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YOUR MONEY

Unfinished Business; Unemployment in America; Extreme Measures; Debt Commission Suggests Reducing Mortgage Interest Deduction; Cash or Gifts for the Holidays?

Aired December 4, 2010 - 13:00   ET

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


ALI VELSHI, HOST: Thirty-nine thousand new jobs created in November - not enough. The unemployment rate jumps to 9.8 percent. So what is Washington going to do about aid for millions of unemployed Americans whose benefits have started to run out? Are the Bush tax cuts here to stay for everyone? And what sacrifices need to be made to reduce the deficit?

I'm Ali Velshi. Welcome to YOUR $$$$$.

Both parties claim it is time to level with the American people, but neither side seems ready to make tough choices. Candy Crowley is CNN's chief political correspondent. She's the anchor of "STATE OF THE UNION" every Sunday at 9:00 A.M. Eastern.

Candy, let's start with taxes. There was a vote in Congress this week. Democrats voted to extend the tax cuts, the Bush-era tax cuts, for the middle class, but there are back room negotiations going on regardless of that. The Republicans want to extend the tax cuts for everyone.

So democrats want a cutoff, which could mean higher taxes for families making $250,000 or more. What likely happens here, Candy? Is it going to go one way or the other is there going to be a likely compromise?

CANDY CROWLEY, CNN CHIEF POLITICAL CORRESPONDENT: There's going to be a compromise. Look, the House is still run by Democrats and the rules are much simpler. You have a vote. Whoever has the most wins.

And so the Democrats put up the middle class tax cut extension, and it was overwhelmingly voted and passed. The problem always is the Senate, of course, because they have different rules.

Republicans have enough people to stymie this. So, that's compromise material. So you're still hearing both sides, you know, there's this and there's that and, you know, the Democrats saying this is - the Republicans want to protect the billionaires, the Republicans saying you can't raise taxes on anybody in this sluggish economy.

My guess is they certainly will come to some accommodation. It is very hard to believe that this Congress will go out of session until January, late January, and allow taxes to go up on everybody.

VELSHI: And, in typical fashion, there's horse trading going on in Washington. The Democrats want the Republicans to agree to enhance those unemployment benefits, to extend the unemployment benefits that have - that have expired for so many people.

Stephen Moore is an editorial writer with the "Wall Street Journal". Stephen, I want to get your response to what White House Press Secretary Robert Gibbs said on extending the tax cuts for everyone versus extending unemployment benefits. Listen in to this.

(BEGIN VIDEO CLIP)

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: Nothing could be more completely out of whack with what is important to the American people and to getting our economy going again than to watch a debate about billionaire tax cuts while people lose their unemployment benefits.

(END VIDEO CLIP)

VELSHI: Now, Stephen, let's talk about this, because I get this question from a lot of people. What would be the benefit to the economy of giving families that earn more than $250,000 an extension of the unemployment - an extension of their tax cuts in an economy where we've got the serious deficit and we've got high unemployment? What actually do we gain from extending this beyond the middle class?

STEPHEN MOORE, EDITORIAL WRITER, WALL STREET JOURNAL: Hi, Ali. Great to be with you.

Look I think it's really important that we - that we make sure that nobody pays higher taxes next year. And to your question about, you know, people who make over $200,000 or $250,000, or now they're talking about a million. The problem with that, Ali, as you and I have talked about it before, I think we are - what you are talking about is taxing business and taxing investment, and look, America - the American people don't want unemployment checks right now. What they want is jobs.

And, you know, the - these new unemployment numbers that came out this week, they transcend spend. They're - they're an indication of whatever we're doing in Washington isn't working, and I - I think the problem I have with what Robert Gibbs said is let's just do more of the - the same, more spending, more debt, more taxes on rich people, and I just think that's -

VELSHI: But you know this -

MOORE: -- contributed to this high unemployment.

VELSHI: You know this well, so share with my viewers what do we do? What happens if you extend the tax cuts to people making more than $250,000 a year? How does that help employment? How does that help the economy?

Tell me - just draw the line for me.

MOORE: OK, real simple. If you've got a business, let's say, that has 50 or 100 employees, you probably have more than $500,000 or a million dollars of income, and if you increase the tax on that business, every dollar you take out of the business in higher taxes is a dollar less, Ali, that that business has for investment and for hiring workers. So I just don't think it's a good strategy to tax the employers at a time when we have 10 percent unemployment rate.

VELSHI: Let's go to Roland Martin. He's a CNN contributor.

Roland, the unemployment rate, 9.8 percent. It's been 9.6 percent for the last three months, but it's been above nine percent since May of 2009 and that is the longest period above nine percent in history. It's going to take a very, very long time in the most optimistic scenario to get back to the five percent we were at before the recession started.

ROLAND MARTIN, CNN CONTRIBUTOR: Of course.

VELSHI: There's a question out there about these jobless benefits, Roland. It - when is it OK to stop extending jobless benefits?

MARTIN: Well, first of all, here's the issue that you have, OK? And that is, let's say you don't extend it. All right. We know right now that charities are seeing a dramatic decrease. We know that when it comes to food banks, when it comes to homeless shelters, when it comes to the services, where they actually catch people who are in dire need, what do you do then?

You can't have people sitting here in Congress complaining about food stamps, complaining about other benefits, complaining about the issue of extending unemployment benefits but then say, well, where are they coming from?

Here is the issue that I have with Stephen's analysis, OK? He keeps saying taxing these businesses. The tax deals with people's personal income. We also know that people, frankly, who are below $250,000 typically are the ones who spend. They're the ones who are putting money into the economy as opposed to people who are making more than that, who typically are saving.

And so you can't just sit here and say, well, we also want to tackle the deficit but we want to extend the tax cuts, which contribute to the deficit. I mean, you can't sit and have it both ways. You can't.

VELSHI: Let me ask you, Candy, let me ask you about this. How does this play? Because, really, how you're seeing it play out in some media is that the Democrats are - are looking to support a tax cut for the middle class, those making under $250,000 as a family, and the Republicans want to - you said the word. It's out there - extend - extend tax cuts for millionaires or billionaires.

How do the Republicans play this in a way that makes sense, that doesn't make them look like a party that's looking to extend tax cuts for millionaires?

CROWLEY: Well, but they want to extend tax cuts for millionaires. And let's - let's - I mean, you know, that's the truth of it. They want to extend them for everyone.

And, you know, the truth is that some of those businesses that Stephen is talking about, because of the tax code - and I don't begin to understand the tax code - do file as individuals. They are able to use -

MOORE: That's right. That's right.

CROWLEY: -- the same - so they do come under this $250,000 and up. So, there is that. But there is also the fact that it's hard - it's hard to defend no, at this point, to - to the general public, but it's certainly what they need to do inside their party.

Now, what's going to happen? You know, I - I think it's possible those long-term unemployment benefits - and the Republicans say, look, we're not against extending these benefits. We're against not paying for them. So let's find something to cut so that we can then pay for them.

My guess is it all gets rolled into one big thing. Somehow they have a temporary extension -

VELSHI: Right. All right.

Candy, Stephen, Roland, stay exactly where you are.

Optimism in this new economy. I want to talk about that, find out who is saying that brighter days are actually coming for your money and it might be sooner than you think.

And Stephen is going to respond to what the Republican Party has to do to make this work. Stay with us.

(COMMERCIAL BREAK)

VELSHI: Well, the recession officially ended in June of 2009. But ask Americans how the economy is doing today, the answer is a little clearer and it's not what the economists agree on. Take a look at this. Eighty-one percent of you think economic conditions are poor. That's according to a CNN Opinion Research Poll.

However, if you ask Americans where we are headed, the outlook changes quite dramatically. More than half of you, 52 percent think economic conditions will be good a year from now; 46 percent still think - think things will be poor, but it's a whole lot less than 81 percent who don't like how things are going today.

Stephen Moore, a year from today, where are we going to be and why and, by the way, you can take this opportunity to defend yourselves against accusations that Republicans are - are holding this economy back.

MOORE: Well, this may surprise you, Ali, but I - I'm with the 52 percent that think things will get better. I think 2011 will be a good year. But it does depend on - on not allowing those taxes to go up. You know, Candy made a really important point that I think eludes a lot of people when they're trying to think, well, why are these tax cuts so important. I think the reason is because the way our tax system works in America, Ali, is that small business owners, they don't pay the corporate tax. They pay their taxes through the individual personal -

VELSHI: Right.

MOORE: -- income tax and that's, well, why raising the tax rates on those businesses, I think, is a mistake. And the question I would ask for my friend Roland is, I ask this question all the time, how are you going to create more jobs if you're going to raise taxes on the people that create the jobs. And Roland, I've never heard a good answer to that question.

MARTIN: Well, actually - but, again, I also - I keep making the point that when you have Republicans talking about we have two percent of Americans who make more than $250,000, so the tax cut Democrats are talking about speaks to 98 percent of Americans. That's first. Secondly I am small business owner -

MOORE: Yes. But those are employers, Roland.

MARTIN: No, no, no. No, no, no. One second. One second. I am a small business owner, OK?

MOORE: Me, too.

MARTIN: I'm somebody with a small business with revenues more than $500,000 a year. But I also understand what the expenses are with my business as well. The bottom line is - what I keep going back to, you can't sit here and keep talking about deficit, deficit, deficit when the tax cuts speak to increasing the deficit. And then you say but keep the tax cuts will also cut the deficits.

VELSHI: Unless - unless - interesting point that you both are making. Candy, unless there's only one way to cut taxes and cut the deficit at the same time and that is with economic growth. If this - if this -

UNIDENTIFIED MALE: That's right.

VELSHI: -- economy were to grow faster than it's growing right now, you can have your cake and eat it, too, but it's not. So this puts everybody in Washington into a difficult and precarious position. I mean, Roland makes the point, Candy, that it's a percent or two percent of the population but it's disproportionately a job creating one or two percent. So how do you square the circle?

CROWLEY: Well, they're going to try next year. I mean, here's the problem. Everybody talks about reducing the debt and reducing the deficit, which are two separate things. But nonetheless, we've had this debt commission come and say, well, here's how you do it. And there's just three big ticket items, right? Federally funded health care, the Pentagon and social security. Well, you know, what you need here are three politicians, the Speaker, the Majority Leader in the Senate, and the president who don't care about re-election to kind of try to lead this. Because when you look at, a, all the polling, the public is not for cutting any of those or changing the benefits.

MARTIN: There you go.

CROWLEY: And you can't get to it any other way.

MARTIN: And, Ali - and, Ali, a critical point -

MOORE: And, Ali, can I -

VELSHI: Stephen, go ahead.

MARTIN: - we also see when it comes to these politicians as well, and that is you now have all the politicians who keep saying Washington can't create jobs. And so think about it. We keep saying what will Washington do, when we just saw an election where we have all of the people saying -

VELSHI: All right.

MARTIN: Washington can't create jobs. OK. Then what is it?

VELSHI: And, Stephen, last word on that.

MOORE: The last word, this is a personal finance show, YOUR $$$$$. One of the things people have to realize, if we don't get this tax issue resolved in the next week or so, that everyone's taxes, not just rich people, Ali, on January 1st go up. And for a middle class family, you're talking about $2,000 or $3,000 more per year. The IRS, by the way, says they're not - they don't have time now to change the tax forms.

MARTIN: Two-fifty and less. That's the answer, Steve.

VELSHI: All right, guys.

MOORE: You can't shake it from there, Roland.

VELSHI: Good discussion. Thank you, all of you. Thanks, Candy -

MARTIN: That means your taxes and my taxes will go up, Steve.

VELSHI: -- and Roland and Stephen.

All right. New jobs are being created. We just got the unemployment report out for November. Painfully, slowly, though, 30,000 - 39,000 new jobs were created in November, not enough to keep the unemployment rate even where it is. It increased.

Well, where are those new jobs and - and how do you take advantage of them, coming up. (COMMERCIAL BREAK)

VELSHI: New jobs are being created, but the pace at which they're being created is painfully slow or slowed down. The economy added 39,000 jobs in November. That falls way below the 150,000 jobs that economists were expecting and it did help increase the unemployment rate. It went up from 9.6 percent to 9.8 percent. It held steady at 9.6 percent for the past three months.

Now, take a look at the employment situation for the past few years. These are the number of jobs gained or lost in a given month. You'll see that after consistent losses all through 2008 and into 2009, we saw stronger gains at the first half of 2010 and now slower growth at the end of the year.

Christine Romans who follows this very closely joins me now. Christine, what do you make of this?

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Well, in the length that we've been above nine percent is what's so troubling here, too. It's now longer, above nine percent unemployment and even in the 1980s, which is the worst period of unemployment that we have on record. So this is a very difficult time.

Also, when you look at people who are newly unemployed, they're having an easier time - easy is a relative term, but an easier time finding a job quickly as opposed to people who've been out of the labor market for six months or longer. So some big concerns about those folks who've been out, the 99ers, Ali, the people who've been -

VELSHI: Right.

ROMANS: -- on unemployment benefits for a very, very long time.

I think you and I both made this point. The economy is growing and the job market is healing, but so slowly. This recovery is so jagged.

VELSHI: Right.

ROMANS: And those sharp edges really hurt. If you're out of work it still really hurts.

VELSHI: Right. And you don't - you don't care as much about the statistics -

ROMANS: Right.

VELSHI: -- as if you've got work.

Let's go to Diane Swonk. She's the chief economist at Mesirow Financial, who helps us with this all the time.

Diane, here's something interesting. We have seen 11 months of consecutive growth in private sector jobs as opposed to government jobs. In November, 50,000 more jobs although there were so many job losses that - that it offset it, making it only 39,000 jobs in total that we grew. But is the private sector job growth a silver lining in this disappointing November?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Well, it's a pretty slim silver lining I think and a very cloudy outlook. I think, you know, the real operative issue here is we've got growth but not enough. Not enough has been a constant theme and that's why so many Americans, as you said it earlier in your poll, are still so upset with this economy.

When you're growing and you still have unemployment now approaching 10 percent that's just not enough to make anyone feel good out there except for the very few who are at the very top income bracket and they've seen their salaries restored. They've seen their wages restored and they've seen their bonuses -

VELSHI: Right.

SWONK: -- restored. And that's fill the gap between -

VELSHI: And it doesn't feel - we've got -

SWONK: -- the gap between (INAUDIBLE).

VELSHI: -- a bifurcated economy here. I mean -

SWONK: Right. Absolutely. This is -

VELSHI: -- you've got some people who are doing really well and some people who aren't.

SWONK: And - and the recession revealed what was already a reality on that. We knew that credit had sort of tapered over. The ugly reality of the U.S. economy -

VELSHI: Right.

SWONK: -- where income inequalities had reached their highest levels since 1929 and 2007. And now, there's just no denying it and the reality is very hard to deal with when so many people are unemployed and so many people are losing that unemployment insurance, which they literally are living on at this point in time.

VELSHI: Let's bring in Bill Rodgers. He's a former chief economist with the Department - the U.S. Department of Labor now with Rutgers.

Bill, 6.3 million Americans have been out of work for six months or longer. Christine was pointing out today that for people who have been unemployed for a short amount of time, they're having a little bit more luck in getting jobs than the long-term unemployed. Even if these unemployment benefits that have run out are - are extended again, what is the permanent solution to long-term unemployment? I mean, the bottom line is extending unemployment benefits feels like an emergency thing we have to do. How do you deal with the fact that all these people are unemployed? WILLIAM RODGERS, PROF. & CHIEF ECONOMIST, RUTGERS UNIVERSITY: Well, before I - like to jump into that and answer your question there, you know, one of the other big problems that we're facing with this recession and this slow recovery is we have an unprecedented nine million Americans who are working part time, but want to work full time.

VELSHI: Yes.

RODGERS: You know, another two to three million Americans who are out of labor force who want to, you know, who want to work if they were offered a job. So, from a, you know, standpoint of - of longer term strategies, I mean, the typical approach is, you know, education and training, but even that's a - a solution had some holes in it because we were seeing now, you know, unemployment rates for college grads albeit still very low relative to a high school graduate, they've doubled during this recession.

We've also seen, you know, a stagnating in - a stagnation in individual's earnings and has moved up the education scale.

SWONK: I just want to underscore that issue on cash on corporate balance sheets. I mean, we have seen small businesses starting to come back. They're the backbone of the recovery for U.S. in terms of jobs generation. So that is important.

I think it's also important to understand the one silver lining if there is a larger silver lining in this cloudy outlook is the cash on the sidelines. We have cash on corporate balance sheets that's been building. And if we can do anything to get that redeployed, we have a much stronger economic outlook going forward.

RODGERS: Yes. And if I could just add real quickly, the one positive piece, too, about this report is we - if you compare the year over, how we were doing last November, November 2009, albeit marginally better, we are better off. We have been moving in that growth. And as Diane says is just that the growth is not strong enough.

VELSHI: Well, thanks to all of you. We will, of course, continue to try and figure out solutions for all of this. That's what this whole country is trying to do right now.

One of the problems we've got obviously for - for America is the debt situation, some drastic recommendations from a commission that the president appointed to deal with it. Your taxes would be affected. Your social security would be affected. The price you pay for gas would be affected among other things if all the measures are approved. A breakdown of the odds of these recommendations going through, coming up next.

(COMMERCIAL BREAK)

VELSHI: Almost all economists and politicians agree we must reduce the deficit. Before we tell you how President Obama's debt commission is proposing to do this, let's first understand exactly why we need to do that. If nothing is done to rein in the deficit over the long term, your taxes are likely to increase. The services that the government is able to provide for you are likely to decrease. And the government's flexibility to respond to our country's needs, things like the recession that we have will likely be reduced. I say likely, because there are always things that can happen that could change that situation.

Jeanne Sahadi is a senior writer at CNNMoney.com and she follows this more closely than anyone I know. Jeanne, in order to reduce the deficit - in order to reduce the debt, you have to reduce deficits. You have to make these sacrifices, whether it's taxes or - or government programs, in spending, or some combination thereof. The idea here is to do it in a gradualized - a gradual, organized way. Is that right?

JEANNE SAHADI, SENIOR WRITER, CNNMONEY.COM: Yes. That's the whole point of this push by President Obama's debt commission is to come up with a comprehensive plan that does all the things we're going to have to do eventually, but in a more gradual way.

Because what happens is if you wait and wait and wait to deal with the debt, you make yourself more vulnerable to a bond crisis and interest rate spike. And then you have to make sudden, really harsh changes, you know, very draconian. And that's never good on a mass scale.

VELSHI: Particularly with some of the changes that are being described, things that will tax, things that we don't already pay taxes on and things that will affect, let's say the mortgage interest rate deduction.

David Gergen is a CNN senior political analyst. David, the debt commission is dealing with proposed changes like the ones I just talked about as well as changes to social security, the age at which you get it. Taxes, Defense spending, every single one of these, David, are highly charged issue.

Listen to the commission's co-chairman Erskine Bowles and what he said this week.

(BEGIN VIDEO CLIP)

ERSKINE BOWLES, CO-CHAIR, COMM. ON FISCAL RESPONSIBILITY & REFORM: Solutions are all painful and there's no easy way out. I think for many years, elected officials have been were worried they would be punished if they made the tough decisions.

(END VIDEO CLIP)

VELSHI: David, what t does the president - what has Congress do with this now? Because there are absolutely tough decisions that come out of this commission. It's tough suggestion.

What chance have these suggestions to bring down the deficit and bring down the debt got of passing and being implemented? DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: Well, they've got a heck of a lot better chance today than they did six months or a year ago, Ali. I think the one thing we can say about this deficit commission, while it did not achieve the 14 out of 18 votes it needed in order to make a formal recommendation to the Congress, it did build a healthy majority. It got 11 out of 18 members of the commission voted in favor of this whole package, and that was a significant step forward. It really has put the deficit high on the agenda for next year.

There is no way the Congress and the president can dodge next year because the American people are now fully alerted to the fact that these are huge problems coming at us very quickly, and if we don't want to go the way of what's going on in Europe, with a Greece or an Ireland or possibly Portugal and all the rest, we've got to get our act together.

So I think they've made a lot of progress, and you've got to give them credit for that. What has been disappointing to me, frankly, is that the president, during all these deliberations, has been pretty much on the sidelines. Yes, he set up the commission, deserves credit for that. But he -- I think he could have taken a much stronger role and gotten even better results had he gotten more actively involved.

VELSHI: Let's talk about this with Christine Romans, my co-host. She -- Christine, you know that it's hard -- we often hear that it's hard to do the math on this, to cut taxes, which Republicans want to do, or extend certain tax cuts and cut them elsewhere, to cut down the deficit and the debt, which many Americans share, but certainly Republicans rate that as their highest financial priority for the country, and to deal with this economy's, with high unemployment. So how do we deal with this without setting something else off track? I think if we've learned anything in the last few years, that everything you do has an effect on something else in the economy.

ROMANS: And then an effect on something else, and then it keeps going, and you don't really always know what the unintended consequences are breast cancer be. You're right, if you cut too much too quickly, do you hurt a nascent recovery here? The whole point, from all these people who are sitting around that table and discussing this, is how do you juice the economy and help jobs in the near term while still addressing structural problems in the longer term, and doing both of those things -- I mean, I think you've heard some of the members of the commission start talking about, I think this could -- this could lay the groundwork for good jobs growth. They're starting to talk about it in the terms of jobs growth eventually. So that is -- it's a discussion, Ali, that's been happening all over the globe. How do you juice the economy in the near term and tighten the belt at the same time --

VELSHI: Right.

ROMANS: -- in the longer term? It's a very, very difficult line to walk.

VELSHI: For those that don't know what's in this thing, Jeanne Sahadi and the team at Money.com have got a lot of detail on it. But Jeanne, I like this because it tells you there are ways to cut the deficit and the debt, but it tells you that they're going to be painful. Give us some highlights. There are some tax increases. There's a discussion about taking away the mortgage interest credit for people. There's a discussion about all sorts of things that we hold very dear.

JEANNE SAHADI, SR. WRITER, CNNMONEY.COM: Sure. Broadly, what the commission is recommending is to overhaul the tax code, which is not a new recommendation. Tax experts have wanted to do it for a long time. And a big piece of that is to eliminate all the tax breaks we know now, which, yes, includes the mortgage interest deduction, but also hundreds of others, and then only add a few back in as lawmakers decide is judishish -- sorry, judish -- judicious.

(LAUGHTER)

SAHADI: One of them would be the mortgage interest deduction, but it would be back at a reduced rate. They recommend only allowing the people to take the deduction up to $500,000, as opposed to $1.1 million loan, and also to only take the interest deduction on a first home and not a second home. Yes, it's not going to make home owners happy or the real estate industry, and there's going to be a lot of lobbying against it. But it is really just one of the many things that has to happen in order for our tax code to get simpler, to lower income tax rates. To do this, they're going to use a lot of them savings from reducing tax breaks to lower everybody's income tax rates quite dramatically.

GERGEN: Yes, but Ali (INAUDIBLE) two points. On is, you can do both at the same time. The whole point of the deficit commission is to pass these deficit reduction bills next year but don't have them kick in for a couple of years. And the theory is, of course, that will send a signal to the markets that we're serious about deficit reduction and it will be a tonic to economic growth. It will help produce jobs, even as you do some other things to create jobs.

But I want to disagree with the notion about how painful this deficit commission proposals are. I think they're rather mild, actually. They're very extended out. They come in -- you know, in terms of raising the retirement age to 68, that doesn't happen until 2050. And this plan doesn't even balance the federal budget until 2039. That's a very gradual, you know, slope, glide path. And you -- and they're talking about narrowing deductions, not getting rid of them.

This is not -- yes, it's going to put more of a tax burden on the upper income. But if we do this right, we get spending under control, there are a lot of upper income who would say, Yes, it's time to do that to save the country.

VELSHI: Right. Excellent. Good conversation to all of you. Thanks so much, David Gergen, Jeanne Sahadi. And Christine Romans will be back very shortly.

Did you know that the federal government spends more than $100 billion each year subsidizing what Jeanne and Christine were just talking about, mortgages? Do you think it's necessary? Well, the new debt commission doesn't, as much as we've been doing it in the past. We're going to talk about that when we come back.

(COMMERCIAL BREAK)

VELSHI: What do Britain, Canada and Australia have in common with the United States, besides speaking English? They all have a similar rate of home ownership. The difference is that U.S. is the only one that offers home owners a tax deduction on their mortgage interest. The bipartisan debt commission wants to eliminate that and save more than $100 billion a year.

Susan Wachter is a professor of real estate and finance at the Wharton School at the University of Pennsylvania. Susan, it would seem, according to the graphic that I just showed the viewers, that there is no or very little correlation between the mortgage interest deduction and rates of home ownership. Is that fair?

SUSAN WACHTER, PROF., WHARTON SCHOOL: Well, it's probably shorthand for saying it's not a major impacter. It does have some impact, but it's not likely to be a game changer in terms of overall home ownership rates.

VELSHI: OK. In that case, if it's not really going to be a game changer, wouldn't it make more sense to get rid of it and stop subsidizing it? Because it costs the government a lot of money, money that the Canadian government doesn't pay, the British government doesn't pay and Australian government doesn't pay.

WACHTER: Well, there are tax expenditures here, there's no doubt about it. And by the way, the home ownership rate is likely to be impacted by a few percentage, perhaps, over the long term if this is put into place. But the real issue is housing prices and housing demand. It's likely to impact the demand, particularly for higher-end housing, for over the median price housing. And at this moment in time, obviously, when housing markets are so fragile, this could be a difficult timing factor.

VELSHI: Let's talk a little bit about what the tax break is now. Christine, right now, the proposal looks like this. The housing market is already on life support. You think removing the tax deduction would have a devastating effect. Take a look. Currently, you can deduct interest on mortgages up to the $1 million range and you can deduct interest on mortgages on a second home. The proposal is to cap deductions on mortgages of up to $500,000, which is the overwhelming majority, as Susan said. This is more likely to affect high-end homes than others -- and to end the break for second homes. Your thoughts?

ROMANS: Well, I don't know if I'd just say just high end because there are a lot of middle class people who itemize their deductions who really count on this mortgage interest deduction, and upper middle class people, too, who itemize, as well. So that's the segment that is really upset about this potentially going away. Also, you have National Association of Realtors and others basically saying that this would be devastating, the NAR saying it would hurt housing prices, to go to Susan's point, by another 15 percent. So it would hurt people who are sitting in a home right now that they can't sell because, potentially, that home could be worth less. So that's the timing part of it here.

But overall, you know, the $100 billion in tax revenue -- can you afford it? And can you not afford it? And that is basically the question on every single element of government spending and government revenue that we're going through right now, making that judgment.

VELSHI: Well, let's think about this philosophically for a second. Susan, I want to ask you this. Whether you support or don't support this suggestion may have something to do with how you feel about the deficit. It may also have something to do with how you feel about the government creating an incentive for home ownership.

WACHTER: Absolutely.

VELSHI: What is the general benefit to society of people owning homes, as opposed to renting homes rather or waiting until later, when they have enough money saved up to make a proper-size down payment?

WACHTER: Well, this has, of course, been a period where the whole concept of home ownership is under the gun, under threat and raises the question of whether we should be preferencing home ownership. In fact, societies across the world do. And there are arguments, good arguments for society to weigh in on the side of home ownership, having to do with protections for children, having to do with neighborhood building, civic involvement and also hedging against rent increases.

You know, we are a world where a rent increase over time, even though we don't see it in the next few years, and we've, of course, been this period of housing prices and rents declining -- but this is a real problem for many people, being in a neighborhood which (ph) improves (ph) and maybe not being able to buy into that neighborhood, maybe being able -- not being able to buy into a home at all, being priced out of home owner by rental increases. So there is a protective element about home ownership.

ROMANS: But Ali, you know, it's such an irony, too, though, that we've -- we all believe that, and Congress has pushed toward home ownership levels increasing because they feel as though having a home is good for everyone involved, the school district, the people who live there, the children, the neighborhood. You feel more of a sense of ownership when you're in the house. You take care of it a little bit better. And it's a good financial management plan for a lot of people.

But this recession turned that all upside down.

VELSHI: Right.

ROMANS: Ironically, record home ownership led to blighted neighborhoods because people had to --

VELSHI: Right.

ROMANS: -- leave their homes. Now you're in a home and three of the houses down the block, there's nobody there. It's vacant. The front yard -- so I mean, it's just an interesting time --

WACHTER: If I may --

ROMANS: -- testing all of our -- testing all of our hopes about home ownership, right, Susan?

WACHTER: Yes, but it's -- no, I wouldn't agree absolutely -- I wouldn't actually agree with that. It's not really home ownership, it's overleveraging the house --

ROMANS: Right. Right.

WACHTER: -- treating the house as though we're actually taking bets, financial bets. And obviously, that didn't work out and it will not work out going forward.

VELSHI: All right, Susan, Christine, thanks very much for this discussion.

Hey, we know that banks got a helping hand during the financial crisis, but you might be surprised to find out who else got a helping hand. Let's just say it involves happy meals and Harley Davidsons. Wait until you hear how much money was exchanged.

But first, small businesses have to build their brand to survive, and getting customers familiar with their product isn't easy. Christine's got the story of one Pennsylvania entrepreneur who found a way to do both in this weekend's "Turnaround."

(BEGIN VIDEOTAPE)

ROMANS (voice-over): If you don't know what a pizzelle is, you're not alone. These waffle-shaped Italian cookies are hardly a household name, but Stan Kourakos is trying to change that. His business, Little Pepi's, makes pizzelles, and only pizzelles, in this modest factor in Hatfield, Pennsylvania.

STAN KOURAKOS, PRESIDENT, LITTLE PEPI'S: Our biggest challenge is just getting people know what a pizzelle is, even though the product has been around since 700 B.C.

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

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

ROMANS: The solution, Kourakos moved the company to a larger suburban facility and made a big purchase, a giant waffle stick oven retrofitted specifically to make pizzelles. Production quadrupled, but his energy bills also jumped. So Kourakos went from baking four days a week for eight hours to baking three days a week for 10 hours. He was able to keep almost all of his employees. About one quarter of them have special mental or physical needs.

KOURAKOS: And that's a corporate responsibility that we've kind of taken on. It's the one unique thing about our business. It is a family-run business, but we're like a family here.

ROMANS: Sales are up 15 percent this year. But ingredient and packaging costs have jumped, too. That's cut into the company's margins because Kourakos doesn't want to pass those price increases on to his loyal customers.

KOURAKOS: We get e-mails all the time, and they go, Your product is just like my grandmother's. And we embrace that.

ROMANS: Christine Romans, CNN, New York.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

VELSHI: There sure was a lot of outrage about the bank bail- outs, that $700 billion plan that ended up actually costing about $25 billion in the end. But this week, we learned that the Federal Reserve leant $9 trillion to a host of U.S. companies and non-American banks even before the financial crisis hit. Some of the non-American handouts went to Barclay's Capital, BNB Paribas, UBS and Deutsche Bank, no small change there.

Richard Quest is the host of CNNI's "QUEST MEANS BUSINESS." Richard, why would the Federal Reserve be loaning money to non-U.S. banks? How would that help the U.S. economy?

RICHARD QUEST, HOST, "QUEST MEANS BUSINESS": Oh, Ali, stop being xenophobic and trying to stir a pot of trouble! The truth is, of course, the money was leant to the U.S. subsidiaries of these banks, people like UBS, Credit Suisse, Barclay's, that have very large-scale operations in the United States that are intimately involved in U.S. capital markets both as primary dealers, secondary dealers. They are huge market participants.

So you cannot have a situation where you say only those banks that are true-blue American banks get the cash if next door, there's a bank that could take the whole system down.

VELSHI: All right. Well, if Richard doesn't want me to be xenophobic, then Christine, let me be industry-phobic. Why -- what about those non-financial sector companies, Harley-Davidson, McDonald's? What was that all about? ROMANS: Because, look, when Lehman went down, even before then, you had the overnight lending operations for day-to-day lending for some of these companies so they can make their payroll, so they can do their business -- it dried up. And so you had these other participants who had to step in and the Fed that stepped in to make sure that the oxygen was flowing to these companies. It's called the commercial paper market. There were some other kinds of loans done, as well.

But I think what this shows is that the Fed was the central bank to the world, to the world business, to multi-nationals. And this is what globalization of financial services and industry has done. This is exactly -- and the Fed is the one that -- well, I mean, goodness, Richard and I agree! I'm going to have to --

(CROSSTALK)

VELSHI: I'm fascinated.

QUEST: The fact -- I mean, I'm having a bit of a hot flush at the agreement that's going on here. It must be the festive spirit. And it's not pleasant. The real heinous nature of all of this was the sheer number of institutions that shoveled so much garbage the Fed's way so frequently. And the Fed had to eat it all because of the rules under the various procedures that were put in place. Fair to mention, though, all the loans were paid back from the bank. This was short- term lending.

ROMANS: And collateralized. And collateralized, too.

QUEST: Well, collateralized, but sometimes with stuff that necessarily you wouldn't want to have to rely on in the final analysis. But it was all paid back. It was paid back with interest. The central bank is the lender of last resort, so it played its traditional role. And if you're going to have globalized markets, you can't be blinkered and say it only -- only certain people can get the benefit.

VELSHI: All right. To both of you, thanks so much, Richard Quest and Christine Romans.

Hey, listen, the season's hottest gift is green and can be used for almost anything. Find out what's topping holiday wish lists next.

(COMMERCIAL BREAK)

VELSHI: Cold, hard cash. It's the one gift everybody wants more of. But nobody really wants to ask for it. It's a little bit gauche.

ROMANS: It's a little tacky, right? It's also the one gift, Ali, you can be sure no one is going to return the day after Christmas or the first week of New Year's. So why are we so uncomfortable giving cash as a present, when it's really all most of us need?

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Bills, Benjamins, cold, hard cash. We have no problem spending it this time of year, but giving it?

(BEGIN VIDEO CLIP)

JULIA LOUIS-DREYFUS, "SEINFELD": Cash?

JERRY SEINFELD, "SEINFELD": What do you think?

LOUIS-DREYFUS: You got me cash?

(END VIDEO CLIP)

ROMANS: Long before the recession, Jerry Seinfeld tried to give cash as a gift, and it bombed.

JOEL WALDFOGEL, AUTHOR, "SCROOGENOMICS": Cash is really an awkward gift. It's socially acceptable for grandparents and aunts and uncles to give cash, but it really isn't socially acceptable for, say, friends to give cash to each other.

ROMANS: Awkward, yes. But 58 percent of Americans plan to give money as a gift this holiday season. So how do you give cash and not be tacky? Peter Post is the great-grandson of Emily Post, who, of course, wrote the book on such things.

PETER POST, DIR., THE EMILY POST INSTITUTE: The time it's OK to give cash is when a person, after you've asked them what they would like, says to you, You know, I'd really like to get cash this year or money this year because I'm saving up for a computer and I'll put it towards that computer or towards my vacation or whatever it might be.

ROMANS: What if you don't want another sweater or set of bath gels? Can you ask outright, Hey, give me money this year instead? Bad manners, says Peter Post.

POST: A person may have already chosen a gift for you. And just because you say you'd like to receive cash or whatever gift it is you said, that doesn't mean the person's obligated to give that to you.

ROMANS: And they might, in fact, be offended. Bottom line, whether you're giving or receiving, it's always the thought that counts.

POST: I think that a gift should have behind it a sense of thought about the person, that, I want to do this for you. I appreciate you. You're part of my life in one way or another. And this is my way of showing that appreciation.

UNIDENTIFIED FEMALE: Let me just give you a receipt. You want to carry that for your mom?

(END VIDEOTAPE)

ROMANS: Bottom line, Ali, you can't tell Grandma, Hey, Grandma, I want cash for Christmas. Only if she asks you first, What would you like? Even though most of us are little less squeamish about giving gift cards than cash, Peter Post says etiquette rules still apply there. The bottom line is, know your audience and give a gift you think they'd like. That's the whole point. It's a gift. It's not their job to tell you they want 50 bucks or a gift card to the GAP unless you've asked them. You know, my husband asked my son what he wants for Christmas. He's 4 years old. He said without skipping a beat, Ali, he said, Daddy, I want a piggy bank.

VELSHI: Wow! Nice.

ROMANS: My husband said, I think he must have read your book!

(LAUGHTER)

VELSHI: Well, you know, you could get a piggy bank -- (INAUDIBLE) good way to give cash, give a piggy bank and put some cash in it. I'm definitely one of these guys that likes to find gifts that are useful to people, things that they would use but maybe wouldn't buy on their own. So it's kind of my substitute for cash. Instead of giving you cash, I'm going to give you something you need more than you like (ph).

ROMANS: I'm with you. I'm with you. And I love the gift that you gave me earlier this year of the elephant from South Africa. That was a gift where you knew your audience.

Thank you, sir.

VELSHI: There you go. Great to see you, Christine. Thanks so much.

And thanks for joining the conversation this week on YOUR $$$$$. We are here every Saturday 1:00 PM Eastern and Sunday at 3:00 PM.

You can also catch Christine Romans on "YOUR BOTTOM LINE" Saturday mornings at 9:30 AM Eastern.

And stay connected 24/7 on Twitter @Alivelshi, @Christineromans.

Have yourself a great weekend.