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YOUR MONEY

The Economy Election; The Big Fix on Jobs; Capitalism On Trial

Aired January 21, 2012 - 13:00   ET

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


ALI VELSHI, HOST: Look beyond the primaries and we're headed for a presidential election likely to be decided by an uncertain but improving economy.

I'm Ali Velshi. Welcome to YOUR MONEY.

Americans are split on whether they would vote for Mitt Romney over President Obama if Romney is the Republican nominee. But they are solidly behind the GOP frontrunner when it comes to the crucial issue of who can get the economy moving.

A CNN/Opinion Research Corporation poll finds just 40 percent say that President Obama can get this economy moving, while more than half of those polls believed that Mitt Romney has what it takes.

Now this polling data leads me to the most important economic issue of all, and that is jobs. More than 100,000 jobs have been added in each of the last six months. It is not enough. It is not enough, but it is steady improvement. And nothing means more to how Americans feel about the economy than whether they have a job or know someone who just got a job or conversely, someone who lost a job.

Let's head to South Carolina and bring in CNN contributor Will Cain, a good friend of our show.

Will, as a conservative, are you sensing some worry among Republicans that the stronger job creation is going to weaken the advantage that Mitt Romney could have over President Obama on the issue of being better able to improve the economy?

WILL CAIN, CNN CONTRIBUTOR: Well, I would say that the numbers are moving in Obama's direction. It's better than if they're moving the other way, than if unemployment was increasing. But look, I don't want to get too quasi-intellectual on you here but I would be careful about -- how much those indicate which way the economy is moving.

I compare it to Plato's "Allegory of the Cave." You know, Plato said he may give the metaphor of a bunch of prisoners trapped in a cave, tied together and staring at a wall.

VELSHI: Yes.

CAIN: A blank wall their entire lives, and they begin to think that the shadows reflect reality.

VELSHI: Right.

CAIN: My point is, I'm not sure unemployment and jobs accurately reflects the direction of the economy. We still have a euro debt crisis that's leaving economies shaking in their boots, Ali. We still have massive levels of debt in the United States. We're working off that debt.

VELSHI: Right.

CAIN: And we still have, look, 30 percent, 30 percent of Americans are underwater on their home mortgage.

VELSHI: Yes.

CAIN: And 50 percent are effectively underwater.

VELSHI: Well, I give you this.

(CROSSTALK)

CAIN: They don't have the capacity to move.

VELSHI: I'll give you this. That is the -- that continues to be an intractable problem, but let me just go back to jobs for a second. You and I have discussed.

CAIN: Yes.

VELSHI: I am not a fan of associating job losses with a particular president just because it coincides with their term in office but let's say we did that because lots of people do.

President Obama, under his watch, 4.6 million jobs were lost on his watch. Two-thirds of those jobs are back already and at this pace of job creation, all of those jobs will be back probably before Election Day.

Now who knows which way that's going to go, but boy, that's going to be a tough argument. I can see those ads with Obama versus Romney. That is going to be tough, regardless of how -- whether you think it's a real reflection of the economy or not.

CAIN: Well, you're absolutely right. That's going to be a great essentially bumper sticker. It's going to be a great campaign point. But here's why I describe those other pressures on the economy, Ali, is because in the end how voters feel about the economy will be impacted by so much more. It will be impacted by those factors I talked about, housing, debt and Europe.

VELSHI: Yes.

CAIN: Leaving voters with a sense of uncertainty, with a sense of fear, with a sense of feeling poor. All of that will impact how they feel about the economy.

VELSHI: Sure. CAIN: I think much more than a number that reflects job losses and unemployment.

VELSHI: Well, I'm with you there.

CAIN: Look, still 92 percent of Americans have jobs.

VELSHI: I'm with you there. That how you feel about it may have more to do than reality. The same thing with recessions.

Alexis Glick, a good friend of ours, the CEO of the GENYOUth Foundation. She's also worked on Wall Street. She's reported on it for a long time. She knows business, she knows politics, and this is really going to come down to money and politics, Alexis.

ALEXIS GLICK, CEO, GEN YOUTH FOUNDATION: It's absolutely true. And I see what Will is saying. I mean the bottom line is the trend is Obama's friend right now, so we're starting to see job creation move in the right direction. There is a ton of cash built up in corporate America right now sitting on the sidelines, so there are some positive signs and real interest rates are as low as they've been in decades. So you do have some favorable things.

But, look, most of middle class America right now feels that they're still under siege. Many of them feel that the recession did not end.

CAIN: Right.

GLICK: And that is a big problem. So confidence is key to this election. Yes, Obama can say I've recreated all the jobs that have been lost, but also under his watch, deficits have never been larger. The U.S. debt rating was downgraded for the first time in history. Those are also the points that the Republican side of the equation are going to heavily pound this administration on.

VELSHI: OK. So we are agreed on the fact that ultimately, and I think the same thing decided the midterm elections and the same thing decided the 2008 presidential elections. How people feel, particularly on the issue that is most important to them, the economy, will determine how they vote.

I want to bring in Harvard professor, Ken Rogoff. He is the former chief economist at the International Monetary Fund.

Ken, the issue here, we're agreed how people feel influences them. What may be more important to improving our economy is what we actually do. I would love to hear presidential candidates talking about specific things that would create long-term growth.

GLICK: Job creation.

VELSHI: Not just tax cuts, and not -- you know, but real stuff. And Ken, you often talk about infrastructure. How do you make that into something that makes sense for an election?

KEN ROGOFF, PROFESSOR, HARVARD UNIVERSITY: I mean I'd love to see real ideas debated in this election because I worry about us entering this state of lethargy. We are improving. I think the economy is going to hurt President Obama, but if it continues to trend upwards, it won't hurt as much. But I mean this isn't just about this year but much longer term. How are we really going to improve our education system.

VELSHI: Right.

ROGOFF: And make it more competitive. If we're going to build infrastructure not just so that it's like a handout but that we really build infrastructure. How are we going to de-lever this housing, this -- all this housing debt, some of these subprime mortgages. They're never going to get paid.

VELSHI: And in fairness, in fairness, and Alexis and I were just talking about this before the show started. We are not hearing those details from anybody.

GLICK: Where are the plans?

VELSHI: Anybody in office or anyone who's running. Am, I right, Ken?

ROGOFF: No, absolutely. I said that's what I'd love to hear. I think in some sense it's the voter doesn't want to hear the reality.

VELSHI: Right.

ROGOFF: The voter doesn't want to let us go in any direction.

CAIN: That's right. That's right.

ROGOFF: Anyone who sticks their neck out, it gets cut off.

GLICK: But if you're a nominee right now, to me that is the biggest issue.

CAIN: Right.

GLICK: Who has put down a serious economic plan.

VELSHI: Right.

GLICK: We are adult enough to know there's a reality facing us, and it's been staring down our door for years now. Tell us the truth. Lay out the plan. I think they're afraid to lay out the plan.

VELSHI: I will -- I will say to you that the one candidate who put down what looked like a pretty good plan is out of the race, Jon Huntsman. Couldn't get passed 2 percent in the polls.

Stay with us, Alexis, Ken and Will.

Optimists beware because that crisis in Europe continues to threaten whatever is going on here in the United States and around the world. Could it end up being a big factor in the U.S. presidential election as well? How and why, I'll tell you about it next on YOUR MONEY. (COMMERCIAL BREAK)

VELSHI: There are signs of a real recovery in America. Markets are up, but most importantly, jobs are being added and we know it is all about jobs. But one look at Europe, and you might start to temper your expectations.

Europe's debt crisis has forced the World Bank to lower its forecast for the entire globe's growth in 2012 to just 2.5 percent. That had been -- that forecast had been more than one percentage point higher just in June.

Now, Ken, let's not pick a not-so-random date, say, November of 2012? What do you see Europe's debt crisis doing? Will it get to the point that it could actually kill this recovery that we might be in right now at a critical time for an incumbent president? Could it create an opportunity for his opponent?

ROGOFF: Europe is a mess. Make no doubt about it. But I'd say it's maybe four to one that it won't be decisive, that they'll muddle through for another year with maybe their central bank printing money. That's not a long-term exit strategy, but it might make it through 2012.

VELSHI: Will, of all the economic issues, you say, and you know, you might be right on this. You say Europe is going to end up having the greatest effect on the outcome of the presidential election, but that very few people here will know why. What are you talking about?

CAIN: Right, right. Well, look, man, this euro thing is no bueno. And you talked about the numbers a minute ago with the World Bank, let's put into real world. The World Bank said developed countries' economies should prepare for the worst.

VELSHI: Yes.

CAIN: That's not good. Germany is officially in a recession. It's not just Europe, by the way. Chinese demand is down. All these little star economies like Brazil and Germany that live on exports, how is that going to work when the Chinese economy slows down?

I can't time this, Ali. I can't tell you that this will happen before an election. And the market right now says I'm wrong, by the way. But what I'm telling you is if this bleeds over, and it's not unlikely that it does, into the U.S. economy, if it drags down U.S. demand, that will have an impact on how these consumers -- forget voters, how consumers feel and then eventually voters feel and they'll punish the man in office, either before or after November.

VELSHI: Yes. Alexis, Europe is everybody's biggest or second biggest trading partner. Europeans' -- Europe's leaders have made it clear they don't want a handle -- they don't want a lesson in handling their debt problems from the U.S. The U.S. is very keen to give them some guidance. Tim Geithner has been there several times on what to do.

But if Europe's crisis threatens the improving economy that President Obama needs to run on, the one he's got right now, what does he do? What does President Obama, what does Treasury Secretary Geithner, what do Americans do to say please, please over there get your house in order?

GLICK: I've got to tell you, Timothy Geithner is the key. He is the answer to the problem. He has been the one most aggressively addressing the problem overseas. He's made the most trips over there. You think that coordinated effort a couple of months ago out of central banks didn't start here in the United States? He's got experience with problems in the past in a global economy, OK. He's dealt with sovereign nations failing on their debt.

So, number one, Geithner is the key. Is there much that Obama can do? No. But let me tell you something, Geithner warned the IMF, warned them in Europe, $50 billion isn't enough. He said you've got to have a $500 billion coffer. They didn't listen. Now we're talking about a trillion dollar coffer. TARP did some terrific things in this country. It prevented a collapse.

If they don't pay attention to what happened here in the United States, it's their fault. And frankly, we will see some degree of an impact because they're going to be in a deep recession for years to come. We will see it in our trade.

VELSHI: Ken, you were the chief economist for the International Monetary Fund. You look at what's unfolding right now. Is the -- are -- is the International Monetary Fund, is the European Central Bank doing enough to, you know, head off a catastrophe in Europe?

ROGOFF: Not forever. Definitely not forever. I completely agree with Will on this. Right now really the main thing they're doing is printing money. That works for a while, but eventually it will lead to inflation if they don't do something more. But it is very hard to call the timing. And Europe is going to be in recession. It's not good for us, but we're doing a little better, it will drag us more slower for a long time, but the big question, will they have a layman type event?

VELSHI: Right.

ROGOFF: When Greece defaults, as I think it will this year.

VELSHI: Yes.

ROGOFF: Will it be a Lehman type event? I think it will not be as immediately catastrophic to be decisive in the November 2012 election, although it's certainly a key wild card.

VELSHI: All right. That's a very good point to end on, that Europe has been in what feels like a recession for some time. That going on may not be the end of the world. But if there's a run on a bank, if there's a credit crisis, we know that we are all attached by that string, and that will affect somebody trying to get a loan for a car right here in the United States.

GLICK: Absolutely. VELSHI: Thanks to all of you. What a great, smart discussion. Will Cain for us in South Carolina.

CAIN: You bet.

VELSHI: Alexis Glick, the CEO of GENYOUth Foundation, which you should look up, it's a very interesting organization. And of course, Ken Rogoff, one of the smartest men on the planet. He is professor at Harvard University and the former chief economist of the International Monetary Fund.

Last week we focused on capitalism being on trial in this country and we found out just what needs to be done to fix America's economic system. With more than 15 million Americans unable to find work, we'll break down exactly what employers are looking for to fill the millions of job openings.

And we'll answer the question, is there a mismatch in this country between skills and jobs? The "Big Fix" is next.

(COMMERCIAL BREAK)

VELSHI: Let's talk about jobs. Right now in the United States there are 3.2 million job openings, but many employers, including those on President Obama's job council, continue to tell the president they simply cannot find workers who are qualified to fill some of those positions.

(BEGIN VIDEO CLIP)

SHERYL SANDBERG, CHIEF OPERATING OFFICER, FACEBOOK: Every company I know, my own included, we're desperately trying to hire more people, but it has to be people who have the technical skills to meet the jobs we need, and it gets harder and harder.

(END VIDEO CLIP)

VELSHI: It has to be people who have the technical skills to fill the jobs we need.

Jonas Prising is the Manpower -- is ManpowerGroup's President of the Americas. Manpower surveyed thousands of companies around the world and found that more than half of U.S. employers are having trouble finding people to fill open positions.

Jonas, let's talk about this. Specifically, you found that the hardest jobs to fill last year were skilled trades, sales representatives, engineers, drivers and accounting staff. And Jonas, you have said many of these companies have cited a lack of skills as a reason for the talent shortage.

Now what skills are individuals who are looking for jobs in America lacking that would allow them to fill some of those positions?

JONAS PRISING, PRESIDENT OF THE AMERICAS, MANPOWERGROUP: The skills that employers are looking for are the kinds of skills that require a level of experience, training and also adoption to new technology. So when we talk about manufacturing skills, for instance, the specific positions that employers in manufacturing are finding difficult to find are positions such as machinists, CNC operators, mechanics, specialized welders, so quite specific positions.

They're impacted by two things, technology has improved. The kind of skills that used to be applied to those skills have moved on, so you have to have the new skills required, and then you also have an aging workforce where people with those experiences are retiring from the workforce.

VELSHI: Right. And you've named --

PRISING: Add to that --

VELSHI: You've named a number of professions like that, engineering, welding, accounting, where we constantly talk to people from those fields who say we can -- we can hire pretty much everybody that schools graduate in those areas.

PRISING: That's exactly right. And what's driving that shortage as well at the same time, it should be said that employers are very picky when it comes to choosing the skills. They want the right skills at the right time at the right cost, so there's also a supply and demand issue where employers are not really responding to a surge in demand.

VELSHI: Right.

PRISING: They are being very choosy, when to hire.

VELSHI: Anthony Carnevale is the director of the Georgetown University Center on Education and the Workforce.

Anthony, there are 3.2 million job openings in the country right now. That is not new. In fact Fareed Zakaria on the show last week said there's generally, you know, in the millions of jobs that are just sort of churn in the economy.

Ten years ago there were five million jobs available. In December of 2007, right before the great recession took hold, there were more than four million job openings.

You say the problem is systemic and the education system in this country needs to teach practical, technical skills that are more closely in line with the things that people will go on to do in their day-to-day job. So what does that mean? Does that mean that people shouldn't be sending their kids for a liberal arts education and they should be going to trade schools?

ANTHONY CARNEVALE, DIRECTOR, GEORGETOWN UNIVERSITY CENTER ON EDUCATION AND THE WORKFORCE: It means in general that the education system is in a race with technology change and economic change, and it's losing the race. We used to have an economy that required primarily what we think of as blue-collar skills, and there has been a profound shift essentially since the '80s when it began to accelerate, towards white- collar skills and technical skills, and American -- and American education institutions are having a very hard time keeping up.

VELSHI: Former "New York Times" columnist Bob Herbert is a senior fellow at Demos, a friend of our show.

Bob, there is -- this is an issue. We do need engineers and we do need accountants who are trained in great American universities, but at the same time we need to be having people attending vocational schools and getting skills like we've discussed as welders.

How do we -- how do we deal with establishing who goes to what school for what and how we get everybody the right education for this market?

BOB HERBERT, SENIOR FELLOW, DEMOS: Well, I don't think we do it by pointing to the problems that employers are having, finding specific workers. This is a small segment of the overall employment problem.

And my question would be, you know, if -- if there's a shortage of workers in a given field, then the free market says that you should offer those workers more money. So pay more and presumably you'd get more qualified applicants.

VELSHI: Let's take a quick break and we'll talk about what we do not for the mismatch, not for those people who aren't able to fill the jobs that are already open but what we do to see if there are more jobs that can be available.

All of you, Jonas, Anthony and Bob, stay with us, we'll be right back on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: On the show a week ago we spoke about capitalism on trial. Our panelists offered a number of specific areas that need to be addressed to fix America's economic system.

Mort Zuckerman, the editor of "US News & World Report", said we need to start training people to fill the jobs that are available today.

(BEGIN VIDEO CLIP)

MORT ZUCKERMAN, EDITOR IN CHIEF, U.S. NEWS & WORLD REPORT: There's a whole mismatch in terms of the number of people coming out looking for jobs and the qualifications that people need for jobs, particularly those who are educated, particularly in the world of science and technology. There are shortages of people, there are literally millions of open jobs.

(END VIDEO CLIP)

VELSHI: And there are. ManpowerGroup found that 47 percent of U.S. companies that were having trouble filling specific jobs did complain about a lack of skills within the pool of applicants and many of those are technical or scientific jobs. But here's what else the company said. Fifty-two percent complained that applicants were looking for more pay, which I think has been going on since the beginning of time. Thirty-five percent cited a lack of experience. That's a tricky one in a tough job market because you need a job to get experience.

Bob Herbert, from the -- a senior fellow at Demos and former columnist for "The New York Times."

Bob, you mentioned a few minutes ago that there's a perfect capitalist fix to the skills gap problem. Schools should be -- schools which make money should be educating them properly and companies should be paying them properly. How do we -- how do we deal with that?

HERBERT: Well, what I think is that we have a much bigger problem in this country with regards to employment than most people are recognizing in that our public officials are willing to say. What we really need to do would require a really long period of huge investments. We would need to rebuild America's infrastructure and we would need to fix our education system so that many more Americans are getting four-year degrees and higher.

This would require investments that apparently are not going to be made in this period of austerity that we're in now, but it's that combination of education and rebuilding the infrastructure that provides a platform for creating new industries that create millions of more jobs for the future. We are not doing -- we're not even having a real conversation about that.

VELSHI: All right. So on one level, while our viewers are watching this and hopefully the idea is to spur better political debates so that our elected officials and those running for office can start to give us some specific ideas and plans about how we will better educate people.

For the viewers watching us who can only make a decision about their own families, maybe their own kid going into school, Anthony, what do you advise someone then who worked so hard to get their kid into school, the kid signs up, and at that point it's a free-for-fall, we don't really know why we're getting that BA and that's it's for. What should they -- what kind of universal skills or universal areas of study that will get them employed are useful?

They should do what they love, do what they want to do because we also know in labor economics very clearly that if you don't like what you do, you're not going to be any good at it.

But the other dictum here is that you should know what kind of job opportunities and careers, usually what kinds of occupations a particular major will lead you toward and there are huge differences.

If you major in petroleum engineering, you'll make $120,000 a year. If you get a counseling degree and work in a social service agency, you'll make $30,000 a year and the differences in employment are huge. It isn't just the level of education.

If you decide to become an architect in this economy, you're in trouble. The unemployment rate is 11.3 percent and the long-term projections are that it will stay above 10 because of the collapse in construction and finance.

So you need to ask the people in your program what's happening to the people that graduated last year.

The danger here is that you're looking years ahead and trying to decide what's going to make a big payoff for your college education.

If we went back a few years and you talked about kids coming out of architectural schools, we would have said that's a great field to be in because the housing industry is booming, you need to design these buildings, homes, businesses and that sort of thing. So you have to be really careful --

VELSHI: So what do you do then? You make a good point, but what do you do? For people whose only control over this is them and their kids and what they study or what they retrain into, bringing it down to micro, what decisions can we make? Do we all have to become engineers and accountants and welders, like Jonas is saying?

CARNEVALE: We do know a great deal about the recent past in terms of people's majors and their ability to get jobs and sustain careers, and we know more than most will admit about where the future is.

I will guarantee you that if you get a degree that in some way leads you into health care, whether it starts with biology or radiology that you're going to be employable over the next decade.

The same with computers, business services, the same with education incidentally because of the huge glut of baby boomer retirements. We know more about this than we ever tell young people when they go to college.

VELSHI: Jonas, last word to you on this. Your best advice for folks who are looking to sort of take control and know that they can be employable for 5, 10, 15 or 20 years?

PRISING: I think that the conversation needs to be about being work ready as opposed to being graduate ready. Just as the conversation that we just listened to.

We think that the obvious gaps that we're now seeing and we can really project pretty far into the future should give a very good guide line to those people planning for their future and their careers.

At the same time, as you specialize in something, you are going to be wanting to build a platform of critical thinking and problem-solving ability and those kinds of skills that eventually will also be transferable between different fields.

VELSHI: Thanks to all of you. We'll remember Bob Herbert's point, that while we can all try and solve our own problems, this actually is a problem that needs to be solved at higher levels about what we're doing for our society and how we're preparing them for the workplace of the future.

Thanks to all of you. Jonas Prising is the president of the Americas of the Manpower Group, Bob Herbert is a senior fellow at Demos and Anthony Carnevale is the director of the Georgetown University Center on Education and the Workforce. All right, here's question for you. Do we need Wall Street? Do we need banks? The answer to those questions might just surprise you. It's next on YOUR MONEY.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

VELSHI (voice-over): They were at the heart of the financial meltdown. They took risks with your money. They robo signed your mortgages.

UNIDENTIFIED MALE: We got sold out.

VELSHI: And now they're making money hand over fist.

UNIDENTIFIED MALE: The banks that are too big to fail have now become bigger.

VELSHI: Too big to fail or too deep in the pockets of decision-makers to be punished?

BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: Never again will the American taxpayer be held hostage by a bank that is too big to fail.

(END VIDEO CLIP)

VELSHI: So, do we need the banks or would we be better off without them? Adam Davidson is the co-host of "Planet Money" on NPR. He wrote an article for "The New York Times" magazine called "What Does Wall Street Do For You." Tamara Draut is Vice President of Policy and Programs for Demos and Chrystia Freeland is an editor at Thompson Reuters Digital.

Adam, let me start with you. As popular as it is to criticize Wall Street and the banks, you say that without them, the poor would stay poor and there would be no middle class. Explain yourself.

ADAM DAVIDSON, CO-HOST, NPR'S PLANET MONEY: Well, there's plenty of reasons to be really mad at these particular banks and there's no reason why we need these particular banks or these particular bankers.

But a financial intermediation process, which is basically what banking does at its core, is one of the key reasons why we are no longer living in something like the Middle Ages. I spent a lot of my career in places like Haiti and Iraq and other very poor countries in the world.

And what you learn in countries without a financial intermediation process, without good banks, without good financial companies is there is no way for the extra money sitting around that the rich people have to get to the poor people who might use it to create new businesses, to improve their life, to borrow money to get an education.

So you really don't need mobility at all. So in no way am I trying to say our system is perfect or doesn't need changed, but we have something really special in a modern financial system that very few people in the world today and very few people in the history of the world have had access to.

VELSHI: You know, Pulitzer Prize-winning columnist, Nicholas Kristoff, wrote in the "The New York Times" this week, quote, I've been sympathetic to the "Occupy Wall Street" movement but look, finance is not evil. Banking has contributed immensely to modern civilization by allocating capital to more efficient uses.

Banking laid the groundwork for the industrial revolution and the information revolution. I can feel the tweets being sent right now. I can see the angry e-mails without even reading them. Tamara, what's your sense of this?

UNIDENTIFIED FEMALE: I think that we do definitely need a banking system, but we need a banking system that fulfils the core purpose. I mean think of the banking system as like the plumbing of our society. It directs how money flows through the economy.

The problem is, is when it starts siphoning money out of people's wallets, out of the economy toward really unproductive purposes and I think that's exactly what we saw happen in the lead-up to the financial crisis is banks have really strayed from their core mission in society, which is to help spur economic growth, not just to grow themselves for the sake of growing themselves.

VELSHI: But that's not necessarily an ill that the banks have only been involved in, right? We've become that. We've become a society where things just grow for the sake of it. We want economic growth, we want profit growth and we're not quite sure what societal good comes out of it.

Bonuses are expected to drop for 2011. They should be being paid out about now by 30 percent to 40 percent for many on Wall Street. But if you look at the average bonuses over the past few years, there's this popular perspective.

That while the whole country struggled through this great recession and people lost their homes and their jobs, banks got bailed out. People on Wall Street were raking in six-figure bonuses. Is that fair, first of all, to say that that's true? And is this, if it is true, capitalism run amuck?

CHRYSTIA FREELAND, EDITOR, THOMSON REUTERS DIGITAL: Yes, it is true. I think that Adam and Nicholas are absolutely right, it is essential for a modern market economy. You know, like Adam I've spent time in countries that didn't have advanced banking systems.

For me it was the Soviet Union and then immediately the former Soviet Union. One of the most pressing items on the reform agenda was to create banks. Because imagine trying to buy an apartment or a car if there was no such thing as a bank, pretty devastating.

Having said that, I think people are right to be angry at Wall Street. The reason people are angry and you've talked about this a lot, Ali, is it turned out that the profits were privatized and the losses were socialized.

So it was, you know, a heads, I win, tails, you lose and people are right to complain about that. And the point about banking is, it is a very specific type of private business activity. It is a highly regulated industry and it has to be a highly regulated industry.

Because we cannot allow the financial sector to fail for precisely the reasons that we've been talking about, about how essential it is to the economy as a whole.

And that means, and I think bankers are very loathe to accept this, that they have to accept much more regulation and much more intrusive government than people working in other sectors.

VELSHI: Well, part of the reason, this is one of my first questions here that I think we're going to get to now. We're going to take a quick break, but we'll get to this.

Should they be regulated better? Are they too big to fail and why, why if we all agree with this has the system not been fixed? We agree it needs to be there, why is it still broken? We're going to talk solutions about the banking sector next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: OK, this is a conversation that matters to all of us because we all bank and we all have an opinion about the banks and we have all been affected by the banks.

If you're wealthy and well off and you have good credit, the banks have been fantastic to you. If you're not in those positions or you're jobless or you're an underwater home, you may want to hate the banks.

But how do you fix the banking system going forward? The problem here is that for at least the last 15 years, the concept of regulating financial institutions has been to put people in charge of them who will do their best largely to stand -- to not stand in the way of these companies becoming strong and profitable and big.

Adam, you wrote in "The New York Times" magazine last weekend, one lesson of this crisis is that regulation, no matter how well intended, cannot be trusted to rein in Wall Street. So Chrystia is saying, we need more regulation, you're saying it's not going to work.

DAVIDSON: I think there are regulations that can work, I just think that people overemphasize the idea, we just need more regulation. History is pretty clear on this. There have been major financial crises every few decades, 1907, obviously the 1930s, again after the 1980s.

And what happens is everyone gets very -- you know, the general public becomes very excited and very upset and very interested and Congress responds, sometimes wisely, sometimes not so wisely, and creates a set of regulations, and then things calm down, things get better. The general public just goes about their business, but the banks are concentrating on one thing, which is profit. And so there's this concept of regulatory capture, which basically means that the banks are going to wait us out.

They're going to spend us out, meaning the citizens, and they are going to slowly co-opt the process. That doesn't mean to say we don't need regulation, not to say it should be a wide open --

VELSHI: You're saying it hasn't been effective. I just heard all regulators with one brush a moment ago and I want to just back track on that a little bit, Tamara.

Because Sheila Bahr, who was in charge of shoring up our nation's banks during the financial crisis as the head of Federal Deposit Insurance Corporation I think was a good regulator. I think her operation ran very well.

She wrote this week that if banks are too big to fail, the banks that are too big to fail are broken up, customers would benefit. Customers would benefit. The government would benefit. The banks themselves would benefit.

Do you think this is a part of the solution, that our banks are not just too big to fail, they're just too big?

TAMARA DRAUT, VICE PRESIDENT OF POLICY AND PROGRAMS, DEMOS: Absolutely, I think she's exactly right. And she has been a really effective regulator. I mean listen, Adam is right. The financial system will find a way around regulation.

At the same time, one of the major things that helped this crisis spin out of control was deregulation over the last 15, 20 years of the banking system, and particularly on some key fundamental principles that I think we have to re-enact.

And that is, again, breaking up the banks and separating systems of consumer commercial banking, investment and insurance. Bringing back, you know --

VELSHI: Why is that important? Why is that important? So when I go to a bank and deposit my money, it's not being used in some crazy, risky venture that I wouldn't understand if I studied it for a month?

DRAUT: That's exactly right. That's exactly right. And so that we have these companies that are more manageable, more efficient and more accountable to the regulators and people can get their heads around.

I mean, during you know, the build-up of the housing bubble and all of the assets and the bets upon bets upon bets, the CEOs of these banks had no idea what their companies were producing.

VELSHI: Let me give you an example. The thing that broke us all down, most people in AIG even at the highest levels couldn't explain to you what it was. Chrystia, if we're all on the same side of this thing, and I think most people are. There's a problem, the banking system doesn't need to go away, it needs to be fixed, why can't it get fixed?

Why can't we properly regulate banks as Adam points out? Is it the lobby? Is it that Wall Street is too entrenched in Washington or vice versa? What's the problem?

FREELAND: Well, I think Adam did point very effectively to the fact that it's the case with all special interest lobbying. The banks care about this a lot more than everybody else does and so they are really, you know, focusing on it with laser precision.

It's also really complicated issue. But I do want to push back against an idea that Adam was advancing, although Adam I'm a huge fan of yours. I think you're brilliant, but there's a little bit of fatalism in what you were saying about this notion that crises are inevitable. We can't rely on regulation to save us.

Of course, that's true. I'm hearing that a lot from Wall Street right now, and I don't think that's an accident. I think that is a line that Wall Street is pedalling right now to make us throw up our hands and say no regulatory framework is perfect so don't worry about it.

And I think that that is a crucial mistake. I would draw a parallel with driving and cars. Car accidents are inevitable and people will die in car accidents. That's a tragedy. It doesn't mean that we give up.

You know, we still have seat belts. We have airbags. We have speeding limits and we have to have the same attitude towards banks. Yes, accept that regulation isn't perfect and it's really dangerous to think that it can be, but also try to make it better.

VELSHI: Keep on trying until we succeed at that. All right, good to talk to you all what a great conversation. I guess, we're keeping the banks. Adam, good to see you. Thanks very much --

FREELAND: You will be relieved to hear that, Ali.

VELSHI: If you haven't read Adam's article, go look it up. Adam Davidson is co-host of "Planet Money." Chrystia, of course, writes on this stuff all the time. Chrystia Freeland from Thompson Reuters Digital and Tamara Draut, Vice President of Policy and Programs at Demos.

Chrystia has got to go, but it's too bad because when we come back I'm going to be talking about the oil sands of Canada, which is right about where she's from in Canada. The Obama administration killed the Keystone pipeline project for now. Why that wasn't a good move next in "My XYZ."

(COMMMERCIAL BREAK)

VELSHI: Time now for the XYZ of it. On Wednesday the State Department with the approval of President Barack Obama blocked the expansion of the Keystone pipeline, which currently funnels more than half a million barrels of oil per day from Canada's oil sands for the American Midwest.

Now the expansion would have more than doubled that capacity to 1.3 million barrels a day and extended its reach to the Gulf of Mexico where ships would be able to load Canadian synthetic crude oil, which is a better quality oil than what we drill from the ground for delivery to world markets.

I want to take a moment to explain the oil sands to you because there's a lot of misunderstanding about it. Unlike traditional drilling either on land or in water, in Alberta, the oil is mixed into the earth. This is some oil sand that I picked up on one of my visits up there.

To separate the oil from the sand inside it, it's an energy intensive process. You use hydrogen to heat water, the water basically melts and washes and separates the sand from the thick heavy oil embedded in it.

Once the sand and oil are separated it looks like this. This second vile over here. A thick black oil and the oil has to be further processed into this a synthetic crude oil, a light high quality low sulphur form of crude oil that can be easily refined into things like gasoline, diesel, heating oil.

And as you can see the synthetic oil that's produced from the oil sands is gold in color rather than the black that you normally expect. But the extra step of upgrading that viscous molasses-like oil in the sands of Alberta into usable crude emits three times as much carbon dioxide as simply drilling for and transporting conventional oil from Texas, Venezuela or even Saudi Arabia.

And that process, obviously, is more complicated than drilling a hole in the ground. It uses more energy and traditionally open pit mine. That's me up in the oil sands. It is done in areas that were once covered by forests.

The area that's been clear cut to mine this oil sand is so vast that it can be seen from space. It's dirty. It's environmentally unfriendly, but it is getting better. Today, it takes less energy to mine a much smaller area and the water used and the washed sand is cleaner and safer. Forests are being replanted and the whole operation is becoming bit by bit a little greener.

It's not green, really nor is the mining for coal by the way that produces half of the electricity we use in the United States. Nor are the trucks that we drive to transport our goods to stores and warehouses. The dirty fact is that we use a lot of oil.

If we'd like to go about our lives without harming the planet, we need to change our habits. The recent Detroit Auto Show indicates that to some degree we are becoming better conservationists.

In fact, U.S. demand for oil has dropped a bit over the last 10 years, mostly, because we drive a little less and we choose more fuel efficient cars. But even though the U.S. uses a quarter of all the oil produced in the world, it is still less than 5 percent of the world's population.

The rest of the world as it prospers is using more oil. China will end up using the most and that's why rejecting this pipeline may have been a big mistake. The president accused Republicans in Congress of forcing his hand because they inserted clause in December's tax bill that made him issue a decision by February without a quote, "full assessment of the pipeline's impact."

But the State Department and other agencies have spent three years reviewing this expansion. They all agree the pipeline need to be rerouted to avoid a possible leak over the sensitive aquifer in Nebraska. It would have been rerouted.

There are pipelines all across this country. This was the wrong pipeline to take a stand over and the reason for that is the only place the oil sands gets pipe into right now is the United States. There's no pipeline to the Canadian west coast where that oil could be loaded on to super tankers and shipped to China.

But China and Canada have a plan to build that pipeline and with this deal dead they just might go ahead with it. So for those who felt they didn't want to buy dirty oil rest assured dirty oil will still be mined and refined and every last drop of it will get sold to the highest bidder.

Obviously, politics are at play here. The president hoped to postpone his decision beyond the elections this fall so as not to alienate environmentalists from his political base. But the Republican backlash to President Obama's decision mentions none of that.

They blasted him for destroying tens of thousands of American jobs that the pipeline expansion might have created. I'm not sure it was going anywhere near the 20,000 jobs the pipeline company said it would create to lay the pipe or even 6,000 jobs the State Department estimated. It would have created some jobs, but that's not actually the point.

The point is America just cut off an opportunity to buy lots of oil from a friendly, politically stable neighbor and that's just a bad plan. That's my XYZ.

Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday, 1 p.m. Eastern, Sunday at 3 p.m. Eastern. Make sure to check out my new book with Christine Romans, "How To Speak Money."

It's a step by step guide in understanding the language of money and everything you need to know, head to amazon.com and barnesandnoble.com right now to get your copy. You stay connected to us 24/7 on Twitter my handle is @alivelshi. The show handle is @cnnyourmoney. Have a great weekend.