Return to Transcripts main page
The Latest Job Numbers; Dow Plummeted on Thursday; What's Happening in Greece and Why It Should Concern Us
Aired May 9, 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 HOST: America creating jobs again, but there is a long to go. Welcome to YOUR MONEY. I'm Ali Velshi.
CHRISTINE ROMANS, CNN HOST: And I'm Christine Romans, and we'll go through the latest job numbers, but first we want to look at the crisis threatening to sending the world back into recession and contributed to the wildest days in Wall Street history, Ali.
ALI VELSHI, CNN HOST, YOUR MONEY: If you missed this, you're going to want to see this again. On Thursday, take a look at what happened to the Dow. It was having a bad day already, but right around 2:40 p.m. something happened that made it a lot worse. A handful of stocks started to plummet, losing value and taking the Dow down with it.
ROMANS: And suddenly the Dow was down 99 points in just the blink of an eye, and, Ali, I've been sort of saying it's like the Barry Bonds' home-run record, yes, he was a really good baseball player, but in the end there might have been an asterisk there because we don't know exactly what kind of technical factor might have been helping this market decline so much. You know there is a lot of rumors about those so called fat fingers, somebody who just pressed the button ...
VELSHI: And the rumor was instead of selling a million stocks, somebody but a "b" for a billion. These are rumors, it is probably, and there is something technical about this. But before we got there, before something made the market go down late afternoon, and something probably technical that we will see reversed, there was an underlying fear on this market.
ROMANS: It was a horrible day to begin with on the stock market and suddenly you had the market down 400-some points over this crisis, the world was watching pictures of people in Greece fighting back against police and against austerity measures as this country tries to pull itself out of the budget crisis. It is a county where its budget deficit is 13.6 percent of GDP.
It's trying to figure how to nail down a $146 billion bailout and the austerity plan incredibly unpopular as people are facing dramatic tax cuts, tax hikes, benefits cuts and the world worried that Europe's problems are our problems.
VELSHI: And that's where it becomes an issue for us. By the way, we're going to spend some time breaking down exactly what's happening in Greece and why it should concern us. But here's the issue, if this issue in Greece which, by the way, there are issues in Portugal, in Spain, in Italy, in Ireland, if these things start to become bigger, remember, these countries are all joined with a common currency and that is making that euro suffer.
It's bringing the euro down in value. What happens when the euro is worth less? Well, it makes it very attractive for us when we travel to Europe, but that's not really the big thing. The issue is it makes American exports to Europe very, very expensive and hence that threatens U.S. recovery and recovery in other parts of the world as well as Europe.
ROMANS: And I think on Thursday, something was a real trigger on Thursday, Angela Merkel prior to that had said that what happens in Greece is literally about the future of Europe, which is a very strong statement, this as she was trying to get her own government to approve of the bailout.
VELSHI: They've got the biggest dog in this hunt.
VELSHI: And Germany needs to get involved.
Let's talk about why this matters and why all of a sudden we have to all be concerned with Greece. We're joined by Kenneth Rogoff; he is a professor of economics at Harvard University, former chief economist at the IMF and a professor of public policy now.
And Peter Morici, professor at the University of Maryland School of Business. Gentlemen, thanks to both of you. Ken, let's start with you. Give us some sense for our audience, who heretofore has probably seen Greece as a bit of a side issue that's affecting Europe. Why do we need to be concerned about what is going on in Greece, in southern Europe generally?
KENNETH ROGOFF, PROF. HARVARD UNIVERSITY: Well, they're having political chaos there. The European Union together is a bigger economy than the United States. It's our big trading partner. This isn't nothing. They're really -- they don't know what to do. They've got Greece is in trouble.
You mentioned Portugal, Spain, and Ireland. They don't know where it stops. There are some people who think they need to bail everyone out. There's some people who think they need to bail no one out. And in the meantime, as you said, the Euros really in free-fall. That's tough for our exporters. It makes our goods less competitive.
ROMANS: You know Ken, the reason why we ask you is because you have literally written the book on crisis, hundreds of them you have studied. How does this rank up there in a fragile economic recovery worldwide, how dangerous is this to the recovery that we think is under way?
ROGOFF: Well, I don't want to be, you know, too positive, you know, about the situation. But the U.S. has a pretty robust recovery going on. You do see these sovereign defaults after a banking crisis. The governments borrowed a ton, just like ours did. Not everybody can pay for it. Usually, in the past, it's been an aftershock, it's bad, and it goes away. If you're standing on the aftershock, if you're in Europe, it's pretty terrible. I don't think it's good for us, it is going to slow our recovery, but I don't think we're talking about a double dip here even if it goes to the worst.
VELSHI: Peter, let's just discuss this. So the contagion effect as Ken is talking about, may not spread into and creating a double- dip recession throughout the world, take me to another issue entirely, and that is could this sort of thing happen in the U.S.? Are we anything like Greece because we're a highly indebted country?
PETER MORICI, PROF. UNIV. OF MARYLAND SCHOOL OF BUSINESS: Well I think we're a low-grade version of what's going on in Europe right now. If you think about what happened in Sacramento last year in California, it looks very much like the Greek situation. More promises than the government can keep.
And not enough taxes to cover it and increasing taxes is the whole answer, which will drive all the business out of California. Then roll over to Washington, with this new health care legislation and the promises that have been made, which are firm, and the additional savings that are supposed to be accomplished to pay for those benefits, which are soft.
You know, I estimate that the U.S. will likely have a $1 trillion budget deficit every year for most of the balance of this decade. The president's budget is very, very unrealistic and optimistic. And so we're facing real problems here. Which means Americans could be facing much higher taxes while they pay for health insurance that Europeans don't have to pay for, much higher college tuition. The U.S. starts to become insolvent in a way that Greece is.
ROMANS: And this is something that some Republicans have seized on, Republican from -- from Texas, this is a congressman, this is what he said about the U.S., Kevin Brady. Listen ...
(BEGIN VIDEO CLIP)
REP. KEVIN BRADY, (R) TEXAS: Reckless spending Greece was forced to seek a bailout from the IMF and other European countries, now the Greek government must slash spending. The dashed expectations among the Greek public for government salaries and pensions and other benefits have provoked strikes and riots causing three deaths.
However, there's another country whose government budget deficit and debt could readily reach the alarming levels found in Europe. Unfortunately for the American people, that country is the United States.
(END VIDEO CLIP)
ROMANS: But, Ken, United States is a lot different than Greece, isn't it? ROGOFF: Well, I think Peter had it right. We have a low-grade version, but they've got a bad situation. I mean, I think within the next five to ten years, we are going to have to see big changes in our fiscal policy. I think much higher ...
ROMANS: What does that mean, big? Higher taxes?
ROGOFF: Higher taxes, less benefits. We're talking about major changes. Our politicians have made unrealistic promises; they have not prepared the public for the belt-tightening that's to come.
VELSHI: And you know as we get into an election cycle, Peter, you've got all sorts of people saying we need to cut spending and we can cut taxes. And Christine and I like to push back on this a little bit and say, is that possible? Because most economists we talked to, like the two of you say, cutting taxes is not likelihood in this -- in this economic and fiscal strait that we're in.
MORICI: Oh, cutting taxes is a very unrealistic approach to boosting the U.S. economy. But it's not just cutting benefits, on the other hand. You need to look at what the U.S. government pays for stuff. Health care is becoming the elephant on the balance sheet. We're going to spend close to 20 percent of GDP on health care while the Germans spend 12. What that means is we're spending -- you're paying 50, 75 percent more for the same health care benefit.
I mean, the German's health care is comparable to ours. Our drug prices are too high. Our administrative costs are too high. What we need is a major cost-cutting program within our health care establishment. I would like to say also, and Mr. Rogoff may not agree with me, but I think our universities could use a bit of that too, I mean Americans pay too much and in turn state governments pay too much to run the universities. It follows on a lot of things that we do in this country where prices and costs are out of control in the public and quasi public sector.
ROMANS: These two guys are employed by universities right there. Peter Morici, thanks so much, Ken Rogoff, gentleman a pleasure as always, hopefully we'll talk to you again soon.
VELSHI: Hopefully you know now a little bit more about the situation in Europe. We'll continue to discuss this; it is going to be a big deal.
But what you need to know about how it directly ties into your money and that Dow nearly 1,000-point drop on Thursday, we're going to talk very specifically about how to handle your money in this volatile market that we're in.
VELSHI: All right. I just want you to know I was planning on being here anyway. I didn't -- I didn't roll into New York because I wanted to be in the middle of all this action. But, you know, on Thursday we had one of the most gut-wrenching 30 minutes in Wall Street history. The Dow plunged nearly 1,000 points over the course of minutes. Now understanding what is happening with your money during a volatile market and knowing what to do about it is crucial.
ROMANS: We brought in our dynamic duo, Doug Flynn of Flynn, Zito Capital Management and Ryan Mack of Optimum Capital Management; they're going to tell us how to keep your cool during a wild ride on Wall Street. And guys you know I have to tell you that a lot of people said to me on Thursday, they said what about - little investors, they are looking at the TV and they are making all these trades.
I said, I don't think little investors are doing anything right now. I mean they look at it over the coffee maybe in the morning when they come home and they missed this huge move in the middle of the day. You should not be making tweaks to your 401(k) based on what happened on Thursday.
DOUG FLYNN, CERTIFIED FIANANCIAL PLANNER: Definitely not and most of the time in your 401(k), you can't really react in the middle of the day like that, you are only getting the close-of-the-day prices which a lot of people don't realize.
VELSHI: Those are mutual funds that settle at the end of the day.
FLYNN: Exactly. You shouldn't be trading anyway unless you have a side account that you're trying to ...
ROMANS: Plenty of people tell me; oh I was trying to get to my Schwab account or e-trade. I mean it was crazy. You have an action plan.
VELSHI: Tell us specifically about what you think people should do.
FLYNN: There are key points that you want to take a look at what you are doing. A lot of people if I ask them you know what percentage of your portfolio is in equities right now and what's in stocks. You should know that. And then furthermore, what percentage of those stocks is in international. Because if we're going into a stronger dollar and these situations, maybe you want to relook at how much international you should have.
ROMANS: Perhaps you should have less?
FLYNN: Perhaps you should. But it depends where you are, if you only had 5 percent to begin with, maybe you shouldn't.
ROMANS: Because you think you should have ...
VELSHI: You tend to favor a larger international component.
FLYNN: I do, I do. But there are times -- you never want to have 100 percent of anything including U.S. stocks, but there are times to have more and there are times to have less. But the key is where are you right now. If you're at 20 percent, you can take a look and adjust; if you're only at 5 percent you're probably too low to begin with. But the bigger key after finding out where you are now, these are great times, crisis like this is take a look if you haven't looked. Is also what I recommend is take your calendar out and six months from now, whatever six months is put a date on the calendar and take a look at it then. Hopefully there will be nothing going on then. And you also want to think about your investments on a day when you can have a clear head without all the noise.
ROMANS: But right now is interesting to me because so many people have watched the Dow up for 14 months in a row, stocks up for 14 months with no pullbacks, now they finally got their pullback. Maybe it's an entry point for some people who feel like they missed a big rally and they think that longer term the U.S. recovery is going to be OK.
RYAN MACK, PRESIDENT, OPTIMUM CAPITAL MANAGEMENT: We can't allow ourselves especially people watching at home and think like traders. I used to be a trader for about five or six years. We would look -- that little blip when I saw that on the screen, wow, I wish I was still on the street trading this right now, because we saw in 30-second increments and we would trade based on the morning, we could have our whole trade down at 9:30 and 31 seconds.
We can't allow ourselves to think like that, we have to have long-term perspectives so whether or not the Dow went down 1,000 points yesterday or not. What is your perfect situation, how much money do you have to invest? Do you have a budget based on what your surplus is and how much you can afford to invest on a monthly basis? Do you know exactly what sort of companies that you would like to invest in?
What's your plan and what is your strategy? What are you investing for? Is it for retirement, is it a new business? Do you want to put cash away in a cash account for a new home? What's your overall strategy? Don't worry about the ups and downs, because the market is going to do what it's going to do. We are going to have some errors, there were some errors yesterday. ACN, Accentor trading on a penny. Procter & Gamble taken off the tape at $39. There will be some errors but again the people at home have to understand what your long-term strategy is.
ROMANS: Doug, you always say you should have a little bit in gold and other things large-cap stock. Gold had a great day yesterday that means if you got hit on some of your stocks, of course, the gold is a diversification. Some of the rules you always tell us --
VELSHI: They're worth it on days like Thursday don't mess you up and mess up your entire portfolio.
MACK: I still think that if you don't have any exposure to gold in your portfolio, there's a potential risk for inflation. It's pertinent for every portfolio, large-cap, dividend-paying stocks even if you do have a bad day in your portfolio, just knowing you have a 2 or 3 percent dividend yield coming from these equities that can still give you a good income stream.
ROMANS: It's money. Getting money from your investment even if the investment value goes down.
FLYNN: Keep in mind the market is up 80 percent off the lows and we haven't had a 10 percent correction, if you go to the intraday, this is a normal think to have that kind of run. You have to remember where we were. We're still up big from a year ago.
VELSHI: All right, guys, it is always, you guys always bring some -- some ...
VELSHI: Sanity to a noisy mess. Ryan Mack is the president of Optimum Capital Management, Doug Flynn, certified financial planner with Flynn Zito Capital Management.
ROMANS: All right everybody. Next the hunt for jobs, a new jobs report gives us important clues about where the jobs are. Some good stuff in there. Listen for some people it's loosening up and there are jobs available. We're also going to talk about where to find jobs this summer.
Plus, why some say the oil spill in the Gulf will do to the oil industry what Three Mile Island did to nuclear energy.
ROMANS: The deep freeze is thawing.
VELSHI: It is, yes.
ROMANS: Jobs are coming back. Companies are hiring again, but do you know what, there's an awful long way to go, Ali, we want to be very clear about that. For some people in this economy opportunities are finally starting to present themselves, for others it's a record situation of long-term unemployment. It depends on what side of the fence you're on. You can see from the four of the past five months now, five of the past six months.
VELSHI: Five of the past six months we've had gains.
ROMANS: We had job gains and the unemployment rate is 9.9 percent.
VELSHI: The jobs are getting good. We were seeing serious gains in April. This is always a tough one, because if we do what we want to do and say wow, look at the 80,000 jobs gained in professional business services, 66,000 because of the census, for all you who is saying this is all about the census, it's not, the census is part of it. Leisure and hospitality, 45 percent. But look at that bottom line, am I reading that right? Let me just check my glasses, what does that say? Manufacturing jobs up 44,000. We thought it was dead.
ROMANS: Well, I don't think it's much solace for the millions of manufacturing people that have lost their jobs.
VELSHI: That is the other side of the equation, so we are sitting here saying this is really great and a whole lot of people are saying what are you talking about, my town has been destroyed, my industry's been destroyed. So this is really a double-edged story.
ROMANS: It is. And Lakshman Achuthan is the managing director of Economic Cycle Research Institute, he is here. William Rodgers, Rutgers University professor, former chief economist at the Department of Labor. They're both here.
VELSHI: You have the same half glass in front of you, is it full or is it empty?
LAKSHMI ACHUTHAN, MANAGING DIRECTOR, ECONOMIC CYCLE RESEARCH INSTITUTE: It's filling. It's filling. It's half full and it's filling up, but it's going to take a long time to fill it up. You know, the faucet isn't on high here.
ROMANS: Is it enough to drink or is that just a glass of water?
ACHUTHAN: Look, look, household survey, you have 1.5 million jobs this year created. Now, private sector over the last couple of months on the payroll survey is about 200,000. Private sector jobs ...
VELSHI: We want private sector jobs.
ACHUTHAN: So, you're seeing an established trend of jobs growth which is starting to heal the labor market, but it's going to take years to heal that damage and there's a lot of long-term displaced people who are being left behind by these jobs gains.
ROMANS: Forty six percent of the unemployed have been out of work for six months or longer. Unheard of in a modern economy, unheard of in western civilization. Am I overstating it, 46 percent of people been out of a job for six months or longer, they've really been left behind.
WILLIAM RODGERS, FMR. CHIEF ECONOMIST, U.S. DEPT. OF LABOR: That's correct. I think over the last few months some of the reentrants into the labor market have been folks who are that short- term unemployed, unemployed for less than five weeks or less than ten weeks or so.
And so that 46 percent is starting to rise because the way the economy starts to correct itself, the labor market starts to correct itself, it brings in people with the least -- the shortest bought of unemployment. But I'm not saying I don't think it's half full. I'm still about 25 or a quarter percent of the glass is full, but we are moving in the right direction.
ACHUTHAN: The direction is key.
RODGERS: The direction is key. I think this is a great report for Main Street, for people to see that we are moving forward. That work picked up a bit. But it also didn't surprise me. What happened to productivity growth numbers the other day? They fell back in line, down to about 3.6 percent which suggests ...
VELSHI: What does that mean?
RODGERS: Sure. That prior -- in the fourth quarter, it was up to 4.2 percent like employers are really pushing their employees.
ROMANS: That means you're getting six percent more work out of me for every hour for the same pay.
RODGERS: But now it dropped 3 percent because you can't push people that far. And that's why we saw hours worked begin to rise and that is why we saw about 200,000 of these jobs were full-time private sector jobs.
ACHUTHAN: And then you're seeing very importantly income being supported also by the jobs recovery. This is very important. The early stage of the recovery, a few quarters ago it's a spurt in inventory growth it pushes GDP up quickly and then you have to hand that off, you can't have a recovery based on that. The consumer has to get involved and we presume the consumer is getting involved but the consumer can't really hang in there unless incomes are being supported, and so this jobs recovery here is helping to support incomes nationwide.
ROMANS: This is the number that I saw that really said that consumer spending was $36 billion in the most recent period, but incomes were $32 billion. Where are they getting that extra money? Where is the $4 billion extra dollars? People are feeling more confident and dipping into savings, maybe but you have to be careful about that.
ACHUTHAN: You do. With savings it's interesting there's an inconvenient truth for the negative story on consumers with savings. The story that we've all heard is that the middle of the last decade savings rate went negative and really set us up for this recession. Lo and behold they revised the numbers and there was no negative savings rate, it went down but it stayed positive. So what that means for today is that savings doesn't need to go negative in order to have some consumer spending, OK?
VELSHI: Right. You can spend money and you don't have to go into the hole for it.
RODGERS: The point to come back to the underlying preface of your concern, you know, it's going to be another four to five years --
VELSHI: Sure, absolutely.
RODGERS: Based upon sort of reasonable job creation numbers.
RODGERS: And also there's another shoe that's going to potentially fall and that's going to start in September, in New Jersey, two-thirds of school board budgets were voted down.
RODGERS: Which means there will be even more cuts to teachers.
RODGERS: We're not cutting curriculum coordinators; we're cutting people who are actually in the classroom with kids.
RODGERS: So, you're going to see increased class size, so that's going to be a potential drag on the economy.
ACHUTHAN: It's really important that the private sector set it up.
VELSHI: Very interesting conversation, guys. Thanks very much. There's no surprise that it will take us a while to get back, but as you both agree, at least we've got stuff in the right direction. Great to see you both, Lakshman Achuthan, and Bill Rodgers, Bill is a former chief economist with the U.S. Department of Labor and he's now at Rutgers University, and Lakshman is the managing director of the Economic Cycle Research Institute.
ROMANS: All right. Oil and politics, just how do they mix? A closer look at the what the spill in the Gulf of Mexico could mean for the future of this country's energy policy.
VELSHI: Well, when it comes to the oil spill in the Gulf of Mexico, all eyes are on containing the leak and launching a massive cleanup operation, but what are the long-term implications, is this the environmental disaster that could change our country's energy policy for good? We're joined by our good friend Stephen Leeb; he is the author of "Game Over." He's an expert on oil.
Stephen I was out talking to people all week and a number of times people said to me what's the cost of this disaster. I said, we can add up the cost of cleaning up the oil, but we're going to lose species of birds, some sea mammals, the shrimping industry decimated. I don't know what the long-term cost of this.
STEPHEN LEEB, AUTHOR, "GAME OVER:" I don't think anybody does, Ali. I mean we really don't know at this point whether in fact they can even cap the thing, and then, heaven forbid, it could be, you know, just enormous, but what people have to realize is when you start doing a lot of this drilling, you are going to have accidents.
I mean, I did a simple-minded calculation, admittedly with nuclear power, but the same principle applies. Let's say you build 1,000 reactors worldwide, which is not an unrealistic number over the next 20 years. Let's say that the probabilities of a failure in a 20- year period for any particular reactor are 1 percent.
VELSHI: Right. LEEB: So, you're dealing with a reactor that's likely to be with you 99-1 this reactor's not going to have a problem for the next 20 years. Do you know what the chances are of a particular failure that one of these 1,000 will fail?
LEEB: About 23,000-1in favor of a failure. If you are going to -- yes. This is just pure, simple statistics, take out your calculator, .99 to the 1,000th and you'll get 20,000-1, and if you are going to start massive offshore drilling, and we desperately need to that because we're out of oil, you're going to have more than one accident, it's just that the odds in your favor.
We don't even know what the odds are, Ali, this was only three miles deep from what I understand. The stuff they're doing off Brazil could be four or five miles deep and you're going through massive salt flats. We don't have the science to say what the odds are on an accident. But they're not minimal. They're not nominal. We've already established that by what's happened here on the coast.
ROMANS: So you say we need more oil?
ROMANS: I mean there are some people who look at this and they say things like you know we need this, this is a wake up call that we need to focus on wind and solar in this country, but wind and solar can't make up all of our energy needs.
LEEB: Not right away, but we desperately need someone to sit down with pencil and paper and say how are we going to make this transition how are we going to go from fossil fuels, which we're obviously, you know -- when you see something like this happen, you pointed out so well about the ecological damage and you don't even know what damage.
VELSHI: And plus lives were lost.
LEEB: Yes, not to mention 11 people died.
LEEB: I mean, you know, you have to sit down with a bunch of scientists and say, what is it going to take to segue from nonrenewable fuel to renewable fuel, and I'll tell you one country, which I think gets it right now, and there's an op-ed piece in the -- in "The New York Times" this week, I think it was Friday, saying China. China all of a sudden has taken the lead in developing renewable fuels.
ROMANS: Which is ironic, because China doesn't exactly have an environmental record, I mean if we are talking about environmental records, I mean but is purely energy need.
LEEB: I think that is it Christine, that is my take on it. Just the fact that we're doing this offshore drilling. Just the fact that we're doing it is a sign of desperation. The fact that, you know, the Brazilians are going to go five miles deep, you know, past -- into the ocean floor. We know less about the ocean, I've heard this, I can't back it up, but it's an anecdote that we know less about these areas than we do about the moon. I mean, it makes almost as much sense to be drilling for oil on the moon than it does deep in the ocean.
ROMANS: Some have said it's like a Mars landing.
ROMANS: It's like a Mars landing, the engineering involved.
VELSHI: So what do we take away from this? Is this going to be like a Three Mile Island type of thing? Is this going to make us rethink the safety of oil or is it just going to go away like these things often do and we keep on going and drilling?
LEEB: Because of the desperation involved, I think we will keep on drilling, but we have to pray, it's a wake-up call that we cannot count on nonrenewable fuels. We cannot count on oil. We cannot count on natural gas. I mean, you have the same thing going on with the shale gas deposits. You don't know how much you're fouling up the environment with them.
ROMANS: So amazing to think that all of that oil that is gushing, literally gushing into the Gulf, and could destroy this region is still a tiny symbol of the marketable oil that is being used. It's spill off and it could hurt so much.
LEEB: I mean you know it boggles the mind. If they don't succeed, 5,000 barrels a day. I've heard estimates could go up to 40,000 barrels a day, just imagine.
VELSHI: There's a lot of pressure behind that oil coming out of the ocean floor.
LEEB: The point is we just don't understand and we don't know, and when you start doing things that you don't know and cannot model, you shouldn't be doing them.
LEEB: And obviously we don't know what we're doing.
LEEB: I mean, we have some idea, but when it really comes down to it, this is just, you know, a pig in a poke drilling this deep. We really don't understand it.
ROMANS: $600 million platform ...
LEEB: To boot, to boot.
ROMANS: Unbelievable. VELSHI: I think we're learning a lot about what you're saying. By the way, your book "Game Over." I mean, you've written a lot of books on oil and stuff, but "Game Over" really does address some of these where we don't know what we're getting into. Good to see you, Stephen.
LEEB: Thank you so much, Ali. Great to see you in New York.
VELSHI: Good to be back here.
ROMANS: All right. Up next Elizabeth Warren joins us to explain why she's so fired up about creating an agency to protect you, the consumer.
ROMANS: A little over 18 months after the big collapse of Lehman Brothers ...
ROMANS: The whole world was teetering on the edge and we still are talking about what the regulatory landscape's going to look like to make sure it doesn't happen again.
VELSHI: And we're still arguing about whether or not we need more of it or less of it, it's interesting how when you get away from it seems to lose some urgency?
ROMANS: That's right, when it comes to financial reform, there are so many solutions being proposed and argued over. But our next guest says in order to rebuild our economy we need to create new rules. She proposes the creation of a stand alone consumer focused agency.
VELSHI: Elizabeth Warren is the chair of the TARP Congressional over Site Panel and a professor at Harvard Law School. You have spoken so passionately about the need for some very clear consumer protections as part of financial reform. Tell us a bit about how you see the reform package that is working its way through Congress. We've got one passed by the House and then we've got something working through the Senate. Is it going to help achieve the goals that you're looking for?
ELIZABETH WARREN, PROFESSOR, HARVARD LAW SCHOOL: Well, I think so. Remember that the reason behind the idea of a consumer regulatory agency is that right now we have seven different agencies in Washington, all of -- each of which has a piece of consumer financial regulation. And each of which, quite frankly, has failed miserably. So that we started this whole economic crisis one bad mortgage at a time.
Lousy products sold out there that had way too much risk in them, not only at the household level but then could be aggregated all the way into the market, and ultimately too much risk ends up in our retirement plans and the stock market and everywhere. The idea behind this agency is to say look, we're going to cut the stuff out from the other seven agencies and we are going to put it into one agency, slim it down, make it accountable, and make it focused, and the principal focus is to bring down the size of these consumer contracts, so people can actually see them, read them, and compare them.
ROMANS: I think the American people don't really trust that these parties are going to be able to get it together. Do you think that there is an urgency that they're going to do the right thing?
WARREN: Well, you know, I think it's a tough question. I think you're right. So here's -- let's do the good news, the bad news. The good news is people who get by and large what this agency is about. There was a terrific poll from AARP, it's been about six weeks ago now, asking should an agency in Washington like this be able to -- should it force credit card companies and bank checking account issuers and car lenders to make contracts shorter and readable, what we were just talking about?
Are you ready for this? Ninety six percent of Americans said yes. I agree. That's what should happen, 91 percent of them said; I agree strongly that's what should happen. Same, Republicans, Democrats, independents. They don't see this as a partisan sort of issue. Now, the flip side of that is that the bank lobbyists in Washington have targeted this as the number one thing they want to kill.
WARREN: They announced last summer it is dead, dead. This thing has been dead so many times ...
VELSHI: Which for our viewers might be a good sign that they're interested. But there is opposition, you and I have talked about this, and it's very -- look, I find it difficult to understand some of the opposition to this, because we should all admit that something was broken that led to -- or contributed to the financial crisis we were in. Listen to what Senator Kit Bond had to say about it.
(BEGIN VIDEO CLIP)
SEN. KIT BOND, (R) MISSOURI: I believe that the current provision in the bill, the new Consumer Financial Protection Bureau, is a super bureaucracy that would have unprecedented authority to impose expensive government mandates and micromanage any agency that extends credit. I ask why would we be creating a new bureaucracy that could empower the special interests.
(END VIDEO CLIP)
ROMANS: There are some Republicans who say it won't do any good if it's at the Fed because it can't do anything at the -- is it a super bureaucracy?
WARREN: So, I love this. It is both too powerful and not powerful enough at exactly the same moment. You know, mostly what this agency would do is it would take the existing laws that are already there, but that because they are scattered among seven agencies, I'm going to be quite frank, that makes it easy for the special interests to capture those consumer interests that are supposed to be there. And I'll give you an example of that.
The OCC, that's the federal bank regulator, they have in their list of things they are suppose to do, down in the box is consumer protection. There's been some really strong disputes between banks and consumers or groups of consumers over things like ATM fees, over things like credit card terms, over arbitration clauses, lots of things, right? And you can kind of say, well, you know, I get this.
The OCC has gone in and entered the litigation, brought the power of the government into the middle of this litigation, and guess whose side they have been on 100 percent of the time? The banks. They've never entered in the last few years on the side of the consumer. They are there to protect those banks from those big tough ornery consumers, who want to do things like have contracts that they can read or not be tricked into ending up with 48 percent interest rate.
ROMANS: Elizabeth Warren, thank you so much. Really appreciate your time today, have a wonderful weekend.
WARREN: Thank you.
VELSHI: This is a passionate debate as Elizabeth said. In a moment we're going to talk about some of the objections to reform so you can under them a little bit better.
Plus, this summer is going to be tough for the traditional summer job. But there are some jobs out there. We're going to tell you exactly where they are and how to get them.
VELSHI: Well, we just heard from Elizabeth Warren, she's the chair of the TARP Congressional Oversight Panel, but she's also really fighting hard for reform for the financial system. We want to talk about the other side of the reform debate, Mark Zandi is the chief economist at Moody's Analytics and I want to make sure we don't characterize you Mark as being anti-reform at all, you are just here to sort of give us some sense of what some of the concerns are or opposition to reform might be.
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS: Right. Well, there are many. You heard one from one of the Republican congressmen that -- that regulation -- that the reform will lead to overregulation, that it will stifle the availability of credit and raise the cost of credit for consumers. So, I think that's a legitimate worry, and something that needs to be considered in the reform process.
But ultimately at the end of the day, reform is necessary. It's clear that the financial system did fail us. Millions of bad loans were made and the system needs to change, and we have to make sure that we don't change it to such a degree that it chokes off the credit that we all need to go out and hire people and to spend on the things we want to spend on.
VELSHI: One of the things that Elizabeth Warren was talking about with respect to contracts, Mark, is that if you simplify contracts between people like their mortgages or like their credit cards and people understand them well, we really can start to tackle personal responsibility. We can actually -- people can't sort of get out there and say I didn't know what I was getting into.
ZANDI: No, I think that's fair. I mean, I think it's clear that many borrowers who got loans really did not understand them. And that is a failing of our regulatory process. I think it's important that regulations require lenders to provide all of the necessary information. One other quick point though, I think it is also a failure of our educational system.
I mean when I got out of high school, I knew how to make a pretty good omelet, but I had no idea what a mortgage was or how to balance a checkbook. I think that's still a problem to this day, I think we need to invest in the education of kids so that when they do get out into the world they are able to tackle these big financial problems.
ROMANS: You know what Mark; we can't have you here and not ask you about Greece and about the stock market debacle late this week. Are you at all concerned about the U.S., U.S. recovery because of what we're seeing elsewhere around the world? Is that kind of the big thing right now talking about our money?
ZANDI: Yes, sure. I think the Greek debt crisis is very serious, and it needs to be quelled by policymakers. Because if the Greek situation isn't resolved, it will undermine stock markets across the globe, including our own. And the rising stock market has been vital to the recovery. It's why consumers are out spending again and it is why businesses are starting to hire again. It's very important that policy makers put an end to this quickly so we can get back to the business of creating jobs.
VELSHI: All right. Mark good to talk to you, thanks so much. Mark Zandi is an economist with Moody's economy.com.
ROMANS: Next, we are going to tell you where and how to find a job for the summer.
VELSHI: But first, so many small dairy farms are struggling to survive. In this week's "Turn Around" meet some farmers who are bypassing the U.S. pricing system and getting milk from cow to store in just 36 hours.
(BEGIN VIDEO CLIP)
DR. SAM SIMON, PRESIDENT, HUDSON VALLEY FRESH: I was a farmer, been doing it for 50 years now. I became an orthopedic surgeon. Children were educated and I love dairy farming and I said I said I'm going to retire and I did in '98, and go back to full-time dairy. Sweetie pie, what are you doing? I knew I had to reserve a fund and I saved and I was able to subsidize it if necessary. I put on a registered herd here and realized after a couple of years that I was getting awards for my quality of milk and I knew there were a couple other people getting awards for their milk quality, but not getting paid for what it cost to produce the milk. Then 2001, I was receiving for the milk what I received in 1977, same price.
No accountability for inflation or anything. I said, let's see if we can bottle our own product under our own label and created the Hudson Valley Fresh label. None of us use artificial hormones to stimulate production. We take care of our cows in a national way. We feed them our own hay and our own corn. We pasture them in the summer.
You cannot afford to take care of cows in this fashion and not get paid for it. We are now nine farms, we started as three. First four months I was living in my pick up truck in coolers because the local stores to get them to try it. Now we are purchasing our third truck. Instead of selling $37 worth of milk which was our first day, we are well over $100,000 a month. Every pound of milk that is in the Hudson Valley Fresh label, the farmers receive $21 for that milk. They are always doing the same hard work, producing a quality product.
But instead of getting the $13 or $14 for that milk, they receive $21. In contrast to commodity prices which go up and down, up and down, they fluctuate, we don't change, and this is the price. Dairy farmers in this area very depressed. They are very down. Farmers in general are very optimistic. They are proud people. They don't want to owe anybody anything, but their father survived in farming, their grandfather survived and now they can't. They just want to earn a living wage from the land. That's the total mission. Nothing more, nothing less.
(END VIDEO CLIP)
ROMANS: You worked summer jobs, right? The most I worked were three summer jobs at a time. It was a profitable summer.
VELSHI: I liked it, but there was work available. It is harsh lesson now for young folks hoping to land a summer job. Even as the nation's unemployment situation starts to get a little bit better, jobs for teens continue to be extremely hard to find.
ROMANS: I want to show you a chart that shows how hard it is for your teenager to find a job. No surprise here. It shows a tremendous drop in 18 to 23-year-old workers with a summer job. Over the last decade youth summer employment has fallen from nearly 60 percent to less than half.
VELSHI: There are still opportunities out there. We want to let you know about what they are. So Tory Johnson, CEO of Woman for Hire, and author of the book "Fired to Hire." Tory good to see you, thanks for being with us.
TORY JOHNSON, AUTHOR, "FIRED TO BE HIRED:" Thanks for having me. VELSHI: This stuff use to be obvious when we were kids on how you got summer jobs, a little more complicated right now. What is the best way for a student looking for a summer job is it still pounding the pavement or is it the internet or social media?
JOHNSON: Oh well I tried my best. But there are some really good websites that you can look at, one of my favorites is snagajob.com, cool works, craigslist, those web sites are specifically devoted to people who are looking, who specifically for teens that are looking for some employment.
ROMANS: Are they free or do you have to pay something to log on?
JOHNSON: Yes. Those are free.
ROMANS: You also say that you should maybe try to start a business. You're going to have to be a freelancer and figure out where the money is for yourself.
JOHNSON: Sure. We hear all about entrepreneurial teens. I think it's a really great option if you can't find somebody to hire you to hire yourself in a sense by farming yourself out there. Think about the things that you already know how to do. So most teens can do things like babysitting and again it's about going into your neighborhood and talking to people.
Maybe if you're going to mow people's lawns. When you mention the internet and you talk about using the internet, I know teens right now who are being really entrepreneurial and teaching some of their parents' friends how to use facebook or going into small businesses and saying you know what I'm going to give you that one-hour tutorial, I'm going to help you get set up.
JOHNSON: Because it's something that teens know intuitively. So they wonder would anyone pay me for that. Yes. But I think the biggest issue is really pounding the pavement. I think that's what matters most. If you can walk into the drug store or the grocery store and say, hey, my family shopped here since I was a toddler and now I want to work here this summer.
Showing a connection, being able to walk the mall, especially into some of your favorite stores and say, I've always shopped here; I know the merchandise, not much training involved with me. Why don't you give me a chance? Going into a restaurant, thinking about what's familiar in your area and using that personal connection I think is one of the things that works best in a teen's favor.
VELSHI: That is good advice. I'm energized by it already. I've been in a few malls recently and I've seen signs.
JOHNSON: And there are signs.
VELSHI: We're looking to hire, come in and get an application, talk to the manager. Good advice. Tory good to see you again. JOHNSON: Thanks for having me.
VELSHI: Tory Johnson is the CEO, Women for Hire and the author of "Fired to Hired."
ROMANS: All right. That wraps up for us this show. You can enjoy a running conversation we like to have on facebook and twitter, at Alivelshi and at Christineromans.
VELSHI: Make sure you join us every week for YOUR MONEY, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00. You can also log on 24/7 to CNNMONEY.com for continuing coverage of all the business stories that we talk to you about here. Have yourselves a great weekend.