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House Passes Senate Fiscal Cliff Bill; Stock Markets Around the World Up; Interview with Economist Diane Swonk; Photographer Killed on L.A. Highway; House Votes to Avert Fiscal Cliff

Aired January 2, 2013 - 08:30   ET



JOHN BERMAN, CNN ANCHOR: All right, a heavy burden has been lifted for millions of Americans after a brief trip to the bottom of the fiscal cliff. The House delivering taxpayers a reprieve passing the Senate's fiscal cliff Bill by 257-167 vote.

Here are the highlights -- no tax hikes for couples earning less than $450,000 a year. Couples making more than $300,000 see their itemized deductions capped. That's interesting. Two million Americans will have their unemployment benefits extended for a year, and that refund killing alternative minimum tax finally gets adjusted permanently for inflation.

It's also important to note what is not in the plan, like spending cuts at all. Those mandatory drastic spending cuts have been put off for two months.

Then there is the debt ceiling, now at $16.4 trillion. We just blew past it next week and next month Congress has to vote to raise it or, what happens? The U.S. defaults on all its debts.

BROOKE BALDWIN, CNN ANCHOR: So how will the markets react? I think the story really is today versus down the road, we expect of course a lift, maybe temporarily in the markets, because of this fiscal cliff deal or doozy, as we were saying, is now official done. But how long will it last? Alison Kosik is live for us this morning at the New York Stock Exchange. Alison, good morning. What are we expecting?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: We're expecting pretty much exactly what you just said. The opening bell ringing in about an hour. This is going to be the first chance for U.S. investors to react to this measure passing, to the fact that we're going to go ahead and avoid these immediate tax hikes and spending cuts. So right now Dow futures are pointing to a 200-point, are pointing higher by 200 points. That's going to be today.

What's going to happen a week from now, it's a completely different story because of what's to come, the negotiations over spending cuts and over the debt ceiling, in fact one analyst telling me with the debt ceiling negotiations happening in about 60 days, the smart money knows the bullish sentiment will be short-lived with this analyst telling me the lesson for investors here is buyer beware. Brooke?

BALDWIN: Alison Kosik we hear you loud and clear. Thank you very much for us now from New York.

BERMAN: That's investors here in the U.S. What about the rest of the world? The foreign markets have been open for hours now, so what are global investors saying? Let's go to CNN's Richard Quest for that. Good morning, Richard.

RICHARD QUEST, CNN INTERNATIONAL CORRESPONDENT: Good morning, John. Lunch time in Europe, just coming up to 1:00, 2:00 in London and central Europe, and the markets are extremely cheerful. I'll run around, up 2.5 in London, about the same in Paris and in Frankfurt. And the reason is just sheer unadulterated relief that the worst didn't come to pass.

But as I was saying to you last hour it's borrowed time, because no sooner does any analyst tell you how pleased they are that the cliff didn't happen, they immediately go to the other side, ah, but there's still the twin peaks of debt ceiling and budgets and spending cuts to come.

BERMAN: Richard, at a minimum, I'm glad we can give you a happy lunch. Richard Quest in London this afternoon over there, thank you.

BALDWIN: Let's talk to one of those analysts to see if the relief is on borrowed time. Diane Swonk, chief economist for Mesirow Financial. Diane, good morning.


BALDWIN: Give it to me straight, is this sort of a temporary woo-hoo for the markets and then we're back to some messy times?

SWONK: Well, I didn't even pop champagne corks on New Year's Eve, so I guess my view, this is about as short of a stop gap as we can possibly get. We have two months to figure this out. We still have to do deficit reduction. Richard mentioned the debt ceiling debate. Also the rating agencies are saying we want to see deficit reduction, long-term tax and spending reforms that get our fiscal situation back into place over the next decade or less. That's sort of nowhere in sight at the moment. We've not seen any compromise on that and certainly not in this fiscal cliff patch whatsoever. It was a marginal step into the pond of really what could be quite treacherous waters in terms of debates as we get into the next couple of months.

And uncertainty surrounding those debates could dampen growth, and that's one of the things we're worried about. Whenever we try to get some certainty out there, Congress seems to bring it back with a vengeance.

BERMAN: Diane, one thing I read that has me concerned is from an economist at Citi who said the process was so chaotic and outcome so unsatisfactory we're likely to see a further U.S. downgrade at some point. Do you think there's a real risk of that?

SWONK: I think there's an extremely high risk of that. We've seen both rating agencies of Moody's and Fitch warn that if we do not get some deficit reduction they would downgrade us. This political brinksmanship that spurred the first downgrade, that downgrade was controversial with Standard & Poor's, but nonetheless it was the first move. The downgrades they're threatening now are real, measurable downgrades, not just on the fringes. And the collateral damage for the rest of the country, from cities and states to corporations trying to raise money could be quite substantial and is going to keep the Fed on edge in holding the base rates down in the U.S. and treasury bond rate down to counteract any downgrades we might have. But this is really very serious stuff, especially over time, it accumulates.

KOSIK: Diane, could I ask you one question about those downgrades and their impact. What has been interesting for me is even as the threat of those downgrades has become more pronounce pronounced, we've sort of lived through the previous debt ceiling debacle, we still see the U.S. being able to borrow at extremely low rates. So how significant is this really?

SWONK: Well, I think there's a false sense of security. Remember, we were sort of as some people put it the cleanest shirt in the dirty shirt pile. At the same time we got downgraded we had the Federal Reserve was counteracting the downgrades with massive movements to buy treasury bonds. We also had this massive flight to safety. The U.S. was looking bad, it was looking better than Europe was and financial markets in the U.S., because we are a reserve currency. We've gotten the benefit of that for some time now.

The question is when do you hit a tipping point? What I think is important about downgrades is even if they don't have an initial impact on the treasury market, what we do know and a lot of people ignored was the collateral damage they had on other parts of the market, things like municipal bond market, things like cities and states trying to raise money. They actually had to pay a higher spread and had more trouble raising funds. That's the part that gets ignored.

BALDWIN: Just 20 seconds, a lot of people still unemployed, what about jobs? How does this deal affect jobs?

SWONK: The issue is does the uncertainty we're surrounding in the next several months further suppress growth? That's where the key issue is. What we need in the economy is certainty and kicking the can down the road doesn't give us the certainty we need to plan and for companies to ramp up instead of hesitation. Hesitation is our enemy right now.

BALDWIN: Diane Swonk we appreciate it. Thank you so much.

BERMAN: That didn't make me feel better at all. Thanks, Diane.

BALDWIN: At least she answered the question. We appreciate that candor in the morning.

BERMAN: The 11th Congress ends today and not expected to pass the $60 billion to help victims of super-storm Sandy. Republican leaders took no action on the sandy relief measure last night, angering New York area lawmakers on both sides of the aisle.


REP. PETER KING, (R) NEW YORK: Everybody played by the rules, except tonight, the rug was pulled out from under us. It's absolutely inexcusable and absolutely indefensible. We have a moral obligation to have this vote.


BERMAN: Peter King is just one of the angry members of Congress last night over that. The Senate last week approved more than $60 billion for Sandy relief.

BALDWIN: Back to the planned story, talk about your eye in the sky, this Florida pilot doing a fly-by over his House, spots this burglar trying to break into, of all places, his own home and steal his trailer. So the pilot obviously keeps a close eye on him, tracks the suspect from the air in his Cessna, lands the plane, calls police, who then find the guy, they arrest this alleged thief on the interstate some 40 miles away.

BERMAN: That sounds crazy.

BALDWIN: It's crazy but if I say it, it's true.

BERMAN: You know what? That is in fact the case.

It was a parade stopper and a tear jerker. An army sergeant deployed to Afghanistan stepped off a parade float at the Rose Parade yesterday, surprised his wife and little boy three months early. Army sergeant first call Eric Paz told his wife she won a contest.

BALDWIN: So nice to see.

BERMAN: Ahead on "starting point" a story not nearly as happy. A photographer died after trying to get shots of Justin Bieber. Has celebrity chasing by paparazzi finally gone too far?

Now that the Republican controlled House passed the fiscal cliff deal, who came out on top? Political contributor Margaret Hoover and senior "Daily Beast" columnist John Avlon are just ahead with the winners and losers. Stay with us. You're watching STARTING POINT.


BERMAN: As we reported earlier a paparazzo was killed in Los Angeles on a highway last night. He was trying to get a shot of Justin Bieber. He believed the pop star was sitting inside a parked sports car.

BALDWIN: That photographer was killed trying to race back across the freeway to get back in his own car. Justin Bieber said, or actually I should say he was not in the sports car but his thoughts and prayers are with the family of the victim. But it's the kind of thing where you hear about the stories and you have the paparazzi. I don't live in Los Angeles but apparently they're everywhere, and this guy is running across the freeway. RICHARD SOCARIDES, WRITER, NEWYORKER.COM: You sometimes see them in New York, too, in front of these very expensive restaurants I sometimes will walk by. I don't actually go in.

WILL CAIN, CNN CONTRIBUTOR: I happened to live in the neighborhood but I don't go in.

SOCARIDES: But this is a little misleading because Justin Bieber was not in the car, and the guy was not killed taking the photograph. He was killed running across the highway after he took the photograph. But still a very troubling incident, people should be careful.



SOCARIDES: -- it's a very troubling incident, but people you know, people should be careful. I don't think there's really anybody to blame here except perhaps some carelessness upon either the photographer or the driver driving this other car but running across an interstate is crazy. It has nothing to do with taking a picture.


BERMAN: But it does speak to the aggressive nature of the profession, which is that you have to be willing to run across a crowded highway to get a shot.

BALDWIN: To get a photograph which people buy, which people buy.

CHRYSTIA FREELAND, DIGITAL EDITOR, "THOMSON REUTERS": Right and maybe it speaks to in our own lives we should be thoughtful that the risks we take are proportionate to the work that we're doing. Right, it's one thing to risk your life if you're that guy who is the soldier in Afghanistan or if you're one of those heroic teachers in Newtown but think how horrible it might be for his family that he died trying to take a picture of Justin Bieber.

SOCARIDES: But he died running across an interstate. I mean, I -- I feel badly for the guy too but you know the lesson here is don't ran across an interstate --


CAIN: It's easy to vilify the paparazzi, it's easy to vilify by a lot of people except for the end user, the end consumer, as you point out Brooke those of us and there's a lot of us apparently who like celebrity photographs and create a market for it.

BERMAN: It's all true.

BALDWIN: That said.

And still to come this morning, it looks like the fiscal cliff deal is a victory for the middle class, but really who are the winners, who are the losers? We're going to talk about that we're going to break it down as far as who came out on top and who did not.

It's 46 minutes past the hour here on a Wednesday. You're watching STARTING POINT.


BALDWIN: Ten minutes to the top of the hour welcome back to STARTING POINT. "Top Stories" now.

In Colorado crucial preparations today for the accused movie theater shooter James Holmes. Prosecutors and defense attorneys meet to make sure both sides are ready for Holmes' preliminary hearing. That is next week. You know the story, he's charged with killing 12 people at that midnight showing of "The Dark Knight Rises".

BERMAN: And in Maine, high winds and cold weather forced authorities to call off the search for three missing snowmobilers. Game wardens say the men went into a frigid lake Sunday and they are presumed dead.

BALDWIN: And look up in the sky, early, early tomorrow, not right now, Berman, to view a natural light show, this is called the -- let me get this.

BERMAN: Yes go for it.

BALDWIN: -- the Quadrantid -- Quadrantid meteor shower, just really cool stuff, let's just go with that. NASA says the best time to it is between 3:00 a.m., perfect so we are all waking up all through the time zones. Although the light of the moon could interfere with some visibility.

BERMAN: In serves you right for making fun of me that you had to pronounce that. That's all I can say.

BALDWIN: Well --

BERMAN: As we've been reporting all morning the House voted last night approving the fiscal cliff deal. House Republicans initially seemed ready to reject the whole thing because of lack of spending cuts but in the end they cleared the way for a straight up and down vote on the Senate version.

So joining us now to talk about this whole thing CNN contributors Margaret Hoover and John Avlon. John also a senior columnist for "Newsweek" and We've been talking about this all morning we're talking about what it means to tax payers and your pay check, your family and all of that stuff. I want to know winners and losers politician-wise. Who comes out looking good in this, who comes out looking bad?

JOHN AVLON, CNN CONTRIBUTOR: McConnell and Boehner, McConnell and Boehner are the adults in the room. I mean, When Harry Reid gets nudged out -- McConnell and Boehner sorry, Biden, I just mispronounced that two or three times.

MARGARET HOOVER, CNN CONTRIBUTOR: He files things under -- under letters actually. So he has B, Boehner, Biden, they're interchangeable.

AVLON: That's exactly right. That's exactly true, something my wife would know. But Joe Biden is the VP who can get things done now. The fact that he has three decades in the Senate are paying off big time for the White House.

BERMAN: Are you talking about Joe Biden who was the butt of all of the jokes from Republicans during the campaign, Joe Biden, who a lot of Democrats stopped respecting Joe Biden? That Joe Biden?

AVLON: That Joe Biden.

HOOVER: That's the same Joe Biden that what a lot of people are saying? Right as why doesn't Washington work the way it used to, well in former, in the former iteration of Washington senators, congressmen actually knew each other personally, they knew how to sit down and negotiate at the bargaining table.

Well guess what these two guys are vestiges of deals Washington. And in the end they saved the day.

FREELAND: I have another winner, George W. Bush. I think what is really amazing about this is this enshrines and makes permanent his tax policy apart from at the very top.

You know, I think the Bushies should be saying we won -- and they are.

BERMAN: You see all the Bushies saying they want Ari Fleischer and other people saying this is a great thing for their legacy.

May I ask about one man who voted last night the way that I think surprised a lot of people. Paul Ryan voted yes on this measure.

HOOVER: Here's what happened. Lindsey Graham -- Republicans are all over the map on this one. You've got all this -- many different Republicans saying very different things. Lindsey graham said to the house, just vote on this and save your powder for another day. Wait for the fight, you're going to have another fight in six weeks.

What do you think Paul Ryan is doing today? All of those Republicans who didn't vote for this are gearing up for a spending fight because they have another opportunity in six weeks. And frankly I wouldn't be surprised if you have Biden and McConnell at the negotiating table and Paul Ryan there representing the House because they trust him to get the spending done.

AVLON: And, and -- I mean fast forward to '16, I hate to talk '16, but the other possible --

BALDWIN: Bring it on.


AVLON: I know -- we've got a lot. We know the world is going to change before that but Marco Rubio and Rand Paul in the senate were among the few Republican votes against that bipartisan plan. So you can already see the fault lines. That clearly is a calculation about future ambitions.

Most folks voted against it. Let's not forget, the ratio is 2:1, almost 2:1 Republicans voted against this deal who voted for it. That means that they believe that this is a liability in the primary.

BERMAN: John Boehner -- a lot of people say his speakership was weakened in this whole thing but getting this floor vote on the floor at all last night took some doing.

Does it show he does still have some power to make things happen by sheer force of will.


HOOVER: He does still have power. Look, he's been weakened, the Republican caucus is in disarray in many, many senses. We talked to a lot of house members and house offices yesterday who are sort of disenchanted by Boehner's lack of leadership but nobody's challenging him for the speakership. Cantor doesn't want that job. Who wants to be that guy who every single night is just taking incoming from every direction?

AVLON: It's a real challenge. But speak -- that's the word on the street but speaking of losers, the house Republicans' reputation as the problem child in Washington has been solidified by this whole last-minute scramble and that is a serious problem. They've always been the least popular cohort in Washington, never popular group to begin with but seen in their own conference as the problem.

FREELAND: As winners, the Democratic party. I mean what was interesting to me is they behaved with real discipline, they behaved like real adults and they actually behaved like the party -- which never happens.

BALDWIN: Speaking of acting like an adult can we go on the colorful four-letter word that everyone is talking about.

AVLON: Let's go there.

BERMAN: Let's go there.

BALDWIN: Let's go there. Because this happened what, last Friday in the White House, steps from the Oval Office and you have John Boehner, to Harry Reid "go bleep yourself".

AVLON: Not since the days of Rahm Emanuel has that language been heard anywhere near the White House.

BALDWIN: I mean come on. What do you think?

AVLON: Look I mean it just goes to show you, never forget politics at the end of the day is people in a room. It's personalities. It's how they work and sometimes things get ugly and that's how things go off the rails.

I mean you know, effectively, Harry Reid was nudged out of this negotiation in the 11th hour by that back channeling between Vice President Biden and McConnell, but that kind of bad blood is an indication of why we're in for a very rocky time especially in the next two months but also in the next two years.

HOOVER: And we found the secret formula, the alchemy that works. The Biden/McConnell alchemy works.

AVLON: Sounds like you and I.

HOOVER: The President and John Boehner simply can't get it done together.

BERMAN: Let's talk about Joe Biden again because, you know, his role in this was enormous and his role was actually central in the last fiscal discussions that ended up getting through, too. What kind of player is he over the next three years and again, let's bring up 2016, how does it position him going forward?

AVLON: Biden in '16 is one of those unknown unknowns. He's a guy with endless energy, a high degree of ambition but there are very few hard core Bidenites. That said, the wisdom of picking Joe Biden as Barack Obama VP has become more and more apparent, ironically, in the last two years.

This election he was more important than 2008. He was the guy who'd go out and talk in union halls, fire up the base. And also he was the guy who had three decades of experience in the Senate and could get a deal done because let's not forget, the President started running for president after he'd been only in the Senate for two years.

Biden has that seniority, that credibility on the Hill to get things done.

FREELAND: It also shows, I mean people like us like to mock politicians and talk about how weaselish they are, and how bad professional career politicians -- they are, they are -- nonetheless it does actually show that professional politicians can be really important for making the political process work.

AVLON: Sure.


HOOVER: You have to have people know how to make the sausage. It may be ugly but he knows it's good.

BERMAN: Our "End Point" is coming up next.


BERMAN: So Will Cain wore a tie today which means he gets the first "End Point".

CAIN: Professional yes. All morning we've been talking about the fiscal cliff. I think Harry Reid comes out an interesting character in this whole deal, told to do terrible impossible things to himself by John Boehner; he's cut out of the deal by the White House. But in the end he also could have been right.

I think Democrats in the end gave up a lot and they're going to be prime with giving up tax increases, the one thing they responded to about spending cuts for year so get ready for a lot of talk about spending cuts in the next month.

BERMAN: do you have anything to negotiate with?

SOCARIDES: I think spending cuts, you know what I think, reasonable Democrats realize there now have to be some spending cuts. This is a new day, serious economic crisis. For 20 years we talked about for 20 years the Republican Party stood in the way of any kind of meaningful tax increases and I think this was a big win for President Obama and I do think the Democrats acted responsibly.

BALDWIN: Wasn't it nice to wake up to this morning?

SOCARIDES: The good thing about this also was that it was a compromise and the Republicans were not, we didn't make the Republicans, you know, pay for the entire election.

BERMAN: Let's leave with a smile on our face.

BALDWIN: Happy to leave it there. Thanks so much for being with us. You're all right yourself.

BERMAN: Thank you.

BALDWIN: Let's go to Victor Blackwell now with the "CNN NEWSROOM" continues with him. Victor - good morning.