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Details of What's Going On in the Job Market; The Housing Plan: What Does It Mean For You?; What Warren Buffett is Saying About the Economy
Aired March 7, 2009 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN HOST: Welcome to an emergency edition of YOUR MONEY. I'm Ali Velshi.
CHRISTINE ROMANS, CNN HOST: And I'm Christine Romans.
We're here to help you deal with the financial crisis. Why is this an emergency edition? Because the most recent economic news is showing what you already know. The jobs are disappearing, it is harder to find a job and your savings and your investments and now your income are in serious jeopardy.
VELSHI: In a moment, we are going to talk about the details of what's going on in the job market. We're also going to talk in this show about the housing plan that's been announced. It was announced a few weeks ago but the details came out this week. What does that mean to you? Do you qualify for a refinancing or a modification to your mortgage and what if you don't? What are your options?
ROMANS: That's right. Can you save your house here because we know that 11 percent of all mortgage holders are in some sort of trouble? They're late on their payments by the end of last year. So this is not just about somebody else in another town. This is about you or your neighbor or someone you know.
VELSHI: Right, even if you're not in danger or even if you're not one of those one in nine that have some sort of mortgage problem that fact is everyone else's mortgage problem is causing your property value to go down which means you can't refinance or you can't sell your home if you want to.
ROMANS: What does Warren Buffett have to tell his share holders about the economy's future? We're going to have the inside scoop for you about what the Oracle of Omaha is saying about this economy.
VELSHI: In a moment, we are going to talk about the future of your investments, your IRA, your 401(k). We'll also talk about the auto sector. We learned this week that General Motors has a report from its auditors that says it may not make it to the finish line, we want to talk about how that matters to this economy and in particularly to you.
ROMANS: The most important thing for you right now is your job and income coming out the door. Because you can't pay the mortgage payment and you can't pay the college bills and you can't pay your credit card bills unless you have income coming in and we know that the unemployment rate hit an 8.1 percent, 8.1 percent, the highest in 25 years, and the job losses, Ali, hundreds of thousands of you lost your job in the most recent month and for those of you who have your job, people are a little insecure.
VELSHI: We want to remind people that a number of economists say that in a healthy environment, in a healthy economy you want to be adding is 100 to 150,000 jobs a month just to keep up with the growth in the number of people who are qualified to work. Some people retire every month and then other people join the workforce and about 100,000 people or more get added to the workforce every month. We want to be adding jobs.
We want to look at what happened since September in the job market. We have lost jobs -- by the way, every month since January 2008, but look at just since September, the number of jobs that have been lost in September, 403,000, in October, 320,000 and November really started to ramp up after the credit crisis and the financial crisis 584,000, December 681,000, January, 655 and we just got February's number 651,000 jobs lost.
ROMANS: What that means is that 12.5 million of you are unemployed right now, 4.4 million jobs lost just since this recession began. Now these numbers don't even count the 2 million people who are discouraged, decided to stay home, any go back to school or can't get a job, but want one. Almost 9 million people, Ali, who are working part-time, but wish they, were working full time. So this is a labor market that is not running at its potential by any stretch of the imagination.
VELSHI: And as you can see here we're going to talk a little more about this later, but that's 12.5 million people unemployed and 4.5 million people losing their jobs in this recession. There were some areas and they seemed to be the same areas where jobs are gained every month and increasingly those are fewer and fewer job gains.
ROMANS: Yes, it's health care. I didn't see much education hiring this month, but also the government. Those are places where you're seeing job creation, but, you know, it's important not to give false hope on that. There is job creation in every -- in really every part of the country in terms of health care. So we keep saying that that's a great place to look for retraining in healthcare, but you're right, the job creation there has been dwindling a little bit over the past days.
VELSHI: In health care, by the way, we don't mean that you have to be a doctor and study for several years to do that. You can be a doctor, but we will continue to outline jobs that you can have with very little training and they don't pay a lot, but the point is health care is growing at every level.
ROMANS: There is some upsetting things happening there, the people who do the sonograms or when you are going to have a baby, there's some growth there and those are actually high-paying jobs and you don't need a four-year degree. We digress. We'll have more on that for you as well. We have some sectors gaining and a lot of sectors losing and we have a demographic breakdown that is sort of interesting that shows you the losses in the labor market are felt unevenly.
VELSHI: Right. Right. There's a whole bunch of different people feeling in a different way. While the unemployment rate across the board is 8.1 percent, adult women have a slightly lower unemployment rate. Blacks have a much higher unemployment rate. Teenagers have the highest unemployment rate as a group.
That's something that you need to consider. Where are these jobs geographically? Where are they by industry and how do they break down by race in this country? Another interesting discussion, are some people getting hurt unevenly or are these in many cases Christine, these were trends that we saw well before recession. We've always had higher unemployment among blacks and teenagers.
ROMANS: It's incredibly important for policymakers as we talk about stimulus and how we're going to go forward and try to invest in this economy and invest in our infrastructure so we can get things moving.
Nouriel Roubini, Dr. Doom, he's been so right, he's an economist at NYU getting an awful lot of play because he has been right about the depths of this crises. This is what he told "Time" Magazine, "Even in the best scenario, there will be job losses through the end of next year" and you know Lakshman Achuthan is someone who we really trust as well, who I think echoes those concerns.
LAKSHMAN ACHUTHAN, MANAGING DIR., ECONOMICS CYCLE RESEARCH INST: This is not Dr. Doom by the way; this is an entirely different guy.
ROMANS: There's plenty of doom, but not any gloom. Lakshman do you still think there is doom but not gloom?
ACHUTHAN: I say gloom, but not doom. It's shaping up to be the great recession. It's want a depression and I think that's an important perspective to keep here and certainly what we've seen in terms of recoveries. We don't see one yet. In fact, the forward- looking leading indicators have continued to move down to new lows. So there's no recovery brewing and that's very consistent with Dr. Rabini and the other thing to think about even if we do get a recovery started the last two recoveries didn't bring jobs.
ROMANS: Explain what that means.
VELSHI: We use to call them jobless recoveries. Explain what that means. Does that mean when a company lays off 10 percent of its staff and then business comes back and it gets good they don't hire those people back? Everyone has to be more productive?
ACHUTHAN: Yes, exactly. The workweek will go up for the people who are working and then they'll maybe give them overtime hours or they'll have part-time work. They'll hesitate because the confidence takes a while to build before you actually go out and invest in a whole brand new employee, and also it has a lot to do with the pace of the recovery. The last two recoveries in 2002, in 1991, they were relatively anemic recoveries. They were hard to see. People thought we were going to have double dip recessions and go back into recession so they held off on hiring for almost a year essentially.
ROMANS: Lakshman the trouble here now is that we have a foreclosure crises and the job crisis and the job crises is starting to feed into the foreclosure crisis and we're concerned about commercial real estate and credit card defaults. How many more shoes are there to drop? Because I'd really like to know how much more of this we have in store for us.
ACHUTHAN: Well, look, in the credit markets the stuff can still mushroom and it is mushrooming and that's when you see these different bail out plans and they seem to be hundreds of billions of dollars with a different label. They're all attempts to break the vicious cycle. So we have essentially the problem is you lose three-quarters of a million jobs or something like that each month and then foreclosures are going to go up.
The one thing policymakers are trying to do is to adjust the terms of the mortgages to hopefully stem some foreclosure, but if you don't have a job, even an adjusted mortgage is a tough thing to pay off and you'll get more foreclosures.
ROMANS: We're talking about the foreclosure plan from the administration this week and it's supposed to help 7 million to 9 million people as long as they have a job. And I think some are very frustrated because they say how is this going to help me because I don't have my job? Other people are saying why we are spending money because in good times if someone didn't have their job they would still lose their home.
ACHUTHAN: Well right here because when you have the foreclosure go up, the home prices goes down and the toxic assets in the credit system mushroom and remember the 700 billion that you spent to save the banks? It turns out not to be enough. You need more.
VELSHI: All right. That's a good launching point for us because we are going to discuss whether or not that financial rescue, all of those attempted financial rescues, the 700 billion to save the banks, the stimulus package and the housing and mortgage package whether any of that is working. We're going to be talking with Roland Martin and David Walker.
ROMANS: The bailout backlash when we come back.
ROMANS: OK, so we're six months now into the financial rescue, rescue in the financial sector, rescuing the auto sector and rescuing the banks, right? Insurance companies and now the home owner.
VELSHI: And the homeowner plan which is one of the most recent ones is certainly very complicated. Let's break this down. It's really two plans. One of them is a plan for people who aren't really in too much trouble. It's really a refinancing plan and allows you if you're not very much under water.
ROMANS: And not late on your mortgage.
VELSHI: You are not late, maybe your mortgage is worth between 80 percent of your home and as much as 105 percent of your home and you can refinance into these low rates that are out there today, about 5 percent for a fixed mortgage. Up until now if you had more than 80 percent you couldn't necessarily refinance.
ROMANS: That has to be a loan backed by Fannie or Freddie.
VELSHI: And the way you find that out is by calling your lender.
Your second plan, the second plan that's out there is one for people who are in more serious trouble. This is a modification of your loan which means the terms of your loan actually change. For this one you do have to be at risk of default. This is for people who are up to 150 percent loan to value or 50 percent under water. So your mortgage may be $150,000 and your home is only worth about $100,000.
The aim here is to make mortgage affordable so they'll work toward reducing the amount of your monthly income that you pay to your mortgage down to about 31 percent. And part of that will be reducing your interest rate to as low as 2 percent for five years and then it goes up to today's current rates which are in the low fives.
ROMANS: The point of this, of course, is to make home affordable and that's what making home affordable is the name of the program that the government is pushing and they'll pay for it through taxpayer money but also it will be incentives for borrowers and for lenders to get them onboard to do this. The idea is you work out a loan modification and it's cheaper than losing the house down the road.
VELSHI: Now the thing is on some level the government says, look this will help up to 9 million people. 7 to 9 million people and that means it should help your house, to, even if you have nothing to do with this because the more houses that are not on the market the better your home prices tend to be and you've heard so many people complain about this plan and the AIG plan and the stimulus.
ROMANS: People -- every poll shows Americans don't like bailouts and they're sick and tired of bailouts, whether you call it a bailout or a financial rescue or what ever you call it people don't like it and I just had this great conversation with an economist from the University of Maryland who said it's been so wronged by the prior administration and by this administration.
This is not about bailout. This is about cleaning up a toxic waste dump and you don't complain when taxpayer money is spent to clean up toxic waste. It is about cleaning up the problem so that everyone can benefit and that's not some thing that this administration or the prior administration is doing a good job communicating.
VELSHI: Lets talk to two of our guests, David Walker, is the president and CEO of The Peter G. Peterson Foundation, former controller of the United States. Roland Martin is our own CNN political analyst. David let's start with you, what do you think about the comment that Christine just made from an economist at the University of Maryland. Have they sold this plan the wrong way or is it what it is?
ROMANS: All of these plans.
VELSHI: All of these plans.
DAVID WALKER, PRESIDENT, CEO, THE PETER G. PETERSON FOUNDATION: Words matter and the communication has been horrible by the former administration and frankly the current administration hasn't done much better. Look, the president deserves, President Obama deserves credit for trying to exert leadership especially in this housing situation. Let's see what happens, but on the financial institution side, the last administration and this administration has not been doing a good job.
There has to be more focus on the credit crunch. There has to be more focus on the financial institutions and with regard to auto, quite frankly, there's something called Chapter 11. That's what it's for and the government may have to end of providing some pre-Chapter 11 financing pledges in exchange for certain conditions and they may have to stand behind some warranties, but they'll have to go through Chapter 11.
VELSHI: That looks like it's increasingly likely according to a report from General Motors -- Roland.
ROLAND MARTIN, CNN POLITICAL ANALYST: Look, Ali, we can sit here and we can say they should be doing more for the financial institutions. I think the person sitting at home right now watching this show they're saying, my god, what more? I think part of the issue here is you have Wall Street, they're sitting back saying OK, government, you know what? We're waiting on you guys. We need you to figure this whole thing out so there's a significant pressure them and the question also comes in, where does Wall Street fit in?
You know with the whole notion of these toxic assets because it seems like from a regular person, common man, that you've got folks who don't really want to let go of toxic assets unless they'll get paid for it, but they're toxic assets. Nobody is valuing them. A homeowner sitting at home saying wait a minute, you're hooking these guys up, but what about me? And that seems to be the problem. We've done a lot for financial institutions.
ROMANS: Here's my question, so then we get this big homeowner plan this week, and I was surprised by -- I will say the word vengeance of some people who are saying why are we bailing out -- why are we bailing out people who shouldn't be in these kinds of homes.
VELSHI: One of our colleagues at another network refers to as losers.
ROMANS: Now wait a second,
MARTIN: No, but ...
ROMANS: Go ahead.
MARTIN: Here's why I'm not surprised because you know what? Hurricane Katrina there were people who were saying well I was able to get out. Why couldn't you guys get out of the city? Any time we have these major issues, what happens is the people who are doing well, and the people who are frankly doing the right thing, people always say, well I was able to do it, why can't you do it. Why do you need government assistance?
But you know what? Thank God you're not in that position because three to six months from now that particular person may not have their job and they'll be saying, my God, where is the government for me? I think that also plays a part in it. We always say I'm doing the right thing, but the reality is this affects you because there are eight homes on your block that are in foreclosure, your values are going down, crime may go up, you want people in those homes and you need people in those homes.
VELSHI: David Walker, what do you say?
WALKER: Look you don't want to reward bad behavior whether its financial institutions or it is individuals who took on mortgages they could never afford to begin with and that's what the American people are upset about. You need to be clear about what we're trying to do. We have systemic problems. When you have a systemic problem it affects a whole range of people including innocent bystanders, with regard to the TARP, the Troubled Asset Relief Program.
We did not have objectives laid out. We didn't have criteria's to who was going to get the money and who wasn't. We didn't have conditions as to what you could and couldn't do with the money. No wonder it didn't work. We need to be able to focus on the basics. Look, we need to work with the toxic assets in some way that we have risk and reward sharing so that we can free up credit. We need to get that done, the sooner the better.
VELSHI: As obvious as that sounds, David Walker this was your old job with the U.S. government. How are you accounting for this? How is it we know we're keeping track of the money and that's been missing and that's one of the things that we need a better job done with.
WALKER: We need more of that. Right now we're are spending a lot more money on transparency and accountability. That is after the fact, it's too late. The money is g-o-n-e, gone! We need to have these objectives and conditions up front. Those are the systems and controls. We need to focus on the credit crunch more.
ROMANS: All right. Roland Martin ...
MARTIN: Let me tell you that here, this is not a Bush issue or a Obama problem, it is also a Congressional problem, they failed us, both parties failed us on this.
VELSHI: All right. You guys stay right there. Thank you so much. Listen we're talking a lot. This is an emergency edition of YOUR MONEY because of the crisis that we're in with respect to jobs. And don't worry about what other people tell you, this is serious. Now are job fairs going to help you land some work?
ROMANS: Is it worth it to wait 90 minutes in line just to get that card from a recruiter. Allan Chernoff at a monster jobs fair will tell you.
VELSHI: All right. More than 650,000 jobs lost last month alone in this economy. It's not a surprise that job fairs are packed from morning until night. I can't believe these lineups. You see people standing there for a few jobs.
ROMANS: I know. You get one quick sell and you have to do it right, 3500 people hungry for work came to meet recruiters at a job fair this week in New York.
Our Allan Chernoff was there.
ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT (voice over): Buddy, can you spare a job? Thousands of people out of work waited hours to gain entrance to this job fair in New York's Times Square. In this well-dressed and motivated crowd, there's no shame in being out of work. Many talented professionals are pounding the pavement.
SHAKINA CHALMERS, UNEMPLOYED: I'm just going to keep my hopes high. I get excited seeing everybody here. So even though it's a depressing moment, but we're all in it together.
LARRY LEVIN, UNEMPLOYED: I'm going to send resume and make phone calls and you don't get responses and any acknowledgements.
CHERNOFF: Making the opportunity to meet recruiters face-to-face is especially valuable. The somewhat encouraging news, the 90 companies here have more than 1,000 job openings. Many of them well- paying positions in accounting, engineering, business management, finance and health care.
ERIC WINEGARDNER, V.P. OF CLIENT ADOPTIONS, MONSTER.COM: It's really right now about the hand shake. It's about creating a memorable experience with these recruiters that are here. You want to make sure that they put your resume aside to be able to call you tomorrow.
CHERNOFF: The interviewers all advise job hunters to keep your chin up and sell yourself.
JOSEPH DEJOHN, DIRECTOR OF SALES, DGA SECURITY SYSTEMS: They know what they want and position themselves as bringing value right away to a company.
CHERNOFF: Other tips for job hunting in a recession, concentrate on growth industries, health care is still expanding and medical plan manager Robin Cohen says she doesn't need people with prior experience.
ROBIN COHEN, ATLANTIS HEALTH PLAN: We're just looking for a friendly, outgoing people who are able to create and foster business relationships and just go out there and sell our health plan in the community. So we don't necessarily need someone with a sales background to do that.
CHERNOFF: The fact is even as companies lay off, others are still hiring, but in this economy, there's plenty of competition to get back into the workforce.
Allan Chernoff, CNN, New York.
VELSHI: I like what that woman said about you know we're all in it together.
ROMANS: We really are.
VELSHI: There is no shame now in not having a job.
ROMANS: Absolutely not. Network, ask your friends what they are doing, I mean you are going to get some good tips and hopefully get a job when things start to turn around.
VELSHI: Some folks that know about losing jobs come from the auto industry and that's been going for a long time. Boy, we've had a rough, rough year and it continues now with talk that General Motors in its annual filing had an auditor's report that said it may not be able to continue being a viable business.
Want to talk about that a little more. Let's discuss it with Jeff Rubin, he's the chief economist at CIBC World Markets and of course our own Roland Martin, CNN political analyst is back with this. Jeff, Christine was just telling me. What were they saying about how this shakes down?
ROMANS: The smart people have been telling me, look why don't they just have Ford and GM merge and Ford has the upper hand and Chrysler has to go away and they have to start planning on selling less than 10 million cars a year into what is a new America that is not built on a credit bubble anymore. Does that sound realistic?
JEFF RUBIN, CHIEF ECONOMIST, CIBC WORLD MARKETS: Well, I think it is and irrespective of what the corporate identity will be in Detroit, I think the reality is that the U.S. car market going forward and I'm not talking here just in the midst of the recession, but in the recovery to follow is probably going to be half the size of what we've become accustomed to, that 16 million vehicle units were as a benchmark as 2 million housing starts and we're probably going see a market half that size probably somewhere around 8 to 9 million vehicles.
ROMANS: There's a good argument to be made that there was all a mirage. The housing starts, the cars.
RUBIN: How often we all re-bought cars and re-bought houses.
ROMANS: It's all built on cheap money that was someone else's money and now that money isn't there anymore, how do you possibly sustain that kind of a consumer lifestyle?
MARTIN: Our history shows that we transition from one industry to the other. Everything cannot remain the way it was when we were growing up with mom and dad in a nice little home. So this notion that we have to have these three auto companies. I understand suppliers. I understand the jobs tied to it, but the question is can you make money? The answer, as we see it right now is no.
Look at our own business. AOL used to be the biggest dial-up, the biggest, baddest company, broadband comes along and they've got serious problems now. You transition from one town to the next. So I think there's supposedly trying to save these companies. The purpose of bankruptcy is to give you an opportunity to get your credit together, to get your assets together and, frankly, if you can't cut it, liquidate.
VELSHI: David, but the truth is as you said you understand the suppliers and the auto companies have all said that even one of them goes bankrupt it will set a bunch of the other suppliers into bankruptcy and that could send another auto company to bankruptcy and they say that could cost 3 million jobs on top of the 12.5 million people already unemployed in this country. You could have yourself a recession and you could have yourself something that looks like the great depression.
MARTIN: You can't keep spending and spending and spending.
VELSHI: You also can't have 15 million people unemployed on the street.
MARTIN: I understand that, but the question is when does the money stop flowing? Can they fix it? If they can't fix their own company the federal government can't.
VELSHI: I hear you. Jeff Rubin, chief economist with CIBC World Markets who by the way says gas prices could be going up to $4 a gallon again. Roland Martin our political analyst at CNN. Thank you very much for joining us, both of you.
It's one problem after another. We talked about jobs and we've talked about the auto industry and housing and then there's that stock market.
ROMANS: You know ...
VELSHI: There's accident to be a bottom somewhere?
ROMANS: Where it is and how many bones you break finding it is the question. Why are stocks still sliding? We're going to ask Ken Rogoff, Diane Swank, they are going to tell us when this madness is going to end.
VELSHI: When your 401(k) comes back.
ROMANS: It's remarkable, if you look at how much wealth has been lost in the average 401(k) just this year, its $6,600. So you are forgiven for being concerned about your retirement.
VELSHI: I really hope folks are well diversified in different parts of the market so that when we talk about the market or the Dow, that is not the only thing you are invested in. But let's show people what we're talking about when we speak about the Dow. We often use the S&P 500 as a broader indicator of the market, but the Dow Jones Industrial average are 30 stocks and it's these 30 stocks, names that you will all recognize very well.
These stocks are averaged out. It was this index was invented over 100 years ago to allow people to measure what the market was doing. It was sort of a proxy for the market. Some of the biggest companies -- countries in the company, McDonald's, Hewlett-Packard, Home Depot, GE, Pfizer, Alcoa and American Express and it are these things that we talk about when we talk about the Dow being up or down.
In fairness we should talk more about the S&P 500 because it's broader. It's got 500 stocks in it, but in truth, they've been moving largely in lockstep. It's a temperature gauge of how the market is doing.
ROMANS: It's like a thermometer, you go outside and you know it feels cold, but you look at the thermometer and it tell us you it's cold. That's what the Dow Jones Industrial Average is doing. It is interesting because this week the president had his own remarks about his own fascination about watching the Dow go up and down.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: You know, the stock market is sort of like a tracking poll in politics. It bobs up and down day to day, and if you spend all your time worrying about that then you're probably going to get the long-term strategy wrong.
(END VIDEO CLIP)
ROMANS: It's a good point except it enraged some people in the investor class because they have actually lost money on that tracking poll and they're watching this tracking poll trying to figure out -
VELSHI: For the investor guy, we need our viewers. It's your 401(k), your IRA.
ROMANS: That's absolutely right. When you look at the Dow go down and you look at the S&P 500 go down, it means that the value of the stock component of your 401(k) is going down and that number I told you, $6,600, that's not just a 100 percent stock portfolio. That's the average 401(k) plan. That means those people have bonds in there, they have stocks and they might have some currency exposure, so people are really hurting.
Diane Swonk, the chief economist at Mesirow Financial, and Ken Rogoff, professor of public policy and economics at Harvard are here and they're going to try help us understand how important the stock slide is and when it's going to end. Ken, you've studied some 300 financial crises and we're in as Paul Volker says the mother of all financial crises. Is what's happening in the stock market reflecting the fact that we haven't got a handle on how to fix this yet?
KEN ROGOFF, PROF. OF ECONOMICS, HARVARD UNIV: I'm afraid it is. I mean, in a typical, deep, financial crises like this the slide can go on for another year or two. I don't know if stocks really are going to hit the bottom until 2010. I saw President Obama the other day say that stocks are a good buy. He might be right, but I think there will be a better buy in six months.
VELSHI: Right. Think about that if you're buying something at retail, Diane. Something might be 50 percent off might be a good deal doesn't mean it's not going to 70 percent off at some point, but, at some point for investors, for our viewers who are in the market should they be thinking about getting out, staying in? What do you do with a market like this?
DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Well, you know, it's kind of like trying to catch a falling knife right now and you just want it to hit the ground and be able to pick it up while it's still safe rather than trying to catch the falling knife.
With that said, I really think, what Ken said is right. We have a crisis of confidence in the country and that's confidence that it is a poll. The stock market is a poll of the confidence in the country and we've lost confidence in our political leadership and confidence in our business leadership and it's gone on for some time.
I keep thinking back to something got to give and when Jack Nicholas said to Diane Keaton, I've always told you some version of the truth. We keep hearing some version of the truth; we need to get the truth. And I think Ken is exactly right, the market may be a good buy today and I am invested in it, but I've been invested in it a long time and I've been riding it down. If I knew where the bottom was going to go I'd be a very wealthy person.
VELSHI: You'd be calling this interview in from your airplane or your yacht.
SWONK: You got it. I won't be ostentatious to get in an airplane for myself.
VELSHI: That's right. At least not with borrowed money. Diane, tell me this then, the tracking poll doesn't actually delay your retirement. Do you really think this thing can go on for as long as Ken's suggesting?
SWONK: Well, I don't -- I don't know exactly when it's going to bottom. I don't have an idea. I do think by 2010 we have put in place factors that will help the economy, there is no silver bullet, but over the next six to twelve months they will help a little bit, even something as marginal as the census, we'll be hiring 1.3 million workers to work on the census which will mitigate the pain before the end of the year.
So there are things good coming down the pipe, the problem is there are no silver bullets and we're still feeling the after shocks at the financial tsunami that hit once Lehman went down on September 15.
ROMANS: Let me ask you both for just a quick answer and let me ask you first, Ken, we haven't found the right yet for how to fix this. Is Wall Street's saying that they don't have confidence in this administration at this point?
ROGOFF: I'm afraid so. We need to see consistency. We need credibility. We need clarity, and I think I have to give the administration a C so far on these in the financial sector. They just haven't tackled the bull by the horns. I do think they understand and I do think they get it, but just don't have the political will, legal problems to confront it and the market's starting to realize this. They thought that Obama, President Obama had the power. He certainly has this incredible team would come in, clean things up and at least we could look out to 2010.
ROGOFF: And things would be better.
ROMANS: Diane, quickly. They're calling this the Obama bear. People on the street are calling this the Obama bear. It's almost down 20 percent since he was sworn into office. Is this a vote of no confidence?
SWONK: I think it's unfair to blame it all on Obama given how little was done during the crises by the Bush administration. That said, I think Ken really hit the nail on the head here. Congress has been doing partisan grandstanding and there is no bipartisanship and that was the era that Obama was sort of voted into office to usher in.
And so far, there has been this failure to get bipartisan support and put aside party ideologies and get pragmatic about the problem at hand, and I think that's where the no confidence has come from. Congress has to remember they had a lower rating than Bush and they still have a lower rating than Bush.
VELSHI: Diane, good to talk to you. Thank you for being with us. Diane Swonk is the chief economist at Mesirow Financial joining us from Chicago. Ken Rogoff is going to stay with us. He's from Harvard. We're going to talk about why AIG matter so much. Why does it matter to save AIG, why can't we let AIG go the way we are talking about letting GM go. We're going to hear from the boss the top man at AIG when we come back.
VELSHI: All right. Let's talk about AIG. Again, AIG getting more money from the government and declaring the biggest loss in U.S. corporate history which is really giving birth to a lot of comments about why on earth we continue to bail out AIG. Let's talk a little bit this. Listen, don't get mad at me. I'm not telling you that you should or you shouldn't. I just want to talk about AIG.
AIG has 74 million insurance policies around the world. These are individuals and these are companies, 130 different countries this company does business in. It's a big, big company. Let me just tell you, this isn't just your home, your auto, your life insurance only program they do homeowners and auto and travel and life insurance, that's part of what AIG does, but it is much bigger than this.
Business doesn't operate if there isn't someone taking on the risk of doing that business. So AIG is involved in insuring 401(k) funds, mutual funds, S&P 500 is insured by AIG, the Dow Jones Industrial Average, those are just some of the things in the financial world, but even beyond that, it is really broad, banks are insured by AIG, major airlines are insured against crashes, that U.S. airplane that went into the Hudson River, that was insured by AIG.
Hollywood movies are insured against their stars getting injured and putting the movie up. Oil rigs are insured against hurricanes and without insurance businesses wouldn't take the necessary risks. That is not to say you need to save AIG. It is to say that AIG is very, very tied into business around the world.
ROMANS: This administration has been clear that it is not going to let AIG go down. It said this week, the Treasury Department said it's going to take time to stabilize this company and help figure out how to get rid of some of its assets and figure out how to get it back into a position where it's safe and sound for the rest of the global economy and it might take more money. Keep in mind; this is a big, stable insurance company mostly.
VELSHI: With a very small, dangerous stupid bet.
Ben Bernanke was testifying before Congress. He's the Federal Reserve chief, and I haven't heard him talk like this. He was saying if there was anything that really got under his skin this year, it was AIG. Listen to what he said.
(BEGIN VIDEO CLIP)
BEN BERNANKE, FEDERAL RESERVE CHIEF: I think if there's a single episode in this entire 18 months that has made me more angry, I can't think of one than AIG. AIG exploited a huge gap in the regulatory system. There was no oversight of the financial products division.
(END VIDEO CLIP)
ROMANS: Yeah, no oversight and now you've got a situation whereas; Ali Velshi sat down with the CEO of this company. You have a company that is trying to dig itself out of this mess and it's facing growing outrage from the American public who just can't understand how a company can lose so much money last quarter and then need more money. VELSHI: AIG is now run by a gentleman named Ed Liddy. Liddy was not there when all these problems occurred. He moved in in September to fix the situation, we were soliciting comments and a lot of people were saying how this guy sleep at night, he's working for $1 a year. He's trying to serve this company by fixing this company.
Here's what he said about the danger of the failure of AIG.
(BEGIN VIDEO CLIP)
EDWARD LIDDY, CHAIRMAN & CEO, AIG: From an institutional standpoint the failure of AIG would rattle through the financial system on a worldwide basis. We need to keep some confidence in the system. What the federal government is doing through AIG is making certain that they take every step possible to keep confidence in the financial system.
(END VIDEO CLIP)
ROMANS: Let's bring back in Ken Rogoff of Harvard University, he's studied 300 plus international crises and he knows about the financial system. Are we doing the right thing, Ken to bring stability to the financial system by propping up companies like AIG? Can AIG be allowed to fail?
ROGOFF: Well, if we allow AIG to fail it's going to radiate out into all of the markets. What they were as Ali explained is doing a lot of plain vanilla insurance and then suddenly they got into all of this stuff that I think they didn't understand and we just don't know how much they lost, they lost $61 billion. How many trillions of dollars did they have? They they've become like a bookie with a gambling problem. It's hard to know what's there because we don't really have the information. I think that one way or the other the taxpayer will end up paying a lot. I don't see how we can keep AIG in its current form forever.
VELSHI: They're going to give over some very valuable parts of the company to the U.S. treasury. There have been some estimates, we're into AIG for about $160 billion and there are estimates that it will go up to a quarter of a billion dollars. When I talked to Ed Liddy he didn't deny that, but he did say it's needed because without it you'll have bigger dangers.
Listen to what Ed Liddy said about the banks.
(BEGIN VIDEO CLIP)
LIDDY: We can't have people standing in front of banks wondering whether they can make deposits or withdrawals. We can't have people standing in front of life insurance companies wondering if their policies are safe. We need to keep some confidence in the system.
(END VIDEO CLIP)
VELSHI: Ken Rogoff, is he overstating the point? If AIG were to disappear would there be someone else who could take over the policies that it holds even with the largest of businesses in the world?
ROGOFF: I mean, what you have to do is regenerate AIG. It would have to go through bankruptcy, you'd have to clean it up, but unfortunately we don't have a way of doing that and there would have to be a way to spread out the losses. I'm not sure that the taxpayer can keep taking it forever. $161 billion, who knows if it would stop at a quarter trillion, it, could go a lot deeper.
I think at some point when they finally get a plan for the financial system including the investment banks and the banks will be ready to tackle AIG, but if they don't have that in place which, unfortunately, the Obama administration doesn't yet, then they can't let AIG go because instantly, the big investment Goldman Sachs, many others would be in deep trouble.
ROMANS: All right. Ken Rogoff from Harvard, former chief economist with the IMF. Thank you so much, Ken. Always nice to see you.
ROGOFF: Thank you.
VELSHI: Warren Buffett said to be the world's greatest investor.
ROMANS: He wrote a letter to his shareholders as he does every year and he had some really compelling things to say about what's happening next and what's happening now in the economy and your money.
VELSHI: Stay with us. We'll tell you what he said.
ROMANS: OK. So we know what we think about what's happening in the economy. What does Warren Buffett think? The Oracle of Omaha, he wrote a letter, his annual letter to his shareholders, his investors and he said Ali that the economy is in a shambles and throughout 2009, and for that matter, he said probably well beyond. He had some blame for Wall Street CEOs, unnamed CEOs. But he also took some of the blame himself.
VELSHI: We're trying to figure out; I think our viewers are trying to figure out, we know it's in a shambles. How far does it go? When does it start to turn around, do I keep my money invested? When we start to see some hope? Ben Stein, a noted economist, also commented on this situation. His evaluation actually goes beyond 2009. Listen to what he says.
(BEGIN VIDEO CLIP)
BEN STEIN, ECONOMIST: It's a terrifying situation. The hopes and retirement dreams of an entire generation are being wiped out. I have never seen a scarier situation for savers and investors in this country.
(END VIDEO CLIP)
ROMANS: I guess you could only hope when so many people are starting to get so pessimistic that maybe throwing in the towel is a sign that we're at least in the middle ...
VELSHI: In the market we sometimes call that capitulation when everybody says it's terrible, sometimes that's a sign that we're getting close to the bottom. But I don't want to curse it by saying that.
There are big problems. Along with these layoffs and jobs being lost and people being forced out of their homes, clearly many Americans are forced to make do with less.
ROMANS: That's right. CNN's Sean Callebs spent February trying to live on food stamps.
SEAN CALLEBS, CNN CORRESPONDENT (voice over): The crowded aisles at the grocery store never looked more intimidating, $176, the maximum amount in food stamps one person in Louisiana can receive. OK. I'm going to run out of money. I wanted to be as careful and as frugal as possible. Even state leaders in charge of the food stamp program had their doubts. How difficult do you think it would be for me to live on $176 for one month?
SAMMY GUILLORY, DSS OFFICE OF FAMILY SUPPORT: Very difficult, if you had no other sources of income or food.
CALLEBS: I started this project on Sunday, February 1st, $6.28 a day to eat. The first shopping trip cost more than $70. I knew I'd have to eat cheaply. Food got better, chicken, baked potatoes, healthy vegetables. By the final week, I knew I'd make it even though the cupboard got a lot more bare. The food was heavy on calories and light on taste.
Still, I consider myself among the lucky. I made it through the entire month. Across the country, there are millions of families like the Allens who live near Houma, Louisiana. Their monthly allotment of about $580 for food stamps always runs out before the end of the month.
JIMMY ALLEN, FOOD STAMPS RECIPIENT: If you can't make it or can't get it on your own, you don't need it. But that's not always the case whenever I've got a wife and six kids.
CALLEBS: For the Allens and 31 million other Americans on food stamps, pride takes a back seat to feeding hungry mouths. Food banks and churches try to fill in the gaps. But the simple answer is more and more families who never thought they'd be turning to food stamps are asking for government assistance.
ROMANS: Sean, we know that 700,000 more people just in one month signed up for food stamps. I mean, that looks like it pretty much mirrors the kind of job loss we're seeing as well. The ranks of the food stamp recipients are just growing. CALLEBS: Yes, exactly. I think one reason we got interested in this; about 26 million to 27 million Americans had been on food stamps or the S.N.A.P. Program for a number of years and basically this year, the last six months it spiked to 31 million. That's like the entire population of Atlanta suddenly having to reach out for food stamps.
ROMANS: You lost, what, five, six, seven pounds? You lost some weight on food stamps didn't you?
CALLEBS: I did. But it's kind of misleading. It's a carb heavy diet -- if you look at people in Appalachia, for example, who are on food stamps, its so carb heavy, that they gain weight if they're not very active. I had the luxury to run in the evening but for a lot of families that doesn't happen. Health concerns go up. If they can't afford doctors bills, who pays those.
ROMANS: Fascinating. Sean Callebs.
VELSHI: Sean, thanks very much for that.
With all the money that is not out there for a lot of states and cities you'll be interested to know what kind of interesting taxes you're going to be paying. There are all sorts of things that are going to be taxed that you wouldn't have imagined. We'll tell you about those.
ROMANS: Think pole dancing.
VELSHI: Well, if 45 states facing budget short falls, states and cities are stepping up efforts to get cash fast.
ROMANS: Raising that cash any way they can, think of this, ranging from porn to plastic bags. We have a report.
INES FERRE, CNN EN ESPANOL CORRESPONDENT: It is, after all, the world's oldest profession, so one lawmaker in Nevada says he's ready to consider taxing the state's legal brothels, so-called sin taxes are a way to close budget deficits. Florida legislators are looking at the Texan example of a $5 poll tax on strip clubs. In Washington, a proposed 18.5 percent tax against porn magazines and sex toys caused so much outrage that the bill died in committee.
CLAIRE CAVANAH, OWNER, BABELAND: The state comes in and levies a huge tax on what you're doing just because it happens to be about sexuality that is un-American.
FERRE: The taxing frenzy extends beyond porn. In New York State, $15 billion in the red, Governor Paterson proposed a so-called ipod tax, leviting digital content download. And a 4 percent tax on ski lifts tickets, golfing and movies. The industry that's actually seen increased ticket sales this year in the midst of a recession. BRIAN SIGRITZ, NAT'L ASSOC. OF STATE BUDGET OFFICES: They're trying to void the major increases, personal sales taxes that would affect everyone.
FERRE: In New York City, Mayor Bloomberg hopes to raise $18 billion by making shoppers pay a nickel for plastic shopping bags. The proposal in D.C. would charge five cents for plastic or paper bags. Some groups say narrowly targeted taxes are bad policy.
JOSEPH HENCHMAN, TAX FOUNDATION: If taxes do have to go up, they should go up on everyone. The pain should be shared equally rather than trying to focus on unpopular groups.
FERRE: If it looks likes a tax and sounds like a tax, it probably is a tax, even though that's what they don't call a plan in Connecticut to double license fees for fishing and hunting.
Ines Ferre, CNN, New York.
ROMANS: Hey, you know, it's spring forward this weekend. Change your clocks. And also change the battery in your smoke alarm.
ROMANS: This is the time of year to do it.
VELSHI: And anything else you need to do twice a year.
ROMANS: Make sure you do this every week for YOUR MONEY; Saturday's at 1:00 p.m. Eastern and Sunday's at 3:00 right here on CNN.
VELSHI: You can also login 24/7 to CNNMONEY.com. Have yourselves a great weekend.