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Midterm Elections and the Economy
Aired October 16, 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: Two weeks until the midterm elections, change could be coming to Washington. But will it change the course of this economy? I'm Ali Velshi, welcome to YOUR MONEY.
The polls say Republicans are likely to gain congressional seats, maybe take control of both Houses of Congress. Voters are split, however, look at this on whether a GOP-led Congress would move the economy in the right direction. Forty seven percent say yes, 49 percent say no. Look at the Democrats though, 56 percent say the Democrats won't move the economy in the right direction. So Christine Romans joining me now. Christine it is clear that voters seem to think the Republicans if they win in the midterms will help the economy, realistically what changes if the Republicans take either the House or the House of the Senate?
CHRISTINE ROMANS, CNN HOST, YOUR MONEY: Well first, nothing changes right away. It takes a long time to enact policy and repeal a legislation and that is one of the things you are hearing on the campaign trail. They are going to repeal health care reform. Every kind of legal and congressional expert there is say that would be virtually impossible and take forever, if they could actually do it. So that is one thing.
The other thing is what do the American people think about this Ali? I think the American people are basically saying they just don't want the economy to be like it is right now.
ROMANS: That's what they are saying. They don't know who can fix it.
VELSHI: The question asked if it will move the economy in the right direction. There is a whole lot of dispute among smart people as to what the right direction is, I think the right direction is positive, is growth, is higher markets, higher home prices, more jobs, but it is unclear how we get there.
Candy Crowley, CNN's chief political correspondent, she is the anchor of "State of the Union" every Sunday at 9:00 am. Candy, take a look at this poll, last October, 57 percent of Americans believed that President Obama had done a better job than President Bush had, this was October of 2009. Take a look at the tremendous shift now. Voters almost equally split on whether Bush or Obama has been a better president. Does this mean voters have fully transferred owner of politics and this economy from the last administration to this administration? CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Not fully. Because we do have other polling showing that most people still blame the Bush administration for the current state of the economy but that number is falling as well.
What you're seeing is dissatisfaction with, either a, how long it's taking to get the economy back on track. Or b, the policies that the president has put in place to try to do that. So he is increasingly being seen as responsible for the economy, but being responsible for the economy for the last year and a half as opposed to how we got into it.
VELSHI: All right. Well, one group that would like to associate this administration and President Obama with the bad things that have been happening in this economy is the Tea Party. To some degree they have had success with that. But there are issues with that Jim Ellis, is the assistant managing editor of "Bloomberg Business Week." The cover story this week attempts to explain why business, why the world of business does not trust the Tea Party. What did your reporters find Jim?
JIM ELLIS, ASSISTANT MANAGING EDITOR, "BLOOMBERG BUSINESS WEEK:" We found that even though a lot of business people, even say most business people, consider themselves to be Republicans and some are fiscally conservative. They are really worried about some of the things the ea Party people are against. They don't like the notion that a lot of Tea Party advocates want to get rid of the Federal Reserve. Which a lot of business people think will actually throw the financial system in to turmoil. A lot of people want to get rid of health care reform, which a lot of businesses already have invested in.
A lot of Tea Party people also want to get rid of subsidies. And Washington is basically a place that business feels like it can maneuver now and doesn't want to get rid of certain tax breaks and things that will actually help them. So they are sort of worried that this is a mad as hell kind of thing that can get out of hand.
VELSHI: Clear it up for me where business stands on Washington. On one level the Tea Party has as part of its constituency a number of libertarians, people that don't think there should be too much regulation. These are some of the same people that think there shouldn't be a fed either. But the reality is some business likes that. Yet we continue to hear that President Obama is too cozy with Wall Street. Then we hear that President Obama is too anti-business. Collectively what does the business community feel about who has their best interest at heart?
ELLIS: Well a lot of that depends on which part of the business community you're looking at. It's not monolithic. I mean a lot of people who are turned on by Tea Party tend to be smaller businesses and entrepreneurs. Big business however has a lot invested in current system of regulatory agencies and the long-term view of what's going to happen. Businesses hate uncertainty and therefore they are really terrified by this notion of what could be sort of economic anarchy that comes when you don't know what's coming from Washington. VELSHI: Candy, I want to ask about the Federal Reserve. Jim just brought it up on Friday, Federal Reserve chairman Ben Bernanke he spelled out the threat of something we're beginning to understand, a jobless recovery. Here is what he said. He said, "High rates of unemployment, especially long-term unemployment impose a very heavy burden on the unemployed and their families. More broadly, prolonged high unemployment would pose a risk to consumer spending and, hence, to the sustainability of the recovery."
Candy, he's certainly learned to speak in a way that people can understand. But basically he's saying something we all know, until we get significant job growth, how does this administration, how does President Obama when he is out there tout economic recovery as a victory without appearing to be entirely out of touch with the reality that so many Americans are feeling.
CROWLEY: He can't. He's tried to thread that needle and it's been really difficult. You see sort of this, well, but we've had however many months of growth in the private sector. But it's like 64,000 or 35,000. It's never a big hefty number, like 250,000, 300,000. People say we need to just keep afloat with the new people coming into the market. I'll tell you something else.
There have been Democratic strategists who put out a memo to Democrats saying stop talking about economic recovery. Stop saying the economy is getting better because it tends to drive people toward Republicans. So they are getting that message and what you're seeing now, is you don't hear that much anymore. Now you're hearing about all this outside money that is coming into politics, that kind of thing that stirs up the base. They are no longer trying to sell the economy.
VELSHI: But Christine in fairness and none of us are running for anything. In fairness, there are a lot of indicators out there that suggest slow but steady and possible recovery. We still got low interest rates, it is still a good deal to buy a house in most markets, we still see an increase in home property prices over the course of the last year, we have seen remarkable returns on the stock market, and we are seeing an increase just Friday in consumer confidence and retail spending. I mean there are a lot of things on the positive side of the ledger.
ROMANS: Well the two things that people feel are their jobs and their house, their home mortgage. And those are the two things that haven't improved. Those out weigh almost everything else. Also, where people are seeing those improvements, Ali, in the economy, its companies, corporate profits are doing better, a great snapback for corporate profits but they are sitting on their cash. They are having discussions in the board rooms about whether they should be buying back their shares or whether they should be giving a dividend to their investors, not necessarily about whether they should be hiring a lot of people.
So the things that people feel still haven't turned around. On the recovery front, yes, there has been a recovery. We know there's been a recovery. But even the Fed is concerned that recovery now is slowing. Even that recovery is slowing and trying to figure out who fight that and how quickly and how exactly to do it.
VELSHI: Although the difference would be now and the weekend of October 16 and 17, 2008, two years ago, is that there's credit available today and companies have money but more people are unemployed. That's the big difference.
Christine, Candy, Jim, stay right where you are. Voters clearly eager for a change, less clear on what they want that change to be. Is it possible things are already turning around? A conversation I just started with Christine, we're going deeper into that when I come back.
VELSHI: Voters in America are mad, they are angry. They don't believe for a second that this recession has actually ended as the experts say it has. Or do they? A CNN Opinion Corporation Research Poll shows actually that four in 10 Americans, less fewer than four in ten Americans believe the economy is still in a downturn. Take a look at this, 17 percent, a minority, think it's starting to recover, 44 percent say the economy has stabilized, and 38 percent say it's still in a downturn. That makes sense to me.
Christine Romans, private sector hiring has picked up. Jobs overall have not, because the government, the stimulus that everybody so complains about, that's running out. We are getting more government jobs. Stocks are up; they were up in all 2009. They are up again in 2010. Retailers just reported strong sales. I have to say I think that poll feels accurate. I think there are a percentage of people who are unemployed in this country and for them all of these statistics mean nothing. There are people getting foreclosed upon, the statistics mean nothing. But there are a lot of people who are saying there is some opportunity here and this economy might be stabilizing.
ROMANS: And I think there's an opportunity. And you see in most recent census numbers for 2009 was a year when you had this big expansion of the income gap if you will. There are people in the top end who are starting to make moves. They are starting to make moves with their money and they are starting to make moves with their businesses. People on the bottom hand are slipping further below and people in the middle are just trying to stay where they are.
I also think when you look at those polls Ali; I think there's some paralysis. I think two years into this we're getting a little numb. We know the recession is over, nothing is really changing, it's not really getting better, but hopefully for you it's not getting worse. So we are sort of just stuck.
VELSHI: This is a good question then Candy. To voters thinking, if we're feeling paralyzed and we are feelings stuck, there's something you can do about this in two weeks. After having no control over this economy for the last two or three years, now you can actually do something. I guess you can do something back in 2008, that's why a lot of people voted for Barack Obama. Do voters make some connection that voting their members out of Congress is going to translate into the things that make them feel more prosperous, specifically more jobs? CROWLEY: I don't think it's that specific. I don't think they think, if I vote this guy in, jobs will come. I think they think, this guy will be better to look after what I need him to look after. But this is not midterms, as we say all the time, because it's true. Midterms tend to be a referendum on the party in power. This is not as much about I think Republicans are going to be so much better at handling the economy. This is about the Democrats haven't done very well handling the economy. So it's not as much a positive vote for someone they think can handle the economy as it is a vote against someone they don't think has handled it well.
VELSHI: All right. Well Jim, there are some people then who think that the Democrats, the Republicans will do a better job of the economy specifically on an area that they have targeted, reining in spending if the GOP takes control of Congress. Take a look at this.
The U.S. would move in the right direction on government spending if the GOP controls Congress, 43 percent say yes, 54 percent no, but 69 percent say no to Democrats doing it. Both parties preach fiscal discipline; neither party wants to allow the Bush tax cuts to expire. If Republicans win, Jim, does it change how this country is going to deal with its deficits and its debt?
ELLIS: Actually it doesn't change a lot, simply because there's so little maneuvering room there. About 65 percent of all our federal outlays go to things that we really can't change much. There are entitlements like Medicare, Social Security, Medicaid, federal pensions and the debt. So by the time you're talking about only dealing with a third of your actually cost, so much of that politically can't be touched.
That what we spend a lot of time about is dealing with little cuts around the margin, directional cuts and trying to slow the growth in federal spending, not actually cut it. I think that the longer-term issue that Congress needs to be looking at is are there ways to actually expand the economy enough to mean that we'll have greater revenues in the future. Those are investments in education, investments in competiveness and for industry to get out there and compete on a global status.
VELSHI: Music to my ears. If we had unemployment at 5 percent, and we had growth at 5 or 6 percent, we could solve this problem. Christine, why is it that Jim's very logical argument is not successfully delivered by this administration or by the Democrats to be able to say, guys, everybody else is preaching crazy change. Crazy change is not coming our way under these economic conditions?
ROMANS: I don't know. Ali. I can't speak for the message coming out of the White House and the kind of tone that they are trying to set overall. But I think Jim makes a good point about the challenges we have here and how do you get some traction. I guess to switch gears a little bit; this is what it comes down to. People are going to go into the ballot booth, it doesn't matter what they hear somebody say on the campaign trail, the only thing that matters is what's happening in their own family. That's the bottom line. VELSHI: All right. Christine, stick around. Jim good to see you, thanks so much. Candy thanks for joining us on this and giving us your insight. Has your town outsourced jobs? We're going to find out, and we're going to tell you by the way how to find out whether it has and how that could impact the midterm elections.
VELSHI: OK. We are two weeks to the midterm elections; we have had a Democratic president, democrats controlling Congress, both Houses. And unemployment rates steadily increasing to near 10 percent and holding steady. This is a crisis for the working people of America.
Richard Trumka, is the president of the AFL-CIO, some say that makes him the top labor leader in this country. Richard thank you for being with us. You've publicly done battle with John Boehner. What is it that you are finding so frightening about the prospect of Republicans taking over in Congress?
RICHARD TRUMKA, AFL-CIO, PRESIDENT: Well look the crisis that we face right now is the job crisis. Unless Congress addresses that crisis we face a generation of lost unemployment and we threatened the recovery today. Everything he said is he wants to take us back to the policies that created this, more tax cuts for the rich. Wall Street, he wants to repeal Wall Street reform, he wants to repeal health care reform so that we go back to the old health care system. All of those are not going to create jobs.
I've asked repeatedly what's your policy for creating jobs and all we hear is more tax cuts for the rich. Do away with regulation on Wall Street; do away with health care --
VELSHI: From your perspective, is the answer? I ask with this caveat. That we've lost jobs many factory jobs in this country for more than 15 years and that has nothing to do with this administration or the Bush administration. This has been a long-term policy that has seen jobs in the United States lost. So we are not getting, lets be fair we're not getting a lot of those jobs back. Union membership in the U.S. now 12 percent of the workforce. What's the answer?
TRUMKA: We can get those jobs back, by the way, if we change tax policies that reward companies from taking jobs overseas, stop the outsourcing, negotiate trade deals that actually benefit us and give us a fair playing field. The answer is about four or five fold, one we have to have a long-term investment in infrastructure. Our country has $2.2 trillion dollar infrastructure deficit. It makes us less competitive. If we have a long-term policy we can then begin to bring in private money and we can address that deficit, create jobs, and make the country more competitive.
The second thing is, there are 40 some states right now that are in deficit spending. So any of the extraordinary spending that's been done by the federal government to stimulate the economy has been negated by the attraction of state and federal, I mean state and local governments and that threatened 900,000 layoffs. So we have to continue to provide some aid to state and local governments until they get balance.
The third thing that we would say is unemployment benefits. There has to be continued extension of those so that they can continue to be consumers. Because if 6.5 million Americans, totally 15 million ultimately stop consuming, it's a big drag on the economy, it pulls us backwards.
The fourth thing would be take T.A.R.P. money that's been unused and repaid, get it into the hands of regional banks so that they can lend to small and mid-sized companies so that they can start creating jobs. The fifth thing would be target areas of high unemployment and match some job creation with those high unemployed areas.
VELSHI: You know the next two guys I'm going to talk to: Eliot Spitzer, former governor, former activist attorney general of the state of New York and of course one-half of "PARKER SPITZER" here on CNN 8:00 p.m. weeknights. Probably nobody knows more about Wall Street and how it works than he does, except maybe Stephen Moore, our good friend with the "Wall Street Journal." Gentlemen, Stephen let me start with you; Richard Trumka makes an impassioned argument for the place and policies of labor unions when it comes to job recovery. It's a view that many Americans don't share with him.
STEPHEN MOORE, EDITORIAL WRITER, "WALL STREET JOURNAL:" Well, I'd say he batted 1,000 percent in your interview. He got everything wrong. I think if you look at the agenda of the Obama administration in the last 20 or so months, it has been the Richard Trumka agenda. In fact almost everything we've done or things that Richard Trumka wants more. One thing I would say that is interesting, he talked about the bankruptcy facing a lot of states and cities. He's exactly right about that. There's 40 states that have big deficits. But here is what he didn't say, one of the reasons these states are in big deficits is precisely because of the public sector employee unions that have bankrupted states and cities with these enormous pensions and health deficits that states can't deal with right now.
VELSHI: Eliot this is a hard circle to square. This is the problem. There are some people who think that unions have been the problem. Bottom line is that unions are now a very, very small part of the workforce and they are in a challenged workforce. This is an environment where people continue to lose jobs. And some people are thankful for the little protections they get from labor unions. Where do you stand on this?
ELIOT SPITZER, CO-HOST, CNNS "PARKER SPITZER:" I think it's grossly an oversimplification to say unions caused this problem. Globalization has led to a declining wage scale for many manufacturers and workers across the United States and we need to become competitive. And I think Richard would say and I would agree with him that many of the private sectors unions in particular in the steel context for instance have worked with businesses to remain competitive and we have seen some revitalization in small, mini mills.
We have managed to see sectors come back where private sector unions have worked with business to make ourselves competitive. What we are facing right now in the United States is a demand crisis. There simply isn't enough demand to get businesses to invest to make more stuff, whatever that stuff happens to be.
That is the rational for a Keynesian desire to have a stimulus. That's what the Paul Cropman (ph) Nobel winning economists, Joe Stigless (ph) Nobel winning economists are saying. Put together a stimulus that will create short-term demand. We of course need to make ourselves competitive, which means the sort of infrastructure investments that Richard Trumka was talking about. And smart deals between unions or workers and owners of the business to make our selves competitive in an international context. That's what this is all about.
VELSHI: OK. Two a minute that is how many homes that are taken by the banks last month through foreclosure, Eliot and Stephen are going to talk us a little bit about this and we are going to get to the bottom of a nationwide investigation that could put a freeze on foreclosures next.
VELSHI: Five million homes in America at or near the point that they are ready to be foreclosed on. A record 102,000 homes were repossessed in September alone, highest ever in one month. Now comes word that attorneys general from all 50 states are investigating possible fraudulent practices with home foreclosures. We have talked about this story for weeks. Christine, despite the misinformation that I have heard consistently in the media, this is not likely to save people whose homes are being foreclosed upon. It may delay the process a little bit, it may delay their eviction a little bit it is not really going to change any thing for most people.
ROMANS: And I want to be very clear, we said from the very beginning, that if you're listening to this story about a freeze on foreclosures or investigations into the shenanigans in foreclosure process, it doesn't mean you can stop paying your bills if you are at the beginning of this process. It doesn't mean you should stop working with your bank. In fact, I spoke to a housing activist earlier this week who is working with community lenders who said that anecdotally at least the banks are stepping forward to people in the beginning part of the foreclosure process to try to get them, just as soon as they default to try to get them back on track. Nobody wants this to go on. Ali what it means is more uncertainty right?
It means if you're just ready to buy a foreclosed house, that sale is not going to happen right now. It means if you already had the padlock on the front door, that padlock is staying on the front door. Right now what's happening is states led by Iowa's Attorney General Tom Miller are trying to figure out just what kinds of shoddy paperwork were happening at the end of the process. In many cases, in most cases we're told, these are people who stop paying their bills a long, long time ago.
VELSHI: Congratulations on getting Iowa into that. I'll work on getting Canada into one of my answers.
ROMANS: You just did.
VELSHI: Eliot as a former attorney general, look Christine and I talked about this all week, we're very, very frustrated that once again the banks have been shown to have done something that was wrong, insensitive, maybe even illegal, who knows? But the bottom line is while we think the books should be thrown at them, doesn't a prolonged legal process initiated by all these attorneys general, isn't that just going to delay the recovery while these houses that other wise would have been sold are not getting sold?
SPITZER: Well look Ali, you obviously think about many different factors when you proceed with an investigation of this sort. And I think the question that should be asked is what else is lurking beneath the surface. Because I hate to say it, every time you pull back a layer of the onion you find something else. And so you can't conclude that this is the end of it. And Christine I would generally agree with you that there aren't going to be a lot of houses that were in foreclosure or in the foreclosure process that end up not being in it. But you never know.
And I will tell you, I worked with Tom Miller, all these A.G.'s, we would do these multi-state investigations. I think the banks need to clean up their act. It's so clear, that the servicers, the banks, haven't been meticulous and you have to be meticulous. Now the question of what happens to the housing market is a real one, that is something Treasury has to deal with, the White House hasn't been doing right in this regard. But I will tell you the banks have utterly failed to be as meticulous as they should have been.
VELSHI: It is like everybody is tripping over themselves to do a worse job, except Stephen that interest rates -- every time I say they can't go lower they go lower. I have been saying for a full year on the record that it was time to buy a house last year when interest rates for a 30 year mortgage were 5 percent, now they are a smidge above 4 percent. Home prices are actually up higher than they were a year ago. There are a whole bunch of people who are ready to buy a house. Christine has done it, I've done it. But there are a lot of people saying when do we hit bottom. This complicates things a little bit.
MOORE: Well I'm going on the record and say, now is the time to refinance your home. Lock in those and the low interest rate. They can't get much lower. Why I am not surprised that my friend Eliot's eyes light up at the idea of lawsuits.
SPITZER: The rights of people who have been taken advantage of.
MOORE: Here is my position on this, because it is a big story. First of all, it's inexcusable that these banks are sending out foreclosure notices to people who are paying their mortgages on time. An eviction notice is a very serious thing. This is, I fear, going to delay hitting the bottom in the housing market. I do fear that if there's a moratorium in certain states or banks themselves put more moratoriums on foreclosures that you are going to have people unfortunately, I think that people may think this is an invitation to stop paying their mortgages.
SPITZER: Wait a minute, I have to say this. Of all the ways to resuscitate the housing market now saying that we shouldn't worry about the rights of people -- no --
Let's be clear, the housing market is in a tank because the banks, because of Fannie and Freddie, the Treasury Department, not because of these poor people. So let's not make them the victims. The banks have been scoundrels.
MOORE: We all agree there.
SPITZER: Bankers have to be taken away in handcuffs.
MOORE: Foreclosures, if people are six months, nine months behind, Ali in paying their mortgages and you can't get them out of the house, that means the banks are --
We expect $700 million to bailout --
VELSHI: Christine, I think we were right. These two guys would be an exciting conversation.
SPITZERS: All these CEOs together, I want them to step up and pay these mortgages.
VELSHI: You guys are always terrific. Thanks for being with us. Stephen Moore with the "Wall Street Journal," always great to have you here. Elliott great to have you here as well, congratulations on the show. Remember to watch "Parker Spitzer" every night 8:00 pm Eastern right here on CNN. Fantastic show where you can get into some of these things and you get the best of Eliot Spitzer, what you just saw right now.
Listen, the number of Americans unemployed that remains the biggest problem in this economy. It is staggering. Jobs, however, can be created. There's a way to dig ourselves out of the unemployment hole. We'll talk to a man who has some answers coming up next.
VELSHI: OK. I want you to take a look at this chart. Right now we're 11.5 million short of prerecession unemployment rate of 5 percent, about 4.9 percent that is according to the Economic Policy Institute. Now to fully recover within five years the country would need to add 300,000 jobs every month for that entire period. That line on the bottom that is where we are. The line on the top, the straight one going in an angle from the bottom left to the top right, that's where we should be. We need to add 300,000 a month for the entire period.
At the rate we're going, that's not going to happen. How do we make it happen? How do we create jobs? The holy grail of this economy, David Newton, is a friend of mine, is a professor of entrepreneurial finance at Westmont College in Santa Barbara, he's the author of a book that's going to answer that question "Job Creation, How it really works and why the government doesn't understand it."
David good to see you, welcome back, thank you for writing this book. Here is what I take from what you said. You said job creation is a business decision based upon expansion and growth, modernization of plant and equipment and infrastructure, it involves a return on investment, economies of scale, improved productivity, new market opportunities and strong profits and cash flow. That's why people create jobs because they get a return on what they put into it. What do we have to do to make the businesses of America create jobs?
DAVID NEWTON, PROF. OF ENTREPRENAURAL FINANCE, WESTMONT: Good to see you again, Ali. The main issue in our book that we cover throughout every chapter is the issue called the certainty factor. The certainty factor is really how you look at the near-term and intermediate term of the private sector. You're looking for stability, you're for looking opportunity. What really contributes to a great certainty factor is low taxes, low government regulation, less government spending, smaller deficits, less on the debt side, no more new programs or pending programs that will have an adverse affect on your business.
VELSHI: Let me just take you out on that for a second, David. I respect you and I love what you do. In a minute I want to talk about what you actually do to help businesses create jobs. Low taxes, our business taxes are not particularly high. Low regulation, the only thing we regulated here is the financial service industry in the last year and most Americans support that's what had to be regulated. Low deficits and low debt, we are all in agreement we need to get that but it's tough to do in this environment. Health care cost for small businesses at least might go down under this new plan. What is this administration doing that is so offensive to the businesses, particularly small businesses that can be creating jobs right now? It doesn't seem like they are so far off the rails.
NEWTON: Oh, actually no it is the exact opposite. The Office of Management Budget just released in September their findings that 21 percent of U.S. national income goes toward taxes and 13.5 percent of U.S. national income goes toward regulation and legislative compliance. And so more than one-third of U.S. national income is ultimately consumed by government requirements and regulations and taxation.
From a small business standpoint the National Federation of Independent Business has looked at surveys, small businesses throughout the nation. And consistently a lot of these small business owners who look at the health care that is coming don't see it as something that is actually be --
VELSHI: The evidence doesn't bear that out, David. They don't see it as that but the evidence doesn't bear that out. Small businesses who wanted to cover their employees did so at great expense prior to the advent of this health care. So we are not sure, the only issues people are going to have to cover people, that's fair. Right?
NEWTON: Here again, we have in our book we cite a couple of great, true examples. We have a company, small business owner in New Jersey who has been in business for 35, 40 years. He talks about hiring somebody in his company for $50,000 salary. This gal is a mid level manager in his sales team. The cost to have her for $50,000, his out of pocket cost as an employer is $74,200. Then on her end, getting a job for $50,000 only translates to about $31,300 in take home pay after all the expenses that are involved there. So think about that gap, you got $74,000 committed as payments by the company to only end up with $31,000 in the pocket of the employee.
VELSHI: David Newton, a good friend of mine and the author of a new book called "Job Creation, How it really worked and why the government doesn't understand." David, good to see you, thanks for being with us.
NEWTON: You bet. Thanks, Ali.
VELSHI: Coming up next, divorce is already a complex mess and the economy is making life that much more difficult for folks who are splitting up. But first succeeding as a small business can be a tough task as David just said. But a mixture of innovative product and successful viral marketing gave one Brooklyn design company a recipe for success.
(BEGIN VIDEO CLIP)
TERRENCE KELLEMAN, FOUNDER, DYNOMIGHTY DESIGN: Hi, welcome to Dynomighty. It's actually my company I started eight years ago. It was the whole concept of Dynomighty involved out of a product that essentially that I had found by rummaging through the garbage. But what I was doing was working on modern art at the time, and I stumbled upon literally on this magnetic bracelet. So it took me a year to invent this product and then I started selling it at the museum. Eight years later, here we are.
Based on the success in the jewelry I did other organizers in magnets. This is actually the desk organizer, it is all magnetic beads that hold your business cards together or you can use it for your pictures, whatever. Then we had our youtube success which really changed and redefined the business entirely.
I did all these tricks and put them on a video on youtube that lasted about a minute. Within a month we were featured video on youtube and we had just an enormous response. Within the space of three months we had sold $130,000 worth of jewelry. Now we have almost 140 videos online. Youtube is our number one referrer beyond all other referrers. To have a dream from the point at which I was working my day job 9:00 to 5:00 and have an idea for a product and to bring that to fruition and now eight years later to have a company that the biggest problem is our rapid success, that's the thing I'm most proud of.
VELSHI: This recession has changed the way Americans think about a lot of things, including marriage. The census shows the number of young adults choosing not to marry has surpassed the number of young adults, and those are people 24 to 35 who have chosen to marry. Of the couples who are getting married, many people are protecting their assets more than they have in the past. Nearly three-quarters of divorce attorneys polled have seen a rise in the number of prenups, that's according to American Academy of Matrimonial Lawyers. This recession has touched people's lives in a lot of different ways.
Christine Romans joins me again. It is something that she touches on in her fantastic new book called "Smart is the New Rich." Christine.
ROMANS: Well you know Ali it is interesting because one thing about marriage as well is more people are initiating prenups, but it is also more women are initiating prenups. That is a distinct change. But also in terms of saving the marriage, one thing I found out in the book, is that research shows that paying down debt is a very good way to stay married. Believe it or not high levels of debt right up there with alcoholism and abuse are reasons that people say that they are splitting up. So financial disagreements can be very hazardous to your health.
Meanwhile I want to tell you about a woman we spoke to. We spoke to a woman who put her emotions on the back burner for her families' financial well being after a divorce.
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ROMANS (voice over): We first introduced you to Sallie Gibson 18 months ago and found out breaking up really is hard to do. Sally and her husband of 15 years were getting a divorce but still living under one roof.
SALLIE GIBSON, DIVORCEE: My husband lives in the guest room. He comes home on Wednesday nights early to have dinner with the kids. The other nights he comes home late to give me my space. So it's not perfect. It's been difficult.
ROMANS: As legal bills for two divorce attorneys piled up, the couple switched to a less expensive mediator. But the situation with the house wasn't as simple.
GIBSON: Right now there are 20 houses on the market in town that are in our price range and there are no buyers. So my broker has pretty much prepared me the house is going to sit for a while.
VELSHI: For Sallie remaining financially sound meant remaining under the same roof as her ex-husband, for some, getting a divorce is not even an option. The American Academy of Matrimonial Lawyers. Says 57 percent of attorneys polled reported fewer divorces during the recession. The couple's stayed in the home for a full year before deciding emotion trumped finances.
GIBSON: It was a very difficult time, very emotional time. And we made the decision to sell the house, and it could have easily sat on the market for a year, and I didn't want to put my kids through that. It was tough enough. So I priced it to sell, and we sold the house right away, and I'm not going to lie, we lost a lot of money, and that hurt.
ROMANS: Sallie started over, changing back to her maiden name; she downsized and started a small business as an interior designer out of her new home.
GIBSON: I've discovered a niche where I'm working with all of my clients right now who are divorced or separated. And so it's kind of nice to work with people that are in similar circumstances. ROMANS: If there's a silver lining for Sallie and her boys in their smaller home.
GIBSON: We spend a lot more time together as a family. Because there are fewer places for them to scurry away to.
(END VIDEO CLIP)
ROMANS: Gabrielle Clemens is a certified divorce financial analyst, she is featured in my new book, "Smart is the New Rich." I asked her a lot of important question about how to prepare if you are in this situation or if you are married and thinking of divorce. She joins us now to help us through some of the sticky financial situations. If you're in this situation Gabrielle and you are stuck together because the economy has kept you stuck together. What should you do? What's most important advice?
Well the important advice is to protect yourself financially from the spending habits of your former spouse.
ROMANS: How do you do that?
GABRIELLE CLEMENS, CERTIFIED DIVORCE FINANCIAL ANALYST: Well you have to have your own credit cards, you should try to get your own mortgage and you maintain all your own business accounts just as if you were a single person.
ROMANS: One thing that you mentioned to me, this pentup demand for divorce is starting to come through. People have been stuck as deer in the headlights for too long, and you're going to start to see more activity on that end.
CLEMENS: Absolutely. People are fed up, they're not expecting to get as much for their house as they were expecting a few years ago, so the reality is settled in, and nothing's going to change. The economy is only gotten worse for them.
ROMANS: One thing you mentioned, is that divorced couples, they have a harder time getting a mortgage. Is that true? And what is your advice for people who have finally gotten out from under the house and from the marriage that they didn't want to be in. They are trying to start over again but they can't get a house.
CLEMENS: Well it's very difficult. Yes, it's true. The mortgage rates for people who are currently divorced or newly divorced, it's very difficult to get mortgages, because they can't show that stream of income for a period of six or eight months. That's what the mortgage companies want to see. They don't trust it. There may be a court order, but until they see the check hits the bank on a consistent basis, they're not --
ROMANS: Your credit can be damaged during this process, because one person isn't paying the credit card bills, one person is. There are all sorts of things that can happen. What do you say to people when they're doing the divorce settlement? How do you make sure you protect yourself? A lot of people are coming back to the table and saying, I don't have health care, there's not as much in the 401(k) as I thought, and they have to open up some of these settlements.
CLEMENS: Long term financial planning, that's what you have to do. Have you to do it before you sign your settlement agreement. You have to think about is run the numbers. You have to say how is this all going to look after the divorce? When you're in the middle of the divorce, there's crisis, there is drama, and there is emotion. It's difficult to think clearly about the finances on the other side of the divorce.
But you know what five, ten years down the road, you're going to look back and say, oh god I wish I had gotten a retirement asset as opposed to an investment asset. I wish I had not taken the house and I wish I had sold it at a time when I could have used the money to now buy a condo or buy something else, or maybe just rent for a few years.
ROMANS: All very difficult decisions. I know a lot of people are deciding to rent for a few years, because there are so many uncertainties out there. Gabrielle Clemens, certified divorce financial analyst, thank you so much.
And Ali, those are tough decisions when breaking up is hard to do literally, because you can't get out from under the house. But a lot of folks telling us that now they feel as though a couple years have passed since the initial crisis, home prices have stabilized; now they're starting to move on.
VELSHI: Maybe some marriages were saved because people couldn't get out from under them. Some of them are not going to be and better everybody start moving on with it. Christine, "Smart is the New Rich," it is Christine's new book, you really have to read it, it's got all sorts of stuff like this.
There's another one, another financial pressure particularly on moms and dads. We know education is already, the price of education is already a burden. That burden does not seem to be ending after graduation.
VELSHI: Eighty five percent of college graduates are moving back home with mom and dad, 85 percent, that's according to Market Research by 20-Something Inc. That's a nearly 20 percent jump from four years ago. Understandable because of the economy. This group by the way has a new name, the Boomerangers.
Christine it looks like a 15 percent unemployment rate for people 20 to 24 years old it is starting to take its toll.
ROMANS: Well that 15 percent unemployment rate for 20 to 24 year olds, that doesn't include those kids who just graduated, they're not officially part of the labor market. So that shows you that it is even a bigger group of kids, people young adults under age 24 who are out of work.
They're also called generation y, as in why don't you have a job and why are you drinking my imported beer. Shouldn't you be out getting a job. Baby boomers actually surveyed by the Schwab Foundation earlier this year felt they had done it to themselves, they told their kids, can you have anything. You live in this bright world where there are going to be so many opportunities and now those kids are home again.
And they're trying to figure out, wait a minute, I'm trying to plan for my own retirement but I'm trying to get this kid off the ground too.
Ali, you know for you and I we came of age at a time when 24 million jobs were created in this country over 10 years. Generation x I hate to say it had it easy. There were a lot of jobs, generation y coming of age where we're losing jobs.
VELSHI: There were people in my generation who did go home because it was a conscious decision to save money while working. It is a different thing now. I don't know that it is the worse thing in the world; I got to tell you Christine.
Christine, good to see you as always. You and I see each other day. That wraps it up for this show. You can join our running conversation on facebook and twitter, @AliVelshi and @ChristineRomans. Make sure you join us every week for YOUR MONEY, Saturdays at 1:00 pm Eastern and Sundays at 3:00, but also log on 24/7 to CNNMONEY.com. Have a great weekend.