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YOUR MONEY

"Countdown to Crisis"

Aired October 12, 2013 - 09:30   ET

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


CHRISTINE ROMANS, HOST: I'm Christine Romans, and this is an emergency edition of YOUR MONEY "Countdown to Crisis."

In a moment, Fareed Zakaria will join me, and I'll ask him if the damage is already done here. Remember, Washington's short-term thinking is causing long-term economic harm. If it's not fixed and fast, you will be stuck with a massive bill.

The world's financial system is based on trust, and trust in the U.S. is eroding quickly.

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Behemoths of big business speaking with one voice.

UNIDENTIFIED MALE: Shouldn't use the threat of causing the U.S. to fail on its obligations to repay its debt as a cudgel.

UNIDENTIFIED MALE: It ought to be banned as a weapon.

UNIDENTIFIED MALE: Both sides deserve a spanking for this.

ROMANS: Small businesses questioning as well.

UNIDENTIFIED MALE: Over and over, they say the same thing. Why is this happening? We can't risk a default.

ROMANS: The administration foretelling economic chaos.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Every American could see their 401(k)s and home values fall, borrowing costs for mortgages and student loans rise.

JACK LEW, TREASURY SECRETARY: Our systems are not designed to not pay our bills.

ROMANS: And the world watching and warning.

UNIDENTIFIED MALE: If there was a -- lifting the dell ceiling, it could well be that what is now a recovery would turn into a recession or even worse.

ROMANS: But on the right, a vocal handful of debt default deniers.

SEN. TOM COBURN (R), OKLAHOMA: I would rather have a managed catastrophe now, which I don't think will be there.

UNIDENTIFIED MALE: I think this is the 11th time I've this discussion about the sky is falling and the earth will erupt.

ROMANS: And Florida Republican Ted Yoho insisting not lifting the debt ceiling would, quote, bring stability to the world market.

Fact: if America for the first time in history is not able to pay all of its bills, the forecast is for financial fallout, worse than the collapse of Lehman Brothers.

Fact: forecasts are often wrong.

But is it a risk worth taking?

(END VIDEOTAPE)

ROMANS: And that's your money that they are risking. Never forget that.

Fareed Zakaria is the host of "FAREED ZAKARIA GPS" on CNN.

Is there something wrong with our system that this is happening again, three years of this budget stalemating?

FAREED ZAKARIA, HOST, FAREED ZAKARIA GPS: It's a good question, because look, let's be honest. The American system is designed to allow for easy gridlock.

The Founding Fathers created a system fearing English tyranny, fearing an English king, so lots of different ways to veto stuff. There's lots of checks and balances. So, I think that's part of the issue.

But really, what's at work here is something much more dangerous, which is here we're getting into an anti-democratic process, which is not the way the system was meant to work. Look, if you want to repeal Obamacare and you're the Republican Party, you're the Tea Party, great. Go for it.

If you want to get rid of entitlements, you want to cut government spending, that's great. There is a procedure. You pass a bill in the House, it passes in the Senate, and the president signs it.

What's happening here is because the Tea Party does not have that ability, does not have a majority in the House or the Senate, and certainly the president wouldn't sign it, what it's trying to do is really extortion, which is to say, we will block everything if you don't give us this, which we know we couldn't get passed through the Democratic process, normally. That seems to me something quite new.

ROMANS: And so, when the number one concern near-term and long-term concern in this country should be about jobs, a new Gallup Poll is showing for the first time ever, it's dysfunctional government that is the most important problem we face. Things have really changed here. It's our own government that Americans are most worried about. ZAKARIA: You know, it used to be -- I was talking to an investor who worried about political risk. That's what investors talk about when they worry about places like Indonesia or banana republics or some African country. And he was saying to me, what we have now realized is the place we need to worry about political risk is the United States of America.

ROMANS: Right.

ZAKARIA: It's not, you know -- it's not all the third world countries with creaky dictators.

ROMANS: I think there is no question we would pay the interest on our bills to our lenders. You have to pay your interest on your treasury bonds. But what could happen in the eyes of the world if we're giving IOUs to seniors or not managing books properly is unknown and scary. Yet this week, I'll tell you, in this testimony from Secretary Lew this week, on the Hill talking to the Senate Banking Committee. And I want you to listen to something that -- a Republican from -- Republican senator from Wyoming said to him, Mike Enzi.

(BEGIN VIDEO CLIP)

SEN. MIKE ENZI (R), WYOMING: Government keeps growing and growing and growing. And when it grows, that means there are more people in the wagon and less people pulling the wagon.

(END VIDEO CLIP)

ROMANS: Less people in the wagon and -- more people in the wagon and less people pulling the wagon. This is the makers and takers argument. President Obama won the election, remember, and it was the makers and takers argument on the right. It's come back around and now it's wagon pullers and wagon riders. Is that it at the core of this budget debate here that, too many people are getting too much from government and not enough people are pulling their weight?

ZAKARIA: You know, it is at the core, and it's part of the problem. By which I mean to say, look, again, if you feel that way, craft legislation that gets people off Medicaid, Medicare, Social Security, get it passed. You know, that's the democratic way you deal with this.

You don't do it by extortion, by holding up the legitimate functions of paying our bills. But there's a broader issue here, which is it seems to me that if that is the case, you know, does a government that is totally dysfunctional help -- I mean, I don't understand how --

ROMANS: I know.

ZAKARIA: -- burning down the house helps you make that case.

ROMANS: And it's incredibly counterproductive to shut down the government. You look at this picture of world leaders in Indonesia. There is somebody missing there, and it's the president of the United States. It is counterproductive to be fighting like this at home, fighting against ourselves at home when there is so much work to do around the world.

ZAKARIA: Well, it's a huge opportunity. In Asia, remember, the president had pushed kind of a pivot to Asia, because he felt this is where America's economic future is, the fastest growing part of the world. And it was a very successful move. It was a way of countering Chinese influence.

Well, guess what's happened, because the president can't be there, the Chinese sent both their president and their prime minister. They went out there -- inducements of aid. So they're making hay while we're away.

ROMANS: No question.

ZAKARIA: Very, very unfortunate.

ROMANS: Final question about presidential leadership here. A lot has been made about the Tea Party and some would say to changing the script from Obamacare now to balancing the budget. Should the president show a better kind of leadership?

ZAKARIA: I don't believe so. I think, look, it's a plague on both houses on one hand. On the other hand, this is not one of those cases.

The president is standing firm on a core constitutional and democratic principle, which is precisely what we have been talking about, which is you have to -- you know, part of a democracy is, you -- if there is a process in place that is democratic and constitutional, you accept the outcome. You know, whether it's your guy who won or the other guy, you accept that. If it's the legislation you like or you didn't like, you accept it.

That core principle is at the heart of our democracy. If the process worked, Obamacare was passed by the House, by the Senate, signed by the president, affirmed by the Supreme Court, the Congress passed a budget on the same way. You have to live with that.

And if you want to change it, change it using the same process. Don't take hostages.

ROMANS: All right. Fareed Zakaria, nice to see you. Thank you.

ZAKARIA: Pleasure.

ROMANS: Al right. Up next on this emergency edition of your money, from political football to an iconic head coach hitting hard. Find out why Coach Mike Ditka claims the biggest mistake of his life is President Obama's gain.

(COMMERCIAL BREAK)

ROMANS: This is an emergency edition of YOUR MONEY. Washington working to avert a crisis of its own making. Washington is also the focus of our weekly look at the business of sports.

Here's the score. Mike Ditka says President Obama would not be in the White House if he ran against him in the 2004 Illinois Senate race. Ditka tells the "Dickinson Press" not running was the biggest mistake he has ever made and he probably would have won that Senate seat. Ditka has described himself as an ultra, ultra, ultra conservative.

President became says if he observed the Washington Redskins, he would consider changing the team's name. Protesters in Washington and even at away games want the name and logo dropped. The real owner says -- has repeatedly said, he's not changing the Redskins' name and this week, he responded to the recent criticism saying, quote, "the name was never a label, it was and continues to be a badge of honor".

It would also cost an awful lot of money to change everything. Uniforms, merchandise, stadium signs, new branding, rebranding, the Redskins' brand valued at oh, some, what, are $145 million by Forbes.

And finally the partial government shutdown shutting down safety, Donte Whitner. We told you last week the San Francisco 49er player trying to change his last name from Whitner to "Hitner" in from a big hit he took. But now, the reports says the paperwork cannot be processed.

Whitner tweeted, "Damn government shutdown, LOL."

Washington shutdown and worse -- the debt ceiling crisis stopped the year's rally in its tracks. Expectations so low for some grown-up behavior, just talk of talking sent stocks way higher on Thursday. OK, so what now? Be brave and ride it out?

Matt McCall is the president of Penn Financial.

Matt, there is a year of fantastic stock market gains for a lot of investors. They have good 401(k) returns since the start of 2013, Dow is up 15 percent, NASDAQ up 24 percent, S&P 500 up 18 percent.

Matt, what do we do now?

MATT MCCALL, PRESIDENT, PENN FINANCIAL GROUP: Unfortunately, you know, a lot of people, when they asked that question, you either want to buy or sell. I'm going to drop it right in the middle and say sit there on your hands. Do not touch the buy or sell button on your computer. Take a break, go on vacation, whatever it is, do not make an emotional decision.

Those gains are great, and, yes, people do not want to lose them. That's a big reason we saw the market sell off heading into Thursday, because people thought, OK, I'm locking into gains. I'm happy into an 18 percent gain.

ROMANS: It's so interesting. One of the first things I learned, don't just do something, stand there. That's sometimes the best advice for individual investors. Who if you had sold stocks earlier last week, boom, you would have lost the year's biggest rally.

MCCALL: Exactly, and all the studies back there. When you miss the biggest one or two days of the year, how much that affects you long- term in your portfolio. So, yes, you don't want to miss out in that big day, because what's happening, people missed out on Thursday, what are they doing? They're buying Friday, 300 points higher in the Dow, unfortunately.

ROMANS: This week, Treasure Secretary Jack Lew told the Senate Finance Committee this is unthinkable, what we're facing here. Listen.

(BEGIN VIDEO CLIP)

LEW: There is a parlor sport in Washington of when is the last minute? You can't do that with a debt limit. With a debt limit, if you look for the last minute and you make a mistake, you have done serious damage to the U.S. economy, to the world economy. It's just not responsible. It's reckless.

(END VIDEO CLIP)

ROMANS: So is this dysfunction and uncertainty something that investors are going to have to get used to?

MCCALL: I think so. I don't think this is going away any time soon.

ROMANS: These deadlines. It's going to be governing by deadlines.

MCCALL: I mean, just look back in history the last couple years. We had the fiscal cliff coming at the end of 2012. 2011, this debt ceiling debate once again, the S&P downgrade, the U.S. rating from AAA to AA-plus.

So we have seen this in the past. But, also, look at that chart, Christine. Every crisis we've had within about a few weeks to a month, we had a major rally following that.

ROMANS: Is that because the Fed is pumping so much money into the system? I mean, the Fed is the only one operating here. There's so much money sloshing around.

MCCALL: I think the Fed obviously affects that entire long-term chart which is an up trend. I also believe that people when they invest, they invest for the long-term, earnings, and where they believe the economy is going to be many years from now. The problem most investors make, is they're basing their long-term investment decisions on this short-term event. The government is not going to be shut down forever.

ROMANS: Let me ask you something, I've been hearing money managers say people should be more into cash, especially if you've got really nice double digit returns, so far this year, in your stock portfolio. Do you think that this is a time for people to really look at the stocks, the bonds, the casual location, and measure make some changes right now? MATT MCCALL, PRESIDENT, PENN FINANCIAL GROUP: I don't disagree with that. Completely. But I do to a point, because typically when you have a very strong bull market, we've had one for five years now, the very end is where there is very big gains. A big rally at the end and I still believe you probably have 6 to 12 months left in the bull market.

So it's not too late for me. And you're never going to pick the top, I get that. But I still think we can get some more on the up side and you mentioned a key word there, the Fed.

Do you think the Fed is going to stop pumping anything into it with Yellen now coming in and the fact we have this government shutdown? The Fed is not going to stop any time soon. The tapering will not begin until 2014.

So with that being said, we have much higher prices in stocks.

ROMANS: All right. Matt McCall, have a great weekend.

MCCALL: Thank you.

ROMANS: All right. Up next, love, American style. Why the drama in D.C. is looking more and more like a failing marriage. Can it be saved?

Last week, we talked to a hostage negotiator. This week, we're going to talk to a relationship counselor, next.

(COMMERCIAL BREAK)

ROMANS: This is an emergency edition of YOUR MONEY.

Remember this economic crisis, the collapse of Lehman Brothers, mid- September 2008? The economy was in free-fall, stocks tumbling., the Great Recession was hitting with full force, and millions more would lose their jobs.

Well, this week, a survey of consumer confidence posted the biggest weekly drop since then, since Lehman went bust. About three times as many people now say the economy is in poor shape as those who say it's doing well. You can thank Washington for that.

For other stories that matter to your money, give me 60 seconds on the clock. It's "Money Time."

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Raising children is more exhausting than a daytime job. But time with Junior is also more rewarding. A Pew study finds parents are happy 35 percent of the time caring for kids and feel the same way 19 percent of the time at work.

There will be no women on Twitter's board of director when is it eventually goes public. All seven members are male. The lack of female leadership is a problem in Silicon, but Google, Microsoft, Facebook, and Amazon are among a few tech companies with at least one female board member.

Shutdown support or PR ploy? Starbucks is giving award free cups of coffee this week. If you bought a cup for a friend, Starbucks gave you a free one in return.

UNIDENTIFIED FEMALE: Here you go. Have a good day.

ROMANS: CEO Howard Schultz says Americans need to come together.

This is the new $100 bill. It went into circulation this week after months of delays. The new look includes a 3D ribbon and color- shifting ink.

Speaking of 3D, the next craze in 3D printing, food. A developer at South by Southeast eco conference this week is printing pizzas, pizzas that help the world's hunger problems. That's if the FDA gives approval.

(END VIDEOTAPE)

ROMANS: Also this week, JetBlue allows family members to pool their frequent flyer mile and it's the only U.S. airline to allow this, and it's letting customers decide who qualifies as family. It can be immediate family members, same sex partners, really anyone you want to share your miles with. So it won't be families with crying babies, that's rough. Not as rough as the family feud in Washington.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I am the one who found this house. I bought everything in this house!

UNIDENTIFIED MALE: With my money. It's a lot easier to spend, but it's --

UNIDENTIFIED FEMALE: You might not have made it if not for me, sweet cakes.

(END VIDEO CLIP)

ROMANS: It's not exactly "The War of the Roses", but all the big talk, name-calling and mudslinging on Capitol Hill can sound like a bad marriage headed for divorce.

Wendy Walsh is a clinical psychologist and author of "The 30-Day Love Detox."

Wendy, I was thinking of you, and I don't -- I don't want to make light of the situation, what's going on in Washington, because it's incredibly important. But you know what, last week, we had a hostage negotiator on. This week, we need you to tell us, are these irreconcilable differences?

WENDY WALSH, CLINICAL PSYCHOLOGIST: I don't think they are. But I want you to understand, a lot of Americans can relate to in, Christine. It's a blended family metaphor. Think of Obama as the never before married bachelor who marries a single mother with an angry stepchild, that being the Tea Party, of course, and John Boehner. So, here, I say never married before, because, of course, he's never been a governor. He hasn't had to have the harmonious relationship with legislators on the other side of the aisle that maybe, you know, Reagan had with Tip O'Neill, or Clinton had with Newt Gingrich. He's not good at the small talk and the chitchat. Not, how was your day, stuff.

And you take Boehner, who's actually having a hard time choosing between his angry stepchild, the Tea Party, who loves confrontation, and his new marriage. At the same time, Boehner's husband, if you will, Obama, is about to become a star.

I mean, let's talk about it. The Affordable Care Act is really Obama's signature legislation. It's been law for a few years. It's been approved by the Supreme Court. And now it stands to really make him a star. Now, Boehner's jealous. So he's doing what a woman often does, which is she stops sleeping with her husband, which is the worst thing you can do.

ROMANS: That is quite a metaphor. You have taken it to the very, very extreme. I will -- I will say, Wendy.

(LAUGHTER)

ROMANS: We know that money and couples has always been a real tough issue. There's research out of Utah State and the National Marriage Project shows couples who argue about finances once a week are more than 30 percent more likely to divorce than couples who disagree about finances a few times a month.

WALSH: Right.

ROMANS: Here's the thing. That's what this is about. They're disagreeing about money. This is all about money, how to spend it, and the priorities in the household, and the --

WALSH: Oh you love to think --

ROMANS: -- family, in the country.

WALSH: -- you think about money, Christine. But even couples who think about the voice. Money is the convenient metaphor, if you will. It's currency they use.

I think this rift in the relationship goes back to 2011 with the grand bargain that didn't happen, and I think at that point, Boehner close the door on ever negotiating with Obama.

Now, the problem is, these two are forgetting about the rest of their children, which are us, the American people. So, I think they've got to present a unified front with that angry step child, the Tea Party, and think about the rest of the children in the family, and put that ahead of their own individual needs. That's what saves marriages. ROMANS: You know, sometimes it feels like they're fighting about one thing, and then suddenly the fight takes a turn and they're fighting about something else that's not related to the first thing -- fighting about Obamacare, now fighting about balancing the budget. That happens in couples, too.

WALSH: Yes, it's called flooding. And you're not allowed to -- you know, once water goes under the bridge, you cannot bring it up ever again. You have to move on to the next thing.

But as I said, you also have to look for what are the underlying issues. We use money and sex as the fighting things in the relationship, but the truth is, it's always about power and compromise. These guys have to remember as everybody married couple has to remember that what they can accomplish together is so much greater than what either can do as an individual.

ROMANS: This is a fun metaphor to explore. It was fun. I don't mean to make light of it, but it really was fun.

Wendy Walsh, nice to see you. Have a nice weekend, Wendy.

WALSH: Nice to see you, too.

ROMANS: All right. Up next, who's winning and who's losing in the debt showdown in Washington? Why Miley Cyrus may very well come out on top.

(COMMERCIAL BREAK)

ROMANS: Welcome back to this emergency edition of YOUR MONEY.

Sometimes in the midst of the gloom and doom, you just have to laugh. Cue Congress and the cameras they love.

For example, the congressional gym is open, but the staff has been furloughed, which means members need to provide their own towels.

(BEGIN VIDEO CLIP)

REP. EARL BLUMENAUER (D), OREGON: The electricity, the hot water, the towels, they're not provided by gym fairies, they're provided by taxpayers.

(END VIDEO CLIP)

ROMANS: Of course, all you can do is laugh, the government shutdown, look no further than Miley Cyrus and "Saturday Night Live."

(VIDEO CLIP PLAYS)

ROMANS: Oh, yes, sometimes you really do just have to laugh.

OK. Coming up on brand-new YOUR MONEY at 2:00 p.m., consumer confidence just register the sharpest drop since the Lehman brothers collapsed. Can this recovery withstand Washington's antics?

And next on "CNN NEWSROOM" -- a strange death in a Georgia high school gets more mysterious, when Kendrick Johnson was rolled up in a gym mat, it was ruled accidental. But new clues, including that the discovery of the teen's body was stuffed with newspaper and all his organs removed before burial, has the family insisting their son was murdered. It's a story CNN brought you first and it's next on "NEWSROOM".