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The Economy in the Eye of the Beholder; Murderers, Thieves, Tech Entrepreneurs; The Most Unequal Place in America; The Business of Being One Direction
Aired November 30, 2013 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN HOST: This weekend, let's give thanks for what's working in this economy. Let's push to fix what's not. I'm Christine Romans. This is "Your Money."
Five years after the financial crisis, we have come a long way, but we still have a long way to go. It is all in the eye of the beholder. First, put on your rose-colored glasses, if you will. Your 401(k) is on fire. Stocks drip sharply this year the major indexes touching new milestones. But look through these broken glasses. Only half of America is invested in stocks. What happened when the Federal Reserve starts to pull back at this historic stimulus? Stocks could fall sharply.
As to those rose-colored glasses, for a moment, the Fed is also keeping mortgage rates very low. That is bringing buyers in, pushing home prices higher and stabilizing the housing market. But broken glasses for a minute again.
Until first-time home buyers come back, the housing market is not back to normal. Only 28 percent of October home sales were first-time home buyers. Historically, it's been closer to 40 percent.
Now let's look at jobs for a moment. Jobs are coming back, 204,000 created in October. But this is a low wage job recovery. Nearly 60 percent of the jobs created in the economy since 2010 have been lower paying occupations.
Harvard professor Ken Rogoff is the former chief economist for the IMF.
Maggie Lake is the host of "WORLD BUSINESS TODAY" on CNN Int.
Ken, which glasses are you wearing when it comes to the U.S. economy?
KEN ROGOFF, ECONOMIST, HARVARD UNIVERSITY: Well, I think I have got one eye broken lens and one eye rosy. I think you summarized it very well, Christine. I think for the next few years, we are still healing; certainly a lot of long-term unemployed that I'm worried about, a lot of divisiveness politically.
On the other hand, we have phenomenal strengths over the long run in our entrepreneurship. We have a lot of land and natural resources. The rest of the world still looks at us with envy.
ROMANS: That is very true.
And, Maggie, the rest of the world looks at our returns in the stock market with an awful lot of envy. They are thankful about the stock market right now. But there are also some worries that it's come pretty far pretty fast. And without the Fed propping things up, it's a bubble that could burst.
What are you hearing?
MAGGIE LAKE, CNN CORRESPONDENT: I ask that all the time, and I continue to have the experts tell me, no, it is not. They say it is timing. Yes, there are a lot of gains but we are digging out from a very big hole. And all of the valuations, although high, if you look at some areas, yes, like social media, some of those stocks looking a little bit rich.
But when it comes to everything else, listen, corporate balance sheets are good, the economy is growing. And it still looks like the best game in town, which is a lot of what's driving this. The Fed is behind it, but a lot of people think 2014 might be the year when the economy actually picks up and fundamentals match with the Fed.
Ken last week told us on this program that, yes, it is a bubble, but no, it will not burst. The Fed will not allow it to burst. And I think you say stay thankful for what you have got right in front of you, why you've got it there. And for now the stock market has been that big, fat turkey to be thankful for.
Ken, let me ask you this, you say the biggest problem in the U.S. economy is inequity of income and wealth. How do we fix that, especially in Washington is so paralyzed?
ROGOFF: Well, it certainly it is not moving fast and it will not be helpful if they decide to cut back on food stamps next year, which is one of our most effective anti-poverty programs. I think they can make the tax system fairer while at the same time raising more revenue.
There was a ray of hope a few years ago when they had the Simpson- Bowles bipartisan agreement. It passed. But you know, maybe something will come back. But I mean, clearly part of it has to happen through the tax system. Part of it has to happen through public education, adult education and hopefully resumption of growth.
ROMANS: You talk about the food stamps. I just wanted to ask you about that again. We are talking about pulling back so much of that historic stimulus, unemployment benefits, food stamps, some of the spending that we have become used to over the past few years. That will start rolling off.
Is that dangerous?
ROGOFF: I think the timing is not good if we are talking about doing a further sequester next year. There is still -- the economy is still fragile. I would go slower on it. I think that we also should do a lot more public investment. We are almost at an all-time low.
There are a lot of things that need to be fixed. Interest rates are really low. There are really things we could do to make things better without taking big risks. But there is just so much divisiveness in Washington, a poisoned atmosphere of public discourse. That worries me more than anything right now.
ROMANS: Oh, and that is something duly noted.
Maggie, meantime, Europe is worse off; unemployment there is above 12 percent. America's been doing some right things, long-term positives that Ken is talking about, but in the short-term, we still are not really creating these gangbuster jobs.
LAKE: And one of the reasons is exactly what Ken pointed to.
What we are doing right is the fact and what helped us is that we've had a Federal Reserve that has pulled out all of the stops and done everything it can.
ROMANS: To create new things.
LAKE: Right, threw out the rule book to get stimulus to help this economy. What is hurting us -- and that's where we differ from Europe. They have not had that with their central bank. What is hurting us now, though, is the fact that we have the political impasse in Washington.
Until they get a comprehensive budget in place, businesses -- we hear all the time, are uncertain -- they are uncertain they don't want to hire. It also means we can't do that long-term investing that Ken's talking about to try to get those structurally unemployed, those long-term unemployed back into the working ranks.
That's what's not working for this country right now.
ROMANS: Maggie Lake, CNN International; Ken Rogoff, always nice to see you, Ken who (INAUDIBLE) called it.
Next to be pulling back on food stamps. Thanks, Ken.
A rare change of leadership at Wal-Mart in the midst of Black Friday promotions and the controversy over wages and unionizing at the retailer.
Since Wal-Mart was founded in 1962, there have only been three -- one, two, three CEOs. Over that time, that same timespan, there have been five popes. That gives you an example of how rare a leadership change is here. So who is the new boss of the world's largest retailer?
He is 47-year-old Doug McMillon. He started as a summer associate back in 1984. He has said he learned more in six months at Wal-Mart than in five and a half years of school. On February 1st, he will become Wal-Mart's fourth CEO. McMillon succeeds Mike Duke, who's been CEO of Wal-Mart since 2009. For more stories that matter to your money this week, give me 60 seconds on the clock. It's "Money Time".
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ROMANS (voice-over): Obamacare on trial again. The Supreme Court will decide if corporations can invoke religious beliefs to deny birth control coverage to employees.
Home prices jumped 11 percent in the third quarter from a year ago. It is the first double-digit year-over-year gain for the S&P Case Shiller Index since early 2006.
Men's Warehouse likes the way Joseph A. Banks looks after fighting off a hostile bid from its smaller rival. Men's Warehouse has turned the tables. It is now bidding $1.5 billion for Joseph A. Banks.
If something is trending on Twitter, robots and fake accounts could be why. Twitter says fake accounts are less than 5 percent of the 230 million active users, but some experts think it is a lot higher.
The world's most valuable book sold this week for $14 million at Sotheby's in New York. The (INAUDIBLE) song book is the first book ever written and printed in America.
And it is not exactly an economy car, but Maserati's new Ghibli will only set you back $65,000. The ultimate luxury brand is trying to lure more buyers.
ROMANS: Coming up, from San Quentin to Silicon Valley.
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UNIDENTIFIED MALE: I was sentenced to 25 to life back in 1994. At 25 years old, I started entertaining thoughts of I might die in prison.
LAURIE SEGALL, CNN CORRESPONDENT: What was the biggest technology? What was everyone talking about when you were incarcerated?
UNIDENTIFIED MALE: Motorola had just came out with the flip phone.
ROMANS (voice-over): Imagine going into prison before smartphones even existed. Still locked up, but now making a case to venture capitalists. Not a parole board. You're not going to believe this story. Inside one of the world's most dangerous prisons in search of tech entrepreneurs. That's next.
ROMANS: Silicon Valley. It's where much of the hope for America's future lies these days. San Quentin Prison, about an hour away in California, but for many, it is a hopeless place. It may as well be a world away -- until now. Laurie Segall here to tell us how some inmates at one of the most notorious prisons in the country are becoming tech entrepreneurships.
An amazing story.
LAURIE SEGALL, CNN CORRESPONDENT: It's unbelievable, the last thing you think of when you think of entrepreneurship and innovation and venture capitalists coming in and out would be a high-security prison.
But, Christine, I got to tell you, it is quickly becoming a reality. Check it out.
SEGALL (voice-over): This Is San Quentin State Prison. Inmates spent 10-, 20-, 30-year sentences here. Some will never leave.
Behind bars: murderers, thieves. And here's one that might surprise you: aspiring entrepreneurs.
JORGE HEREDIA (PH), CEO, FUNKY ONION: My name is Jorge Heredia (ph), and I am the founder and CEO of Funky Onion.
UNIDENTIFIED MALE: Well, I think just happening with great ideas.
SEGALL (voice-over): Welcome to The Last Mile. It's one of the most popular programs in the prison.
CHRIS REDLITZ, CO-FOUNDER, THE LAST MILE: So, same question.
SEGALL (voice-over): That's Chris. Along with his wife, Bev, he started the program to do what many tech entrepreneurs do: solve a problem.
BEVERLY PARENTI, CO-FOUNDER, THE LAST MILE: In California, we spend more for prisons than for higher education.
SEGALL (voice-over): More than 60 percent of California prisoners released end up back behind bars within three years. One reason: they can't just find work.
FLOYD HALL, INMATE, SAN QUENTIN: You know, I'm a go-getter in terms of starting my own company, starting and having a vision.
SEGALL (voice-over): So, like many others in the Bay Area, these inmates are becoming tech entrepreneurs.
UNIDENTIFIED MALE: I'm insanely passionate about technology.
SEGALL (voice-over): That's what The Last Mile is helping them do.
UNIDENTIFIED MALE: So I would franchise it first.
SEGALL (voice-over): The six-month program is highly competitive. Only 30 inmates are currently enrolled. They study social media, technology and entrepreneurship. REDLITZ: What's Guy's talking about in his book --
SEGALL (voice-over): Behind bars, they are learning to build modern day businesses with guest speakers like Motorola's Guy Kawasaki and Quora exec Mark Bodnick and even big-name supporters, like MC Hammer.
MC HAMMER, ENTERTAINER: To take the principles of the startup culture and say let's share that information and make it available to men and women who deserve a second opportunity, I just thought it was a great idea.
SEGALL (voice-over): Like any tech incubator, at the end, they pitch their product.
UNIDENTIFIED MALE: You can subscribe to our premium service.
SEGALL (voice-over): Not just to Chris and Bev but to venture capitalists.
UNIDENTIFIED MALE: If we just reduce consumer waste by 20 percent...
SEGALL (voice-over): They talk about apps and social media in class. But many have yet to hold a smartphone.
REDLITZ: The preparation they've gone through has given them the confidence when they get outside to really be successful.
HALL: If I can conquer eight years of incarceration, I think that I can definitely become an entrepreneur.
SEGALL (voice-over): They're a short drive from companies like Facebook and Twitter. But most have never used either. For many, the sites didn't even exist when they were locked away.
REDLITZ: If you'd had access to one of those things today, technology tool or social media, what (INAUDIBLE)?
UNIDENTIFIED MALE: I think that I would use Twitter.
SEGALL (voice-over): For those getting out, some of whom have spent decades in prison, there's hope in the ethos of the Valley.
REDLITZ: I think Silicon Valley is the ideal place because this is a place where people succeed or fail and start all over again.
SEGALL (voice-over): And there's proof. That's Kenyatta Leal. Because of The Last Mile, he walked through the prison gates 19 years later with a job any grad would get excited for.
KENYATTA LEAL, FORMER INMATE, SAN QUENTIN: I was sentenced 25 to life back in 1994. I mean, at 25 years old, I started entertaining the thoughts I might die in prison.
SEGALL: What was the biggest technology? What was everyone talking about when you were incarcerated?
LEAL: Motorola had just came out with the flip phone.
SEGALL (voice-over): But his involvement in The Last Mile landed him a job at Rocket Space, a co-working office for tech startups.
LEAL: Just this past Friday I was blessed to turn 45 years old and I had some good friends asking me, you know, what are you going to do for your birthday?
And I had to work overtime.
To be able to say that I'm going to work felt so good.
SEGALL (voice-over): We sat down with Kenyatta and two former inmates. All of them have coveted jobs in technology.
SEGALL: Can prisoners make good entrepreneurs?
LEAL: Absolutely. I think when you look around, so many of that people that are in prison, they have entrepreneurial skill sets. They just use them in a negative way.
JAMES HOUSTON, FORMER INMATE, SAN QUENTIN: None of us, when we started getting in trouble because we weren't conforming, we thought outside the box. We were just kind of outcasts because of it.
SEGALL (voice-over): Prison may be an unlikely place for startups to emerge, but behind bars, the same rules apply.
JAMES CAVITT, FORMER SAN QUENTIN INMATE, ENTREPRNEUR: I think anyone that's brave enough to go and want to be an entrepreneur, you have to be resilient. That's one thing prison does teach you, is how to be resilient, and really to try to win against all odds, even though the deck is stacked against us so much.
SEGALL: And, Christine, they are studying technology, learning about it. They don't actually, behind bars ,have access to technology. So they are actually physically writing out tweets that volunteers later tweet for them. And the idea is to give them a voice. So if they get out, when they get out, they are not just looked at as an ex-con. They actually have an opportunity to brand themselves in a different way.
ROMANS: You're showing people who've been in prison for decades who are then getting jobs, who are getting out and becoming interns at great tech startups, really interesting. Thanks so much, Laurie Segall, what a great story.
It is more economically divided than Iran, Nigeria or South Africa and it is right here in the U.S.
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DOLORES GILMORE, PRISON GUARD: I don't down nobody for what they got. But I would like to know how they get it so I can go over there and get it, too.
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ROMANS: We will take you to the most unequal place in America next.
ROMANS: This is one America with two economies. A middle class squeezed. A minimum wage not keeping up with inflation. And the way out of poverty, a college education, blocked for some by skyrocketing costs.
CNN's "Change the List" project lets you get involved in pushing for social change.
This summer, you picked income inequality as the top social justice issue of our time. And nowhere is the gap between the rich and the poor as wide as it is in Lake Providence, Louisiana. CNN's John Sutter travelled to the most unequal place in the country.
JOHN SUTTER, CNN CORRESPONDENT (voice-over): Lake Providence is less than a mile wide, but it separates two worlds. The poor largely live on one side of the lake, the rich the other. Sure, there's a road that connects the two, but the lake is a potent symbol and a real barrier.
On the south side of Lake Providence, I met Dolores Gilmore. She rarely goes to the north side and doesn't really know what it's like over there. She makes about $18,000 a year working as an overnight prison guard. She's two months behind in her bills and I was shocked to hear she's never had a bank account.
Dolores raised eight kids, including a stepson and a nephew, who she says her sister abandoned.
GILMORE: I couldn't buy them, you know, a lot of stuff, underwear, you know, stuff like that, because I was in the hole. Sometimes we don't have household supplies, you know, because we have to buy food. So I'm going to feed them.
SUTTER (voice-over): But as bad as it seems for Dolores, she knows it could be worse. In East Carroll parish, the poorest fifth makes only $6,800 per year. The top 5 percent makes more $600,000. And that's the reason this place is so unequal.
There aren't that many people like Dolores in between. There's almost no middle class.
Across the water, I met Thomas Terral, one of the richest men in town. Terral's family owns several farm service businesses in the area.
THOMAS TERRAL, BUSINESS OWNER: You know, I felt like my mission was to supply as many jobs as I could, of course, we were a small company, and I think about the most employees we ever had was a little under 70, 60 or something.
SUTTER (voice-over): The town's mayor also owns one of the largest family farms in the parish.
UNIDENTIFIED MALE: When I was growing up, everything was hand labor just about. So we had hundreds of people working on the farm. And now, you can go out to a farm now that several thousand acres and you'll see one guy on a tractor. So all those kind of jobs are gone.
SUTTER (voice-over): The saddest thing about income inequality is the longer it goes on and the more extreme it gets, the more people on the bottom end of the spectrum start to lose hope.
GILMORE: I want to go back to school to be an R.E. (ph) but I can't stop working to go to school, because I got too many bills.
SUTTER (voice-over): Despite how much many here are struggling, there are people trying to change things.
Look at Andrea Davis Lloyd. She's from the poor side of the lake, and she recently opened her own restaurant. She can't afford to pay all of her workers above the minimum wage for now, but she hopes to.
ANDREA DAVIS LLOYD, RESTAURANT OWNER: You can't make a profit on the back of somebody else. In order for me to do well, they have to do well.
SUTTER (voice-over): And before you leave, you definitely need to spend time with Dee Dee Willis. She graduated last year from the public high school and started her first semester of college this fall. Willis would have had every reason to give up on her community. But she believes things will change.
DEE DEE WILLIS, H.S. GRADUATE: If one day someone just came, Dee Dee, here's $1 million, do whatever you want with, I would build a huge bridge across the lake.
SUTTER: And Christine, despite the divisions, there are reasons for hope. While I was there, I visited a soul food festival that was set up specifically to bring together people from the north and south sides of the lake.
The town's mayor is pushing for a biofuels plant to come to town, and that created 50 new jobs. There's a genuine feeling that people want this place to change, they want to see some of these divisions fade into history, you know, and they really are working to make things better. So I do see plenty of reason for hope for this place and the rest of the country -- Christine.
ROMANS: Oh, and that's good to hear, hope and that a story, income inequality, a story that is the big story of the year, according to CNN viewers.
All right. Coming up, three hit albums, two American Music Awards, One Direction, there they are, a look at the business of being an insanely popular boy band. That's next.
ROMANS: Does your daughter have a cutout like this in her room? Does it make you crazy? It seems Americans can't get enough of One Direction, these guys, the boy band sensation brought home two American Music Awards, they released a third album this week.
We have a look at the business of being One Direction.
ROMANS (voice-over): British invasion or boy band sensation. The business of being One Direction is something to scream about.
All five band members tried out with U.K.'s "The X Factor" as solo artists, the judges decided they'd be better as a group. And Niall, Zayn, Liam, Harry and Louis became One Direction. They finished only third on the show, but "The X Factor" creator Simon Cowell signed the band to his record label.
SIMON COWELL, "THE X FACTOR": You are the most exciting pop band in the country today.
ROMANS (voice-over): Taking them from reality show to real-life stars. Their first hit from their debut album, "Up All Night," and one direction is where they've gone ever since. The first album sold more than 5 million copies and reached number one in 17 countries.
And this time, topping the charts in 37 countries for the band's second album, featuring the hit, "Live While We're Young."
And live they did, to the tune of another 5 million copies sold.
UNIDENTIFIED MALE: Make some noise!
ROMANS (voice-over): The concert movie, "One Direction: This Is Us," directed by Morgan Spurlock, that took in a supersized $68 million worldwide.
UNIDENTIFIED FEMALE: We love you, One Direction!
ROMANS (voice-over): Now, they're out with the best song ever and their new album, "Midnight Memories," is number one on iTunes.
But don't worry if you can't score tickets to the concert tour. There are books. Dolls. Perfume. And anything else the teenage heart desires --
UNIDENTIFIED MALE: Oh, yes? ROMANS (voice-over): "Forbes" estimates the boy band brought in $40 million in the past year, and they gave something back.
They made this music video for "One Way or Another" to raise money for the British charity Comic Relief. Clearly, the business of being One Direction is...
ROMANS: All right. That's it for this edition of YOUR MONEY. Hope you had a great Thanksgiving. We'll see you back here at 2:00 p.m. Eastern. I have a brand new YOUR MONEY for you later this afternoon. See you then.