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YOUR MONEY

Unemployment Spreading, Bipartisan Summit Theatre, Underwater Mortgagess

Aired February 28, 2010 - 15:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


ALI VELSHI, CNN NEWS ANCHOR: Welcome to YOUR MONEY. I'm Ali Velshi.

CHRISTINE ROMANS, CNN NEWS ANCHOR: And I'm Christine Romans. The U.S. Economy grew at 5.9 percent in the last three months of 2009, another sign that the worst of the recession may be over. But in the new normal that is our economy, nothing is ever as it seems.

Consumer confidence tumbled, nearly one out of every four mortgages is underwater. That means you owe more than the home is actually worth and the banks are still in big trouble -- the number of troubled banks on the rise. One area where a comeback seems to be in full effect, Wall Street -- bonuses up 17 percent in 2009. It may be a recovery, Ali, but as you can see, it's a very fragile one, at best.

VELSHI: That's right, Christine. That brings us to the heart of the matter, which still remains jobs. Obviously, if we had better employment positions, people would feel better about the economy. Take a look at this map. It provides a shocking visual of how unemployment has spread like a virus throughout the country. This was provided to us by LaToya Guaqua (ph) at Guaqua, she put this together as a graduate student.

And what you're seeing there is as the map gets darker, that means unemployment in those places is worse than it was the previous month. And you've seen this develop over the course of the last couple of years. Unemployment now standing in those particular darkened areas at 10 percent or higher.

ROMANS: And that is the political reality that's facing so many in Washington and so many of us at home, trying to make sense of the statistical recovery, as Larry Summers, one of the presidents of money man put it, but the human recession that we're still going through.

David Gergen is a CNN political analyst. April Ryan is the White House correspondent with the American Urban Radio Network. And Douglas Holtz-Eakin is president of DHE Consulting and a former economic adviser to John McCain.

Now, Doug, when you look at a map like that and you see that stain of unemployment spreading across the country, it means that economists, politicians, and Main Street are all very, very nervous about the condition of America, doesn't it?

DOUGLAS HOLTZ-EAKIN, DHE CONSULTING, LLC: Yes. And they should be. This recession is so severe, precisely because that map is dark everywhere. In a lot of recessions, there are states that escape the brunt or even grow completely. That's not the case in this recession. There's pain everywhere in the U.S.

VELSHI: Let's take a quick look at this unemployment bill that was passed by the Senate. David Gergen, they passed a $15 billion plan. The jobs part of it is it's going to give a tax break to companies that hire people who have been unemployed for a while. They're actually going to not have them pay the social security portion. So, it's a small amount, about $3,500 in the first year for businesses. There are other things in that bill, as well. It doesn't include the jobless benefits extension.

David Gergen, this has to be reconciled with a House bill that is much bigger. I don't even know how that process is going to end up, but is this right direction for the government in terms of creating jobs?

DAVID GERGEN, CNN SR POLITICAL ANALYST: I think it is. And the good news is that the Senate bill got 70 votes. It got a number of Republicans to come over, Scott Brown being the first one out of the gate to come support it. So it was bipartisan in nature.

The bad news is that it is so small. The Senate was contemplating a much bigger bill. The house passed a bill of $174 billion. The administration asked for $150 billion and they came up with 15. The "New York Times" has editorialized this as "pathetic," they called it "puny." And it really will not create many more jobs. I think the real question now, Ali -- I think this will be passed by the house, by the way, they've got some irons to wrinkle out. But the question is, where do we go from here?

The country clearly does not want another stimulus bill. What they want is something much more targeted. And the issue becomes and Doug and other economists can respond to this, but are there pieces you can carve out, such as infrastructure, that would make sense to continue and make sure you don't get into a lot of the pork that we saw in the stimulus. And that's going to be the hard question.

I think it is -- there's no question that the Senate will act, the House will act on extending the unemployment benefits. There's no question they'll act on extending COBRA, which is important for people's insurance purposes, but I think the hard question is, where do they go from here after this $15 billion start, which is a tiny start.

ROMANS: Right, April, he calls it a tiny start and many of the economists we've talked to says it will have modest jobs growth at best. That's one of the reasons why some of the Republicans felt like, you know, look, we don't have this money in the first place and it might not create that many jobs. How do we make a dent in the unemployment situation? And is the Senate bill have a targeted stimulus from here on out, or is it the right plan?

APRIL RYAN, AMERICAN URBAN RADIO NETWORK: Well, from what I'm hearing, the way you make a dent is not this bill. Their saying, the people I've talked to, including members of the House, saying, Democrats particularly, they're saying they don't like it. They're saying one way to make a dent is to extend unemployment. To take that money, you know, extra, beyond the 13 weeks, to take that money and push it into the economy so people will spend and you can see a little bit from that.

But then also that you're hearing that this doesn't have enough dealing with jobs. And I think what's happening is we've seen the problem with the stimulus package, as we talked about a moment ago, the fact that the stimulus package has problems. The stimulus package, you have not seen all of the moneys go to the shovel-ready projects as of yet. So, they're trying to learn the lessons from the past of the stimulus package, but they're also having some problems with this, because they're not focusing more so on job creation. So the dent is, from what we're hearing, put more jobs in there, more shovel-ready projects and also extend unemployment.

ROMANS: Doug, is this the right thing to do? I mean, are targeted stimulus plans or just taking little pieces of the jobs, safety net situation, and addressing that, is that the right way to handle this? And also, Ali and I talked a lot about this, this week, the government can't really create jobs unless they're government jobs. They can create the atmosphere under which private industry can create jobs. Is this really going to help small businesses doing some hiring?

HOLTZ-EAKIN: Well, I think you said it exactly right. In the end, the government doesn't create jobs. It can speed the recovery of the private sector jobs and even there, its tools are limited. So, one of the things that I think makes sense is to extend unemployment benefits, those automatic stabilizers, the things that put more money out when things are bad, but get smaller automatically when the economy recovers, those are a good idea.

I had some hope for the jobs tax idea here, because, first of all, it was bipartisan in its origin, Senator Hatch and Senator Schumer. I thought that was a good step for Washington. No. 2, it targeted the problem. The problem is the labor market. The payroll tax is the biggest tax most Americans pay. Unfortunately, it's not very big. And it will have only modest effects. But I think if you paired something like this, maybe in a more aggressive form, with the plan to get rid of the deficits in the years to come, the markets would responsible favorably to that.

What's been missing in all of this has been an exit strategy where the private sector can say, you know, I can see the way out for the government. They're going to withdraw their efforts. There'll be room for me to grow.

ROMANS: All right, everyone stick with us. Douglas Holtz- Eakin, also David Gergen and April Ryan and our very own Ali Velshi. Don't go anywhere anybody, we have a lot to talk about.

All the big-wigs, of course, gathered for the president's health care summit, but with all that power in one room, did anything actually get done?

(COMMERCIAL BREAK)

ROMANS: President Obama, this week, calling a bipartisan summit on health care to break through the gridlock.

(BEGIN VIDEO CLIP)

BARACK OBAMA (D), UNITED STATES PRESIDENT: Part of the goal here, I think, is to figure out what are the areas that we do agree on, what are the areas where we don't agree, and at the end of that process, then make an honest assessment as to whether we can bridge these differences.

(END VIDEO CLIP)

ROMANS: But after a full day of serious and televised discussion, did Democrats and Republicans find any common ground or was it all political theater -- Ali.

VELSHI: All right. Well, let's take that to our panel. April Ryan, Doug Holtz-Eakin and David Gergen. I want to start with you, Doug, having watched every last detail and fact checked it, the bottom line is, I don't that we're any closer to an agreement on any particular aspect of health care than we were before this summit. What did we get out of the summit? What did you take from it?

HOLTZ-EAKIN: I don't think we got any real progress toward a bipartisan bill out of the U.S. Congress. We did get some good political theater. We actually got a pretty serious discussion of the issues involved in health care reform, but unfortunately, the meeting was a year to late. This is a meeting that had to happen last year, before the legislation was set in stone, at a time when you could actually engage Republicans and get them on board by having Democrats accept some of their ideas. I saw Republicans and the president engaged, but I didn't see Republicans and Democrats on the Hill, their counterparts, engaged. I don't see much future there.

ROMANS: April, you were there covering this for the whole day. And I want you to listen to what Senator Lamar Alexander said and tell me if you think this is the right approach.

(BEGIN VIDEO CLIP)

SEN LAMAR ALEXANDER (R), TENNESSEE: We've god to do something. And that's about -- that's where we are. But we think to do that, we have to start by taking the current bill and putting it on the shelf and starting from a clean sheet of paper.

(END VIDEO CLIP)

ROMANS: A do-over. We've been looking at this for months. The White House would like to get moving on something new and soon. He's calling for a complete do-over.

RYAN: The president and Democrats are saying no do-over, it's not going to that, because if you do it over, they're not going to get anywhere. They're as close as they've ever come before, even with all of this wrangling.

And you know, going back to the earlier question, the Congressman James Clyburn, the House minority whip said, yes, there is theater in this, and they included many Republicans to include Cantor and Mr. Lamar Alexander, because saying what they're doing is nothing but theater. But both sides do contend that, look, we have to do something. And the cost of this is so exorbitant, $1 trillion, but look at the cost, $1 trillion for this versus the fact that you have other insurance companies all across the country talking about possibilities of raising rates.

You have Anthem in California talking about raising rates by 39 percent and over states are talking about doing it, other insurance companies in other states. So, $1 trillion versus the cost of going up, you know, right now insurance in this country, 17 percent of the economy, two to three times of that of inflation, one in every six American dollars for insurance. And imagine if they don't do anything and all these other insurance companies around the country raise rates, what's going to happen then?

VELSHI: Yeah, David, let me ask you about that. You know, you were watching it along with me yesterday, all of the detail. I thought there was something fascinating about the fact that all of these different constituent people were having a conversation with the president. I did enjoy it. But in reality, with this idea of a blank slate, starting again came up a few times. Is that practical, given that what we kept hearing from Republicans and Democrats is that they're not even close on many parts of health care reform.

GERGEN: I thought it was the best conversation the country has had about health care since this whole debate started. I agree that had we heard it a year earlier, it would have been much more productive. What it did reveal is that everybody in that room thinks that the status quo is intolerable, that we have to do something.

The disagreement is over whether this big omnibus bill is the right answer or not or whether it's going to make things worse. And that's a sharp disagreement. What clearly we're now not going to get a bipartisan deal, they are too far apart, Democrats don't want to start over, Republicans don't want to sign on to this bill. So, a bipartisan agreement is now off the table after this meeting.

Where we're going is, the question becomes, can and should the Democrats pass this omnibus bill through this so-called reconciliation process. And they're going to be thrashing around on that over the next four or five weeks. I think that we will now see a lot of dialogue and debate and as I say, thrashing, for a while here and we're not going to know whether the Democrats are going to pass this bill or whether they'll attempt to go to plan "B," the so-called "Skinny Bill." And I think there are a lot of questions that need to be resolved.

What's striking about this, of course, in his State of the Union Address, the president said "jobs, jobs, jobs, that must now be our focus." And only a few weeks later, here we are back into health care again. And I think the country is sort of scratching its head, what about the jobs? And I think it's really imperative that the Congress tonight to work on jobs, even as we have this sort of large- scale debate over health care.

ROMANS: I don't think a lot of Americans think that they're elected officials feel their pain, quite frankly. And you look around that table, and quite a few of those people would not be able to go out and purchase health insurance on their own. And that is the truth, when you think about it. They would be uninsured if they didn't have that nice job that we've put them in. So, I think that's why there's some, I don't know, skepticism and cynicism among the American public.

RYAN: One person said yesterday they had a replaced hip and something else going on and they said, you know, if they didn't have the insurance they have now they would vice president have gotten it. I don't think so. That's true.

ROMANS: Yeah, all right. April Ryan, thank you so much, American Urban Radio Network, the White House correspondent, there. Thank you so much. David Gergen, CNN senior political analyst, and Doug Holtz-Eakin is -- he's going to stick around for us for another go of it, here, right after the break.

You know, for a while it looked like housing was on the rebound. What we learned this week shows that the mortgage meltdown may be far from over.

(COMMERCIAL BREAK)

ROMANS: April 30 is the deadline for home buyers to sign their contract if they want up to $8,000 in tax credits. The Federal Reserve is also planning to stop buying back those mortgage-backed securities next month, which most experts agree, Ali, will lead to higher mortgage rates down the road.

VELSHI: Now, help for the housing market, that means, might be drying up before this housing recovery is complete. Existing home sales were off more than seven percent last month while new home sales fell to a record low in January. And a startling one in four mortgages in this country are underwater, meaning that those homeowners owe more than the home is actually worth. Now, this means that foreclosures will continue to weigh on lenders and borrowers alike. This map shows the hardest-hit areas of the country. Nevada, now, seeing 70 percent of all mortgaged properties underwater.

ROMANS: That's just unreal, those statistics. The mortgage meltdown started this mess. Are we right back where we began?

Don Peebles is a real estate developer and CEO of the Peebles Corporation. Douglas Holtz-Eakin remains with us, as well. Let me first bring you into this discussion, Don, a lot of people have telling me the peak of foreclosure activity, the trough of the housing mess was in the fourth quarter of last year and now people are scratching their heads and saying, wait a minute, maybe we haven't seen the worst yet. Where do you weigh in on this?

DON PEEBLES, PEEBLES CORP: Well, I think we haven't seen the worse yet. We've almost seen the worst, but what's happening now in states like Florida, a judicial foreclosure state, these foreclosures have had to work themselves through the court system. And now they're going to free up, for example, in south Florida alone, there are about 50,000 foreclosure cases pending in the courts right now, and as they work their way through the court system, they will then begin to put a new amount of inventory on the marketplace. Those are going to be at steep discounts as well and pull them down. So, I think we're going to see more of that and that's contributing to this lower volume.

And then, also, the inexpensive properties, the quality inexpensive properties have been absorbed. Now you're going to also see the impacts of markets like charlotte and other markets where they didn't have as much velocity in the boom and bust time, so now they're getting hit by the economic impact of job loss and sectors in the financial markets being hit by like Bank of America and Charlotte. And I think you're going to see that pull down price a bit as well and slow things down. And then, of course, there's jobs, jobs, and jobs.

VELSHI: Yeah, that's exactly right.

Doug, let's look at this for a second from the perspective of our viewer who might be a potential buyer or seller of homes. The reality is, we may see what Don is saying. We may see further lowering of the median price of a home over the course of the next year, but we are likely to see slightly higher interest rates. So, if you are a buyer or a seller, how do you read these tea leaves and decide what you're supposed to do over the course of the next year?

HOLTZ-AEKIN: Well, it's pretty hard to. I'd say for buyers, they should recognize that we're seeing a normalization of policy toward the housing market. The government shouldn't be in the business of bribing people to get new homes and it's getting out. The Federal Reserve shouldn't be in the business of...

VELSHI: I'm just going to stop for you a second. When you say normalization of policy, you mean, we're going to stop keeping interest rates really, really low. Which mean it's going to become more expensive to buy a house.

HOLTZ-AEKIN: Absolutely. And the tax credit is going to go away. So, if you're on the buyer's side, you're going to see all that special help go away. Now is the time to move. If you're on the selling side, we'll there's a lot of inventory out there, we are going to see a downward pressure on prices, still. So, it's a mixed picture for the U.S. housing market.

And Ali, it's very closely tied to the jobs issue in two ways. No. 1, we're getting increasing evidence that many of the small businesses who aren't hiring at this point, aren't hiring because they borrow against the owner's home in order to finance themselves and they can't do it in this environment.

And the thing we've learned is that if you've got a house that's under water, you can't really pick up and go find a new job. And traditionally that mobility, the chance to go to a new place has been part of the recovery. Both of those things are being handicapped by the housing market.

ROMANS: And that mobility thing really concerns me. Concerns a lot of people that I talk to, because that's been something that's been a very defining characteristic of this American economy, that people get up and they move and they try something new. And when they have a good opportunity, they take it.

You know, I want to ask both of you, but quickly first, Doug, you know, how do you know if you're that first-time home buyer and you want to sign a deal by April 30, how do you know that -- for example, in Miami, there's a forecast from Moody's that prices could go down by another 29 percent by next year. How do you know if you buy today, you're not sitting on something that's worth 20 percent less next year?

HOLTZ-AEKIN: Well, I think the lesson is, don't be in the business of buying a house with a one-year horizon. This is a long- term investment. Make sure you're in it for something that's going to last five, 10 years.

ROMANS: What do you think, Don?

PEEBLES: Yeah, no, I think, first of all, people should buy homes because they need them. They are a utilitarian purpose, they provide shelter, buy them for that purpose. If you're committed to that location at least a five-year horizon, then you should buy. Otherwise, I think you should rent. I do not believe, by the way, that south Florida prices or prices in Miami will drop close to 30 percent. I think we may see another price drop of around 10 to 15 percent in some sectors, in the most affordable sectors, but the high end for example, the super high end, is holding its own, right now and...

VELSHI: Well, we've got two of you on here with great perspectives. One is an economist and Don, you are a very, very successful developer. And successful developers don't buy at the top of the market. So, are there opportunities, given that we know interest rates are likely to go up, even if house prices are going 10 percent or -- down 10 percent or 15 percent in some markets, is there opportunity here, if you are going to live in that house?

PEEBLES: Absolutely. Give you an example. I just bought a vacation property. My daughter rides horses and she rides in the Palm Beach area. So I bought a condo in Palm Beach that sold in 2005, brand-new, five-star building, it sold for $2 million. The loan on the property was $1.5 million. I bought it for $600,000. The bank wrote the loan down to $500,000. So just imagine, that's a tremendous opportunity. So, what if prices drop another, you know, 10 percent, so it drops $50,000, but the reality is it will bounce back and I get to use it at the same hand. So, there are opportunities for the average person to buy. There are opportunities who those who want to buy on the vacation side and then going into the commercial sector, there are going to be tremendous opportunities.

ROMANS: If you have a job. And that's the whole thing that we keep talking about. So everyone...

HOLTZ-AEKIN: Right, that's the key.

ROMANS: We have to wrap it up, but just nod your head or shake your head for me, everyone, including you, Ali, if you think mortgage rates are going up and -- are mortgage rates going up, everyone?

VELSHI: Yes.

HOLTZ-AEKIN: Yes.

PEEBLES: Yes.

ROMANS: And we could see home prices go down a little farther from here? Yes?

VELSHI: Yes.

HOLTZ-AEKIN: Yes.

PEEBLES: Yes

ROMANS: OK, buyers and sellers, you've been warned by two experts and Ali.

(LAUGHTER)

ROMANS: Thanks, Doug Holtz-Eakin, thank you so much. And also Don Peebles. Gentleman, fantastic discussion.

Almost a year from Bernie Madoff's sentencing, I'll sit down with one victim to hear how she's picking up the pieces.

(COMMERCIAL BREAK)

ROMANS: It's been almost a year since the sentencing of Bernie Madoff. Bernie Madoff, of course, the man who stole billions of dollars from thousands of people. He pleaded guilty to 11 charges, including money laundering, perjury, and false filings with the SEC, More recently, this week, the swindler's daughter-in-law filed to change her last name in order to rid herself of the ordeal and her children too.

But for some, reinventing yourself is not as easy as a name change, especially when you've lost it all. You may remember my next guest. We first spoke to Alexandra Penney just weeks after the news of the Madoff scandal came out. She lost almost all of her savings to Madoff. Now she's sharing her story in her new book "The Bag Lady Papers: The Priceless Experience of Losing it All."

Alexandra, what's so priceless about making all that money from working so hard and then losing it all?

ALEXANDRA PENNEY, THE BAG LADY PAPERS: Well, you learn a lot. The thing that that happened to me was I surprised myself and I thought I was going to fall apart. My worst fear had come true, I lost all the savings I ever made since I was 16 years old. I was terrified about being a bad lady. Not -- an emotional fear, not a real fear. I call myself, by the way, now, a PORC, a person of reduced circumstances, like many Americans.

But why it was priceless was one you learn you can go through your worst trauma and you will be OK. And you learn a lot about yourself, you learn a lot about your friends. I had adventures that I could not believe. I got to go to Africa to do photography and be paid for it, never would have happened before. So many things, both in terms of adventure, but also psychologically, made me a lot stronger.

ROMANS: There's a parallel here, for millions of people who have lost their home, lost their job, lost their house, who may not have been able to become a best-selling author during their heyday or become so financially secure as you were, but who also lost it all. What's a parallel for people who are watching today saying, you know it's very difficult to say that this experience that I'm going through is priceless?

PENNEY: Well, what I think you need to know when you go through something like this is there are several things you can do to help yourself. I'm a wild worrier, and that's probably why I had these fears. But what you start to do is I started doing three-letter acronyms. Which is, stop negative thinking. Do not think, which I was doing, like, what am I going to do about the next catastrophe. Otherwise you melt away into a panic.

And then stop thinking about the future. You just live in the present. Old cliche, you know you hear everybody say that, but I now have my cup of coffee in the morning, it's not Starbucks, can't afford that, but I literally stop and inhale the aroma and say, I'm hear, I'm OK.

ROMANS: "The bag Lady Papers: The Priceless Experience of losing it all." You don't look much like a bag lady this morning.

PENNEY: Well I can tell you, you know I will say, very cheap shirt, very cheap sweaters. .

ROMANS: And no Starbucks.

All right. Alexandra Penney thank you so much for joining us.

PENNEY: Thank you.

ROMANS: Toyota's CEO on U.S. soil this week. What will the major recalls mean for brand loyalty? Will American's still go to Toyota?

(COMMERCIAL BREAK)

ROMANS: Let's take a look beyond the headlines. Joining us now, Don Peebles, real estate developer and CEO of The Peebles Corporation and Richard Quest, host of CNN's I's "Quest means Business." The dollar rallied against the Euro earlier this week and according to the European Commission economic sentiments in the 16 Euro countries worsen this month for the first time in more than a year. So is this a sign that the European recovery is losing steam? And Richard Quest with the apologies to ban the John Travolta and Olivia Newton John, "Greece" is the word here, isn't it?

RICAHRD QUEST, CNN HOST, "RICHARD MEANS BUISNESS:" Well the problem is not just Greece. It is whether you want to go to Spain, Portugal, Ireland, or Italy. For countries like Germany, it is their worst nightmare come to fruition. They got rid of their beloved deutsche mark. They signed and hitched their wagon to this new instrument called a Euro, but like any chain, it is only as strong as its weakest link and those weak links now appear to be in the southern Mediterranean part of Europe.

And what they are discovering is countries like Greece lied and finagled and were very, very obscure about what their real economic position was. And now you have that dreaded word, contagion. It is spreading, it is getting deeper, and nobody really knows exactly what to do, frankly.

ROMANS: Well here is the interesting thing, Ali. Several people have told me, several economists have told me, don't worry. Greece is not Europe's Lehman Brothers. And I say, you even have to deny -- oh, wow, to even say that starts to make me nervous.

VELSHI: Spent a good year and a half or two telling us about how Europe is all sore with America for having been irresponsible in regulation and foreseeing problems with debt. Tell me again, Richard, why Greece is not Lehman Brothers or something else? Just explain this to me again.

QUEST: Oh, you don't try to get clever on this one, Ali. The reality is that Greece is a small part of the European Union economy. But the contagion effect could be greater. Now, the European Central Bank, the big economies of Europe like France, Germany, the UK, Spain, even non-Euro countries can easily withstand that, but the fear is that nobody knows just how far those deficits will be and whether or not as they bring them down, of course, the economy goes further into the tank.

ROMANS: Just shows you, you can't make this stuff up. It just gets more interesting -- you think you dodge one bullet and then you see another one coming down the pike. Let me talk about this quickly, the Toyota story this week. It's CEO, Akio Toyoda, in the hot seat, appearing before a congressional committee. The Japanese carmaker has been harshly criticized for not responding quickly enough to consumer complaints. Mr. Toyoda acknowledged the company has made mistakes. Will public scrutiny, do you think over all these recalls, you know, will it turn loyal Toyota owners and buyers to other brands? What do you think?

DON PEEBLES, CEO, THE PEEBLES CORPORATION: Oh, yes. I think this is going to have a significant impact on Toyota. And actually the Congress has not handled this as well as I would have expected. Because they've been looking to point the finger rather than getting to the real issue, not disclosing it is one thing, but also the fact that there are defects that are killing people. People are dying in these accidents. And this is a very serious issue. It reminds me of what happened with Ford Motor Company and Pinto, where Ford Motor Company actually made a business calculation as to whether the design change was more costly or settling litigation when people had accidents.

Toyota obviously made some economic decisions about whether or not they were going to go forward and make any adjustments. One, I think people are losing significant confidence in their brand and in fact, you can see brand loyalty decline six points over the last -- since this crisis happened. And I think that's going to continue to happen and you're going to see customers look for comfort. Because once you lose trust, it's very, very difficult to gain it back and it takes a tremendous amount of time to build that brand loyalty. And now that brand loyalty based on trust, based on quality, based on efficiency and dependability is gone.

ROMANS: You know Ali, its still number 17 on the list of complaints according to Edmunds.com. There are a lot of car brands ahead of Toyota on the list of complaints, when you measure it by number of vehicles sold, but this must be a nightmare for management of this company.

VELSHI: Yes and I don't think you're going to see an upsurge in everybody complaining about everything on their Toyota. I think every Toyota owner right now is concerned about brakes and acceleration and probably not a lot else, because those cars generally work well. But Richard we were discussing whether or not this company was doing enough to fix its image. And I think that Akio Toyoda decided to come to America to try to help that situation.

I have to tell you I think in the last four or five days, things have gotten worse for Toyota, particularly since it does seem like they knew a little more about this earlier than they had initially said. You think it's getting better or worse for them?

QUEST: I think in terms of Mr. Toyoda himself, the fascinating part was it's very difficult to beat up on a man who's doing a good job of beating up himself. I've seen the reports that said he didn't seem contrite enough, he didn't seem, some congressmen felt that he wasn't being -- he didn't seem sorry or remorseful enough. I'm not sure what the man could do more than that. He went there, he said, I'm deeply sorry, I take full responsibility. He said, the buck stops with me. Now, short of committing ritual, what more could people want him to do before the U.S. Congress? What did he know? When did he know it? The detail will all be in the papers, and that, of course, will be up to the discovery processes in the litigation.

VELSHI: That means we're going to continue this discussion at another point. Don Peebles and Richard Quest, stay right there.

Coming up next, why the head of Google thinks he knows the answer too many of our broken government's problems. (COMMERCIAL BREAK)

VELSHI: All this past week, we've been talking about broken government here at CNN, ways to improve our government. I spoke with the CEO of Google, Eric Schmidt, about increasing efficiency and whether technology could help us measure and track every dollar spent in government.

(BEGIN VIDEO CLIP)

ERIC SCHMIDT, CEO, GOOGLE INC: In our industry, we think that this is almost comical, because we can track everything down to the penny, to the cent, to the user, to the access. Modern computers are particularly good at that. And it makes me crazy to have all these conversations. Just ask! We can know who did what, where they went, what they did and so forth with the money. And if you look, for example, at the bailout, they're still arguing over where the money went. How can this possibly be true?

VELSHI: We put on Facebook and twitter that you were coming to talk to us. And you know, this is a big company. Google is a big company. As of the end of 2009, more than $40 billion in assets, $2.7 billion in liabilities. Boy, would we wish our federal budgets had that kind of a ratio, and 20,000 employees. So very, very large company, not as large as the federal government and as somebody said on Facebook, you don't have to deal with Congress; you don't have to deal with the House of Representatives and the Senate. How much of that hampers efficiency and what would you even do about it?

SCHMIDT: Well, the framers of our constitution specifically did not want a very strong large centralized federal government. They wanted the power to be in the states. We've gotten ourselves into a situation, since we do deficit spending, the federal government has all the money and the states don't have money to experiment. So we're in a situation where the federal government has all the power and the money, but it's not organized around a single CEO or the presidency or what have you, which I think is what's driving everybody crazy.

Most people I talk to want a stronger president until the president does something they don't want and then they want a stronger Congress. Our system has a set of checks and balances and until we recognize and because it's always back and forth, it's fundamentally conservative, we'll all be criticizing it. It would be much better to let the experiments and the focus be occurring at a local and a state level and much more measurable objectives outcome.

VELSHI: You use the term "experiments." This is actually a big part of Google's culture, it is something I really enjoy and I wonder whether it would work in government. You actually give your employees a fifth of their time to experiment, to noodle around, to find a new solution. Bay Buchanan said a few moments ago, politicians should probably spend less time in Washington. Have them there for an intense period of time and then go back out and see what's really going on. I wonder if there's some learning that could shift from Google to Congress in terms of dedicating some of your time to learning a different way of doing things. Tell me a little bit about how it works at Google and whether I'm off base here.

SCHMIDT: Well, at Google, the employees are encouraged to spend 20 percent of their time working on things of their interest, which often are new and clever things in the general area of Google's business. We benefit, many of our new products come from that. In government's case, the problem is that the bureaucratic mind-set prohibits innovation and the innovation is, in fact, the solution to our problems.

So my attitude about the health care issues or the educational issues is, let's try ten different approaches of which at least nine will fail, but the one that works well, let's bet on that, let's invest in it, let's make it happen, and let's learn from that. Because no one really wants to take the risks and really wants to see a couple of things fail and a couple of things succeed, we never fundamentally have a new breakthrough.

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VELSHI: Christine, it made my head explode, I love it. First of all, they give their staff 20 percent of their time, one in five days, to research something of their interest and it ends up being an idea that Google can use. But not every one of them, nine out of ten can fail. The permission to fail, which means, by the way, that people like us are not on the news all the time criticizing every move that someone makes, but what if that were the way that government could operate? What if we could bring entrepreneurship back into government? What if bureaucracy could be pushed aside and creativity were given center stage? You were if that conversation with me. I thought it was fascinating.

ROMANS: It really was and innovation and bureaucracy are enemies, they really are. And I think that's what the Google CEO was saying and I think that's the whole theme of broken government this week has proven. Look, our democracy is built on certain principles. No one's talking about getting rid of those principles, they're talking about bringing that entrepreneurial spirit of innovation to this big old government we have and figuring out how to fix our problems that way.

VELSHI: Right.

ROMANS: Ali, next, Timothy Geithner, your treasury secretary on the pages of a top fashion magazine, hmm, in "Vogue." We'll explain.

But first, brand recognition is a problem many small businesses face, but product recognition is an even bigger hurdle. I visited one entrepreneur who's up for the challenge in this week's "Turnaround."

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ROMANS (voice over): If you don't know what a pizzell is, you're not alone. These waffle-shaped Italian cookies are hardly a household name, but Stan Kourakos is trying to change that. His business Little Pepi's makes pizzells and only pizzells. In this modest factory in Hatfield, Pennsylvania. STAN KOURAKOS, PRESIDENT, LITTLE PEPI'S: My biggest challenge is just getting people to know what a pizzell is. Even though the product has been around since 700 BC.

ROMANS: Kourakos bought the business in 2003, from the original owner, who started out baking the cookies in his own kitchen four decades ago. Little Pepi's had a small but loyal following, but sales began to slow.

KOURAKOS: When I bought the business, there were two big problems. Two glaring problems that I saw. Number one was the building was being taken for eminent domain. The second problem was the equipment was 25 years old. It was all electric; it was very labor intensive process.

ROMANS: The solution, Kourakos moved the company to a larger suburban facility and made a big purchase, a giant waffle stick oven retrofitted specifically to make pizzells. Production tripled, but his energy bill also jumped. So Kourankos went from baking four days a week for eight hours to baking three days a week for ten hours. He was able to keep almost all of his employees. About one-quarter of them had special mental or physical needs.

KOURAKOS: That's a corporate responsibility we are taking on. That's the one unique thing about our business. It is it is family run business but we like to keep family here.

ROMANS: Little Pepi's are sold mainly in supermarkets, bakeries in the northeast. But has distribution centers in Florida, Chicago, Los Angeles, and San Francisco. Although sales have been growing steadily since Kourakos bought the company, they were off 12 percent last year. But an appearance on the "Rachael Ray" show gave the company a boost at the end of 2009.

RACHAEL RAY, HOST, "RACHAEL RAY:" I love these.

KOURAKOS: I get e-mails all the time. Your product is just like my grand mother's. We embrace this. That's why our history, our past, will help us go forward.

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ROMANS: Time for one more headline. You hear the name Tim Geithner and you probably think of the financial crisis, the bank bailouts, and heated discussions on Capitol Hill. He is the treasury secretary, of course. Now we learn about the real Geithner, he is funny and he likes to cook barefoot and he is very angry at what happened to our country. That's according to a three-page spread in the March issue of "Vogue" that provides a little glimpse of the man behind the man who is described as, quote, Ali, I have to get your opinion on this, alive and athletic and 48 years old, Geithner has the kind of looks that can go either way.

Half an inch one way, he's John F. Kennedy, half an inch the other, he's Lyle Lovett. That's quite a description for the treasury secretary. Ali, kind of like you, they tried to put something together and this is what they came up with. Half an inch one way, Ali Velshi, you are Mike the situation from the Jersey Shore, half an inch the other way, you are Shrek.

VELSHI: I know what it feels like to be in this situation. It could go either way.

ROMANS: So what do you make of Geithner going "Vogue"? Is this a good move on his part to repair his image?

VELSHI: Yes.

ROMANS: The wrong platform.

VELSHI: I think it is a great move. You and I both spent time with him. He's live and athletic, he goes to the basketball court when he can and he goes to the gym at the Treasury in the mornings. He's that. He runs a very, very long day. Every day we get the treasury schedule. I'm always fascinated by how much he is doing.

I don't think most people know he has a sense of humor and I don't think it necessarily comes across that he's mad at what a lot of Wall Street has done. He is still fighting off the impression that he was responsible for it or part of that whole thing. But, in fact, when you talk to him about it, and I have, he gets quite agitated when he doesn't understand the tone deafness of Wall Street. I think it is a good move.

ROMANS: Yes. You and I both have been with him and occasions where we could quote him. Agitated I think is a euphemism to describe what he is like.

VELSHI: I think he gets it.

ROMANS: Yes. Richard, you know, is this a good move? The treasury secretary in "Vogue"? You know uncertain economic times and the treasury secretary is in "Vogue."

QUEST: I'm not sure what it actually does for his persona as being seen as an elitist. He's certainly one of the most intelligent men that you will ever come across. I found whenever I met him to be quite intimidating. The depth and the wide range of his understanding of it. And as Ali rightly says, the man just is -- he's vehement when he realizes that the industry that he's spent so long in has caused so much damage. And that doesn't and I think where, if anything, because of his -- talk, because he does -- very forensic in the way he destroys your questions and because of that, he's not warm and fuzzy. He is not -- you don't think of Uncle Tim.

ROMANS: He is warm and fuzzy before the camera goes on. He will let you in and show what his personality is. He's just like everybody else and he's very patriotic. He's careful, he is careful because he knows that anything he says is very, very important for the economy and -- you know, the administration, too. So he's a careful technocrat, I guess you could say. QUEST: I think he is more than a technocrat. I think he goes one stage further but -- I once asked him a question about would he perceive to do something if the opposition didn't get out the way. He looked at me and said in that sharp New England way, perspective and that was it.

ROMANS: Don you know one of the things he says, and I've heard him say this too, he says it is not what you believe in the end, it is what you achieve. Which is interesting, don't you think?

PEEBLES: Yes. But I don't think that's correct. I think it is all about what you believe in and you have to be able to achieve what you believe. And that's what America looks for in leaders. They look for someone that has a belief and a vision and then achieve. He's one of the most reserved treasury secretaries we have had in a long time.

The treasury secretary that led us through difficult times and if you look back at Benson, he was a very powerful person, a very strong leader. He instilled confidence and he instilled the belief that things were getting done and he was going to fight to save the American economy. Bob Ruben, the same thing. Very strong, very much a leader and I think what this -- what we are seeing now is an effort to bring a different side of Geithner to the public's view.

So that they can see someone who is leading because not only is his job to restore confidence and to bring about confidence by the financial community in the world economy, but also he has to get America to believe that he's working to turn this economy around for them. What's happened is he works for a very, very brilliant president, one who has the best communications skills of any president short of Reagan. So he's overshadowed by the president in this case. He's got to get his image out there.

VELSHI: It is hard for him; it is hard for anybody to see him inspirational and charismatic when your boss is Barack Obama at least from a presentation perspective. All right. Guys, thanks very much. We look forward to seeing both Don Peebles and Richard Quest in the future edition of "Vogue." Great to see you, as always. We will see you every day on "American Morning" and on my show on CNN from 1:00 to 3:00 p.m. Eastern. Thanks for joining us for YOUR MONEY. Yu can follow us on Facebook and twitter, Facebook, I'm at AliVelshi, and Christine is at Christineromans.

ROMANS: Make sure you join us every week for YOUR MONEY, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00. You can logon 24/7 to CNNMONEY.com. Have a great weekend Ali.