Whites in America have a lower than average unemployment rate, 7.3 percent. But look at the number for blacks in America, 13.4 percent and by the way that's not a new thing. Black in America have for a very long time had a substantially higher unemployment rate than the average.

And Hispanics, having an unemployment rate of 10.9 percent. That's one when we break it down by that sort of a demographic.

Let's take a look at it by industry, the types of industries getting hurt. And it's no surprise. And this has been for many, many months in a row, manufacturing jobs the biggest losers.

In February, out of that 651,000 jobs lost: a 168,000 in manufacturing; 104,000 in construction; those are the trends we've seen. The only gains we've seen are in health care, education and government jobs.

And back to this Real Feel Economic Indicator, again, unemployment at 3.9 percent isn't as bad as it's been for all of these years. Ryan Mack, what are people who watch this supposed to do?

RYAN MACK, OPTIMUM CAPITAL MANAGEMENT: Well, the first thing they have to do is understand that well, we have to take responsibility. Understanding that you know what, this is something that we have been burdened with. It's not a pretty situation, it's not something that we would ask for, but take responsibility, and understanding what can we do right now?

And secondly, we have to start looking for opportunity. You know, in China, the word for crisis has two symbols. One is dangerous and the other one is opportunity.

WALTER UPDEGRAVE, SR. EDITOR, MONEY MAGAZINE: I think that's good, but I mean, right now, I think people have to make some basic preparations in case they join the ranks of these unemployed.

VELSHI: Which again is more likely than it was a year ago.

UPDEGRAVE: Yes and for example I mean at the very least people should have some sort of an emergency savings, ideally three to six months worth of living expenses. And if you're close to retirement, if you're like you know in the 50's or 60's there's a very good chance that you could be forced into early retirement. And that could be very problematic.

So you should be looking -- going to one of these online calculators. How much have you have saved? Is it nearly enough --


UPDEGRAVE: What would you do for health care? A lot of companies aren't offering early retiree health care. So you better want to go out there and look around. Can I buy a policy that would get me through until I would qualify for Medicare?

VELSHI: Again, and those calculators are available on Donna?

DONNA ROSATO, SR. WRITER, MONEY MAGAZINE: Well, I think that we need a survival plan, but we also do need to prepare if you have a job. And education is critical. I know it's something that Ryan has talked about before.

But when you are looking at the unemployment rate and how it's spread out across different demographics, people with a four-year college education, the unemployment rate is 4.1 percent. It's a lot lower -- that's up 40 percent, but education and retraining is really critical to holding on to a job and having a job long term which is what you need.

VELSHI: Sonia Alleyne we have -- I'm sorry go ahead.

SONIA ALLEYNE, BLACK ENTERPRISES MAGAZINE: I'm just going to say that's very important. The difference with this recession and the last two is the last two really affected white collar professionals.

And so white collar professionals with their experience and their network can redirect themselves and put themselves back in the marketplace. What's alarming with this recession is that it's so widespread that we're finding people without college degree, people who are quote, unquote, "unskilled" are out of a job.

And so it's going to be very critical as Donna was saying, for them to get retrained and to be prepared to get back into the marketplace.


JOHN AUTHORS, INVESTMENT EDITOR, FINANCIAL TIMES: Well, I think the other problem we have with this recession compared to previous recessions is that baby boomers are much older. Many of them are over 60, they'd really like to retire soon, please.

And if their 401(k) is just halved, that's going to be difficult. And when you feed that through to what that would mean to asset prices for the economy generally it's going to be a very big break on any recovery.

VELSHI: So those two are not --


VELSHI: -- that the jobs loss situation, the stock market loss situation, the two of them coming together is a real problem.

If a number of you have referred to the previous recessions. I want to just take you over the wall and show you unemployment rates. We have taken the average of the last year of the last several recessions. Obviously go back to the Great Depression.

In 1933, the unemployment rate was 24.9 percent. Now, to be fair, we've changed the way we measured this over the years. So they're not always apples to apples comparisons. But take a look, 5.5 percent, 6.8 percent, 6.7 percent.

Back in 1980, that was the average of the year, even though for one month it got higher than that; 9.7 percent was the average unemployment rate. Then 6.8 percent, two recessions we went through with very low unemployment and now we're creeping back up to 8.1 percent.

Andy Serwer, there's nobody -- there's nobody who thinks that unemployment is not going to go higher as a percentage and that many, many jobs -- more jobs are going to be lost in this recession.

SERWER: Yes, I was just going to say that, I mean you have to believe it's going to go over to 10 percent, possibly. I really think it's going to do that. And I mean, you can see that becomes really, really historical. And you wonder about, you know, the psyche, the effect on confidence. We talk about that a lot.

But when you talk about the American dream and what John was saying about baby boomers wanting to retire, I mean, this really impacts us psychologically. We know that the American dream is still alive, but seeing over across the divide is very difficult right now. And how are we going to get there and what's over there?

LEEB: I mean, crisis can mean opportunity, too. And you just pointed out that the jobs lost are largely manufacturing and construction, but there are some bright spots: health care, education, and green.

VELSHI: Ok, that's a good point to stop on right now. Because we're going to talk a little bit more about those green jobs, what the stimulus plan is doing to create those green jobs and how you can take advantage of getting one of them.

We're also going to be spending tonight some time on your bottom line. How do you invest when all you want to do is hide under the bed? Coming up next, if you're working should you save or spend money to help this economy? We're back in a minute.


VELSHI: Ok, we're looking at a remarkable sign of the changing times, search terms that people plug-in to Google and other search engine. People are looking for information on unemployment benefits, the searchers were up 247 percent in December of '08 compared to December of '07. The key word, unemployment usage rising 206 percent, coupons up 161 percent, and so it goes.

Let's add a few new words to our own search engine and namely, save or spend and we've been told that Americans saved too little and the government spends too much. Yet the problem now is that the broader economy spends too little.

So what is the right balance to strike? Let's ask our panel, let's turn to Walter Updegrave of "Money" magazine.

Walter, what's the right thing to do as individuals? Are people who are watching this tonight, should we be spending more to shore up this economy or saving more in case this recession lasts longer than we expect?

UPDEGRAVE: Well, I think you have to take your own situation and that of your family into account. If you've been building up debt or if you don't have a financial cushion, you should be saving more money. You can't worry about what is good for the entire economy. You have to look at what's good for your and your family and act accordingly.

VELSHI: Donna I see you were nodding your head.

ROSATO: Yes, the unemployment rate is very high of course and it's unprecedented but when you flip it around, I mean, the majority of people still do have a job. Now what I want to say, if you've got a cash cushion, and you don't have a lot of debt, then you can start thinking about spending money.

I think a good way to think about this is sort of some of the things we saw in the stimulus bill, let's think about smart ways you can spend money now that's going to save you money in the long run, investing in things that will make your home energy efficient for example and that was on the stimulus bills, things like that.

So let's encourage people to spend money in smart ways. And that will help everybody in the long run.

MACK: I agree with Walter. Look at your own individual situation put six to nine months of living expenses in a savings account and then from that point on move forward and start thinking about what you need to purchase for luxury items.

VELSHI: Let's take a look at personal saving rates over the last 30 years, going back to 1980. As I mentioned around 1982, despite the fact that we were in a recession, people were taking home more than 12 percent of the money that they earned.

With a little bit of a cushion in case that recession lasted longer. Look at our savings rate, it has just gone lower and lower and lower as we started to carry more debt and become a much more credit- oriented society.

We bottomed out a couple of years ago and very close to zero. Now we're saving a little bit more.

Stephen Leeb, I want to ask you about this. What is it -- what's it going to take to turn this around? What's it going to take for people to say I've got enough money? I'm still going to have a job. There are deals to be had out there on houses there are deals to be had in the stock market. What happens?

LEEB: Basically security. I mean, basically when people feel comfortable that their neighbor isn't going to be fired, that they're not in jeopardy, they will start spending again.

But one message of this chart, Ali, is that there's no moral imperative to save. Or spend, rather, to spend, because look, we came out of the recession of the '80 with savings rates at 12 percent.

The job of the government right now is to pick up the slack. They should be the ones that are spending. They are spending.

ROMANS: I mean, look at that chart, too. And one reason that people have told me that it was ok to have such a low savings rate, is because we were saving our money in our 401(k). Our investments were kind of our savings.

And instead of putting money in the mattress and getting nothing we were actually investing. Except now our investments are down. Just since the beginning of this year the average of the DOW is now at 6,600.

AUTHORS: The number of times you hear Americans say that house prices can not go down, the number of intelligent people who said that and believed it, including if I recall Ben Bernanke, saying that they had never gone down on a national basis. People's ATM was their house, that's how you got --

ROMANS: Policymakers encouraged people to think that way. I mean, you look at that number, we can't believe we didn't save enough but we were told to go for, you know, to use credit to build our wealth, to buy homes. And in the end, all of that seemed to be --

UPDEGRAVE: I wouldn't pin it on the government or our policy.

ROMANS: Well, we took the money.

UPDEGRAVE: We individuals chose to spend the money and they enjoyed doing it. Now they're paying.

VELSHI: That's a good point, Walter. Let's take a look at how individuals chose to spend their money in the month of February. These are the retail sales, these are America's retailers reporting their sales for the month of February compared to the month of February one year earlier in the same stores that have been opened.

It's called same-store sales and it gets released every month. Take a look at this; in some of these high-end stores, Neiman Marcus down 24 percent, Nordstrom down 15 percent, Abercrombie & Fitch, that store always looks busy to me, 30 percent lower. Saks down 26 percent, and Macy's down 8.5 percent.

Guess what? There was somebody who actually was up this -- in February. Somebody was doing well. It was Wal-mart. People were trading down.

SERWER: Yes, and McDonald's is doing well. Food and comfort food, things like that. I mean, so people are really understanding the value of proposition like they never have before.

ALLEYNE: The private labels are also doing well. So people are moving away from the name brands. And again, like Donna was saying, it's about value. It's not really about name brand or status. It's about what's --

MACK: I really don't mind that retail sales numbers are down. Because I don't want the number of GDP growth to be strong if it's not sustainable and if it's not real.

VELSHI: You would rather have a slow-growing economy --

MACK: If it's real.

VELSHI: If we can hold on.

MACK: We have real level of GDP growth.

VELSHI: Not a sugar high.

MACK: Exactly. I don't want to have a false sense of prosperity. It's not going to last -- that's 2004-2007, as jobless recovery. Nothing happened.

AUTHORS: Base on the fund of savings as opposed to a big pile of debt and let's start spending and if we don't actually have that money to spend, perhaps it's quite a good idea not to get back into the same trouble we're only now extricating ourselves from.

UPDEGRAVE: That was the problem, people were spending money they thought they had, the equity in their house, --


UPDEGRAVE: -- the money that they thought they had in their 401(k). So as it turns out a lot of that was just a big bubble. And so they were spending money that they really hadn't put away.

SERWER: And we all have to get our houses in order. This is all about de-leveraging, reducing the amount of debt, companies, government, and individuals, especially individuals.

ROMANS: It's really painful though, right.

LEEB: It is. But I think Donna made a really, really good point and I think it's really worth emphasizing; we so much make the distinction between spending and savings. It really should be spending, investing and savings. AUTHORS: People have been spending what they don't have. There's no easy, painless way to deal with this. We can work out the way that's least painful, obviously, but there has to be some general agreement that life has to be different.

UPDEGRAVE: You have to actually live below your means. Below what's -- that's the only way to create savings. There's no -- and you can't just like get more value for you're dollar and spend it. That also create --

ROMANS: It's like being on a diet.

VELSHI: You don't lose weight unless you take in fewer calories.

ROMANS: Yes, it's easy to say but how come all this people are suddenly are always trying to do -- are trying to do diets all the time, it's the statement thing. And trying to live within you're means is hard when people are giving you cheap money and encouraging you to spend it.

ROSATO: You'll have a lot less stress if you can build up your cash cushion and if you can save more.


ROSATO: If you spend less than you make, then you're going to feel a lot better and I think it would restore confidence.

And regardless of that, if you don't spend less than you make then you will have no money to invest and ultimately if you want to retire at all -- I mean, this recession will end as they all do, but what is it that you're going to do to retire? I know it's too painful to even look at your 401(k) right now.

Coming up next, does this country even make anything anymore? How are you going to invest in the future of this country? What's happening to the high-paying manufacturing jobs? What these numbers mean for our country's future coming up next on the "MONEY SUMMIT."



OBAMA: We are committed to the goal of a retooled, re-imagined auto industry that can compete and win. Millions of jobs depend on it, scores of communities depend on it, and I believe the nation that invented the automobile cannot walk away from it.


VELSHI: All right that one gets a little tricky, President Obama talking about the auto meltdown. Take a look at auto sales over the last 12 months from the major U.S. auto makers. All of them, GM saw a bit of a bump in the middle of summer, but look at when that credit crisis hit and everybody stopped buying cars, a little bit of a blip in December, but in the end, General Motors down 53 percent compared to a year ago, Ford down 48 percent and Chrysler down 44 percent.

Now, here is the thing, if you are a business in this country, there's some math that you have to consider when you think about putting another person on the payroll. And this is complicated.

This is from the Bureau of Labor Statistics. Look at a job that pays $28.87. That's not what the worker takes home before taxes but that's what you pay as an employer.

Let's show you how it breaks down. The worker takes home $20.13 an hour. The benefits that you pay as an employer add another $8.74.

So let me just show you how that breaks down. Of that $8 and change that you're paying, or of the entire bill of $28.87, $2.42 goes towards insurance. $2.27 goes towards things like Social Security, Medicare, unemployment and worker's compensation. $2.03 is the money that you pay for vacation, paid leave and vacation-type of benefits. $1.28 goes towards retirement savings and 75 cents goes towards overtime costs.

So you are paying somebody -- they're taking $20.13 home and paying taxes on that, but you're actually paying $28.87 for that worker.

This is where American competitiveness comes into question. Because in a lot of other countries that can manufacture the same things that American factories can manufacture they may not be paying all of those benefits and they may not even paying the same hourly wage.

And Christine, this becomes a major issue for manufacturing in this country. This is in large part why our manufacturing industries have not been able to survive. We can make things in other countries for less money.

ROMANS: And that's why people who support labor and support the workers say, that look, it's not a level playing field. It's cheaper some place else because they don't have the benefits and they don't have a lot of these other environmental restrictions and guarantees as well.

So that's the part of the big political debate.

But the bottom line is, that these manufacturing jobs have been going for a long time and replacing them are lower paid, lower skilled, lower waged jobs that don't pay as much and in many cases can't support a family. So that's -- there's a political issue there.

VELSHI: Of course, great inventions come from America but great production has not come out of America for quite a while.

SERWER: Well, you know, we're making stuff here. First of all, Toyota and Honda make cars here and they will be long after the recession is over, the great recession. Also Dell makes computers here. Intel makes chips here. In fact Intel just announced a $7 billion investment in their chip plants in New Mexico, Oregon and Arizona. There's thousands and thousands of people who work there.

So I.T. is a backbone, it's going to be here to stay.

VELSHI: Is that actually going to replace what we're losing in manufacturing?

STEPHEN LEEB, ECONOMIST: No, I don't think so, Ali. I think we do have an opportunity here, though. When you look at these horrible car sales and the government basically controlling these car companies, why don't they use this money to try and get these auto companies to retool so they can produce energy efficient cars, whether they be battery driven -- I mean, that would be great.

VELSHI: If that was really marketable, maybe we would have done that 15 years ago or 10 years ago.

UNIDENTIFIED MALE: Yes, but gas was $4 a gallon. It goes back up to that. All of a sudden --


LEEB: Right. That's preparing for our future. And I think that maybe subsidize those cars. That's a way of getting people to spend on things that make a lot more sense.

DONNA ROSATO: Everyone I think agrees that it would be great to provide more energy efficient -- green jobs, but the green jobs won't -- there won't be demand for them while housing is still in the tank. A lot of the jobs that you want to transition -- a lot of the jobs that are green jobs are manufacturing and construction and they're not coming back right now.

VELSHI: Let me show you something that might help rebuild our industrial base. I want to show you minimum wage statistics over the last 30 years. We look back at the last 30 years a lot because back in the 80s, we changed a lot of ways in which we measure things so we can get consistent measures.

I want to show you first what minimum wage has done since 1930. It was around $3 -- just a little more than $3 an hour back in 1980. And you can see a steady increase over time until $7.25 which is where we're at right now.

We have adjusted these numbers for inflation to compare what that $3 was in 1980 to what it is today. We were close to $8 an hour adjusted for inflation back in 1980 and as you can see there has been no real gain in hourly earnings for minimum wage earners in this country until now. Obviously it's $7.25 today because it's today's numbers.

I want to convert this conversation a little bit over to the fears of inflation. Something you're very familiar with Steven, you've written a lot about this. Does this give us an opportunity? It's bad news if you're earning minimum wage, but minimum wage workers are very inexpensive in this country.

LEEB: They are very inexpensive in this country, but I don't think it's going to stay that way. I think that you will eventually see inflation in the next cycle spill over to wages. We've been lucky, if you can say anything has been lucky about this economy and certainly it hasn't been lucky for the people that have been working, but we haven't had the typical wage price cycle that we've had in the past.

What drove inflation in 2008 was just resources.

VELSHI: Oil --

LEEB: Exactly. Copper, everything was going up.

UNIDENTIFIED MALE: Lucky for whom, as you say though? Wages for people -- you want people to make more money, don't you?


SERWER: You know, I think you want to see that go up, don't you?

LEEB: You totally want to see it go up. And that's exactly why you're in such trouble; that's why consumers were spending so much. They wanted to live a little bit better.

VELSHI: Walter, you look like you're jumping out of your seat.

WALTER UPDEGRAVE, SR. EDITOR, MONEY MAGAZINE: You want to see it go up but the minimum wage has nothing to do with the economy. This is a rate that is set by people in Washington. It has nothing to do with productivity. You want to see it go up because you want to see people get more skills, more education, become more productive and see their wages rise. But the mere fact that Congress sets a minimum wage every year doesn't really help anybody.

VELSHI: You have to create that value for yourself right now while there's no pressure for your wage to go up at all.

A lot of money is being spent to prop up home owners, to pump up buyers and bail out banks. But is this working? There are states that are hardest hit by foreclosures over the last year. We showed you these.

Florida is one of the worst hit by foreclosures, California, Nevada and Arizona. These are all states that have really, really suffered in terms of foreclosures. But there's a glimmer of hope.

We're going to tell you what that is when the "CNN MONEY SUMMIT" continues.



DAVID MILLER (PH) IREPORTER: For those of you at home, the denial manifested itself and when you went to work and you saw people getting laid off you were like nah, I'm sure it was just -- it will work out fine. I'm not going to lose my job. No, I'm fine. I'm absolutely fine.

So what that they can't afford the water cooler anymore. That's fine. They're trying to be environmentally friendly. They weren't? They couldn't afford the water in the water cooler? If they couldn't afford the water, I'm going to lose my job.


VELSHI: An iReporter, David Krohn Miller (ph) in Burbank, California, using humor to soften the blow, but many homeowners in that state and across the country are dealing with that very issue.

You lose your job and you can't pay your mortgage. Since the housing bubble burst, you can't sell your home either. That dilemma is one of the reasons that foreclosures are so high in this country.

Let me give you a picture of what's going on. We've definitely seen an increase in the number of foreclosures around the country. But let's zero in on a few places in the country that are the hardest hit.

Let's start with the foreclosure rates across the country. Since January 2008 until January 2009, foreclosures are up 18 percent around the country. But from December of 2008 to January of 2009, one month, they're down 10 percent.

Now let me explain to you. Let's pick some of the hardest hit places in the country and give you a sense of what we're talking about.

Let's look at Florida. From January 2008 to January 2009, foreclosures in Florida, one of the hardest hit places in the country, are up 35 percent. But from December 2008 to January 2009, one month, they're actually down 20 percent.

Let's take it to another part of the country hard hit with foreclosures, Arizona. Again that one year period, January 2008 to 2009, they're up 61 percent in Arizona, but in the one month period from December to January -- down 8 percent.

Probably the hardest hit part of the country altogether is Nevada, Las Vegas and its area were some of the -- we saw some of the prices go the highest in those areas and then collapse. Foreclosures are up 137 percent from January '08 to January '09. But from December '08 to January '09, they're down 4 percent, same trend. Three states.

Let's take the fourth highest state, California; the foreclosure rate for the one year period, up 34 percent. The silver lining for the one-month period December to January down 14 percent.

So the bottom line is foreclosures are a serious problem and continue to be a serious problem in this country but there might be a glimmer of hope. One month is not enough to build a trend out.

But Walter, I'm going to start with you. Do we think we're coming to the end of this housing crisis? And basically, is this government's new plan to deal with mortgages going to help us out of this situation a little bit?

UPDEGRAVE: I think it's too early to tell. Housing crises don't usually turn on a dime. I think that some of the administration new moves might help but I still think we're in this for the long haul.

SERWER: The reason why Walter is saying that is the banks -- some of them had said that they've actually stopped their foreclosure proceedings because they're trying to sort out the president's new plan so that may have something to do with it.

VELSHI: And that should start -- that should be filtering through to banks this week.

Sonia (ph) do you think this is going to change our situation?

SONIA ALLEYNE, BLACK ENTERPRISES MAGAZINE: I think that instead of waiting for the government to provide access to you that you may not be able to qualify for, the homeowners themselves are going to have to be a little creative and figure out how they're going to be able to save themselves.

VELSHI: This is a good point because times is running out for people to be waiting for a solution that's not coming their. And even if a solution gets announced by the government, it could be weeks or months before it trickles down to you.

This is a point, Ryan, you constantly, constantly make.

RYAN MACK, OPTIMUM CAPITAL MANAGEMENT: I think this is a fabulous learning opportunity for those who are actually preparing to purchase a home. If you're renting a piece of property for let's say $1,000 and to own that same piece of property, it'll cost $1,500 a month, then it's time to take the additional $500 and act as if you own that home so you can start -- basically playing house.

VELSHI: I want to show you a picture of how affordability has changed. I showed you California in terms of foreclosures because California was a place where prices had run up; they were the highest prices for a median home in the country.

Let's look back at 2006 which was the peak of the market in July in California. The median home in California in 2006, look at these numbers, $567,000. The interest rate back then for a 30-year fixed mortgage was 6.47 percent. Your monthly cost for a home in California back then, assuming you put 80 percent down and you had good credit, was $2,862.45 to buy that home.

That same home today, the median home in California is going for $254,350 -- less than half the price that it was at the peak of the market. The interest rate in February where these numbers are from was substantially lower than it was back in 2006, 4.5 percent -- that's assuming you had a normal mortgage, a 30-year fixed mortgage, not these fancy trickery mortgages.

Your monthly payment now is $1,031 on that same house with 80 percent down. There's a market out there if you have good credit and you're looking for a house, Stephen.

LEEB: There absolute is, Ali. If you look at mortgage affordability, July 2006 was at an all-time low. Today it's at an all-time high. I don't mean by a little bit. Now for $1,000 a month, you can buy what was formally a nearly $600,000 house.

ROMANS: If you have good credit and a down payment.

LEEB: That's the whole secret, Christine, is that there is no financing.

VELSHI: So you're talking about the program that we thought we were getting a few weeks ago from the treasury secretary. It didn't turn out to be all that detailed and we're going to get some detail about it. This is the plan that recapitalizes banks, that gets banks to lend to people, that gets money flowing a little more --

LEEB: Ali, if the world could change literally, like the world changed with Lehman Brothers for the worst overnight, from inflation to deflation.

UPDEGRAVE: That would be nice if that happens. I mean, one thing to remember is even though we're talking about a much lower price, $254,000, today a lender is going to want actually 20 percent down. That's like over $50,000 -- a lot of people, particularly given the job market, may not have it and may not be able to --

LEEB: Walter, wait a second. If the government manages to recapitalize these banks, you can rest assured they're going to say lend and require very little down or 10 percent.

UPDEGRAVE: Then go back to the --


UPDEGRADE: -- the $500,000 house?

LEEB: Well, unfortunately we may -- maybe not quite that bad.

ROMANS: I don't think two administrations has really done a good job of selling why it's so important to get the financial system stable. I think that there's this real backlash against bailouts. Everyone hated bailouts.

VELSHI: You have a great example you told me about.

ROMANS: One economist told me this great example. She said YOU don't complain about spending taxpayer money to clean up the toxic waste dump in your town. This is what this is.

VELSHI: The bottom line is there are three legs to this thing. You do have to have a job. The value of your home you need to figure out and hope it goes up. Ultimately you have to be able to put some money away and save for retirement.

Coming up next, "Money Matters:" what to do with your money in today's grim market. Here's a suggestion from iReporter David in New York.

DAVID, IREPORTER: Find a piggy bank, shake it up, take some cash out, count your money. Let's see here. Oh, wow. Look at that. I have enough money to buy a share of Citigroup. Do you see that? Look at that. Just hand that over to your broker and you can buy your own share of America's pre-imminent financial services company.

The only thing to ask yourself is should you buy a share of Citigroup or should you go and get something off the dollar menu at McDonald's?



BARACK OBAMA, PRESIDENT OF THE UNITED STATES: What I'm looking at is not the day to day gyrations of the stock market but the long-term ability for the United States and the entire world economy to regain its footing.

The stock market is sort of like a tracking poll in politics. It bobs up and down day to day. If you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong.


VELSHI: President Obama said that earlier this week and every time that clip plays, Christine Romans, there's steam coming out of her ears. The president, Christine, is talking about long-term, having a strategy for investment -- something I think we would all agree with. You're not loving the analogy about a tracking poll.

ROMANS: It's not a tracking poll. This is so much more important than some political tracking poll. People's lives depend on what happens with that stock market. It is money. And the fact that it's at 6,500 or 6,600 means that there are people who have to work longer, people who can't retire, people who have to save more for their college education for their children, people who are going to have to put some of their dreams on hold because of that tracking poll.

VELSHI: All right. So it's not a tracking poll.

But Ryan Mack do you agree with the president -- maybe he could have used a different example. Maybe we could have used a thermometer or something like that. But the bottom line is his point that we really need to have a long-term plan.

MACK: Well, I used to be a stock trader. There's a reason why stock traders are crazy. Our job is to look at movements. Every single step --

VELSHI: By the minute.

MACK: -- by the minute. We're looking at it and analyzing it and you really are driven crazy after a certain amount of time. When I left that -- when I started to see there's a whole other world out there of comfortable, relaxed, long-term investment, long-term thinking. This is how we need to start looking at our retirement plan?

VELSHI: So Sonia, what do people do then? Do they sit there and say I'm long-term strategy and stay invested in the market which is everything that the people are instructed to do or do they say I'm going to run to the hills and take my satchel with me. ALLEYNE: I agree with the long-term strategy that it's bad now but you have to believe that it's going get better five, ten, 15, even 20 years from here.

VELSHI: Let's listen to one of our iReporters talking about their 401(k) and their concern. This is Steven in San Diego.


STEVEN, IREPORTER: I don't really invest except for my 401(k) and in that case I don't really look at it. Because I looked at it a few months ago and it just looked awful. I decided not to look at it anymore and I feel more at ease.


VELSHI: I don't know if that's a good philosophy or bad philosophy. We can discuss that.

John Authors from the Financial Times. If he hasn't looked at it, we can tell him a bit about what's probably happened. And the fact is every time there's been some major initiative or major announcement from the government, just like at the end of the last administration, this market is not reacted positively to this.

Stephen Leeb says that's a judgment on this administration, is it?

JOHN AUTHORS, INVESTMENT EDITOR, "FINANCIAL TIMES": In the case of the bank rescue, I think very plainly, it is. The one very key moment was when Tim Geithner made his plan, announced his plan to save the banks and more or less announced that he didn't have a plan.

VELSHI: This was in early February; just to bring our viewers up to speed. This was set up to be The Plan to rescue the banks. The president the night before had sort of really pumped it up and said I don't want to steal Tim Geithner's thunder. We were expecting a blue print and as one of our colleagues so appropriately said, we got the sketch on the back of a napkin.

AUTHORS: Exactly. And this was a really bad piece of expectations management; I have seldom seen a more dramatic, instant negative response.

VELSHI: And really that was the next leg down on the market and we have not recovered since.

AUTHORS: We're down 20 percent since then.

LEEB: When your financial planner says to you, I don't care how old you are, whether you're 20 or 90, you have three classes of assets -- cash, bonds, and stocks. You tell them there's a fourth class I want to consider. It's the class that does really well whenever there's turbulence. That's precious metals.

I think everybody should own a little precious metal. Not 100 percent but my minimum would be 10 percent. If you own more, that's your decision.

SERWER: So you want to be buying gold now?


VELSHI: Let's take a look at what gold has done over the last couple of years.


VELSHI: You guys can argue while I'm showing people the turn of gold.

This is the end game in the price of gold going back to 1998 -- 1998, 1999 were rough years. Take a look at what's going on since then. Now let's look at this last year with gold.

To Andy's point -- you want to be buying gold right now. This is the monthly gain or loss in the price of gold this year.

You can see, gold has been going up in price. So some months it's come up very steeply. March was one of them, July was one of them. October was one of them. Look at this, when that financial crisis hit, when the worst of it hit, when nothing was going right, people were buying into gold. Look at November and December with gold.

You're an expert on this, Stephen. Where does gold go? Does it go anywhere? Do you buy it so it doesn't deteriorate?

LEEB: I think gold is -- in my own opinion, I think it's going to multiply several times from here. I hope I'm dead wrong. I hope I'm dead wrong.

VELSHI: Because if it does that means that --


LEEB: Let me just say -- let me just say, gold has been going up this whole decade. The '70s were a turbulent decade. You make 30 percent a year on gold. Why not have it?

UPDEGRADE: You bought gold in 1980, paid $850 an ounce. And if you sold it today for $1,000 an ounce you have a grand total return of 0.5 percent a year over almost 30 years.

VELSHI: Let's talk about things that you can invest in, in this market. First of all, I think most of our viewers probably unless they're professionals shouldn't be in the individual -- individual equities game, individual stocks game. They should be largely investing by virtue of mutual funds. Should they be investing in mutual funds today, Walter?

UPDEGRAVE: Yes, I think so. If you're investing for the long term, you should have some of your money in stock mutual funds.

One of those very, very small glimmer of hope here, but over the last year, there's been a movement, index funds have picked up market share over actively managed funds.

VELSHI: John should people be in the market right now through mutual funds or index funds or exchange-rated funds? Things like that.

AUTHORS: I think it's a dangerous bet to be out of the market all together. If you put a gun to my head to try to predict things, if you look at the very long-term valuations, stocks are distinctly cheaper than the historical average going back over a century. Similarly, history tells us that they tend to be cheaper still at the end of really bad instance like the one that we're having before they turn up.

SERWER: All the people who've sold stocks in September, October, November, December, January, February, are glad they did because that's money they didn't lose. So it's very hard to tell people not to sell. It's even harder to tell people to buy.

Having said that, it makes sense to, a, be in the market, and, b, probably be buying in a little bit. But we've got to have that time horizon. You have to have discretion -- they should pay off your credit card debt first.

VELSHI: Donna, last word to you, how do you save effectively? What should you be doing?

ROSATO: If you're closer to retirement, you're going to have to stash even more money away. You may have to work longer to do that but that's the bottom line. We're all going to have to save a lot more money. But you could feel confident if you put your money in -- if you have cash, it's going to give a little bit of a psychological boost.

VELSHI: Right. It may not give you the best return but it'll give you at least the idea that you have some money.

This conversation can go on for so much longer. Thank you so much for your different but wise points of view on this one. Everybody needs it right now. Thanks as always to our panel for their insight and solid advice. And thanks to all of our iReporters as well.

We hope you came away with more answers than questions.

That's it for now. Let's turn it back over to Anderson Cooper -- Anderson.

COOPER: Ali thanks. And thanks to our viewers for making "CNN MONEY SUMMIT" one of the most watched programs on the network.

You can always find more at and on our blog at

We'll see you next time.