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YOUR MONEY

The Politics of Envy; A Rally on the Rocks; The Life of a Cyber Criminal; High-Tech Tensions in San Francisco

Aired February 8, 2014 - 09:30   ET

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


CHRISTINE ROMANS, CNN ANCHOR: Another weak jobs report. A growing gap between the rich and poor. Enter the politics of envy.

I'm Christine Romans. This is YOUR MONEY.

The American economy simply is not working for everyone. Just 113,000 jobs added in January. Far short of what economists expected. Nearly 13 percent of Americans are out of work or can't find a full-time job and want one.

And participation in this labor force is the lowest since 1978. Witness the rise of the low-wage bread winner. 21 million Americans rely on low-wage jobs as the main source of income in 2011. 21 million.

So who is to blame? Real estate developer Sam Zell, a self-made man who epitomizes the American success story, he says billionaires like him are being picked on.

(BEGIN VIDEO CLIP)

SAM ZELL, BILLIONAIRE INVESTOR: This country should not talk about envy of the 1 percent. It should talk about emulating the 1 percent. The 1 percent work harder.

(END VIDEO CLIP)

ROMANS: That's right. He says, that billionaire says the 1 percent work harder.

Stephen Moore is the chief economist for the conservative Heritage Foundation, a contributor to the "Wall Street Journal."

Stephen, Zell says the 1 percent work harder. You know, maybe he's talking about this. Millions of Americans getting paid not to work because of disability payments record high. Food stamps, record high.

STEPHEN MOORE, EDITORIAL WRITER, WALL STREET JOURNAL: Yes.

ROMANS: The welfare recipients, record high. Those numbers have risen sharply since the recession. Sharply even since the '80s. But at the same time 2012, the average CEO made 273 times the average worker.

Do the CEO worked 273 times harder and the rest of us are lazy? MOORE: Well, look, I do think the increase in the welfare has been a problem. And I think it is a problem because even during the recovery we have seen more and more people put on welfare. And I think it has become a substitute for work. You know when you talked about the income inequality problem --

ROMANS: Wait, wait. A substitute for work or a safety net? Does it just show that it was almost another great depression and do those numbers reflect just how horrible it was?

MOORE: Right.

ROMANS: In any other country, would you have such a safety net to have people from falling so precipitously out of the middle class?

MOORE: It's a good fair question, Christine. Here's the interesting thing about it. The enrollment in a lot of these programs like unemployment insurance and food stamps has risen even as the economy has recovered. So I do think for too many people, welfare is becoming a way of life.

ROMANS: Whether you envy the rich or you want to emulate them the middle class --

MOORE: I like rich people. I like rich people. I want to be rich.

(LAUGHTER)

(CROSSTALK)

ROMANS: You know, Washington just doesn't have -- have a clue how to fix it. Two-thirds of Americans say economic conditions, Stephen, are poor.

MOORE: I know.

ROMANS: This crisis has been decades in the making. I mean, globalization and technology had narrowed the choices for middle class.

MOORE: No, no, no. OK, Christine, that is where I got to disagree with you.

Actually we had the biggest boom in this country in history in the 1980s and 1990s. Under a Republican President Reagan, under a Democratic president Bill Clinton. And in that period we saw upward mobility. People moved up the ladder.

You're right. Something has happened in the last eight to 10 years. But this doesn't go back 30 years. We had a big boom and the middle class did very well in the '80s and '90s. We got to get back to those policies.

ROMANS: OK. So from 2009 to 2012 -- I got you. 95 percent of the income gains -- I don't know if you can see this, Stephen.

MOORE: Right.

ROMANS: Ninety-five percent of the income gained went to the top 1 percent.

MOORE: Right.

ROMANS: Even Republicans like Marco Rubio and Paul Ryan talking about the decrease in social mobility, right?

MOORE: Right.

ROMANS: The message -- you know, what's the GOP position on inequality here?

MOORE: Well, here's the problem. And look, there is mobility in the economy. And this has been a hallmark of American economy for 200 years. That anyone can, you know, pick themselves up and become rich even if they start poor.

You know, immigrants come into this country with only the shirt on their back and oftentimes they move into the middle class. The problem I believe -- is the people at the bottom, the people in the bottom 20 percent, and I believe that is a result of the fact that you've got a lot of kids growing up in fatherless homes, a lot of, you know, crime in those neighborhoods. Lousy schools.

In other words, I'm saying that this is more social factors than it is the economy because look, if a kid is growing up in a fatherless home, you know, that has to go to a lousy school, doesn't graduate from high school, it's hard to find a way to escape poverty in that kind of situation.

ROMANS: I think there are a thousand factors.

Stephen Moore, thank you.

MOORE: Thank you.

ROMANS: Coming up, what goes up must come down. And Twitter's high- flying stock price is no exception to the big hit this week and so did the stock market. That's next.

(COMMERCIAL BREAK)

ROMANS: When the Dow tanks, people listen. It gets your attention. But don't freak out. Your money is safer now. The bulls on Wall Street will tell you the recent drop in stock prices is a good thing. Why? Two reasons. First that incredible run last year. The U.S. stock market is still considered one of the safest places in the world in a world full of uncertainty. And the Fed is still pumping billions into economy each month.

Now granted it's gradually slowing down that fire hose which may put the fear factor in investors these days. But second, this drop is the sign of a healthy stock market. Think of it as a reality check, a timeout, a breather, for a charging bull to get back its energy. But the bears see a different picture. They say stock prices were way too high in the first place. Risk is back. Risk aversion at least. Investors who were once driven by greed are now driven by fear. The Fed is inflating the stock market and now that the Fed is pulling back, the market will fall.

But there are questions about the U.S. recovery, like auto sales, construction spending and most importantly the labor market. New Fed chief Janet Yellen must now take the air out of the bubble that Ben Bernanke inflated without letting go and having it wildly deflate or puff. It's a big tough job this year.

Matt McCall is the president of Penn Financial.

Matt, I want to put up this chart again and show you just sort of how far we've come over the past five years in the market. An incredible bull market. You see those four spots I've highlighted? Those are the only real pullbacks. Two of them were not even technically corrections. They were less than 10 percent declines.

Is it a good thing? Do we need to come down here so we can could back to reality so the bulls have a reason to get back in?

MATT MCCALL, PRESIDENT, PENN FINANCIAL GROUP: We do. Nothing in life goes straight up. Not even the best bull market that we're in right now. I mean, those were the red marks you showed in the chart. The pullbacks are, at most, 7 percent.

ROMANS: Right.

MCCALL: I mean that's unheard of historically looking back that it pulled back 7 percent. The pullback we're having right now is about 6 percent or 7 percent as well.

The last four times this happened, Christine, over the last 15 months, every single time the market rallied to hit new all-time high. So to me, if the pattern continues, we're going to keep going.

ROMANS: But every single time over the past 15 months, the Fed had its foot on the gas. Now it's pulling up a little bit.

MCCALL: True. It went from $85 billion now we're down to $65 billion a month in asset purchases. But to me that's old news. That's been priced since the market. We know the Fed will stop with this asset purchases by the end of the year. So that's priced in. To me it's now earnings.

ROMANS: Right.

MCCALL: We'll get to earnings numbers so far. So far this quarter, 8 percent year over year increase. The best increase in over two years.

ROMANS: And people should know that stocks move based on how much money they are earning and how much consumer or how much investors think they're going to keep moving. I want to talk a little bit about some of these tech stocks. Apple in particular. Some of these stocks have come down quite a bit so -- more than a correction for some of these stocks. Apple buying $14 billion of its own stock back. That's bringing us total buy back over the past 12 months to something like 40 billion. That seems something intended to boost its stock price, which right now is more than $500 a share.

Much higher than that, though, it was back in 2012. So is this a buying opportunity?

MCCALL: Well, I don't think the rally in Apple will continue just because of the buy back. I think it will have a little bit of a prop in the stock for maybe a week or so. Because what Apple is saying is that they're confident in stock price. They're taking their own cash that they're sitting on their balance sheet, and buying into their own stock. That does instill confidence in investors.

I'm a shareholder of Apple. I do like that. But long term, I need a new product. I need something that's going to be innovative, something that change the technology world, what is that?

COOPER: So you're buying Apple here?

MCCALL: I'm not buying it. I own some. If you don't own any, you can trickle in a little bit right here.

ROMANS: All right. I'm also looking at something I'm calling a consumer correction. A bunch of these. Anything that touches the regular Joe. Those stocks are down. Those stocks are down. Big names like Bed Bath and Beyond, Staples, Progressive, Target.

Look at some of these moves. What is this telling us about where leadership is going to be in the market?

MCCALL: Well, when it comes to retail, I think you have to be very stock specific. Each (INAUDIBLE) can be a little bit different. Numbers came out this week, though, from the National Retail Federation, they said sales will be up 4.3 percent versus last year at 3.7. That means the consumers are resilient. They're going to keep spending.

One thing that Americans do. They may not have a job, but they love spending money. I mean, times are good, you spend money. Times are bad, you spend money. So I think this is a buying opportunity when the worst months ever for retail, January, buy into some of the weakness.

ROMANS: Americans share that trait with their government actually.

(LAUGHTER)

MCCALL: Yes, exactly.

ROMANS: No matter what's happening find a way to spend more money. Twitter, I want to talk about this. We've finally got a look under the -- under the hood of Twitter for the first time now that it is a public company. And what did we see? We saw -- did we see a company that is maybe saturated its niche? 240 active -- million active users and it's spending a lot of money and losing a lot of money.

MCCALL: You know, when I look at this number, this is why I didn't the stock when it went IPO. The growth was good. It was -- I mean, you can't fight that. The problem is, have they peaked? And that's the big question on Wall Street now. Stocks sat around $50, $51 a share, is it a bargain? Maybe. But if you look at the valuation, this stock can trade at $20 and people say you're crazy, Matt. Not 20. But yes, based on valuation, this could be a $20 stock.

ROMANS: I got a lot of grief from Twitter users this week when I said that, you know, 240 million active users. As that growth was slowing, maybe all the celebrities, politicians and snarky snarks from Twitter, maybe they saturated that market. And the Twitter's snarky snarks snarks about that.

Thanks, Matt McCall.

MCCALL: Thank you.

ROMANS: So nice to see you. Come back soon.

Good news for home buyers. Falling mortgage rates are back. Falling rates. That's right. For now anyway. After rising nearly a full percentage point last year, mortgage rates are slipping back towards 4 percent. You can see it there.

The rate on the 30-year fixed loan, 4.23 percent. The 15-year, that's a popular refinancing tool. 3.33 percent. Now lower rates mean more money in your pocket. A $200,000 loan at 4.23 percent carries a monthly mortgage payment of $982. At 4.5 percent, it's more than $1,000.

Interestingly, the return of low mortgage rates has not meant more refinancing or more home sales yet.

Almost 50 million American adults are smokers. That's 19 percent of the population. Almost one in five. It's the leading cause of preventable death accounting for one out of every deaths.

So which company is snubbing smokers? Give me 60 seconds on the clock. It's "Money Time."

(BEGIN VIDEOTAPE)

ROMANS (voice-over): CVS kicks the habit. It won't sell tobacco any longer at its pharmacies and clinics. Turning away $2 billion a year from tobacco users. The CEO says selling tobacco products inconsistent with its role as a health company.

One America, two economies. Automakers like GM and Ford report sharp declines in January sales, but ultra luxury cars are selling better than ever.

Google search results look a lot different in Europe. The company has agreed to give more screening time to competitors like Yahoo! and Microsoft instead of just pushing its own services.

Get ready for Coca-Cola K-Cups. The company bought a 10 percent stake in Green Mountain Coffee Roasters. It will introduce a new home soda maker to go with its Keurig coffeemakers.

Every two seconds, another American becomes a victim of identity fraud. That is 13.1 million victims last year. An increase of 500,000 from the year before.

(END VIDEOTAPE)

ROMANS: That means in the last 60 seconds, 30 more people just became victims of identity fraud. So how do thieves get their hands on your information and then what exactly do they do with it?

Get the scoop from an undercover agent who was part of a huge hacking ring next.

(COMMERCIAL BREAK)

ROMANS: Intelligent cyber criminals working behind computers sometimes halfway around the world. They want your good credit. And they'll turn it into tens of thousands of dollars. The massive hack at Target yet another reminder they are out there.

But who are these hackers and what are they doing with all of your information?

CNN Investigations correspondent Drew Griffin joins me now.

Hi, Drew.

DREW GRIFFIN, CNN INVESTIGATIVE CORRESPONDENT: Hi, Christine. It's an amazing tale of your credit card numbers getting stolen, bundled with other stolen cards, and then sold across the world and back again, and actually used to commit these crimes many times before anyone, including your bank, the stores or you, even learn there's been a criminal breach.

And the criminals involved? According to our inside source, unassuming geeks.

(BEGIN VIDEOTAPE)

GRIFFIN (voice-over): Don't let this baby face fool you. If you want to know who is behind the hacking, stealing and selling of your credit cards, Maksym Yastremsky of the Ukraine is about as good as an example as you can find. Up until the recent Target store breach, Maksic, as he called, was the king of the hill. The most prolific credit card are trafficker in the world.

Organizing and operating a worldwide credit theft ring that hacked into nine major retailers, stealing and then selling the data from more than 40 million credit cards. Data that would be sold to other criminals who would then go on buying sprees. They would sell whatever they bought with your stolen credit and turn it into cash.

This criminal was one of them. He knew the ins and outs.

UNIDENTIFIED MALE: And if a person had good credit, you could potentially take $25,000 from a particular credit card.

GRIFFIN: And it was relatively easy, perfect looking fake credit cards bought online, machines doing code and emboss credit cards bought online, and also available online, freshly stolen credit card information that this cyber criminal was buying straight from a baby faced Ukrainian tech geek.

(On camera): You had the material to make the cards, you had the plastic to make the cards and then you got the data to actually make the physical cards real and active. Just to be clear you didn't do that.

UNIDENTIFIED MALE: No.

GRIFFIN (voice-over): That's because this guy isn't a real cyber criminal at all. He's an undercover Secret Service agent who for three years became part of this massive cyber criminal network befriending Maksic and even traveling to Ukraine, Turkey, Southeast Asia to immerse himself into one of the fastest growing criminal schemes in the world.

Maksic in the Ukraine would hire hacking teams across the United States. These are the cyber criminals who electronically break in, into stores, retailers, any company with large amounts of credit card information. The undercover agent would pretend to be a buyer who could use the stolen numbers and literally create credit cards that looked and act exactly like the card in your pocket.

(On camera): And before you'd even realized your credit card numbers had been stolen, crews were out buying up merchandise and selling it on the black market.

How many cards were available? How many credit lines were available?

UNIDENTIFIED MALE: Millions of credit cards.

GRIFFIN (voice-over): The Secret Service was buying up stolen credit cards in bulk in a weekly basis all in a well planned ruse to reel in Maksic's trust and eventually Maksic himself.

(On camera): Did he seem like a criminal?

UNIDENTIFIED MALE: Some of them came off as looking as, you know, a mafia figure or as this next big criminal. They're ordinary individuals.

GRIFFIN (voice-over): After a night out in Turkey he brought Maksic back to a hotel where, as planned, they were both arrested, for more than a year the agent continued the charade even as Maksic was sentenced to 30 years in Turkish prison.

(END VIDEOTAPE)

GRIFFIN: Christine, as for the thousands of stolen credit card numbers the Secret Service was buying up, well, if you were lucky your card was one of them because while pretending to be using to commit crimes with those cards the Secret Service was actually calling your bank, canceling the cards, and preventing a lot of people from going through the misery of having their credit swiped -- Christine.

ROMANS: And it is miserable. You know, I have to say it feel as though, Drew, it's the Wild West out there your financial information. They reside in so many places you have to trust that the companies aren't being hacked, you have to trust that they have the right systems. You have to trust that the banks are going to alert you when something is amiss.

And I guess you have to trust 17-year-old hackers halfway around the world who clearly are not trustworthy.

GRIFFIN: Right. And not to mention, as we've learned in Target, the suppliers, the people who access those machines, I mean, it is crazy. Our credit card numbers are everywhere and these hackers want to suck them up.

ROMANS: Something that's so convenient for companies to use for us -- to help us spend money, it really behooves them to make sure it's safe.

Drew, thank you so much.

Up next, anger at the risks playing out on the streets of San Francisco, what caused this tension? The answer is next.

(COMMERCIAL BREAK)

ROMANS: Calling high tech gentrification. Young, well-paid Silicon Valley workers are driving up already high real estate prices in the bay area and long-time residents are feeling squeezed out.

Dan Simon has the story.

(BEGIN VIDEOTAPE)

DAN SIMON, CNN SILICON VALLEY CORRESPONDENT (voice-over): A bus stop in San Francisco swarmed by protesters. These people angry at what they see as growing income inequality in the city. But to understand the issue you need to check things out on a regular day, so we did.

It's 9:00 a.m. on a Wednesday morning, and these Google employees are headed to work. Same goes for these Apple employees, Facebook employees, Genentech employees and LinkedIn employees, all hopping on company-provided shuttles to make the hour-long commute from San Francisco to Silicon Valley. Some 17,000 workers going back and forth each day. LINDSAY NORMAN, LINKEDIN EMPLOYEE: Without the shuttle it would be a huge hassle. I don't even know if I would have taken the job without that additional perk because for me I don't have a car in the city.

SIMON: Like many young people in the tech world Lindsay Norman chooses to live in the city instead of closer to work. And that simple fact is where the frustration begins for many other San Francisco residents.

(On camera): The biggest problem they say is that young, well-paid tech workers are taking up a disproportionate share of the housing and driving up already astronomical real estate prices. Rent increases in San Francisco are outpacing the nation more than threefold. The average price of an apartment here is more than $3,000 a month.

BECCA GOUREVITCH, PROTEST ORGANIZER: It's very sad to see people being forced out of their homes where they lived for decades.

OLIVER BURGELMAN, REAL ESTATE AGENT: It's just a symptom of a larger change. A lot of people are moving to the city and people want to live here.

SIMON (voice-over): So these buses have become a target of what critics say is the gentrification of San Francisco.

(On camera): Do the protesters have a point?

DAVID CHIU, PRESIDENT, SAN FRANCISCO BOARD OF SUPERVISORS: Well, fairly or unfairly these commuter buses have become a symbol of inequality, a symbol of our affordability crisis, and these are very real phenomenon that many San Franciscans and many Americans around the country are really experiencing.

SIMON (voice-over): But some city leaders say the anger is misguided pointing out the buses take thousands of cars off the road every day and the tech industry's positive ripple throughout the economy.

CHIU: And for every one technology and innovation job we've had, we've had three or four other jobs in other sectors, whether it'd be hotel and restaurant worker or tourism or retail that have been helping our economy and that is a good thing.

SIMON: But for those squeezed out of housing it's a tough sale. And for them, this has become a new way to voice anger.

(END VIDEOTAPE)

ROMANS: All right, we're not done yet.

Coming up on a brand new YOUR MONEY at 2:00 p.m. Eastern, ready or not, the Olympic Games are here. I've got the story behind high- flying legend and savvy business mogul Sean White.

Plus, some of the biggest companies behind the Olympics, not feeling the love from their customers. Well, what do you get for $100 million? A bunch of social media grief. I'll explain at 2:00 p.m. Eastern.

And coming up at the top of the hour in the "CNN NEWSROOM" veteran broadcast journalist Cokie Roberts out with her very first children's book, all about the nation's first ladies, so which one does she compare to Hillary Clinton?

That, plus her take on the Chris Christie bridge scandal and a whole lot more. Join Victor Blackwell and Christi Paul at 10:00 a.m. Eastern right here on CNN.