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YOUR MONEY

Threat of Cyber-Terrorism Explored; FAA Funded by Federal Government for Air Traffic Controllers; U.S. Economy Grows Healthily in First Quarter 2013; Technological Breakthroughs in Prosthetic Limbs Examined

Aired April 27, 2013 - 14:00   ET

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


CHRISTINE ROMANS, CNN ANCHOR: The Boston bombings, letters containing ricin, a foiled plot to attack a train bound for New York. America's on edge. I am Christine Romans. This is YOUR MONEY.

Online, we face a different kind of terror, the terror of seeing your bank account fall to zero, the terror of watching your savings swept away. We haven't faced this yet, but we got a little taste this week. A hacker got into the Associated Press's twitter account and tweeted "Breaking, two explosions at the White House. Barack Obama injured." That tweet, a fake tweet, was up for just a few minutes before the account was suspended.

But the market responded in an instant. Look at the drop. The Dow fell about 145 points or one percent. Even though the market bounced right back, it was a scary drop for investors.

Experts say over the past few months we have seen the number of cyber-attacks skyrocket, and the biggest threat, the biggest target, our banks. According to a new Verizon report, about 37 percent of information breaches were aimed at financial organizations.

I want to bring in Alan Paller, a director of research at the SANS Institute of Cyber Security training organization. Alan, we just saw two Monday shut down Boston for days. That's the visible face of terrorism. The invisible, the countless hits from hackers all over the world every day, how real is this threat of cyber-terrorism?

ALAN PALLER, DIRECTOR OF RESEARCH, SANS INSTITUTE: It is very real. In Saudi Arabia, cyber-terrorists took out 30,000 computers, just destroyed them. So it is physical damage being done. But the real worry right now is financial loss, because our money used to be in vaults. Now it is in a computer. When that computer goes away, when you get online and there is zero in your checking account, it is the same as losing the money. It is that last -- sorry, go ahead.

ROMANS: If hackers are taking aim at our banks and we know they are, what kind of damage could this cause? Can we overcome it? And how quickly?

PALLER: You saw what happens in a very short time. It comes right back. No problem at all. If it lasts, if people try to get on and cannot find their money, and then they call the bank and the bank says, well, we have technical troubles, we'll be back with you. If it lasts awhile, people's attitude will change. And if it lasts weeks or months, there is actually a real loss of money and it could be loss of jobs. It could have huge economic effects. And that's the real worry is that it is not a short-term thing, it is a long-term thing.

ROMANS: So these hackers getting access come from everywhere. We know that 30 percent come from servers in China, 28 percent from Romania, 18 percent from inside the U.S. and Iran. Iran has made headlines for targeting our banks recently. How can we police attack that is come from all over the world?

PALLER: There are so many sources of them that you actually can't say I am going to focus on China or I am going to focus on Iran and try to do something about it, because even if you scare the government, they work through intermediaries and they claim they aren't controlling them. So you have to build better defenses. And the federal government has been impotent in establishing defenses and showing the way. So if we're going to fix this problem it is not going to be by getting mad at China or Iran. It will be by making our system safer.

ROMANS: Making the system safer, is the government, the U.S. government prepared? Is corporate America prepared to protect all of this?

PALLER: Surprisingly, we actually know what to do, and the Australian government has shown the way. But the U.S. has had a massive failure in leadership in this area. All they have to do is lead by example. If they show how to do it the way the Australians are doing, business will follow them. But as long as they don't protect the federal computers well it is hard to say thanks for telling us what to do when you don't know what to do yourself.

ROMANS: How can we as individual protect our bank accounts and our investments, and how can we protect against -- this hacking is happening every day.

PALLER: There is one easy solution, Christine. It actually works. There are very few things that you can say this will really work. This one does. Whenever do you online banking or online stock trading, always do it on a machine that you do nothing else on. Computers cost a couple hundred dollars now. You can have a computer for your banking. Don't do e-mail on it. Don't ever do the web on it. Don't do anything on it. Don't put Word or Excel or any other software. Just use it for banking, and it is really the safest thing you can do, especially if you're a small business, because the banks don't pay you back if you lose money and you're a small business.

ROMANS: That is really, really good advice. Alan Pauler is director of research at the SANS Institute. Thank you very much. Have a nice weekend.

PALLER: You're welcome.

ROMANS: Up next, the economy revved up last quarter. But the acceleration may not last. Find out why next. And later, the new face of charity, online crowd funding is taking off in the wake of the Boston bombings. But are you one click away from a scam?

(COMMERCIAL BREAK)

ROMANS: Gross domestic product is the broadest measure of our economic output. By that measure it sure looks like America's economy is picking up steam again. On Friday the Commerce Department said GDP grew by an annual rate of 2.5 percent in the first three months of the year. For some perspective, the economy looks for growth at least three percent higher to signal a real recovery.

Nevertheless, that 2.5 percent number looks especially good when compared to a measly growth the America witnessed in the previous quarter, a very sluggish 0.4 in the final three months of 2012. So it's time to break out the champagne? Maybe not. We're already seeing slower retail sales drop, growth in manufacturing output, which could all point to slower economic growth in the second quarter.

And when you factor in the effects that higher payroll taxes could have on consumer spending and the forced government spending cuts, the sequester, what that could do to the expansion, you may want to hold the champagne for another occasion.

Stephen Moore is senior economic writer and editorial board member of the "Wall Street Journal" and Professor Robert Reich is a former secretary of labor under President Clinton and author of "Beyond Outraged," now available on paperback. So Bob, should we be happy with 2.5 percent growth? Does that indicate things are getting better for most Americans?

ROBERT REICH, AUTHOR, "BEYOND OUTRAGED": Let's take anything we can get, Christine. The average growth over the last year has been about two percent. We're definitely going in the right direction. But I agree with you, it is too early to break out the champagne. There are a lot of storm clouds on the horizon, that sequester, that very low proportion of working age Americans actually in the workforce, about as low as we have had since 1979.

ROMANS: Is that because of retiring? Are they giving up hope or retiring?

REICH: Well, some of them are undoubtedly giving up hope. They are not moving back into work. Many are men who are over 55 years old and can't get work and have been out of work for a record length of time. It is doubtful they're ever going to get back in the workforce.

ROMANS: Stephen, the sequester took effect March 1st. The sky has not fallen yet. Everything is still here. Can the U.S. afford to pull back spending when this recovery is still so delicate?

STEPHEN MOORE, "WALL STREET JOURNAL": Well, that's a good question. If you look at this new GDP report, it is pretty clear that if you take out government, actually private sector growth was above three percent which is decent. Look, I actually think that the sequester has been pretty bullish for the markets. I think that the investors and businesses like to see the governments getting at least semi-serious about reining in spending and reigning in the deficit. So I don't buy the argument this is bad for the economy. I am a flyer all the time, by the way, Christine, so I don't like the delays at airports, but I think they can fix that problem and we can move forward.

Look, I just worry that we're on this kind of path right now of as you said two to 2.5 percent growth, and that's too slow. I compared this recovery that we have had now, which is almost four years old, to the last ten recoveries and we're only growing at about half the pace we should be. Christine, that's a big problem, why we're not creating the jobs and the incomes that we all want to see.

ROMANS: Here is the thing. We all degree this is a horrible recovery.

MOORE: Right. That's rare by the way. We almost never agree.

ROMANS: I have a feeling you do not agree on how to fix it or how come. So Robert Reich, I don't think that you think this is a good time to be pulling back on public sector spending, is it?

REICH: No, because when you have the private sector still very, very reluctant to spend, and not only businesses are reluctant to invest but consumers, one thing we saw out of this report from the Commerce Department today is the consumers, although they're spending up, their savings went way down. And if you combine that with a bad jobs report for march and also a lot of worries about their taxes, their Social Security taxes going up and the sequester, I am concerned that for the government to pull back right now is exactly the wrong time.

MOORE: You know what is interesting about this Robert Reich, you I and have debated this, you've always said that taxes don't really matter. One of the interesting things about this report is we saw a big increase in reported income in the fourth quarter of 2012 and then this quarter we actually saw a very big decline in income, both reported income, dividend income. And Robert Reich, I think that's because we raised these tax rates and, Christine, I think that's the bigger problem with the economy than the sequester, spending cuts.

REICH: Here again, with great trepidation I agree with Steven Moore. I think it was wrong to raise the Social Security taxes, and also it doesn't make sense. The Social Security tax holiday was very important. It doesn't amount to a huge amount of money per family, but, listen, it is still $1,000. And for most families $1,000 makes a big deal of difference in terms of discretionary spending.

So it is said that economic forecasters exist in order to make astrologers look good. Let me just warn, I am not bullish on the next quarter or the quarter following. I think that the storm clouds are too large right now.

ROMANS: Let me bring in around the rest of the world, too. It is not just the U.S. the IMF revised its forecast for the year, the world's two largest economies, U.S. and China, expecting to see slower growth than before. Europe in recession largely because, many say, across the board austerity. Does the rest of the world slowdown mean a stall in the U.S. is inevitable and I know how you feel about this, you have just told us you think you're not bullish the next couple of quarters so I will ask you, are you concerned by what you see? There's 27 percent unemployment in Spain, we're celebrating 7.6 percent unemployment here. How much drag is that on us?

MOORE: Christine, the way I look at t we're the life raft for the economy right now. We're one of the few economies actually growing, albeit not as rapidly as we want. When Europe slows down, when China slows down, there is no question about it. That has a negative impact on American economic growth. And the question is as Europe is virtually in recession rights now, it make very difficult for the U.S. economy to grow. That's why I am with Robert Reich, and this is very rare by the way, that I think the next couple quarters could be tough sledding.

ROMANS: I think the sky may have fallen. I will revise my earlier statement and say the sky is falling because with great trepidation one agrees with the other and the other agrees with the other. Love it. I love consensus. Gentlemen, thank you so much. Nice to see you. Have a great weekend, guys.

Good news. You can go back to the usual misery of flying.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: We'll all pay the price. What can you do? You grin and bear it.

UNIDENTIFIED MALE: They need it fix it because I just want to home.

(END VIDEO CLIP)

ROMANS: Your elected leaders have stepped in to keep air traffic controllers on the job. Now can they solve the rest of the forced budget cuts? That's next on YOUR MONEY.

(COMMERCIAL BREAK)

ROMANS: Further proof that all it takes to get Washington to act is a deadline that has passed and disgruntled constituents. Across the country this week travelers were greeted with this, the forced budget cuts that Washington also the sequester, the Transportation Department had been warning for months about the effects of cutting $600 million from the FAA budget, and last Sunday the furloughs kicked in for 47,000 FAA workers including 15,000 air traffic controllers. That meant every day 10 percent of the FAA's workforce had to take an unpaid day off. And 5,800 flights delayed just the first three days of furloughs. That's compared to 2,500 delays over the same period last year.

Democrats had argued for a complete fix to the forced budget cuts, but less than a week into the furloughs the elected leaders have intervened to give the Department of Transportation flexibility in determining how cuts are made.

(BEGIN VIDEO CLIP)

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: The problem is that this is just a Band-Aid solution. The funding associated with the furloughs at the FAA is I think $253 million. That's one half of one percent, one half of one percent of the sequester.

(END VIDEO CLIP)

ROMANS: Hopefully any delays you experience now can just be blamed on the usual misery of flying.

Nancy Cook is an economic and fiscal policy correspondent for the "National Journal," Josh Marks is the executive director of the American Aviation Institute. Nice to see both of you here. Nancy, I want to start with you. One month into the forced budget cuts polls show around half of Americans still don't know whether the cuts were good or bad for the country. Was this week's flying frustration enough to change that?

NANCY COOK, ECONOMIC AND FISCAL POLICY CORRESPONDENT, "NATIONAL JOURNAL": Well, I think that we're just starting to see the cuts. So I certainly think that the polling hasn't necessarily kept pace with the way that we have seen the cuts. I certainly think that tons of passengers and people that were going through airports were really frustrated by the sequester cuts and we're starting to see other things like furloughs of employees at the White House budget office, the IRS. And so the more and more consumers see this sequester affect their daily lives the more upset they will be.

The question is whether or not the FAA cuts and the new flexibility to deal with it, whether or not that basically lessens the impact of the sequester so people still don't see how it affects them.

ROMANS: Let me bring you in. Republicans say the Obama administration has gone out of its way to make the forced budget cuts feel harsh. The White House blamed Congress for passing the sequester. Josh, you say it started long before the latest round of cuts.

JOSHUA MARKS, EXECUTIVE DIRECTOR, AMERICAN AVIATION INSTITUTE: That's right. The FAA has been struggling for decades now with an air traffic control system that's based on antiquated technology. It is very inefficient to run the radar based system and take a lot of controllers to do so. So when you have a situation like we did this week where you have a 10 percent cut in man power, the effects are immediately felt in the system. And the predictions that there was going to be chaos in the air system didn't take long to manifest themselves. And throw in a little bit of bad weather early in the week in New York and the effects were very, very clear to everybody.

ROMANS: Josh, I know it was a pain. It was a real pain in the neck. Was the flying public ever at risk? MARKS: From a safety perspective, no, and of course the FAA managed air space capacity in order to maintain the same level of safety. So it was never a question of risk to the traveling public. It is just that given the safety standards that have to be maintained, when you take controllers out of the picture and you have to make do on a lower staffing level, there is going to be fewer flights that can be handled, and that's what we saw with the delays.

ROMANS: Nancy, these delays are basically the most visible, the most widespread of the forced budget cuts up to now, and Washington approving a temporary solution for the furloughs. But does that make it less likely we'll see a complete fix for the sequester, or do we have a Congress that's going to lurch from crisis to crisis and when people scream and yell, then suddenly they will play the hero?

COOK: I think it does make it less likely we'll see an ultimate full fix of the sequester, because what this has done is really encourages special interests and different groups to say, hey, if you lobby enough and you cause enough stink, you can certainly get your portion of the cuts undone. And so I think what we'll see is a huge effort by lobbying and special interest groups to go to Congress and go to the White House and try to get their cuts undone.

I think we may not see that, though, for programs that hit low income people, things like housing assistance, things like the Head Start, people that don't necessarily have the same advocates or lobbying dollars as bigger industries. I think those people will still feel the cuts.

ROMANS: Nancy Cook and Josh, so nice to see both of you. Thanks this morning.

COOK: Thanks.

ROMANS: All right, a tremendous show of support for victims of the Boston Marathon bombing through crowd funding online. More than $25 million from all over the world was raised in one week. What you need to know about those sites next.

(COMMERCIAL BREAK)

ROMANS: The terror attack on the Boston Marathon showed us the worst in humanity, but we've also seen some of the best in people. Police, first responders, everyday bystanders rushed to help at the scene. Emergency doctors and specialists worked around the clock. And it hasn't stopped there. All over the world people are digging deep into their pockets to point, click, and give.

(BEGIN VIDEOTAPE)

ROMANS: Bucks for Bauman, help the White family recover. Fix Dave's boat. Charitable fundraising has come a long way since the celebrity telethon following the tragedies of 9/11, Katrina, and Haiti. In the seven days more than $25 million was raised to benefit victims and their families through crowd funding. Sites like Go Fund Me, Give Forward, and Fundly allow anyone to go on live and raise money. Crowd funding works quickly and let's donors experience who their donations go to. Fund for Adrian is raising money to support Adrian Haslet-Davis, a dancer who lost her leg in the bombing.

ADRIAN HASLET-DAVIS, BOSTON BOMBING SURVIVOR: When someone tries to stop from you doing something or something happened in your life where it is not exactly what you expected, you have to conquer that, and you have to find the better side of it.

ROMANS: While these sites have the best of intentions, donors need to be careful. GiveForward.com told us for every legitimate page on the site, two had to be shut down because of fraud. And because they're so new, none of these sites has been evaluated by watch dogs.

KEN BERGER, PRESIDENT AND CEO, CHARITY NAVIGATOR: They have no track record. This he have no financial reports that is we can look at. There is no real data to show whether or not they're going to be legitimate and effective.

ROMANS: And there are fees. They can be as high as eight percent of your donation depending on the site. That's where Massachusetts Governor Deval Patrick and the Boston mayor established the One Fund.

GOV. DEVAL PATRICK, (D) MASSACHUSETTS: This fund will be managed by an experienced, effective leader who is with us today, Ken Feinberg, many of you know, the mayor and I have known for a long time. All of the money will go to victims, none to administrative costs.

BERGER: We think that that would be a safer approach. The problem is it may take longer for the money to get there. But at least you have a more thorough vetting to make sure when it does get there, it gets to the right people.

ROMANS: Technology may not end of the celebrity telethon. Good thing Jerry Lewis is retired.

(END VIDEOTAPE)

ROMANS: One more thing to consider with crowd funding sites. Because you're giving money to an individual and not a recognized charity, your donation won't qualify for a tax deduction.

Thanks for joining us the conversation this week on YOUR MONEY. We're here every Saturday 9:30 a.m. and then in the afternoon at 2:00 p.m. eastern and every Sunday at 3:00 p.m. You can find me on Facebook at Christine Romans, CNN, and on Twitter my handle is @ChristineRomans.

Up next on "THE NEXT LIST," the innovator of the bionic limb and a double amputee himself, how the cutting edge technology can offer new hope to the amputee victims of the Boston bombing, coming up next.

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