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PIERS MORGAN TONIGHT

Dow's Worst One-Day Loss Since December 2008

Aired August 8, 2011 - 21:00   ET

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


PIERS MORGAN, HOST: Anderson, thank you very much.

Obviously, a huge news day -- the rioting in London. We've got stock exchange meltdown over here. But very important I think that you're highlighting what's going on in Africa.

Can I just ask you, 12 million people in the area face starvation as you alluded to -- how many realistically do you think can be saved if the world gets its act together here?

ANDERSON COOPER, HOST, "ANDERSON COOPER 360": I think I impossible to know how many can be saved. But I can tell you this -- what aid work her tell you, unless more food, unless also more aid arrives immediately and starts coming to you, tens of thousands more will die in the coming weeks. I mean, they've already seen 29,000 children under the age of 5 die in the last three months.

As famine continues to spread in southern Somalia, they anticipate the famine -- if it continues to get worse, and they can't get food into southern Somalia -- they anticipate the famine will spread to all of southern Somalia. Right now, it's just in a few districts in southern Somalia control by the Shabaab. If it spreads to all of southern Somalia, that would be incredibly bad.

Remember, 300,000 people died 19 years ago and they say the famine is worse this time because the drought is worse. It's the worst drought in 60 years, and because you have this al Shabaab group refusing to allow aid workers in.

MORGAN: It's very important you're there, Anderson. And welcome to 8:00 p.m., by the way.

COOPER: Thanks very much, Piers.

MORGAN: All right. Take care.

One 1 trillion, that stunning number is the loss on paper anyway, in this country's stock market. The Dow suffering one of the biggest losses of all time, down 634 points, on the verge of a bad market territory.

Meanwhile, the Asian markets are sliding tonight. The Nikkei dropping 4 percent, sinking below 9,000 for the first time since mid- March.

Here to explain what all this means to your job and your money, CNN's (INAUDIBLE) Ali Velshi and Erin Burnett in New York, Kyung Lah in Tokyo and Wolf Blitzer in Washington.

I want to start with Kyung Lah, who's watching the Asian markets closely tonight.

Kyung, what is the latest over there?

KYUNG LAH, CNN CORRESPONDENT: Well, let's start with the Tokyo Stock Exchange. The Tokyo is the largest stock exchange here in Asia Pacific. So, we look at this as a marker of how the rest of Asia Pacific is going to do, down 4 percent. It is falling below the 9,000 level. Psychologically, that is an important level here.

And something we should point out for some context, is we haven't seen this level in Japan since the March 11th earthquake. Shortly after the earthquake, the stock exchange dropped to that level. So, this is the equivalent of a seismic shock for this country -- the economic equivalent that is.

We're seeing big losses among exporters, the companies that sell to America -- Panasonic, Sony and Toyota among some of the biggest losers. And it going to be, in the words of one trade here spoke to me this morning, Piers, in Tokyo, he said brace yourself. It's going to be a tough day.

MORGAN: And, Kyung, obviously, intriguing, Japan itself went through a credit rating downgrade. It didn't seem to be too badly perturbed by it. Describe what happened.

LAH: What happened here with the downgrade is that people were irritated. You did see the government certainly react. But there wasn't that much concern -- in part, because the debt is owned domestically. Japan's own people own the debt so there isn't that much concern.

But if you look at who owns U.S. treasuries, it's the Chinese and the Japanese. China is the largest holder of U.S. debt, followed by Japan. So, there is some concern about U.S. treasuries.

But what's confusing and what's leading to some of the uncertainty here at least in the Asia Pacific stocks, is that the U.S. treasury is actually is where investors went to flee yesterday on the Dow. So there is a lot of confusion about exactly what is happening on Wall Street.

MORGAN: Let's to go Ali Velshi.

And every time I talk to you, Ali, I have seemed to start with the opening line, "what the hell is going on" -- I see no reason to change today. What the hell is going on?

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: All right. What it is, you know, markets around the world tend to be very efficient methods of risk versus reward. What everybody has done is figured out that they don't want the risk of stock markets even if there is a likely reward. There's just too much uncertainty in the world about debt about, about slowing economies. And the irony is that downgrading U.S. debt caused everybody to look at their options around the world and decide that the safest place for your money to be is in U.S. debt. The 10-year note, which is the benchmark against which mortgages, fixed mortgages here in the United States are set, is actually cheaper. It costs the U.S. government less money to borrow against that than it did on Friday.

So, what has happened is that there isn't a logical place to put the money where a lot of smart investors are thinking is worth the risk.

Now, here's the other point, Piers. At some point, markets are not always rational. They are often efficient but sometime they're not. This is a day where momentum just seemed to take over. Panic started to push nervousness out and people just started selling because they didn't want to be involved in finding out what was happening next.

So, again, this doesn't look like a problem that is underlying markets. It's nervousness. It's fear. And it's not wanting to take risks -- getting your money into a place that is safer even if there's virtually no return for doing it.

MORGAN: Erin Burnett, this is almost a perfect storm, isn't it? Because you have the European economy in a complete shambles. You have China's economy apparently slowing as well. You have this ripple effect really all around the globe.

It's not just an American problem, is it?

ERIN BURNETT, CNN ANCHOR: No, it isn't an American problem and it is everyone's problem. And, obviously, as we all know, Piers, we talked so much about that inextricable link between China and the United States. That's part of the reason why no matter how angry they get with us, they're not going to ahead and sell our debt because they simply can't.

But when you look around at what's going to happen next for us, it's got to be leadership from the United States. That's the thing, Piers. I mean, you may say China is the most important economy now in some ways and that may be true. But it's still the United States that the world looks to for leadership, that the world looks is having the most sophisticated and the most transparent markets in the world.

Ands it's that lack of leadership from Washington and the lack of leadership, especially with this debt debate that caused all of this.

The economic problems were there and they were mounting again. That would have caused a sell-off perhaps in any case, but the magnitude of what we saw and the panic was cause by a lack of leadership coming out of U.S.

MORGAN: So, Wolf, let me bring you in here because I watched the president's speech earlier. I got to say, I found it slightly lackluster and more importantly, I found it completely lacking in any kind of detail which would have inspired the markets. And you could see the graph really, even as he spoke sliding away further.

You know, people wanted some action. They really didn't get it, did they?

WOLF BLITZER, HOST, "THE SITUATION ROOM": Well, if he was hoping to reassure investors out there, Piers, he failed because when he started speaking just before 2:00 Eastern Time here in the United States, the Dow was down about 400 points. And as you know, it closed down more than 600 points. So, he didn't reassure investors out there.

The only thing new that he really said was that in advance of the so-called super committee that's supposed to come one some new ideas, six Democrats, six Republicans, members of Congress, he'll have some recommendations, some ideas of his own. But he didn't have any new ideas that he outlined today. He reiterated his call for some other ideas.

But remember, also, Piers, that Congress is in recess right now until September 7th, the House and the Senate. And unless the president calls back the leadership, calls back these members, nothing is really going to be done legislatively to try to either create growth or create some jobs or to do something with the economic decline.

And there are so many people out there who fear a double dip recession. That's what really is motivating this decline that we're seeing.

MORGAN: I mean, it's interesting, in Britain, you have these riots on the streets tonight and the British prime minister and the deputy prime minister and the home secretary have all flown home from their holidays.

I mean, I would argue as a non-American, looking at what's happening to the economy here, this is a national emergency, isn't it? And shouldn't the senior politicians be reconvening to deal with this?

BLITZER: It certainly is a national emergency right now. Think about it. In the last few days, if you go back to July 22nd, when the markets, when the Dow Jones, the S&P 500, the NASDAQ began to decline -- since then, Piers, in terms of paper value equity, nearly $3 trillion lost 401(k)s, IRAs, people's portfolios, $3.9 trillion gone. It's a real crisis out there.

And, you know, the country is going to have to do something. It would have sent, and I think Ali agrees, I know Erin agrees, if the leadership, the Democrats and Republicans would have gotten together over the weekend and said we hear you. We got to do something. They would have had a little joint statement or whatever.

It may have cooled things down a little bit. I don't know how much. But it may have quieted the reaction, because this is a worldwide disaster.

VELSHI: And at leaf, Wolf, if they hadn't done that, if they just hadn't come out and being pointing fingers at each other and the S&P, it does, Piers, like we've missed the point of this whole discussion, whether or not you agree with the S&P downgrading of the United States, all you need to do is read the newspaper to understand that the U.S. has debt problems. And they are -- I don't want -- I don't mean to be quoting the president, but he did say it is eminently solvable.

It's not in Greece. It's not in Italy. And it's not in Spain.

In the United States, this is eminently solvable.

MORGAN: Well, yes, and I thought -- I mean, the S&P verdict, which I read in its entirety on Friday, seemed to be speaking pretty much what everyone was thinking themselves which is that while Washington was fiddling and playing politics, the modern equivalent of Rome was burning and just not good enough.

VELSHI: That's exactly --

MORGAN: Ali, what do you think?

VELSHI: Yes, you're exactly -- you're exactly right. And people say -- Washington seems to be quite offended by the idea that the S&P would chime in on the fact that some of their judgment was about Congress' inability to come to an agreement on what to do, and their connecting of the budgeting process to the payment of our debt process, which they said is not worthy of a AAA country.

I mean, Piers, it seems to be a fair criticism. Washington has sort of embarrassed itself in the last few months. And so, for the average investor who's not invested in the politics of this thing, they're sitting here ands saying, I think things might be OK, but I don't really trust that the people in charge are going to keep me safe, so I'm going to pull my money out until I figure out what's going on. And that's what you're seeing today.

But the minute we start to see those glimmers of leadership and some real solutions I think you'll see that money start to go back into the stock market. This is -- like I say, this is a solvable problem.

MORGAN: And, Erin, I mean, the CNN poll said 75 percent of Americans think the U.S. economy is doing badly. Just make you wonder what the other 25 percent think is going on.

But anyway, the Fed meets tomorrow. What should they be doing? Because somebody, and it didn't come from the White House today -- somebody has to do something fairly dramatic. Don't they?

BURNETT: They do. And, Piers, I think that person is Ben Bernanke, the chief of the Federal Reserve. He can do the most and he's credible and he's trusted.

And the American Central Bank is the world's central bank. I mean, that's really the way it is because the dollar is still the world's currency. So, tomorrow when they come out, there's obviously nothing they can do in terms of cutting interest rates. They can to do a little bit in terms of making it easier for banks to lend. They could also say some of these extraordinary programs that they wrapping up that they're not going to be wrapping them anymore.

There's all kinds of things they can do in the statement. They can give markets a little bit of pause. They also, Piers, can give a little clarity on whether they see a double dip recession.

They're going to have to acknowledge the first cut in consumer spending which drives our economy. The first cut in that in two years. So, that will be a negative. But if they come forward and say, look, we don't see a double dip -- that will give a lot to the markets.

The one thing, though, Piers, that they probably can't do is say we're going to start something -- the third round of extraordinary easing, the so-called quantitative easing. To do that on the heels of a five-day, 13 percent market correction, that probably would indicate that they were scared and afraid and that might make the markets even more terrified.

So, that's something they probably won't go quite that far.

MORGAN: Wolf, politically, this is all pretty damaging for the president, isn't it? Because he's already had to preside over the first ever credit rating downgrade, you've seen two diabolical days in the stock market now, Friday and today. This is all got to be costing him, hasn't it? I mean, if the next election gets poured over the economy, this is a really bad time to be president of the United States.

BLITZER: What he's got going for him, Piers, is that the election isn't until November 2012, more than a year away. And no one knows who the Republican nominee is going to be.

So, he's got plenty of time to fix this, plenty of time to see maybe a -- not necessarily a full correction in the economy, but maybe a little bit of improvement so people get a sense that the country is moving in the right direction.

The most important poll number these politicians look at in a general presidential selection right track, wrong track. They asked the American people, is the country moving in the right direction or the wrong direction? And if they're moving in the right direction, albeit thing are bad but at least there are signs of improvement, then the president will have a good chance of getting himself reelected.

But if there is a sense the country is moving in the wrong direction, he'll be in jeopardy.

MORGAN: Based on everything we know now, I want to ask the panel very, very quickly, please -- are we heading into a double dip recession?

Wolf, yes or no?

BLITZER: No.

MORGAN: Erin?

BURNETT: No.

MORGAN: Ali?

VELSHI: No. MORGAN: Kyung?

LAH: People in Asia think so.

MORGAN: I love the fact there was a dramatic delay there. It added to the drama. I think it is perilous to put it mildly.

Thank you all very much.

When we come back, what would it take to turn the world's markets around? Two people who know better than almost anybody else.

(COMMERCIAL BREAK)

MORGAN: Incongruous it seems there, from New York Stock Exchange, as people applaud at the end of one of the world's worst days in the exchange's history. Apparently, it's traditional in America. May I suggest that tradition could be quietly parked (ph) to the moment?

We bring in now two men who can exchange the big picture, economist Nouriel Roubini, and Mohamed El-Erian, who is the CEO of the investment management firm, PIMCO.

Mohamed, let me start with you. I've spoken to you regularly in the last few weeks. All the gloomy forecasts you made appear to be coming true.

How bad is this situation? Put a proper perspective on this for me.

MOHAMED EDL-ERIAN, CEO, PIMCO: It's bad, Piers. Since in California, let me give you the example of a mound of sand and how a few grains of sand can totally change the shape of the mound. Why? Because the mound is structurally weak.

So, our economy is structurally weak. We have a problem in the housing sector, in the labor markets, in the banks and the public finances.

And over the last few weeks, we have put a few grains of sand that have completely changed the mound. They were first a series of weak numbers. Second, a debacle in Washington that raised questions about our policy makers. Third, the crisis in Europe. And now, to add insult to injury, the downgrade. So, right now, we have both an immediate problem and a structural problem. And what we need is we need Washington, D.C. for once to get ahead of the process by changing the way it has been approaching it from ad hoc measures to something much more comprehensive.

MORGAN: And, Nouriel Roubini, people are talking openly now about a double dip recession. How likely do you think this is? And if we are facing this catastrophe, what can President Obama do about it to stop it from happening?

NOURIEL ROUBINI, ROUBINI GLOBAL ECONOMICS: Well, the probability of a double dip recession right now, in my view, is at least 50 percent. Not just in the United States but also in most of the peripheral, the Euro Zone, the United Kingdom has gone for three quarters now. And Japan had a double dip. Now, they're recovering from the earthquake, but their structural growth is anemic.

It is a situation in which it was too much debt in the private sector. Now, there is too much that in the public sector. And this painful process of delivering, you need to spend less to save more to reduce your debt, implies weak economic growth. The economic growth has become now so weak that most of the economies have it at stalled speed.

It's like an airplane that decelerates to the point that to reach a stall speed, either you reaccelerate and you get to escape velocity, or otherwise just start to free fall. And, unfortunately, I fear we're in the start to freefall because in the last two or three years, every time there was an economic downturn or a market downturn, we had all the policy bullets available, we could do 10 percent GDP, fiscal stimulus, we could cut policy rates to zero, do rounds and rounds of quantitative easing, who could box off and bail out our banks.

But, right now, we are running out of policy bullets. Every country is doing fiscal austerity that reduces demand. There is not much room for much more monetary stimulus, and the government cannot even backstop their own banks because the governments in Europe are so much distressed with so much debt that have caused the bank in Greece because a lot of the government paper is on the balance sheet of the banks.

So, there are not that many policy bullets left to avoid an economic downturn and a financial downturn.

MORGAN: Mohamed El-Erian, two things struck me today. Oil is on the fall. Gold is on the up to record highs.

This suggests that consumption is down all over the world. The economy everywhere seems to be slowing. Hence the oil prices falling. And gold is, of course, the safe port in a storm.

And storms don't get much bigger than this, do they?

EL-ERIAN: They don't. And the market actually got it right today. I wish it hadn't done it so violently. But it told you, the global economy is weakening, that's why equities were weaker, and is to say oil was weaker.

It told you that people were looking for any safe haven. That's why gold did so well in Swiss francs.

And then what puzzled most people as well, why did U.S. treasury bonds do so well. They didn't just get downgraded.

The answer is, you know what? At the end of the day, you cannot replace something with nothing. And even though the U.S. government's market has been downgraded, it is still the biggest and the most liquid. That's the one that took people by surprise but it shouldn't really because the U.S. government market is not an issue of default risk. It's more an issue of being there when nothing else seems attractive.

Remember, we mostly worry about do we turn on our capital, but sometime like these days, we worry about do we turn off our capital.

MORGAN: And, Mohamed -- I mean, in all these situations there are always winners out of everybody else's misery. There are rumors today that George Soros, for example, the billionaire investor, has made a killing betting on the downgrade coming in.

Do you know if that's true? Do you that if there are other people out there making a killing as everybody else loses?

EL-ERIAN: I cannot speak to Mr. Soros. I don't know what position he has on.

In general, there is a buyer and a seller. So, to the extent that someone lost money today, someone else made money.

But, critically -- and this is what is so important -- Piers, the financial markets cannot operate in isolation of the real economy, right? There will be function of the real economy. That's according to the financial service industry. It serves the economy.

And what happened today is unambiguously negative for the real economists, unambiguously negative for growth, it is unambiguously negative for both unemployment and income and wealth inequality.

MORGAN: And let me ask you both, starting with Nouriel Roubini, are we heading to a double dip recession? Yes or no, do you think?

ROUBINI: I think a double dip reselling is at this point very likely. Look at the data for the U.S.

The GDP growth has been slowing down, the stalled speed. Consumption is flat. We're not creating jobs. Firms are not doing capital spending. The recession in housing is getting worse.

Until now, people losing on their home, the value of their home has fallen at 35 percent. But now, in the last two weeks, 15 percent of their financial wealth, equity, has also been wiped out.

So, you have a double whammy on your financial wealth. You feel poorer. You're going to spend less and it's going to become a vicious circle of falling economic activity, falling asset prices, falling wealth, reducing consumption investment.

And we don't have the policy tools right now to jump start the market and the economy.

MORGAN: Mohamed El-Erian, yes or no, double dip recession?

EL-ERIAN: High risk can be averted, but a high risk.

MORGAN: Thank you both very much.

When we come back, will the market turmoil means for you, your job and your 401(k).

(COMMERCIAL BREAK)

MORGAN: Breaking news tonight. You're watching new images from Britain where rioting which began in London two days ago is now spreading to other cities up and down the country. One of the worst examples of civil disobedience that Britain has seen in three decades. We come to that with CNN's Richard Quest a little later.

The turmoil in the market mean there's hardly person in this country that's not affected here.

Now to help you sort out what it means for you is Kai Ryssdal of American Public Media's "Marketplace."

Kai, you've been here quite regularly recently. Every time you come, it gets wore. I now know it's serious because you're wearing a tie.

KAI RYSSDAL, AMERICAN PUBLIC MEDIA'S "MARKETPLACE": I know.

MORGAN: This is how serious it's got.

Put it into perspective from a layman's point of view.

RYSSDAL: Well, it looks frankly really, really bad because it is really bad. And I think what we need to do is disassociate anything that's going on in the markets right now with the debt downgrade, the debt deal, any of that stuff, OK?

It's all about fundamental weakness in the economy. It's just people realizing now that this is, to quote friend of mine, the new normal. This is the way it's going to be -- slow growth and not a lot of jobs, companies making money but still not hiring.

MORGAN: Gold, normally the safe port, is incredibly expensive. It's been rising every day. It's at record levels. It's not an easy option for people.

Treasury bonds, not really an option given all the uncertainty at the moment.

What are we left with? How should people take care of their money?

RYSSDAL: Well, the first thing you have to do is not sell into a falling market. That's not just a bad idea. What you got to do for a little is just sit tight and see what happens.

The good news is that, you know, your 401(k), that you -- if you buy on the next payday, it's going to buy more than it bought last payday because, sure, the prices are falling. I mean, that's is a little gallows humor.

MORGAN: But the bad news is the value of those 401(k)s has been sliding, right?

RYSSDAL: And here's the worst news. The worst news is everybody is now thinking 2008, right? October 2008. Oh, my goodness, it's happening all over again.

And they're sitting there watching --

MORGAN: Is it happening again?

RYSSDAL: I don't know. I don't know. I mean --

MORGAN: What's your gut feeling?

RYSSDAL: My gut feeling tells me we're in for a little bit of a rough ride. I don't think we're going to have too many more days of 634 points down on the Dow, but I think what you've got is people saying, oh, my goodness. Here we go again.

And they're looking -- if you remember -- the low was March of 2009. That was six long, long months. The question is do people have the wherewithal and the guts to just stick it out.

MORGAN: We're seeing the valuation of banks absolutely hemorrhage today, especially Bank of America. We see AIG take a hit as well. Should people be looking for value in stocks right now? I mean, looking for some kind of positive? Is it a time, ironically, to invest?

RYSSDAL: Well, I think you're looking for safety, right? You want to make sure you have the diversified portfolio. If you want to buy some more gold, buy some more gold. If you want to buy some more growth stocks, buy some more growth stocks. Make sure you're protected. But be careful because it's a falling market and you've got to look out. We're down, what, 1,500 point in three or four days.

MORGAN: President Obama made a big speech today that said not very much. What would you like to hear from him?

RYSSDAL: I actually had a conversation with my wife about this over the week. I would have loved for the president to come out with Speaker Boehner, Mitch McConell from the Senate, Pelosi and -- Pelosi from the House as well, and Harry Reid, and Reid, listen. We get it. We understand the downgrade. We know what's happening in this economy. And we will fix it. They didn't do that because they can't bridge that gap that you and I have talked about several times.

MORGAN: How angry are American people? Because in Britain, you're seeing tonight pretty alarming scenes of social unrest. A lot of it is linked to the shooting of the young man in North London. But actually there's a wider social issue of the economic downturn really hitting people now, and a lot of anger building on the streets.

Could you see that coming to America?

RYSSDAL: Let's be clear, we're a long way from that. We are a long, long way from that. We don't have the Cameron government's austerity budget in place yet. We haven't done any of those things yet to try to fix things. The thing that I think we have in this economy is unease in people who are a little more uptight. It is fear, rightly so, because you don't know what's going on.

And people, as I said a minute ago, are going back to 2008.

MORGAN: My four CNN colleagues when asked about double dip recession all said no. The two economists basically said they thought it was a very likely possibility. What does the people's hero, the layman guy say?

RYSSDAL: Here's my dodge, right? I don't think you can worry about a double dip recession, because even though Wall Street and a lot of big banks and companies came out of the prior recession, Main Street in this country did not.

They are still worried about jobs and making payments and losing their houses.

MORGAN: Are we at a stage where people who have got a bit of cash should literally put it in a box and put it under their bed?

RYSSDAL: What are the options? You had Mohamed El-Erian on. He knows investing as well as anybody. You can buy bonds if you want to, but your yield is going to be nothing. You can take it out of everything and stick it under your mattress or you can buy what? Swiss Francs. Think about that for a second. So there aren't a whole lot of options there if you are what investors call risk off, if you don't want to have any risk.

MORGAN: What an extraordinary set of affairs when the world's great super power, with the number one economy. We basically have to tell people to stuff cash under their mattress.

RYSSDAL: Yes. Don't mistake what's going on in the markets -- as I said at the beginning, don't mistake what's going on in the markets for anything having to do with the debt downgrade or the debt deal. This is a fundamental thing that's happening and you're safer just sticking and holding on to your cash.

MORGAN: I want to bring in Ron Shaich, who is executive chairman of Panera. Mr. Shea, your stock was down nearly nine percent today. How bad is this from your point of view, from a guy that runs a big company in America?

RON SHAICH, FOUNDER PANERA BREAD: Quite frankly, economic weakness is a time of opportunity, if you're prepared for it. We were among the very best performing consumer companies in America from the trough of the great recession until now. And we think it is a time to invest in customer differentiation and a time to invest in growth.

MORGAN: You employ 60,000 people. There are nearly 10 percent of Americans out of work. And clearly the main priority for the president has got to be the get them back to work and get them jobs. How would you, as one of America's top employers -- how would you start this process? How do you reenergize the jobs market?

SHAICH: Well, obviously it starts with confidence. Then it starts with stability in the political environment. This is a crazy environment which we're living in. It is an environment in which people don't trust that there is leadership. And that takes business folks across Main Street, across this country. And they're afraid to invest. They're afraid to move forward.

MORGAN: Let me turn to you for one final question here. Is there any good news out there in terms of the economic outlook? Everything you've seen which you can actually look me in the eye and say this is a positive.

RYSSDAL: With a straight face then, right?

MORGAN: Yes.

RYSSDAL: The short answer is no. There is nothing positive right now, other than the knowing and faith that we have that this has happened in this economy before. It has happened recently. We got through it. Stocks will be ugly and bad things will happen. But we will get through it again.

MORGAN: Thank you both very much. When we come back, our man at the New York Stock Exchange, Richard Quest, on the market turmoil and on the appalling rioting in my home town of London and other cities in Britain tonight.

(COMMERCIAL BREAK)

MORGAN: I want to bring in the only man at CNN that has a posher British accent than me. That's Richard Quest. Richard's at the New York Stock Exchange.

Richard, you went order there to examine what was going on, obviously, in America, in the market there. Tonight, there is chaos in the far eastern markets. Australia apparently is now down five percent. We're seeing the ripple effect from what's happening in America going everywhere. And clearly Europe is key to this, too. What is the global perspective?

RICHARD QUEST, CNN ANCHOR: The reason that the Asian markets and the South Pacific markets are lower is quite simply, having seen such a dramatic fall on Wall Street, there was no way they can stand as a bulwark against that tidal wave of selling and market turmoil.

So it doesn't come as a surprise to see Hong Kong opening down over six percent. What we've got to watch out for is how things develop over the next, say, three or four hours. That is when local factors will start to kick into the market. They will respond to their own individual factors.

I have to say, though, I'm not terribly optimistic that they will be able to get over this malaise. I suspect, although you may not see 600, 700 point falls again in the short term on the Dow, we are in a cycle, Piers, one day one market will feed to the next. And onward it goes until the fundamentals change.

MORGAN: We're seeing a pretty awful scene back home in Britain. What began as a shooting incident in North London developed into rioting across the city and now spreading to other cities. We're hearing Manchester, Liverpool, Birmingham, all sorts of outbreaks of uncontrolled violence. And the British Prime Minister David Cameron rushing back to try to sort thing out.

I suppose the obvious question I want to put to you is how much of this is just opportunistic gangsterism, if you like, by disaffected youth, and how much of it is indicative of an underlying social problem caused by the financial malaise?

QUEST: I think whatever it started out as on Saturday night, after the shooting earlier last week by the police of someone -- I think whatever it started out as has long since gone. You've seen it before in the U.K. I've seen it. We both remember Tokstirth (ph) and we both remember Liverpool all those years ago.

What started out with justifiable grievances against poverty and social inequality rapidly gets hijacked by thuggery, hooliganism and wanton vandalism. Now tonight the police say more than 200 people -- police in London say more than 200 people have been arrested.

But you're right. It has spread to Birmingham. It has spread to Liverpool. The Prime Minister David Cameron is returning. Theresa May, the home secretary, has returned to be briefed by the metropolitan police. It is a hot summer in the U.K.

And in that scenario, what you're seeing is basically wanton thuggery. We have also seen, of course, large demonstrations which have got out of control in Israel. Don't forget the Israeli demonstrations, too. Now they are firmly rooted in poverty and social inequality demonstrations.

So we are seeing the disaffected basically standing up, Piers, and saying we're not going to take it anymore. I'm going to take to the streets.

MORGAN: Pretty depressing viewing for any Brits abroad, I must say. And pretty terrifying for those in the middle of it over there.

Richard, let me just leave you by asking what's your prediction for the markets this week? You've got your ears to the ground in all this. How do you see things going?

QUEST: Piers, I have the shirt on my back and I have managed to keep it there for all these years because I've never given a prediction on where the market is going. If I knew the answer to that, I wouldn't be standing here talking to you. I would be trading it.

It is going to be rocky. That I am prepared to say, volatile and rocky.

MORGAN: And I've been asking everyone tonight whether they believe we're heading to a double dip recession. What do you think?

QUEST: Yes, I think in some places we are heading for it. The reason is simple. You cannot have this sort of dislocation without having a hit of consumer confidence. Whether you actually get a technical double dip or the market just goes down for one quarter, it matters not a jot. To those out of work, to those on benefits, to those in poverty, to those at the bottom, it feels like a recession, Piers.

MORGAN: As usual, Richard, a brilliant analysis. It's a shame about the accent. Thanks very much.

Coming up, America's deadliest day in Afghanistan and a man who knows a lot about the cost of war. My exclusive with Sebastian Younger.

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MORGAN: Sebastian Junger knows more than most about life and death in a war zone like Afghanistan, where 30 American troops were killed when their chopper was shot down by an insurgent RPG this weekend. His latest book is "War," which follows a single platoon through a 15 month tour of duty in Afghanistan.

Sebastian Junger joins me now exclusively. Sebastian, when you heard what happened, how likely did it sound to you that it was an RPG weapon that shot down the helicopter? Many military experts we've been speaking to find this a little implausible.

SEBASTIAN JUNGER, AUTHOR "WAR": Well, it is very hard to shoot down a Chinook with an RPG. It takes a really lucky shot. That doesn't mean it doesn't happen. It actually happened in the Koringol valley in 2005. Koringol where I spent off and on a year in '07. An insurgent brought down a Chinook with a very lucky shot, a low altitude shot.

And it ruptured the hydraulic lines and they lost control. And ultimately 16 people on board died. So it can happen.

If the Chinook was at altitude, any kind of great altitude, an RPG would never -- could never make it up to those heights. And it would really require a heat seeking missile, like a SAM-7. That is something that the U.S. military is very sensitive about.

Of course, they know the American public knows that it was the Mujahideen in the 1980s -- once they figured out how to knock down Soviet aircraft, the war really turned around and the Soviets eventually had to pull out. So that is a very sensitive point I think for American military commanders.

MORGAN: You know Afghanistan better than most people from a military perspective. Is this an unwinnable war now?

JUNGER: You know, I mean, it is like the war on crime. It is not something you're going to win decisively. The question really is, are we better off fighting it or not fighting it?

I think ultimately, we can do what we might call winning. In other words, bring it to a point where we can pull our forces out, if we implement political changes. The Afghans will fight like tigers if they're fighting for something they believe in.

They drove the Soviets out, of course. We have allowed a completely corrupt government to take over Kabul. And the Afghans, I think understandably, ordinary Afghans who hate corruption as much as we would, they're really not willing to fight and die for that government. And frankly, I don't blame them.

I think we will have a successful exit if we can twist President Hamid Karzai's arm hard enough to implement real political change and to clean up the corruption that's rife in his government.

MORGAN: Clearly whichever way you look at this, it was a massive blow to the American military and a huge coup for the enemy, that within a few weeks of the death of bin Laden, 22 members of the Navy SEAL unit -- although none we believe were involved in the bin Laden raid -- died in this one incident. Put that in some kind of perspective for me.

What affect will that have on the moral there for the American military?

JUNGER: Well, I think for the SEAL community, it's a very tight community. It must be absolutely devastating. I mean, the bonds within that unit are so strong. And we -- we must remember that the SEALs were not defeated on the ground. They were not outmaneuvered. They were not outgunned.

They were on an aircraft that was shot out of the sky. And in some ways it really does not reflect on the capability of the SEALS, which of course is --their capabilities are enormous.

For me, in some ways, the more important issue is -- here we are 60 miles from Kabul, ten years into the war. There's an insurgent base there that's so effective that when the Army Rangers go in -- and they are already a very elite unit -- they go in. They get into so much trouble, they get over -- so overwhelmed that they have to call in the SEALs. So in terms of how the war is going on a military level, you really have to wonder, 60 miles outside of the capital, ten years on, that a unit like the Rangers can get in over their heads. That, to me, is a really bad sign. And it really makes me wonder what exactly is going on the ground outside of Kabul.

MORGAN: Do you think it's time the mission was rebranded away from a war to a counter terrorist operation, in the sense that really the only effectiveness of what's going on there, it seems, from a military perspective is in from preventing al Qaeda from regrouping in the terrain of Afghanistan to plan more atrocities.

And in that sense, so far it's been pretty successful. Whereas, if you try to brand it as a war, it's almost unwinnable. No one has won a war out there. So why would it start now?

As you say, when you're seeing ten years on, the rangers and the SEALs really struggling, it should send a message, shouldn't it?

JUNGER: Yes. It depends on what outcome you want. I think historically, one of the things that we need to remember is that when we -- we, the United States, walked away from Afghanistan in 1990 -- of course, we supported the Mujahideen as they fought Soviets during the Cold War. The Soviets pulled out and we really pulled out almost as quickly. We could have supported Afghan society with schools and bridges and roads and all the things that a destroyed country needs.

And we really pulled out very quickly. And the -- and Afghanistan just imploded. And in that chaos, al Qaeda found a safe haven. So I think we don't want to repeat history. Ultimately, the tracking and killing of bin Laden came from intelligence, some of which as gathered on the ground in Afghanistan. I don't think you can gather that intelligence from a few scattered bases where we have special forces.

I mean, you need to be on the ground talking to people. That's not something you're going to do with a very light imprint in Afghanistan. So there you have it. If you want to kill bin Laden, I think you need substantial forces on the ground if you want to continue those efforts.

I think it's going to take some real presence on the ground of line infantry in bases around the country.

MORGAN: Is there any tangible impact in a positive way on the lifestyle of the average Afghan out there? Do you see that? Is, for instance, the drug production -- has that been dented at all? Are women being treated better in terms of women's rights? Are there any tangible things that we can identify that have been progress made, if you like?

JUNGER: Yes. I'm just citing numbers off -- from memory here. I believe the number of children in schools has gone up seven-fold. A third of those are girls, which is an extraordinary change for Afghanistan. There are many areas of Afghanistan, of course, where there's no fighting at all. And I heard that it's one of the fastest-growing economies in that part of the world. Of course, in part because there's such a huge infusion of foreign aid.

But nevertheless, there are cell phone towers. There are high rises in Jalalabad. I mean, I was in Afghanistan in the 1990s and it's really a radical transformation of that country and particularly of the larger cities.

All of that will be inherited by the Taliban if the west simply walks away overnight. I don't think that's being contemplated. But if you sort of think in those terms about what our decisions are, everything that the west has built there will basically be inherited by the Taliban if we leave too quickly.

MORGAN: Sebastian Junger, thank you very much indeed. >

JUNGER: Thank you.

MORGAN: When we come back, we'll go live to Tokyo for the latest on the falling Asian markets.

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MORGAN: I want to end with some breaking news from Kyung Lah, who is in Tokyo with the latest on the Asian markets. Kyung, where are we right now?

KYUNG LAH, CNN CORRESPONDENT: Well, what started off as a bad day, Piers, is starting to look even worse. Tokyo down 4.5 percent. Australia down some five percent. Honk Kong down 7.8 percent. And Seoul, the Kospi, own 7.8 percent at one point. And it was falling so rapidly that a circuit breaker went into effect, shut down trading for five minutes, because there was so much panic selling going on.

There has certainly been a mood shift here in Asia Pacific. I had heard from traders for many days that, hey, there's no panic here. But a trader said we are starting to reach that. And of course, Piers, now the concern is this will transfer to Europe and it will be back in the United States.

MORGAN: Kyung, are you expecting this to carry on as a pattern for the rest of the week? Is it going to get worse and worse, do you think?

LAH: Traders are certainly bracing for that, that this is just the beginning. We have heard as recently as last week that maybe this is going to be short-lived. But it certainly looks like -- they're looking for some sort of fundamental shift in the economy in the United States. So far, nothing.

MORGAN: Certainly very, very, very worrying time. Kyung Lah, thank you very much, indeed.

That's all for us tonight. Now Anderson Cooper with "AC 360." And he's from Somalia.