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YOUR MONEY

Tax Cuts Allowed to Lapse; China Now Second Leading Economy; Examining the BRIC Countries

Aired August 21, 2010 - 13:00   ET

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


ALI VELSHI, CNN HOST, YOUR MONEY: Higher taxes for the rich. But will it be enough? Welcome to YOUR MONEY. I'm Ali Velshi. Christine Romans is off this week.

If you make more than $200,000, $250,000 for joint filers you can likely say goodbye to the Bush era tax cuts at the end of this year. But can the administration really combat our massive and growing debt without eventually raising taxes on many more Americans? Stephen Moore is an editorial writer with the "Wall Street Journal. Stephen even you could probably stomach some tax increases for some people maybe the wealthiest. What is your concern here that it is going to go beyond the wealthiest of Americans?

STEPHEN MOORE, EDITORIAL WRITER, "WALL STREET JOURNAL:" I don't think that we should be raising taxes on anybody, Ali. Especially not right now when the economy is so wildly and this recovery seems like it might sliding into a double dip recession. I think that the worst idea of all would be to raise tax rates. I think we ought to recognize that the United States is in an internationally global position. We saw one of the big stories this week by the way Ali, that China now has surpassed Japan as the second largest economy. They have their sights on us now. I don't think raising tax rates is going to make us more competitive. We got to get this budget under control. We have seen about $1 trillion increase in spending. And the other thing we have to do Ali is so important get America back to work again, more people working is the best way to get revenues into the government.

VELSHI: You have to give me credit; I tried to trick you into saying that some tax increases would be OK. Chrystia Freeland is the global editor at large with Reuters. Chrystia we did some polling here at CNN, I want to show it to you. This speaks to what Stephen was just saying, the economy, and 56 percent. This has been going on for a long time; everybody thinks the economy is the biggest issue to deal with. Unemployment and the deficit are tried right after those. Terrorism comes in third and we are still pretty concerned about it. So the bottom line is we need to fix this economy. If it could be determined that raising taxes on the rich were somehow to help the economy, would that make it easier for the Democrats to sell? Because there are some people who think you should raise these tax cuts should expire on the rich.

CHRYSTIA FREELAND, EDITOR AT LARGE, REUTERS: There are a lot of people think that. And look, no one is saying that taxing the rich more will stimulate economic growth that is not the argument. What is clear is raising tax revenue is necessary if you want to run a government which Americans do want. And the big question which Stephen addressed is are tax increases right now when the economy is soft a danger? Is it to dangerous to raise taxes on anyone?

I think an interesting argument that James Derecky (ph) has made in the "New Yorker" recently is we should be thinking not so much about taxes on the people making more than $200,000 or $250,000 a year, but focusing more on the people at the very top of the income distribution. Maybe the people making more than half a million dollars a year. And those people actually have been gaining disproportionately from the increases in productivity over the last decade. I think you would argue that maybe if you are making more than half a million dollars a year that doesn't hit the small business owners. Who I think you know realistically we should worry about making them worried about investing. And probably is you are making more than half a million dollars a year we shouldn't worry too much about you. But I agree with Stephen the big question right now the focus should be on growth rather than deficits.

VELSHI: Lets take it across the pond to my good friend Richard Quest for a little bit of international perspective. Richard, do you report on this and see this as Americans being a little too caught up and what some people say is a very small increase to a very small population?

RICHARD QUEST, CNNI HOST, "QUEST MEANS BUSINESS:" Look, the truth of the matter is here for example, in the UK, we have already had the tax increases on the top, the richest who earns $150,000 pounds, nearly $275,000 dollars. The tax rate at the top now is 50 percent. Social security taxes have gone up in January of next year, V.A. P, value added tax will go from 17.5 percent to 20 percent and the same is happening across the continent of Europe. While I applaud your other guests for their wish for some sort of a fiscal sobriety, the truth is, if you are going to get rid of the deficit, it has to be a two pronged approach. You have to cut spending and you have to raise taxes. As your guests know very well, you only make sizable rate increases in revenues when you raise taxes on the middle classes. You can tax and squeal the rich but you don't raise much money doing it.

VELSHI: Hold on everybody for a second. I know everybody will have something to say about that. And I know Stephen you have been taking my baiting and not calling for it. So I want to give you something else, I spoke to the White House this week and asked them how the administration can prioritize debt reduction while still justifying what it says is necessary spending. Things like extending unemployment benefits to the long-term unemployed. They sent me this chart which is from the center on budget and policy priorities. The chart uses data from the Congressional Budget Office a nonpartisan organization. I want you to see it and talk to you, I want to explain to you what you are looking at and then I want you guys to weigh in. I will start with you in a moment Stephen.

First of all, let's take a look at the things we are looking at on the right. The colors, there are five colors on this chart. They encompass the wars in Iraq and Afghanistan, the Bush era tax cuts, the recovery measures, the things that we did to deal with this economic recovery, T.A.R.P., Fannie Mae and Freddie Mac and finally the amount of money that gets into our deficit just because of the economic downturn.

So if you come back here to 2009 and you look at it, you can see the economic downturn is responsible for a big portion of the deficit in 2009. That green part is T.A. R. P and Fannie Mae and Freddie Mac; you can see that doesn't really extend out very far. Then you have the white parts which are measures to do with the recovery. You can see a very big in 2010, getting smaller as we go along. The butterscotch, the beige color those are the Bush era tax cuts. And then you have the wars in Iraq and Afghanistan remaining very steady out to 2019 and then you have your actual deficit. Take a look at this Stephen, the growing part, one of the biggest parts of our deficit and one of the parts that grow from 2010 up to 2019 according to the people who gave me this chart Bush era tax cuts.

MOORE: Well, I wish you would also put up the Heritage Foundation chart which actually counters what they say. They actually say that it has been the big spending binge that has really made the deficit worse. Don't forget, the other thing that is going to make the deficit much, much worse is the Obama Care Bill which adds about a $1 trillion of expenditures and puts 30 million more people on the government run health care system at a time we can't even afford the programs that we have.

Look, one thing on this tax increase issue, that Richard was talking about, there is one problem with this, Richard, most Americans don't believe that if we raise taxes that that money will be used to reduce the deficit. Most Americans believe quite correctly in my opinion that an increase in taxes will simply be used for what Congress always does with the money which is to spend it and not reduce the deficit at all.

FREELAND: Could I jump in here? Richard do you want to go first? I was actually going to support something that Richard said. I hope he will give me a word here. Richard made one really important point which is talking about the value added tax in the UK. This is something which all the western industrialized nations apart from the United States have. It is a tax on consumption so it is something that actually encourages people to save. It is a tax on the middle class so Democrats tend not to like it; it is regressive in that way. But I think it is very hard if you are a sensible person who believes that you have to as Richard was saying both cut government spending but also increase revenues to deal with the deficit, it is very hard for me to see how America gets around a VAT of some sort.

VELSHI: All right. Hang on everybody. The reason we like this panel is because they are sensible people who all don't all share the same view just like you out there. We have a lot of views and a lot of ways we need to try and deal with our economic situation. So everybody hold on, we'll get your responses in a second. Republicans say they have a solution for Social Security the president says no way. I'll tell you about it when we come back.

(COMMERCIAL BREAK)

VELSHI: The Social Security system in this country needs to change or else there simply won't be enough money to pay out benefits to Americans who count on those checks when they retire. Republicans have suggested transforming the system to a private savings account, President Obama says not on his watch.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE U.S: I have been adamant in saying that Social Security should not be privatized and it will not be privatized as long as I'm president.

(END VIDEO CLIP)

VELSHI: Chrystia Freeland, my panel joins me again. Chrystia can you put into perspective why this is such a big issue? Because we all know the system is going to work, it is going to run out money, it going to be under funded shortly by 2037 they are going to have to start to reduce the amount that they pay out to people. So we need some kind of fix, why such a reaction from the president about this suggested fix, privatizing it?

FREELAND: Well I think there are two issues, the first is if you think about privatizing Social Security that is an idea that President George Bush was very in favor of. Imagine if that had happened prior to the crash of 2008. The results would have been really, really dreadful and the pain that people are feeling in their 401k's they would have felt in Social Security. So I think now is actually a pretty iffy time to be suggesting that people have their faith in global capital markets, they are very volatiliable right now and a place where people probably don't want a lot of volatility is retirement. When it comes to Social Security I would say that the bigger concern on the entitlement spending over all in deficit shouldn't be Social Security. I think the president is actually right that is the smaller problem. The bigger issue is medical spending. And this is where I think both American parties have been incredibly lacking in courage. They have been cowardly, no one has had the guts to say to the American people we are spending far too much on health care and we actually don't get good results, we get worse results when --

VELSHI: When we spend double --

FREELAND: But actually you are going to have to change the way you get your health care if you want to control this, Americans can't keep on getting health care the way that they do now.

VELSHI: Stephen Moore lets go back to Social Security for a second. I think you and I will agree there is a problem with the way it runs now. Chrystia makes a good point if we have privatized Social Security you can invest in things that you choose, your Social Security account could look at bad as your 401k account after the economic crisis.

MOORE: Well remember we are talking about people investing not over two or three years, but people investing over a whole life time. You start paying Social Security when you are 19, 20, and 21 years old. Actually Chrystia it is interesting because some studies have been done, even with the big plunge in the stock market that happened in 2008 and 2009, workers still would have been substantially better off we would have had people with much bigger pensions if we had allowed them to put some of that money into the stock market rather than putting into Social Security.

But even if you are worried about not allowing people to put money in to the stock market because you think it is too risky, why not just let people put money into an account with Treasury bills, in other words just let them have a personally owned account so that Congress can't keep stealing the money from Social Security. One of the reasons why we have such a big deficit right now Ali as you know is that over the last 25 years Congress has stolen about $1 trillion of Social Security money and they spent it on other programs.

VELSHI: There may be some middle ground here and that it doesn't have to be private accounts. We can really create that lock box which is really actually locked. Richard Quest you have seen different systems around the world. The world is changing there are lots of countries use different ways of dealing with how they support people in their old age. We have seen in Europe some of the debt problems there are made worse by the fact that people gets lots money from the government no matter what.

QUEST: Every country is grappling with exactly this issue. And some in the UK or in Germany, you have independent retirement accounts, you have individual accounts which are tax free until you pull the money out. So everybody is grappling with the same Rubicon if you like.

However, the one thing of course that is happening in the UK and Europe and elsewhere and it is going to happen with you guys as well is raising the retirement age. Our old friend is going to come back and we are just hearing about it now in this country where now it is no longer 65, but is it going to be 66. I was talking to one finance minister who said he would like to take it to 68. To get the retirement age which of course is a plus and a minus because we can work older and longer.

FREELAND: Speak for yourself Richard.

VELSHI: Well, if we raise the retirement age to 66 then Richard has 33 more years to work.

Guys, Richard you are staying with me. Stephen always good to see you. Chrystia thanks to you as well. We will continue these important discussions for our viewers every week.

Prices you pay for everything from groceries to TV's to school supplies could actually be dropping. In fact in many cases they have been dropping and that is not necessarily a good thing. I will tell you why when we come back.

(COMMERCIAL BREAK)

VELSHI: A lot of people are worried that the economy might be softening. We thought it was getting better but there is some people talking about double dip recession and things like that. There is a lot of concern out there about deflation. Which basically means falling prices and that probably sounds like a pretty good thing to most of you out there. But not so fast. Richard Quest is back with us and Lex Haris is also with us. He is the managing director of CNNMONEY.com. And I want to talk to these guys about why deflation might actually be a bad thing. Let's start with you Richard.

QUEST: Be under no illusion; deflation is a far worse evil than inflation. We know how to get rid of inflation it is painful but it works. You raise interest rates, you cut the money supply, but what Japan learned in the 1980's and the last decade is once prices start falling it is just about impossible to get them started again. Because you and I and everybody else anticipates further falls in prices and you end up with a downward spiral and the U.S. has got one man who knows about this. This is a speech, any one who is interested in deflations needs to read the speech by Ben Bernanke from 2002. It is on the Fed Reserves website. It is "Deflation, making sure it doesn't happen here". The reason as to why everybody needs to be guarded against falling prices.

VELSHI: Let's take this a little further with Lex. Les if prices are going up, and you and I know prices are going up, let's take a house, if we know prices are going up and you want a house you move to get in because you know it is going to be worth more later or it is going to cost you more later. If you think prices are going down lets take the same example on a house, you don't rush to buy that house, nobody rushes to buy that house because everybody thinks they are going to get a better deal later. This is the opposite of a growing economy, it becomes an economy where nobody does anything and they don't invest money either.

LEX HARIS, MANAGING EDITOR, CNNMONEY.COM: That is exactly right Ali. That is why if you talk to economists, deflation is the thing that scares them the most. And basically what happens exactly as you were describing everything grinds down. People stop buying. If you are a company and you think prices are going to be lower six months from now, you are not going to hire people. So everything just kind of stops and in the worse case you get the great depression where you had 10 percent deflation a year. You get Japan --

VELSHI: Where it just sits there and nothing happens and then it becomes very hard to break out of that. Richard you said when you have inflation you stop that because you raise interest rates and that means people don't fall as easily, they don't spend as willingly and the economy slows down. What is the cure for deflation or fears of deflation?

QUEST: You pump as much money as you possibly can through every angle that you can think of to try and get people spending again. And the problem here is that interest rates which are the traditional method are at 0-0.25 percent in the U.S. similar in Europe. So now you move to non traditional methods and before long you are pushing as much money down the gullet of the economy as you can. Except in our current circumstances there is too much structural deficit going on in the economy, to much damage to actually accommodate that.

But one of the things to bear in mind Ali, and that is we don't really know at the moment the inflation figures between seasonal factors, the governor of the Bank of England suggested it this week, he believes inflation is not as bad as head line numbers suggest once you take away other things.

VELSHI: All right. And the fact is that we are throwing money at the economy the way Richard is talking about and that has people worried. You have them saying stop doing that and this is why this becomes a big problem.

HARIS: Right, there is a lot of risk. Like Richard said the way you get out of deflation is you throw money at it. But I think someone said I wish there was such a thing as free money but there isn't. When you throw money bad things happen down the road. You get new asset bubbles. Remember when we had low interest rate under Alan Greenspan, a lot of people say we are in the crisis we are in now.

VELSHI: We are walking this tight rope right now. Thanks very much, Lex Haris is managing editor at CNNMONEY.com. You have to go there, you can learn about the types of stuff that we discuss on the show. Richard Quest my good friend, he is the host of "Quest means Business." Talking to us from London.

Well China's economy is booming, but you shouldn't necessarily look at that as a bad thing. Why a growing Chinese economy can actually and very specifically be good for you.

(COMMERCIAL BREAK)

VELSHI: If you watched the show before you have seen those four letters. You are going to be seeing a lot of that in the next little while. BRIC, four letters that can be very important to your investment. The c in BRIC stands for China. We are going to tell you about the others and how you can invest in them shortly.

But first, China, it is now the world's second largest economy and boy, it is trending up fast right behind the U.S. and it is unseeding Japan. Michael Schuman is Asia business correspondent for Time; he is based in Hong Kong. But we are lucky enough that he is actually here now. And I want to talk to him about China as an opportunity for my viewers. I bet you if you look at China you can google that and you can all keep busy worrying about that. But not everybody tells you about China as an opportunity. China is a growing economy. There has got to be some opportunity for my viewers when faced with that growing economy.

MICHAEL SCHUMAN, ASIA BUISNESS CORRESPONDENT FOR TIME: Well I mean China is really the future of American business. They have 1.3 billion people getting wealthier by the second. They are becoming the biggest customers for everything you can possibly think of and also are going to become some of the biggest travelers in the world. You will see more and more Chinese tourists here spending money and we are going to see more and more American companies making a lot of money in China. We have already seen some American companies being very successful in the China market. It is a huge business for companies like young brands, the KFC chain.

VELSHI: And Pizza Hut. SCHUMAN: And you have companies like Starbuck's talking about China being their second largest market in the world and that means more jobs back home.

VELSHI: OK. So let's think about it, that is exactly where I was going. How might it translate for more jobs back home? What it could mean, is it could mean that there more opportunities for a kid learning mandarin today or a kid posting a job in Asia or in China how might that actually turn into jobs back in America?

SCHUMAN: You are talking about an entire new source of global growth. One of the big problems for the world economy in the last 20 years has been that everything relies on the U.S. If the U.S. economy does well everybody does well and the U.S. economy as we have seen has some problems. The great thing about what is going on in China and India is that they are creating entire new sources of global growth and pools of customers who can by all kind things made here.

VELSHI: What can we make or produce or offer that they might buy?

SCHUMAN: Everything from consumer products to industrial products as well. This economy that is building new factories and building new building, building new everything and building new infrastructure. They need machines.

VELSHI: Can't they make it cheaper?

SCHUMAN: They can make some of it cheaper but of course it is not just about cheap it also about technology.

VELSHI: Right.

SCHUMAN: It is about know-how and expertise. So the fact is that the Chinese economy is the second largest in the world, but they are still behind in terms of expertise and their technology. They can benefit from what American companies know and what American universities produce. We are a much more innovated economy here in the U.S. then China and that provides us with an advantage and an opportunity

VELSHI: OK now one thing that a lot of people come on this show and say is that the problem with China, is an imbalance in trade that they sell us way more than we sell them and if that were fixed that could help. And that being fixed involves the currency, the value of the Chinese currency increasing a little bit to make manufactured goods there more expensive so that some Americans will choose to buy American made products. How do you feel about that whole argument?

SCHUMAN: I think the currency issue is somewhat over blown. I think that the imbalances that you talk about have to go away that is a global problem and that creates instability in the world economy. Can the currency help? Maybe. But it is not the silver bullet that people think it is, I think there is an impression that if the currency value changed, that means some how jobs would flow back here, factories would reopen and maybe that will happen on the margins, but the fact is that there is always some place cheaper to do business. If it becomes more expensive to make your TV set or your pc or your sneaker in China it can go to India or somewhere else where the costs are lower. That means maybe a shifting of trade patterns but not a fundamental change in what goes in and out of the United States.

VELSHI: Michael great to have you here. Thank you for giving us some light on this. Michael is the Asia business correspondent for "Time" based in Hong Kong. But he is also the author of "The Miracle" the epic story of Asia's quest for wealth. In this day and age as Asia continues to grow and be more important to our economy, it is a worth while read and it is now available in paperback. Michael thanks very much.

SCHUMAN: Thank you.

VELSHI: All right. You know what the C stands for in BRIC. But we are going to tell you what the rest of those letters stand for and how you can make money from it, coming up next.

(COMMERCIAL BREAK)

VELSHI: Even in the sexiest of TV shows like this one, there comes a time when you have to take out a pen and paper and make a few notes, this is that time. Look if you have been reading the newspapers or listening to TV you would think that this country is going to hell in a hand basket. But the entire world is not actually suffering economically and I'm going to tell you about certain parts of the world that are actually doing quite well.

They are called the BRIC countries, you are going to see BRIC a lot, and you are going to hear about BRIC a lot. Here is what it stands for, B stands for Brazil, R for Russia, a couple problems there and we will talk about that later, I stands for India and C stands for one of the fastest growing in the entire world China. Now if you want to invest in these countries, you want to do well there are several ways that you can do that but one of the best ways is through something called an ETF, an exchange traded fund. Which is basically a mutual fund; a basket of stocks that make money out of these countries but you can buy it and sell it on the stock market. They are a simple way to diversify your investment within one particular country. My good friend Stephen Leeb is back, he is the author of "Game Over." And Stephen you are really concentrated in these other countries, you think it is very important for the average investor, my viewer, to have diversification and to concentrate on some of these growth areas.

STEPHEN LEEB, AUTHOR, "GAME OVER:" I absolutely do Ali. I mean if you just look at the last ten years they sort of tell the story. Not counting dividends, the U.S. stock market is down over the past ten years. These countries, if you look at their stock markets you have to hold on to your hate, they are up five and six fold and their growth is still as strong as ever.

VELSHI: Let's start with Brazil. How do you invest in Brazil with an exchange traded fund, we are going to list them on the board for you so you can see them, all the countries. Brazil you have something called EWZ which means if I have a trading account and I type in EWZ or I go to Money.com and I put in the ticker, EWZ that is what I will see. LEEB: Right and if you buy that, you are going to get a collection of Brazilian companies. I think the two largest --

A little bit of a bet that they will be successful with off-shore drilling the second is Bail which is a very big natural resource company.

VELSHI: Right.

LEEB: Tremendous amount of iron ore. But because Brazil is a little bit more developed then these other countries, you will get a lot of banks. So if you are buying an ETF you are going to get a nice collection of resource companies and financial companies too.

VELSHI: You got Russia on there, R-S-X. Same kind of basket of Russian stocks, but as I said when I was walking across that wall Russia has more of a problem then some of these other countries do, very developed, very advanced.

LEEB: Yes, the issue is their government. There is a legacy of communism there and you saw that in spades about what happened recently with the heat wave. The heat wave there was horrible. But what was even worse was that the people running these outside territories refused to report the problems to Moscow. And that lead to all sorts of craziness. So you do have an undeveloped political system there. That said Russia has also performed as a stock market extraordinary wealth, but with much more volatility than the other BRIC countries. If you buy RSX, as you said, because they are different, you are getting more than the other countries a collection of resource companies. They are you know, that is what their strong suit is.

VELSHI: In this environment those things are going to do well. Let's talk about China. You mentioned Russia with its communist legacy, so should China have, and yet you can look at FXI or CHN, two different kinds of baskets but they are both the same idea.

LEEB: Right, well a little bit different. FXI really represents these major international Chinese companies and they are traded on the Hong Kong Stock Exchange. If you buy FXI, your biggest holding or your biggest sector is going to be the financial sector. CHN which is the same thing as an ETF, that functions like that. You are getting a collection of consumer stocks. And that has done much, much better recently than FXI or anything else.

VELSHI: Because you have a growing consumer base.

LEEB: And that is where the government wants the focus. So if you want to take the temperature of how successful the Chinese government is, look at how CHN is performing and right now so far so good.

VELSHI: And finally India.

LEEB: India is very interesting. I mean they are going to be the biggest country in the world and have a per capita income which is very, very low. But they have a Democratic country and their ETF you got a lot of very interesting things, you get finance, oil and gas; I think that is still the biggest part. But you get a lot of computer software, and you get a lot of very, very fast growing companies, you make a collection of these ETFs and you know, the growth rates of the companies in these countries, I would say 25 percent. You would be hard pressed to find two or three in the developed world that are growing as fast as the typical ETF Company is.

VELSHI: All right. So these are ways to get into these countries to invest in a safe and liquid manor and hedge your bets against your investments here in the U.S.

LEEB: Absolutely Ali. And what you said liquid, I mean one of the problems people run into often when they buy a single stock in these countries, you can buy it but who do you sell it to? Sometimes they just don't trade.

VELSHI: But these things trade and you buy them on your stock market here.

LEEB: Exactly right. If you decide you get nervous and you read a headline on China that you don't like, you can be out by the time he is finished speaking.

VELSHI: Right. Very good advice as always, thanks very much. Stephen Leeb, the author of "Game Over."

Next don't call it a come back or can you? An American icon takes a big step towards rebuilding its empire.

(COMMERCIAL BREAK)

VELSHI: Time now for the ticker where we go beyond the headlines. Did I really say that? Joining me now our CNN correspondent Mary Snow and Pete Dominick who is the host of "Stand up with Pete Dominick" on Sirius XM and his regular off beat recording on "John King USA" every week night at 7:00 p.m. Eastern, what do they call you? Pete on the streets.

PETE DOMINICK, HOST, SIRIUS XM STAND UP: That is what they call me.

VELSHI: All right. Let's talk about something that is going to affect everybody, General Motors. One way or the other, whether you were an investor, or you drove one of their cars or you know somebody who worked for the company, General Motors is an important company and is ready to go public again. The auto maker filed documents this week to sell shares of common stock; you will know it as an IP. Who actually owns GM? People call it government motors. Let me show you who owns GM.

That is not an unfair name, 68 percent of it is owned by the federal government here in the United States. And sorry, not 68 percent, 60.8 percent. The Canadian government owns 17.5 percent. A lot of people don't know the province of Ontario, from which I hail, is the largest jurisdiction on the continent for making cars, bigger than Michigan. And the Unions own 17.5 percent of General Motors. All of them are going to put a few shares into this whole thing so that they get some money back basically, that is how taxpayers are going to get their money back from General Motors. How much money are we talking about?

The U.S. government pumped about $50 billion into GM. GM has since paid back $7 billion. But when you add the Canadian government, you add the unions, General Motors when it trades as a stock is going to have to reach $67 billion in market value so that everyone will get paid back. Estimates right now are that it will start some where between $64 and $90 billion. This doesn't mean it starts trading immediately, they have just filed the paperwork, we are thinking October or November, something like that. I think it is a milestone on the way to greater success and I actually think, Pete this is a good piece of news for America.

DOMINICK: It is great piece of news for America. Every man's simple argument that of course we have a radio show like mine all the time, when we were going through this whose fault was it that GM and the auto industry went under? That is what every one wants to place blame. It was the unions, their business model and it was the executives. Thank goodness the government did what they did because we need this industry; we have to have it here. It is a good thing for America and a good thing for China because they are the ones guying the GM cars.

The only reason they are coming out of this in this IPO. But listen four or five CEO's in 18 months, that's -- I don't know much about CEO's or executives but I know you are not supposed to have that many. They are flying out the window left and right and then they are not really marketing the IPO yet. But who knows if people are going to buy it right?

VELSHI: I don't know would you like that job?

MARY SNOW, CNN CORRESPONDENT: $67 billion they have to raise, right? And right now how many people are really hungry for an IPO?

VELSHI: There are virtually none. And mostly it is just technology companies IPO. As a business guy I don't get all excited, oh no another IPO, in a market that is so uncertain, Mary brings up a good point at a time when things are really hot that is when you take your company public and you raise lots and lots of money and millionaires are made over night. They aren't even sure what this market is going to hold. Would you buy GM stock?

DIMINICK: But here is the thing, I probably wouldn't. But my grandma had GM stock. Like older Americans bought GM it was a great company back then. I mean people my age 34, they are buying tech stocks and.

VELSHI: They are buying Apple. GM was the stock you held in you're portfolio forever. It was the world's biggest company at one point, it was America's biggest company and it was the backbone of manufacturing in this country.

DOMINICK: And how did they get where they are? They got rid of the brands, these Pontiac guys all over America and on the Jersey shore they are crying.

VELSHI: I hear you. OK, new report shows that in populations in large cities with large male black populations the graduation rate, the on- time graduation rate is very low. Only 28 percent of black males graduate on time in New York City, the same true in Philadelphia and Detroit. Mary you reported on this education gat this wee. Tell us more about it.

SNOW: You know when I fist looked at these numbers I thought it was a mistake. Because the numbers are so staggering and overall what I found is that less than half of the black males in the United States graduate on time in the entire United States. What is really also pretty shocking is the disparity between the graduation rates between black males and white males. There are some cases that this study pointed out this is an advocacy group trying to level the playing field in education. I found some stand outs, Newark, New Jersey is one of them. Newark has all these problems, but it has something like a 76 percent graduation rate for black males.

VELSHI: What determines the difference?

SNOW: What happened there is that the district had to force itself to redistribute its resources. But the big difference, you talk to all these experts, early education. They said third grade is really a turning point. That they can tell whether or not in third grade, if you are reading, whether or not this is going to lead to other problems.

VELSHI: And we have heard this a lot, that your success later on is determined very early in the public education system. Which is why we have to continue to concentrate on this, this is a big problem. We are not competitive in the U.S. at very, very early levels. Pete do you think we are doing enough about that?

DOMINICK: Well no, I mean we are not competitive. But I have two little white girls at home that are my daughters. We are talking about black men what happens. One in three black men it is going to end up in prison why? In my opinion, from all the things I have read and I do a lot of interviews on this. This is still a huge, a huge disparity in equality. There's still tremendous inequality in this country. Polls taken in the early '60s, just after Brown versus the Board of Education, people thought then that we were equal. No, of course we weren't and we're still not. There's still institutionalized racism and there is still racism, of course, in the drug laws. That has a lot to do with this. Where are the men? A lot of them are in prison. When they come out, they want to make a new life. They can't get a job because they have that drug charge.

VELSHI: We're learning in an economy like this, that it just doesn't pay for us to have people who are not educated enough to get into the workforce and be productive. Either you're producing and contributing to the economy or you are drawing from the economy. It's definitely something even if you're not a young black male or you are not a young black high school graduate that's a concern for all of us. All right. Thanks to both of you. Mary Snow and Pete Dominick, great to see you both. We'll watch you on TV all week.

All right. Coming up next, an old friend returns to CNN to show you how you can go after your dream and succeed. You might recognize her.

But first one private club adjusts to a down economy in this weeks "Turnaround." Here is CNN's Allan Chernoff.

(BEGIN VIDEO CLIP)

ALLAN CHERNOFF, CNN CORRESPONDENT (voice over): James Fisher has some sage advice for private clubs.

JAMES FISHER: Adapt or die.

CHERNOFF: That's just what Fisher has done to keep the historic Hartford Club in Connecticut running strong. The Hartford Club goes back to 1873. It was home to one Samuel Clemens, who you might know better as Mark Twain. But famous members aside, economic troubles are forcing many to rethink budgets and memberships.

LARY BROWN, PRESIDENT, THE HARTFORD CLUB: We have lost membership, people loosing jobs, people having to relocate because of changes in employment, or people who simply look at their finances and say I need to cut my expenses. A club membership is something that's discretionary, I can cut that.

CHERNOFF: The Hartford Club isn't alone; across the country private club membership is down 11 percent over the last five years, according to PKF, the hospitality consultant firm. So Brown and Fisher have been getting creative and adapting. They redesigned and repriced their dining menu and opened their doors to local businesses to host events at the club. They even started a magazine for local professionals, which Fisher says is generating profit through advertising. The club is also trying to attract new younger members by dropping the $1,500 initiation fee.

SETH HAMMEN, NEW HARTFORD CLUB MEMBER: its 30 and under. I'm at 30. So you know, they price discriminate, so that makes it more affordable for someone like me to be able to join. It's a great idea.

CHERNOFF: Brown and Fisher say the club is in no danger of closing its doors and is still keeping with tradition but keeping it on the move.

FISHER: Membership is going the right direction, banquet sales are going in the right direction, and attrition is going in the right direction. We're in good shape.

BROWN: The world changed, Hartford has changed and the Hartford business community has changed. I think the club, like other types of institutions have to change to meet what the market requires and that is what we've done.

CHERNOFF: Allan Chernoff, CNN.

(COMMERCIAL BREAK)

VELSHI: My next guest is no stranger to CNN. She is a producer here for many years and now she is no longer a stranger to anyone period because of this. Take a look.

(BEGIN VIDEO CLIP) (UNIDENTIFIED MALE): The next food network star is Aartie.

(END VIDEO CLIP)

VELSHI: I'm joined by our good friend Aartie, former CNN producer turned food network star as you just seen, and who I'm told now travels with an entourage. Things have changed since we last worked together. I remember when you left here.

AARTI SEQUEIRA, CNN PRODUCER TURNED FOOD NETWORK HOST: Yes.

VELSHI: I had no idea you were leaving here to go to stardom. I thought you were leaving to go out west to find stardom.

SEQUEIRA: No, that wasn't my intention. I left because I got married and my husband is an actor and I wanted to join him in L.A. And then once I got out there, I just fell into this situation where I didn't know what I wanted to do with my life anymore. I started blogging. I started making up recipes because I went to a part time cooking school.

VELSHI: When I knew you, were you a cook?

SEQUEIRA: I was cooking a fair amount. But then once I got to L.A., I couldn't drive, I couldn't work, because I was waiting for my visa. So I'd walk to the supermarket everyday and get food and make dinner. That was my whole day, that and "The View." It was time to find something to do with my life so I started doing this online cooking show. My husband would shoot it. It was a cooking variety show. It was a way for me to do what I wanted to do and then give my friends who were actors and performers a venue to do what they wanted to do. I realized oh, my goodness, this is what I'm supposed to do.

VELSHI: Did you think there was a venue or were you just doing it for fun?

SEQUEIRA: It was fun at first. But then about two months into doing the show, I got called by an online show and I started doing shows for them. I remember the first time I did it and I thought, holy crap, I'm getting paid for this right now.

VELSHI: That's great.

SEQUEIRA: I finally realized there is such a thing as getting paid to do something you love.

VELSHI: OK, there are all sorts of people who are in a position where they are not working; they don't think they have a job. Yours is an example of taking a passion and turning it into something. What advice have you got for others?

SEQUEIRA: Well for us we were living on an unemployment check, for one, the two of us so I completely get it. It was hard. We did all this on the weekend. Shoot on the weekend, edit on the weekend, and put it up on Monday. That left the rest of the week to hustle for work and hustle we did. VELSHI: All right. So keep on looking for work but follow a passion.

SEQUEIRA: Yes.

VELSHI: You were saying you may not just have one passion, you may have several.

SEQUEIRA: Exactly.

VELSHI: Who knew that cooking was going to be your future?

SEQUEIRA: I mean I thought it was maybe documentaries or something like that. This seems so far removed from my journalistic background, but actually its right in line with what I was trained to do. Be on camera, produce my stuff, and work on a deadline. It's kind of the same stuff.

VELSHI: You just happen to be in the middle of it.

SEQUEIRA: And I'm in front of the camera.

VELSHI: August 22nd is when the new show premiers on the food network at 12:00 Eastern. We're going to follow your career. Then you're going to come back and you are going to make something for me out of junk food.

SEQUEIRA: Yes. I have some ideas already.

VELSHI: That is excellent. Great to see you and many, many congratulations.

SEQUEIRA: Thanks for having me.

VELSHI: Love following great stories.

OK. Remember, you want to talk to us, want ideas, you want to comment on things, tweet early and often @Alivelshi, @christineromans we do read every single tweet that comes in. Thank you for spending part of weekend with us. We are here every Saturday 1:00 pm Eastern, Sundays at 3:00. You can also logon to 24/7 to CNNMONEY.com. Have yourselves a fantastic rest of the weekend.