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YOUR MONEY

Why You're Better Off; Fiscal Cliffhanger; Feeling Good about a Bad Economy; Solving the Jobs Crisis; Rebirth of American Cities

Aired September 29, 2012 - 13:00   ET

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


ALI VELSHI, CNN ANCHOR: There is a question being asked in this campaign. Are you better off today than you were four years ago?

I'm Ali Velshi. This is YOUR MONEY. And the answer is yes.

(BEGIN VIDEOTAPE)

VELSHI (voice-over): Four years ago this week America and the world marched to the edge of the economic abyss.

GEORGE W. BUSH, FORMER U.S. PRESIDENT: Major sectors of America's financial system are at risk of shutting down.

VELSHI: The financial crisis actually kicked up two weeks earlier with the collapse of Lehman Brothers.

BUSH: We got a big problem.

VELSHI: But by four years ago this week, it had morphed into a global freeze of credit that threatened the world with economic depression.

(On camera): This is credit at the highest level between institution.

(Voice-over): Congress was presented with one choice and one choice only.

BUSH: It's important to get credit flowing again.

VELSHI: Bail out the banks. The banks that got us into this mess in the first place.

(On camera): Should there even be a bailout?

UNIDENTIFIED FEMALE: No Bush bailout.

VELSHI (voice-over): Americans protests and lawmakers balked.

REP. JOHN BOEHNER (R), OHIO: Americans are angry and so are my colleagues.

VELSHI: On September 29th the bill to save the economy went down to defeat in the House of Representatives.

REP. NANCY PELOSI (D), CALIFORNIA: The legislation has failed --

UNIDENTIFIED MALE: I'm very disappointed in today's vote.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: To the Democrats and Republicans who oppose this plan yesterday, I say, step up to the plate.

VELSHI: Investors panicked, the Dow dropped 777 points. The biggest single day point loss to date.

(On camera): This is what brought us to the brink of collapse.

OPRAH WINFREY, TV HOST: Wow. All because Annie went and got a house she couldn't afford?

VELSHI: I don't know whose fault that was.

WINFREY: There's enough blame to go around.

VELSHI (voice-over): $1.2 trillion in market value wiped out in one day.

(On camera): It's really psychological at this point.

(Voice-over): Congress quickly reconvened and four days later on October 3rd it passed the $700 billion Troubled Asset Relief Program.

(On camera): Congress has agreed to a broad deal that authorizes the treasury secretary to start releasing money to free up the credit systems.

(Voice-over): That may have been the last time persons witnessed bipartisan compromise on something that really mattered in Washington.

Four years later and on the eve of another election, voters are being asked -- are you better off than you were then? The answer is yes, because it was that bad. But how much better could it have been if Washington had in the last four years put intense partisanship aside to work for the good of the American people?

(END VIDEOTAPE)

VELSHI: Some people in Washington, including these two who were at the center of the storm, have had your back. Sheila Bair's job was to deal with failed banks. Neil Barofsky's job was to be the watchdog over TARP. Neil has written a book called "Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street."

Neil, you criticized TARP, we talked about that. But for people to say that things are as bad today as they were, that then is just flat- out wrong.

NEIL BAROFSKY, FORMER SPECIAL INSPECTOR GENERAL, TARP: Well, Ali, I would say it kind of depends on your perspective. I mean if you're a Wall Street executive who is looking at losing your job and losing your bonuses, certainly post-TARP, when Wall Street bonuses returned to record levels in 2010, you're a lot better off than you were in 2008. If you're one of the millions of people who lost their homes perhaps unnecessarily because of bad decisions by the government in running foreclosure relief programs, or if you're someone who is now enjoying their 99th week of unemployment, you may differ with the fact that you're necessarily better off.

Certainly overall, we have a much more stable economy and things are hopefully on the upswing, but there's a lot of people who are unnecessarily left behind.

VELSHI: Sheila, your new book is called "Pulled By the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself." The titles of your two books have a similar theme to them.

Both of you think that Congress and Washington haven't done enough in the -- in the time since four years ago to bridge this gap between Wall Street and main --

SHEILA BAIR, FORMER CHAIRMAN, FDIC: Right.

VELSHI: But what do we have to do so there's not this fight between Wall Street and main street?

BAIR: Well, I think Washington needs to be more independent of Wall Street. I think there's a tendency, right, with regulations and policy makers and elected officials to view the world with the prism of what's very good for the largest financial institutions and their interest in the broader country's interests are not necessarily the same thing.

But you even hear that now. So the bailouts were successful because they made money. Well, yes, they were successful in making sure all the banks were profitable, paying big bonuses again, got a little bit of that back, and so that's the barometer of success.

I don't agree with that. I think you look at what's going on with the economy. It helped the banks but it's not -- it's far from being a healthy, broader economy.

VELSHI: Are we safer -- is our financial system safer than it was four years ago?

(CROSSTALK)

BAIR: The financial system is safer. Well, you're starting with a very low bar.

VELSHI: Yes, sure.

BAIR: Things were definitely spinning out of control. The lack of information was profound. We did throw a lot of money at it. Then I can feel more comfortable with that because we just didn't really know what we were dealing with. But in 2009 the system was stable, we could have done our -- certainly should have done a lot more to get troubled mortgages restructured. That was the original idea.

VELSHI: Yes.

BAIR: And it's to clean balance sheets sub-journally. You know, if a bank keeps hold their toxic assets on their balance sheets, they spend time risking those assets. They don't -- they're not in a position to take risks and make new ones to support the economy. I think that was also a fundamental failure of the bailouts (INAUDIBLE).

VELSHI: Jessica Yellin is CNN's chief White House correspondent.

Jessica, four years ago Congress voted TARP down before they passed it. They nearly sunk the economy because angry voters back then called their congressmen and said don't feed the fat cats anything more.

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: Right.

VELSHI: Then Congress behaved similarly during the debt ceiling debate and that cost America its credit rating. And today, while Congress should be out there protecting America from the economic storm that's blowing in from Europe, it feels to me like they're doing the same thing.

YELLIN: Well, they're not -- yes, they're not taking action on (INAUDIBLE) on entitlement reform, on tax reform, on all these issues that are going to also come up when sequestration kicks in at the end of the year and when they have to deal with the Bush tax cuts beginning of next year.

But this is really an act of irresponsibility that's shared by both Congress and, frankly, the White House, because when they negotiated the debt deal last year and set up this sequestration, this, you know, sort of economic, nuclear showdown.

VELSHI: Yes.

YELLIN: They knew it had to be negotiated in an -- in an election year, if it didn't get worked out last fall and everybody in Washington knows these kinds of decisions don't get made in an election year. So everybody kicked the can into an election year when they knew it wouldn't get done and so now we have the prospect of dealing with it the end of this year, probably next year.

VELSHI: I'm telling you about this economic storm that had hit us, growth in the United States is slow, we're selling fewer manufactured goods. But guess what, Americans think the future is so bright they've got to wear shades.

With the threat of going over the fiscal cliff looming, is all this confidence misplaced? We're going to talk about this, next.

(COMMERCIAL BREAK)

VELSHI: I am not one to bet against the American consumer, but something weird is afoot in this economy. Let's start with housing. Forget the silver lining, it's the gold lining around the economic storm clouds. A new report put out by S&P Case-Shiller showed that home prices went up 1.6 percent in July compared to the month before. That is a third month in a row that prices have gone up and they were up in all 20 major markets in the United States. A survey of Consumer Confidence shows a nine-point increase in September and our own CNN/ORC polling shows that two-thirds of Americans think that economic conditions are going to be good a year from now.

Clearly, no one is all that concerned about the economic storm I've been telling you about. Congress has done nothing to head off the fiscal cliff coming in January. Many of you tweet me saying I'm fear- mongering, and that they'll get to it after the election.

But here's what they're gambling with. $7 trillion in tax hikes and spending cuts that are mandated to take effect at the beginning of the year. At least starting at the beginning of the year. The White House -- estimates that a typical middle class family of four would see their tax bill increase by $2,200 in 2013.

Jessica, President Obama could win. Congress could come back with the same composition that it has now. What does the president do, as I ask, between Election Day and the end of the year to protect Americans from the fiscal cliff?

YELLIN: Well, there's -- obviously, there's two scenarios. But I -- one where he will not extend the Bush tax cuts for the wealthiest Americans. So the fiscal cliff is going to be folded in in some way into renegotiating the tax cuts and how they get extended. And I think he'll say it's a no go. I'm not going to extend the Bush tax cuts. So either we can negotiate it now in these few remaining weeks before Christmas or we can face a government shut down.

And I think that there will be a little bit of chicken game playing at the end of the year. And what most people in Washington think will likely happen is they'll negotiate some way to say, here's a broad framework for what both sides want.

VELSHI: Right.

YELLIN: Let's work it out next year.

VELSHI: Yes.

YELLIN: We'll see.

VELSHI: Sheila Bair, I kind of think Americans are a little delusional about how excited they are about the economic future but I'm glad they are. I'm glad that everybody is feeling a little bit better, we all are.

What has to happen for the financial system to support this? What has to happen so that we're not, a year from now, talking about the 99 percent, the 1 percent? We're not talking about the big, evil, greedy banks and that there are some sense that banks are actually helping America move forward? BAIR: Well, ironically, I think that the zero interest rate policies that it's pursuing it does dampen the incentives to lend. For traditional banks, community banks, regional banks that make their money by lending money, the return that they can get by lending into a still uncertain economy is quite low.

The larger institutions, it's not such a bad deal. They can take their cheap money, they can reinvest it overseas. They had this big trading books. They don't have to lend to make money. So I don't think the zero interest rate policies, I know they're well intended and are designed to increase credit available for, like, years, if they're doing just the opposite.

Also Congress needs to get its act together with the -- with the president and this administration. There needs to be certainly with the real economy. The nonfinancial sector. What's the game plan on taxes, on entitlement spending? How -- it needs -- it can be long- term. It doesn't have to be a sudden shock. How are we going to get our fiscal house in order?

They just -- they have no -- deal with the tax cuts, with the entitlement programs and the burden areas are going to be and those are really the tough decisions that elected officials need to make that they have not yet made yet and are just seem unwilling to make.

VELSHI: Neil, it seems obvious to us as we look at Europe, all these countries that need bailouts, and all of the conditions that are imposed. And the battle is about the fact that I want the money with fewer conditions and the lenders say, no, no, you can't have the money with fewer conditions.

That wasn't obvious to us when TARP happened. Right? There was a sense of, we've got to get this money out here right now, don't get -- don't get bogged down by conditions.

What -- should that -- is there something that should change or is that done?

BAROFSKY: No, I mean, absolutely. Remember, when they're bailing out the countries in Europe, they're really bailing out the creditors of those countries, which is really the giant too big to fail banks of Europe. And look, pushing money out without conditions means that you -- all you do is save a broken status quo which is what we did in this country. We saved the system that brought us to the brink of a global meltdown and, frankly, we'll do so again if there's not more meaningful change to the structure.

VELSHI: So short of the conditions, because the conditions -- the popular conditions at the time were salary restrictions and bonus restrictions, but that's not what you're talking about. The conditions were the types of conditions that would have made the banking system safer.

So what is missing? What haven't we done?

BAROFSKY: Well, we still have these giant mega banks that are now 20, 25 percent bigger than they were before the financial crisis, that still present a lot of the same dangers. When you see things like JPMorgan, Jamie Dimon and his wealth, and you see the parade of banking scandals that continue, this is -- this is part of the problem of having banks that are not only too big to fail, they're too big to manage, they're too big to jail.

And we have to do something about the structure of these financial institution, whether it's within the confines of Dodd-Frank, as Sheila advocates, were through a congressional sledgehammer and smashing them up into little pieces, which is what I would advocate.

VELSHI: And Sheila, you -- one of the things that worked at the FDIC is when you went in to take care of a bank usually on a Friday evening, you had a whole system. You know exactly how it was going to unfold. You've advocated that sort of system.

BAIR: Right.

VELSHI: To what degree does that sort of system now exist for the banks that, as Neil refers to, are too big to fail?

BAIR: Right. Well, I think the FDIC has come forward with a good blueprint for how they would decrease all the imposing losses on shareholders and creditors, and protecting taxpayers from taking any exposure. I think they need more support from both the Treasury Department and the Fed.

I would like to hear the presidential candidates talk more about the doctrine too big to fail. It needs to be over. Every level of government needs to make clear, there are no more bailouts. You get in trouble then you're taking losses, your counterparties are taking losses, your bond (INAUDIBLE) are taking losses. I don't hear that a lot in the presidential campaign and I wish we would hear more of it.

VELSHI: Yes. It's --

YELLIN: Ali?

VELSHI: Yes, Jessica.

YELLIN: You know, I think this is a fabulous and fascinating conversation and I wish this were something that anybody in Washington talk about. This is not something that is on a front burner for people who are in leadership and Congress or frankly in the White House. I mean, the White House the most they'll push out are these executive actions to try to alter some elements of helping some homeowners, but I do not hear any push in Congress by leadership to do any of this.

VELSHI: Well, as you have pointed out to us many times, there are conversations that should be taking place in the -- in the election generally that aren't taking place. So we hope to have them here. That's what we got you for, Jessica.

Thanks very much. Jessica Yellin joining us from Washington.

Sheila Bair and Neil Barofsky, pleasure to see you both.

Up next, regardless of what happens in Washington it may not be enough to fend off that economic storm that's rolling in from Europe. Can Europe's problems slow America down? Richard Quest joins me for a debate you don't want to miss after we pay the bills.

(COMMERCIAL BREAK)

VELSHI: We are getting a fuzzy picture of a U.S. economy that cannot get its footing. Consumers are feeling more upbeat and an improvement in housing probably has a lot to do with that.

We just talked about the threat of the fiscal cliff, the U.S. centered storm, but we cannot ignore the headwinds coming from Europe.

Joining me now to debate this topic is Richard Quest in London, host of "QUEST MEANS BUSINESS" on CNN International.

Richard, today's Q and A question is, will Europe derail a U.S. recovery? I'll go first this time. Give me 60 seconds on the clock starting right now.

Richard, the answer is categorically, absolutely yes. The storm hanging over Europe just won't go away and each day that it stays there is another day that Europeans who have been among the biggest and best consumers of U.S. produced goods and services are buying fewer and fewer of them.

Despite two years of bad governance and poor economic decision making in Europe, Americans are somehow weirdly feeling better about their own economy, Richard, evidenced by this week's consumer spending and housing numbers, but cheap money and low home prices are driving the American sugar high. In the end, the austerity measures in Europe are crushing. It's already pulverized economies into smithereens.

More than half of your country is in the Eurozone or in recession. The Eurozone has an unemployment rate of 11.3 percent, broke customers, Richard, are bad for business. Four Americans have to keep their one eye on Washington -and one on Europe, if there's any hope of getting out of these economic doldrums. Don't make your problems our problems, Richard.

RICHARD QUEST: Read my lips and read the question. Will Europe derail the U.S. economy or recovery? Possibly, perhaps, but not inevitably. Of course, Europe has problems. No question about it. The Eurozone is in recession and the ECB is about to start the printing presses.

But the U.S. economic miracle, the recovery is by no means as strong as you would have us suggest. Read last week's edition of "The Economist" to see just exactly what is happening. Manufacturing isn't as strong as people suspect. There are worries about Chinese -- the Chinese economy and the China's relationship and, of course, there are serious concerns about the fiscal cliff.

So, Ali Velshi, by all means, let Europeans take their fair share of the blame, but it's nonsensical for you to believe that all the blame is on this side of the Atlantic.

VELSHI: Well, you've evolved a bit because at least you didn't start by saying that Americans started this four years ago. So we're getting somewhere.

Richard, a pleasure, as always.

QUEST: As always.

VELSHI: Have a good one.

All right. Coming up next, I'm going to congratulate you for something you've done over the past few weeks. It wasn't easy, it may not even pay off in the long run, but it's 100 percent American.

(COMMERCIAL BREAK)

VELSHI: I've been warning you for months there's an economic storm coming our way from Europe and you need to take cover. I've given you reasons why. I pointed my finger at politicians who aren't doing enough to shelter you. I've argued with economists, I'd even blamed you for your part in this.

But after all of that, I've got to give you some props. All you see is sunshine and blue skies ahead. Despite those threatening thunderclouds out of Europe, the inconsistent monthly jobs report and the ongoing scorched earth politics in Washington, apparently, you are feeling pretty good.

Consumer confidence jumped in September, take a look at that, by nine points. Optimism about the jobs market drove that increase, despite the fact that we only added 96,000 jobs last month.

Let's see what we do when we get the jobs numbers on Friday. Not so bad, 96,000 jobs. Never mind, this week's forecast for higher inflation, that's not bothering you or the puny increase that we saw in your wages when they were measured on Friday. In fact, you're feeling so good, you're buying homes, again.

Two different reports on the housing market showed big price jumps this week and even though sales of new homes fell slightly from the month before, analysts are saying that's because home builders couldn't keep up with the demand.

Finally, economic growth. GDP. Pathetic. The U.S. grew at a poultry 1.3 percent annual rate during the second quarter of this year. The second three months of this year. That is lower than the last measure we had for the same period.

You're not worried, the stock market even went up after that. So while you're not listening to my economic storm warning, you are doing something that I command. You are making the economy the most important issue in this election.

We all got side-tracked with other issues, but the economy actually should be number one and where the votes really matter, it seems, you're favoring President Barack Obama.

I want to bring in Stephen Moore. He's an editorial writer for "Wall Street Journal" and a good friend of the show. Christine Romans also joins us. She is the host of "YOUR BOTTOM LINE" right here on CNN.

I want to show you a poll of likely voters. In Ohio, Florida and Pennsylvania, 51 percent of respondents say President Obama would do a better job on the economy. No Republican, by the way, has won the White House without winning Ohio. Florida and Pennsylvania are also crucial states.

Stephen, despite the trouble in the economy right now, is this weird opening, this weird optimism the end of Romney's chance to win?

STEPHEN MOORE, EDITORIAL WRITER, WALL STREET JOURNAL: Yes. I think that this upsurge in consumer confidence is hurting Mitt Romney, no question about that, Ali. Interestingly, I -- looked at the Gallup data on consumer confidence and they came to a very interesting conclusion.

They found that the big surge in consumer confidence.

VELSHI: Yes.

MOORE: On the economy was Democrats. That Democrats have had a huge surge where Republicans have actually had a reduction in their confidence. And what they found, by the way, is normally an increase in consumer confidence leads to the incumbent president doing better in the polls. They found in this case, it was the opposite. The increase in the numbers for Obama and the polls has actually made Democrats more optimistic about the economy.

VELSHI: Interesting. So the idea of who might win the election is actually affecting the question.

MOORE: It appears so. It really does. Now, look, I'm actually kind of optimistic. I like to look at this glass half full. You know, you are right that there are some signs of an economic cloud ahead, but, you know, there are some pretty positive signs, too. You've got these trillion-dollars of capital on the sidelines. You've got this low interest rates that I think can help grow. And you mentioned housing.

You now, Ali, we haven't built virtually any new housing in five years in this country.

VELSHI: Yes.

MOORE: You have to think that housing is going to start to really pick up.

VELSHI: Stephen Moore, have you become a Democrat?

(LAUGHTER)

MOORE: No. I actually think that, obviously, if the economy -- I mean, I think, look, if Mitt Romney was to pull this out, I think the economy is really going to do well next year.

VELSHI: Well, for three squares like us, the GDP actually matters and this reading we got on GDP this week surprised some of us. Mitt Romney hit President Obama this week about the GDP number. Listen.

(BEGIN VIDEO CLIP)

MITT ROMNEY (R), PRESIDENTIAL NOMINEE: Look at the numbers that just came out in the growth of our economy, 1.3 percent versus Russia at 4 percent? China at 7 to 8 percent? We're at 1.3 percent. This is -- this is unacceptable. It is not working.

(END VIDEO CLIP)

VELSHI: Christine, Mitt Romney has a point. That GDP number shows a very weak economy. Americans are feeling better about the economy despite the fact that we have hard numbers that show that the economy is not doing well. What's going on?

CHRISTINE ROMANS, HOST, CNN'S YOUR BOTTOM LINE: OK. So the consumer confidence is taken from what? The third quarter, right? That was the second quarter. We know in the second quarter we had the drought and that drought was something that depressed economic activity and we also know that drought was temporary. And it's going to be overcome.

So the question is, are people feeling a little bit better now as we get closer to the election because the economy isn't --

VELSHI: So the -- you're saying it's an anomaly.

ROMANS: I'm saying it's a rearview -- I think it's not -- it's rearview mirror indicator.

VELSHI: Right.

ROMANS: And now people are looking forward. And you look at the polls over and over again and people are saying, majority of the people say it feels bad now, but I think it's going to get better next year. And optimism is something that counts in the economy and you're starting to get a little optimism.

And one reason I thank you guys is because this was an emergency for four years.

VELSHI: Right.

ROMANS: And now bad things about the economy have become chronic, not emergency anymore. People in a weird way are getting used to the fact --

VELSHI: Yes.

ROMANS: -- they've got to lower their expectations. I keep saying that it's been four years, exactly four years since this thing started.

VELSHI: Yes.

ROMANS: We've all gotten an undergraduate degree in crisis now and we're -- we're starting all over again.

VELSHI: Right. Right.

ROMANS: We've got the degree under our belt, now we're trying to figure out what to do the next -- for the next four years.

(CROSSTALK)

MOORE: You know, Christine, let me say something about that.

VELSHI: Yes.

MOORE: Because it is an important point, and I worry about this actually that we're kind of declining expectations. That's not America. You know, I want you guys and your viewers to read the editorial we wrote in the "Wall Street Journal" on Friday called "As Good As It Gets." And one of the things we pointed out, an historical note, is that when John F. Kennedy ran for president in 1960 against Nixon, he was -- his theme of that campaign is, we can do better.

And he was saying basically, look, the economic growth rate is not high enough, we can have more employment in this country.

ROMANS: Now he's really a Democrat.

(CROSSTALK)

MOORE: The economic growth was higher than it is today. So what I'm saying is -- and by the way, Ali, I have not become a Democrat. What I'm saying is that I think Mitt Romney really needs to reach out to Americans' aspirations --

VELSHI: Yes.

MOORE: -- and say, look, this economy is not doing nearly as well as we want.

ROMANS: But housing is getting better, right? Stephen, how much do you think housing count on this? Because if your house price is sinking --

VELSHI: It's big.

ROMANS: -- and you can -- if you're part of the economy, you've got a job and you've got a little money in the bank, you're moving forward again. You're refinancing. You've got more --

VELSHI: Or at least you feel like you're moving forward.

ROMANS: Right. I mean how important is the housing component of this to consumer confidence?

MOORE: Well, I think it's very important because one of the reasons Americans weren't spending over the last two or three years, as you guys know, is that people's wealth was falling because the value of their home, which is still, for most Americans, their primary asset was falling in value. So if we can see an increase in home values and we can see more home starts, I do think that gives a big bump up in the economy.

As I've said many times on the show, the one thing I am most worried about is that tax increase happening in 2013.

ROMANS: Yes.

MOORE: Because I do think that could shove us over the cliff towards a potential double-dip or recession.

ROMANS: That would be the biggest American tax increase in history, I think.

VELSHI: Yes.

ROMANS: I mean it's going to be like $2,000 to $4,000 per family.

VELSHI: Stephen, the Labor Department went back this week and crunched all the numbers.

MOORE: Yes.

VELSHI: And revised its data to show that President Obama now has a net gain of 125,000 jobs since he took office. You can see there, 4.3 million jobs lost at the beginning of his watch, 4.4 million gained, roughly net gain is 125,000.

MOORE: Yes.

VELSHI: Bottom line, Obama regains every last job lost in his watch, Republicans lose a major talking point, which they sort of have been giving up on anyway recently.

So, Stephen, man up, man up, do it now, on the record for my audience, repeat after me. President Barack Obama is the job creator-in-chief. Go ahead, say it. It's easy.

MOORE: Well, I'm not going to say that.

VELSHI: It's easy.

MOORE: Because I still think this has been a miserable performance on jobs. We should be creating two to three times more jobs than we are per month. OK, I'll give you the fact that they revised upward those economic numbers, but they revised downward the GDP growth rate number and even more importantly, I don't know if you all saw this, the Census Bureau numbers came out for the increase in incomes in August and it found another $500 decline in family incomes over -- that just that month.

VELSHI: Right. MOORE: So that means under Barack Obama -- this is a good Republican talking point -- that the average American household has lost $4500 in income in the last 3 1/2 years.

VELSHI: Yes. And that's a key point. The jobs replaced are not the same ones that were lost.

MOORE: Yes.

VELSHI: You saved yourself from a lot of tweets.

(LAUGHTER)

(CROSSTALK)

VELSHI: Who are going to say, what happened to Stephen Moore?

MOORE: Because I am a Republican. I hate to say it, I'm not a Democrat.

ROMANS: Quoting Kennedy even.

VELSHI: You are back. You're a Republican.

All right, Stephen Moore, always a pleasure to see you. Christine, good to see you.

Coming up, listen to this.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Let's have a big hand for the cutest vivacious Jennifer Granholm.

(END VIDEO CLIP)

VELSHI: In 1978 Jennifer Granholm was looking for love on the "Dating Game." Today her personal might read something like this. Former governor of Michigan seeks partner to help implement job creation competition, enjoys hosting -- hosting television show and speaking at national political conventions.

When we come back, I'll ask Jennifer Granholm about her idea for a "Race to the Top" style job creation plan. That's next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: One of the most effective shelters we can build to protect us from the economic storm is infrastructure. The jobs created won't just help us get through this storm, they will produce projects that will boost U.S. prosperity for decades to come. And U.S. competitiveness.

Want to bring in former Michigan governor, Jennifer Granholm. She is the host of the "War Room" on Current TV. She's the author of "A Governor's Story: The Fight for Jobs and America's Economic Future." Governor Granholm wants to do for jobs what the "Race to the Top" did for education, or was trying to do for education. Encourage investment at the state level.

Her plan calls for launching a competition to fill a critical national need like infrastructure projects. The plan would incentivize the most effective public-private partnerships involving businesses, universities, foundations. Funding would come from money the U.S. currently spends on economic development.

Governor, welcome to the show, thank you for being with us.

JENNIFER GRANHOLM (D), FORMER MICHIGAN GOVERNOR: You bet. Thanks for having me on, Ali.

VELSHI: The plan sounds great, let's talk details. How do you ensure that we undertake projects using private and public money that do create jobs and fix problems, as opposed to the accusation that we get from a lot of conservatives that say these things are just pork.

GRANHOLM: Well, first of all, in states, it's happening all the time anyway. Every state almost has an economic development agency that has identified that state's strengths, weaknesses, opportunities and threats. A swat analysis, if you will. And they've decided to focus on areas of strength inside of that state's geographic borders. So what I'm suggesting is to put that kind of effort on steroids knowing that our economic competitors are not state to state, but, of course, state to country.

What are other countries doing? They're luring other -- they're luring our businesses --

VELSHI: Right.

GRANHOLM: -- because they're being aggressive. So I want to see that happen. Now the question is how do you make sure that it's effective?

VELSHI: Yes.

GRANHOLM: You want to make sure that the government's dollar is the last dollar in or that if it's a tax incentive, which is really a but for kind of incentive, you're not going to be paying out money directly, it's money that would be foregone if there is economic development inside the state.

So the bottom line is it can be done. It's being done on state level right now, but if the federal government came in as a partner on this --

VELSHI: Yes.

GRANHOLM: -- then it would really enhance our ability to attract and create economic clusters inside the states.

VELSHI: And I -- you know, I've advocated that on this -- on this show and the idea of a -- of an infrastructure bank, but you know the criticism is pretty consistent from people who say, why is the government involved? Your plan is to incentivize public-private partnerships, a lot of people say that these projects don't create value on the taxpayer side, on the government side.

One example that's gotten a lot of attention is in Chicago in 2008, a partnership paid the city $1.15 billion for 75 years worth of parking meter revenues and since then parking rates have gone up, and the partnership is expected to turn a huge profit. The group bills the city every time a parking space is taken out of service. And Rahm Emanuel is pushing back, saying he's not paying the penalties.

I know it's just one example, but how do you answer the critics who can find flaw in every one of these public-private partnerships?

GRANHOLM: Well, I mean, certainly you have to craft it in a way that provides value for the citizens and jobs is one way of looking at that. But you don't want to cause the citizens to have to pay huge amount of other dollars in fees, in additional parking and taxation. That's why they've got to be crafted in a smart way and it's not always just an infrastructure project.

It might be some kind of -- not traditional infrastructure, you might decide that as a nation we want to really invest in the grid, for example.

VELSHI: Yes.

GRANHOLM: And so how do you make that happen? Well, partnering with the private sector, everybody has a role. And if you don't have the government as a player to do the things that government can do well, then you are, basically, forfeiting the race to other countries that are very aggressively partnering.

So if you have a cluster that has both the university as a partner, as well as foundations as a partner of the government and certainly the private sector leading the way, why wouldn't you do that if it means jobs for your state?

VELSHI: You know, 4 1/2 years ago, 5 years ago America got into a recession that you in Michigan were very familiar with. You have seen cities --

(CROSSTALK)

GRANHOLM: We're at the front of it.

VELSHI: So you want to invest in people, you call it soft infrastructure but it's -- you know, it's human resources, it's people. You want to build a workforce that is competitive internationally and one of the things you write is that we should learn from Germany and subsidize employment rather than unemployment.

What is it about the German model that you're interested in?

GRANHOLM: Yes. The German model is called (INAUDIBLE), and in tough economic times and when things are slow, especially in this manufacturing sector, instead of seeing full layoffs, what they do is the employees take a part-time position with that same company, but their salary is supplemented by the government and that way you don't have the private sector laying people off, paying more money to having less employees, they want to keep these employees, they're just in a down cycle.

So they part-time employ them. That's where you don't have the government supporting people who are unemployed. You have the government helping to finance the employment of people. And I would say one other thing, too, that Germany has done really well which is to really focus on training young people for technical skills. And I think -- I mean, in Michigan, we did something called "No Worker Left Behind" where we deployed community colleges in partnership with the private sector and the skills that they need so that when somebody is done with being on unemployment they come out and they have a job in an area where there's a skills gap that's been filled by their training.

VELSHI: So this would -- this would take the decision from being firing away from companies, either on and hired or off and fired, that you're giving -- you're giving companies leeway in the middle to say, we can keep these employees on if you give them a little extra. It's an interesting idea.

GRANHOLM: Right.

VELSHI: But let's talk about a different one. Multi-national corporations have about $1.7 trillion in offshore holdings and you want to do something interesting. You want to -- you're suggesting lowering the corporate tax rate on a one-time basis to allow companies to repay, re-create that money back to the United States and then use the tax revenue from there to fund this infrastructure bank.

So we're coming full circle here. Funding the bank is half the battle and I think that's an idea that can gain a lot of steam. How do you make sure you're finding the right projects? What do you use as a criteria to fund projects that are funded by an infrastructure bank?

GRANHOLM: Well, first of all, I don't think you have Congress decide projects on a pork barrel, piece by piece basis. I think you have Congress set he parameters, and there are some great suggestions out there about how an infrastructure bank could be constructed. But I do think that part of that money that's repatriated could go to investing and maintenance of existing traditional infrastructure and part of it investing in the future.

The future type of infrastructure like grid infrastructure, like clean energy infrastructure, or even human infrastructure. But the bottom line is, the bottom line is, we have to get the financing to do that and you've got all of this money off shore. Why not provide a one- time incentive for it to be brought back, but not just to go back into the company's coffers, not just to go back in traditional tax, you know, without seeing a benefit. Direct it specifically towards an infrastructure bank that could be crafted in a way that creates jobs and is future looking.

VELSHI: Jennifer Granholm, pleasure talking to you. Thanks very much for joining us.

GRANHOLM: All right, Ali. Thanks.

VELSHI: And by the way, did that work out? That whole "Dating Game" thing --

GRANHOLM: Stop. I cannot believe you started with that. I was -- I was doing so well and you completely destroyed my credibility.

VELSHI: Not at all.

GRANHOLM: All right. Just to say, I was 19 years old and let this be a warning to all you young people out there, there is stuff that lasts on video for a long time.

(LAUGHTER)

GRANHOLM: That was a bad hair day.

VELSHI: Right. When we were -- when we were 19, we didn't think that happened and now you know it's all on YouTube. Good to see you.

(LAUGHTER)

GRANHOLM: Good to see you, too.

VELSHI: Governor Jennifer Granholm is the host of "The War Room" on Current TV, former governor of Michigan, and the author of "A Governor's Story: The Fight For Jobs and America's Economic Future."

Coming up, America's cities fuel the U.S. economy, but their infrastructure isn't keeping up with the population. My next guest says we're in for a building boom larger than anything we've ever seen before. I'll tell you about it next on YOUR MONEY.

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VELSHI: American cities are coming back but their infrastructure simply isn't keeping up. Large cities produce 83 percent of total economic output in the United States. The 30 largest cities account for half of all U.S. GDP. Eight-one percent of Americans live in urban areas and the population of cities is growing.

The urban population increased by 12 percent between 2000 and 2010. Compared with an overall rise of less than 10 percent.

The five fastest growing metro areas are Chenoweth, Washington, Austin, Texas, Hinesville, Georgia, McAllen, Texas, and Raleigh, North Carolina.

I want to bring in Richard Florida. He's a professor at the University of Toronto and the author of "The Rise of the Creative Class Revisited."

Richard, you say cities have become more livable but then not all cities are booming. What do the successful cities do right? RICHARD FLORIDA, PROFESSOR, UNIVERSITY OF TORONTO: Well, I think there's a few things that successful cities do right. The most important thing is that they invest in their human capital. They invest in their talented people. They have great high schools and particularly colleges and universities, but also the best cities are making themselves attractive for highly skilled, ambitious, and entrepreneurial people. They have brought crime rates down low. Of course they've cleaned themselves up, they've cleaned up their pollution and their garbage and their waterfronts, and they made themselves more livable, just as you said, Ali.

VELSHI: And I just came back from China and I was marveling at all the infrastructure growth going on there. We've talked on the show about how Washington is dysfunctional, but even state governments, you know, which are strapped for cash, are pushing back on infrastructure projects which should over time return the cash to them, but we just don't seem to think that way effectively in America.

So where do you get the impetus for large scale infrastructure development in America, things like transit, things like -- you know, you've talked about building more transit and then building highways. Where does this come from? Where should it -- where should it come from and where does it come from?

FLORIDA: Well, I think in America we got bogged down in an inappropriate debate over economic policy. Do we loosen monetary policy? Do we stimulate? Do we -- do industrial policy in favor of one sector over another? Let's reframe that debate. Let's build great cities. Let's rebuild our transportation systems. Let's rebuild our crumbling airports. Let's rebuild our schools. Let's build great communities for every American.

You know, the mayors get this.

VELSHI: Yes.

FLORIDA: The local leaders get this. And it's time for Washington -- and of course this is what China, as you said, is doing. It is building cities at an incredible rate, upgrading transportation, upgrading and improving fast rail. And I think America has the ability to do this. We've just got to get with the program.

VELSHI: But you say the mayors get it. That's the problem. That it's -- the money often doesn't come from the city. It needs to come from the state or the federal government or the private sector. And that seems to be the mismatch. I think every mayor in the country has some plan for how their city can do better.

You're in Toronto, one of my favorite cities, needs a better subway system. Needs a better -- you know, you can't get to the airport by the subway. I mean everybody has got something they want to do, but the infrastructure is not keeping up with population growth and that's hurting commuters, for instance.

A recent report from IHS Global Insights says the five most congested areas in the United States are Chicago, Washington, Houston, New York, and Los Angeles. And the congestion in those areas costs commuters more than $1,000 a year, use of public transit is growing.

How do we address this?

FLORIDA: Well, you know, there was a great Gallup survey this week which said something like three -- two-thirds to three quarters of Americans have a great deal of faith in their local government and their mayors. At the same time, where faith in Congress has hit all- time lows approaching about 10 percent of us that -- have any faith in our Congress.

I think we not only need to give more power to our cities, we've got to tilt the balance in terms of revenue raising toward our cities. And as we rethink our income tax and our tax strategy in the United States, I don't think it's just a question of how much more the federal government can capture and close that, and get us off the fiscal cliff.

I think it's tilting the balance back towards the local level, which needs the tools and which needs the revenue and should be able to raise the revenue they need to drive -- the great economist Alice Rivlin in Brookings said a long time ago, the appropriate place to make innovations, competitiveness and economic policy is not the national level.

VELSHI: Right.

FLORIDA: It's to empower the cities and communities to do it. That's what we -- I think that's part of what I've called this reset in America. We've got to get power, not just the -- not just the power to spend, but the power to raise revenue back in the hands of the mayors and the city leaders.

VELSHI: Interesting idea. Richard, it's always a pleasure to have you on the show. Thanks so much for being with us.

FLORIDA: Thank you, and thank you for covering this, such an important topic which means so much to our future economic growth.

VELSHI: We'll talk about many more times. Richard Florida is a professor at the University of Toronto and the author of "The Rise of the Creative Class Revisited," along with many other books.

With a slowing economy facing headwinds from Europe and Asia, this country does need action if we want a real sustainable recovery. I lay out my case but now I want to hear from you. I'll tell you how next.

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VELSHI: The U.S. economy is directly in the path of three massive storm fronts. One fueled by the debt crisis in Europe. Another from the slowdown in Asia that's a result of the first one. But the storm that's most dangerous and potentially damaging is already causing problems at home. The fiscal cliff hits at the end of the year and businesses are already reacting to the uncertainty created by your political leaders. The result is a slow down in hiring and investment. If GDP was 1.3 percent in the first quarter of this year, projections for next year may get downgraded soon, but going off the fiscal cliff is guaranteed to send us back in a recession.

We saw what happened four years ago when both sides of the aisle came together to prevent a disaster. This is the same kind of critical moment. Your economy depends on the willingness of your leaders to act.

And I say Congress has gone from being benign to being threatening. You disagree? Well, you know where to find me at Facebook.com/alivelshi or tweet me, my handle is @Alivelshi. I read every message and I'm ready to debate you.

Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday, 1:00 p.m. Eastern and Sunday at 3:00 p.m. Have a great weekend.