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YOUR MONEY

Effect of New Technology on Jobs Examined; Methods for Protecting Information from Hackers Profiled; U.S. Economy Continues Recovery; New Book on High Frequency Trading Prompts Subpoenas for Wall Street Firms

Aired April 19, 2014 - 14:00   ET

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


CHRISTINE ROMANS, CNN HOST: Man versus machine. Technology has made our lives more convenient, but at what cost? I'm Christine Romans. This is "YOUR MONEY."

You already know that your private information is under attack. There is also increasingly sophisticated hackers. Tech companies, the government is watching, too, but don't worry. Both insist they are here to help.

But what about your job, your future earnings, even your house? Are the companies we use every day costing Americans too much in the long run? Take Google, company creed, "Do No Evil." But altruistic intentions aside, not everyone's a fan. One day this week Google had anyone buy it's wearable eyeglass computer, anyone with $1,500, of course. At least one color of Google Glass already sold out. Yet there have been multiple reports of people wearing Google Glass getting attacked, part of a growing anti-tech sentiment in Silicon Valley. There have been loud protests in San Francisco against the private buses big companies use, big tech companies use, to shuttle their workers to Silicon Valley. Protestors complain that the influx of these highly paid tech workers is driving up rents, forcing out longtime residents.

Those tech workers, they have jobs, but what about the status of your future employment? Most jobs in this country pay less than $20 an hour. The jobs that built the middle class are disappearing. For all the convenience, technology may be one big reason why.

"The New York Times" columnist Eduardo Porter takes fascinating look at this topic this week. How does this technology we all use and love add up to the growing challenge of income inequality? And that is the big question here. You are seeing these 10-x personalities, these overachievers making all the money inventing someone. The people who make it and make the products are paid much, much less, and that's where the fast growth is. Is technology, our love of technology, hurting our employment prospects?

EDUARDO PORTER, COLUMNIST, "THE NEW YORK TIMES": I would say, perhaps, the first thing I would say is no. Really, technology has always driven prosperity. Our prosperity has always been based on innovation for hundreds of years.

ROMANS: The guys who made the buggy whips were upset for a while. PORTER: Exactly. But we now have a car industry. Technology has always displaced a certain way of doing things that happened before but it has always moved progress onward. It generated new jobs for people with more skills that pay higher wages. And that was a belief we lived in. The technology, even though it had these disruptive effects, at the end of the day ended up doing more good than bad.

The problem now is, as you pointed out in your introduction, is how all this wealth generated by technology and innovation, how that translates into how that's distributed throughout the population. And we see that a growing share of the labor force, of our workers, are really not seeing the benefits of this seeming boom in innovation.

ROMANS: There is some things you can't use technology for, a nanny, a home health care worker, many restaurant jobs. You always have to have that person, that face-to-face person. But those are the fastest growing jobs and they don't pay that well.

PORTER: That's right, you have a hollowing out, because part of the job market, the technology is really taken out is the middle, what we used to call the middle class, right? Manufacturing, folks that built cars and machines and other things. And those were the ones who were pretty much mostly union jobs with high wages and so forth. And those have been really threatened by technology. The ones at the bottom that you need a person to do them are pretty much safe, but they don't pay very well.

ROMANS: Sometimes questioning the benefits of technology, you're accused of being a Luddite. You're accused of, you don't get it. There is just this mantra, I think of business and on Wall Street and in Washington, technology is good, technology is good. But we can recognize there are these short-term disruptions and they are real and they hurt people.

PORTER: And they might even be long-term disruptions. These disruptions should be taken care of. So it's not a question of saying technology, no, because technology does drive prosperity, but it's a question of how do you distribute the gains --

ROMANS: How do we take care of it?

PORTER: Maybe it's an issue of taxation, education. I mean, there are very many ways you can do this. The kind of rents that we grant corporations through patent rights and lax antitrust legislation, so there are all these ways to try to move the share of income from, you know, these very highly paid people and these corporations and more towards workers. There are tools that can be used, but it's not about stopping technology. I mean, there's been a French economist in town in these days --

ROMANS: We have him on our show this week.

PORTER: He's made in a big way, and he argues, his solution is very high taxes on income and on wealth basically to redistribute the wealth that is going increasingly to very highly paid managers and to the owners of capital, the owners of the machine, who are gaining a bigger share of the national wealth.

ROMANS: And we'll hear from Tom Piketty later in the show. So thank you so much.

PORTER: Thank you very much.

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

(BEGIN VIDEOTAPE)

ROMANS: A step towards combating smartphone theft. Mobile companies have pledged to include a kill switch on new phones next year. If your device is stolen, you'll be able to erase and lock it remotely, but if you phone is found, the data can be retrieved.

U.S. Airways says it won't fire the employee who tweeted a pornographic image. The employee accidentally sent the image from the airline's Twitter handle instead of a customer service link. U.S. Airways calls it an honest mistake.

Hoops, Hooters, and Russia, NBA player Andrei Kirilenko has announced plans to open five Hooters franchises in his native Russia. The first restaurant known for its' Hooters girls waitresses will be in Moscow.

You're paying more for food and shelter. Consumer prices rose in March as beef hit a record high and milk and veggie prices also climbed. Housing is getting more expensive, too, but you're getting a break at the pump. Gas prices were slightly lower in March.

(END VIDEOTAPE)

ROMANS: Coming up, how do hackers make themselves unhackable?

(BEGIN VIDEO CLIP)

DAVID KENNEDY, FOUNDER, TRUSTEDSEC: I don't actually know any of my passwords inside of my head. I only know one password. And my passwords are literally anywhere between 32 and 50 characters long and they're completely unique.

(END VIDEO CLIP)

ROMANS: It's easier than you might think, and it could save your bank account or credit score. That's next.

(COMMERCIAL BREAK)

ROMANS: Three million of you, 3 million, hard numbers this week from Michael stores about the hack attack in announced three months ago. Three million people whose credit and debit cards information was compromised, but the latest hacking headline in a constant barrage of warnings of identity theft, cyber-crimes, security bugs. So what do the hackers do to keep their information safe? CNN Money technology correspondent Laurie Segall joins me now. Hi, Laurie. LAURIE SEGALL, CNN CORRESPONDENT: It's unbelievable. You look what happened with Michael's, and heart-bleed, which essentially was a bug that affected the whole Internet. And so we're forced to take a step back and say how do we keep ourselves safe? I spoke to guys who are ethical hackers, so they're security researchers but they hack for good. And they gave me some insight into how we protect ourselves and essentially how they protect themselves. Take a look.

(BEGIN VIDEOTAPE)

KENNEDY: Heart-bleed is probably one of the largest exposures we've seen, at least I can remember in 10 or 15 years. It's impacts almost all of the Internet.

SEGALL: David Kennedy, a security researcher and self-described ethical hacker, calls heart-bleed the bug that broke the Internet.

KENNEDY: Everybody was affected by this. You had Facebook affected. Yahoo! was affected. A number of companies were, large companies that we put our information in every single day were affected.

SEGALL: And while companies have worked to fix it, the security flaw is untraceable, making it difficult to tell if you've been compromised.

ROBERT HANSEN, VICE PRESIDENT OF LAVA, WHITEHAT SECURITY: If you use the internet for any purpose, there will be an effect.

SEGALL: Robert Hansen, also an ethical hacker, says don't use the same password for different sites.

HANSEN: In light of heart-bleed, probably the very first thing you should do is go to your search engine and type in heart-bleed check, and if you're going to do business with a website, type in the main into that form and see whether it is or isn't vulnerable to heart- bleed.

SEGALL: So how do hackers keep themselves safe?

KENNEDY: There are things like what are called authentication, things that allow you to enter a password and something else. Gmail has it built in automatically.

SEGALL: You're an ethical hacker and you know a lot about how people hack. So take me through your browsing history. When you go to Facebook, when you go to Twitter, when you check your e-mail.

KENNEDY: I don't actually know my passwords inside of my head. I only know one password. My passwords are literally anywhere between 32 and 50 characters long and they're completely unique to where you're never going to be able to guess those.

SEGALL: Kennedy keeps his passwords stored in something called a password vault. Programs like Key Pass and One Pass for Mac are built for this. KENNEDY: Passwords themselves are pretty a legacy or an old way of thinking. We need to move to other technologies. For example, Biometric is a great one. Swipe your finger, verifies who you are, and all of a sudden you're logged in to Gmail, don't have to remember passwords, and it's tied to this.

SEGALL: The iPhone 5S and the Galaxy S5 now have fingerprint scanners, but both systems have been beaten by hackers. More advanced biometrics could provide greater security, things like identity by voice, or even your heart beat.

For now, the Internet remains vulnerable and the ones who know it best take extreme precautions.

(END VIDEOTAPE)

SEGALL: We look at these guys, and I always want to make the point when I interview these guys who are ethical hackers, essentially. What they do, they can get into a lot of trouble if they find security flaws on the web and go to big companies and say, hey, there's something wrong with your system, unless there are hired to do that. So we also need to a way to make it easier for people to report these kinds of bugs because, as you see, they are happening more and more.

ROMANS: Companies need to do more themselves to make sure somebody from the outside lets them know something happened. Laurie Segall, thank you.

Check out CNN Money for more on how to protect yourself from hackers, and there you're going to find my conversation with Brian Krebs, the cyber sleuth who discovered the massive Target hack and the Michael's breach last year.

The weather's heating up, so is the economy. Why we've turned a corner and what could stand in our way, that's next.

(COMMERCIAL BREAK)

ROMANS: It's been a chilly winter for the economy, but we're starting to see a spring thaw. The job market is picking up, especially for new college grads. A new survey find employers will hire 8.6 percent new grads this year than last year. Federal Reserve chair Janet Yellen says we've turned a corner in housing. After two failed attempts to stage a correction, it was a good week finally for stocks. The S&P 500 up 2.7 percent this week.

We even got good news about Obamacare. The Congressional Budget Office says the Affordable Care Act will cost $100 billion less in the next decade than previously thought. The economy may very well be at a turning point. I'm not saying it's healed. The job market still hasn't picked up enough for the long term unemployed. But if you have a job and a college degree, things are getting better.

I want to bring in a good friend of the show Stephen Moore. He's a chief economist with the Heritage Foundation and a co-author of "An Inquiry into the Nature and Causes of the Wealth of States." Nice to see you, Stephen Moore.

STEPHEN MOORE, CHIEF ECONOMIST, THE HERITAGE FOUNDATION: Great to see you, Christine.

ROMANS: You've been telling me for months, no, years, that Obamacare is going to wreck the economy. I don't see it wrecked quite yet.

MOORE: First of all I want to tell you I am so enthusiastic about that statistic about college grads finding jobs.

ROMANS: Me, too.

MOORE: Because I have a son who's graduating from college.

ROMANS: I'm really happy about it.

MOORE: So that's the best news I've heard in a long time.

Look, I think Obamacare is hurting business. I think when you talk to businesses, Christine, they do tell you they're holding they're employment down to below 50 workers to get around some of these Obamacare mandates. You're also seeing -- you talked about some of the positive trends in the economy, and there certainly are some, but let's talk about some of those more negative trends, like the declining workweek and we're turning into a part-time nation. That's partly I think a result of Obamacare. If you hire somebody for more than 30 hours a week, all of those new costs follow. So a lot of employers are holding workers to part time jobs.

ROMANS: You've got 8 million enrollees, which was a real victory lap for the White House this week. The president saying, point blank saying, this is it. You guys out there saying this is a bad idea, stop talking about it, because we've got the enrollees. Some are young, more young people than they thought. Those young people are not going to have a medical catastrophe that's going to throw them into bankruptcy and hold them back in their lives. Maybe they'll start spending some money, Stephen, and maybe that will be good for the economy?

MOORE: I'm just not a true believer in a lot of the statistics.

ROMANS: I know you're not.

MOORE: Let me explain why. First of all, we know about 5 million people have lost their health insurance. So 8 million may have gained, but 5 million lost it. We also know that a lot of these people who have signed up for Obamacare subsidies in the exchanges, we know, Christine, a lot of them either, a, have not paid premiums, yet, and if you haven't paid premiums, you're not insured. And we also know a lot of those people are just people who already had insurance who are just shifting insurance. So we don't know for sure yet whether these number are as good as the Obama administration is saying.

ROMANS: All right, I want to ask you about this. Steve you're a hero, a champion of the free market, but Thomas Piketty's book "Capital in the 21st Century," it's a beach read, the bible for those people who are arguing capitalism is fueling a growing gap between tap earners and everyone else. He's a French economist. He says we need a more progressive tax system. Listen.

(BEGIN VIDEO CLIP)

THOMAS PIKETTY, ECONOMIST: The way wealth has been taxed in this country directly is through the property tax. The problem with the property tax is that, first, it's not progressive. We should transform this ideally into a progressive tax so that we will to reduce the property tax for 90 percent of the population.

(END VIDEO CLIP)

ROMANS: Tax the rich. For some reason I think you're not going to agree with him.

MOORE: God forbid that we should following economic advice from the French. They haven't been doing all that well in France.

ROMANS: I knew you were going to say that.

(LAUGHTER)

MOORE: It's predictable. Look, it is true that Europeans have experimented with these kind of big, social welfare states and high tax rates and it hasn't worked very well.

I think what we ought to do is make America as competitive as possible by bringing our tax rates down, not up, to bring more capital and jobs to this country. Because you're right, I do believe that the job market is improving. We've seen that over the last two or three months. No question about it.

ROMANS: Yes.

MOORE: But we're way behind where we should be. We still have 18 million people where they're unemployed, can't find a full-time job, or just dropped out of the labor force. So these are not the salad days for workers who are trying to find days.

ROMANS: And we have education-skills mismatch. We've talked about that a lot, and the president this week announced plans to put hundreds of millions of dollars towards job training programs. Listen to what the president said.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Not all of today's good jobs require a four-year college degree, but I promise you, there's not a job out there that's going to pay a lot if you don't have some sort of specialized training. So our best bet is keeping ahead in the skills race.

(END VIDEO CLIP) ROMANS: I think you and the president might have some common ground on the skills race. This is something we have got to have kids come out of high school with better skills and education, kids coming out of college or vocation with better skills and education, and companies who are willing to invest in the training they need so they get the workers they need.

MOORE: There's no question. It's very unusual, and I agree with the president. He's exactly right. If we want to be a high-wage society where the American middle class gets better off over time, then we have to have very skilled workers. There's no question about it.

Here's where I cringe, though. When the president says we need more job training programs. Do you know, Christine, we already have 25 federal job training programs. My goodness, every other month we seem to create a new program. We always talk about college education, and it is true if you have a college educated degree you'll get a higher paying job. But if you get a degree in something like sociology or psychology or gender studies and so on, there's not a high demand for that. We have to get our college graduates with the kind of skills that employers need.

ROMANS: Let me come full circle. We gave you that statistic, 8.6 percent growth expected this year for jobs for college graduates. Those are jobs in accounting, MBAs, jobs in economics, software, and engineering. That's where the real growth is. Stephen Moore, good luck to you and your son.

(LAUGHTER)

MOORE: See you soon. Thanks.

ROMANS: Coming up, the good guy in a new book about Wall Street's bad boys.

(BEGIN VIDEO CLIP)

BRAD KATSUYAMA, PRESIDENT AND CEO, IEX GROUP: To think we've actually damaged the credibility of Wall Street any worse than it's done to itself over the last 10 years I think is kind of funny.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ROMANS: High frequency traders getting a high frequency of subpoenas lately. The New York Attorney General's Office just subpoenaed six firms. This kind of trading has come under renewed scrutiny in the last few weeks following release of the Michael Lewis book "Flash Boys." The book argues high-frequency firms rig the stock market by using their superfast computers to gain an advantage over everyone else. Michael Lewis is the author of a number of bestsellers, including "Liars Poker," "Moneyball," and "The Blind Side." Brad Pitt starred in Hollywood's version of "Moneyball," Sandra Bullock won an Oscar for "The Blind Side," and if "Flash Boys" makes it to the big screen, an a-lister will probably play this guy, Brad Katsuyama, a trader who figured out what the flash boys were up to and set out to beat them. I asked him how the stock market has changed.

(BEGIN VIDEOTAPE)

KATSUYAMA: People have always looked to game the markets. Right now the best way to do that is using technology.

ROMANS: When there were humans completely in charge, you were getting, people were getting ripped off, right? So is it better or worse now?

KATSUYAMA: I'd say it's different. It's different because it's not happening human to human. It's happening with a computer. And I think it actually makes it slightly more dangerous when it's not happening human to human, because people feel I think more cavalier how a computer treats someone versus a human treating someone else. People are always looking to game the system, and in today's market that's happening through technology. So for us it's about keeping all the good things that technology has brought but also looking to use technology to eliminate some of that scalping that we see happening.

ROMANS: We know that fewer than half of Americans actually invest in the stock market. They're really getting screwed because they weren't even in the stock market last year. I mean, do you worry about that all of this publicity around the book is actually pushing people away from the stock market, which could hurt them in the long-term?

KATSUYAMA: We've gotten thousands and thousands of messages and calls. If anything it's the opposite. It's given people I guess the belief there are people in the market looking out for their best interests. If it's scared anyone away, I'll be the first to apologize. I think the fight within Wall Street is people who are imbedded in the status quo and people who believe that change needs to happen. To think we've actually damaged the credibility of Wall Street any worse than it has done to itself over the last 10 years I think is kind of funny.

ROMANS: There's just kind of this, this kind of blind -- blind faith in investing and saving but not really knowing how much you're supposed to have. Most don't have the financial literacy for the basics. And then you go into the complicated architecture of financial markets and it gets even more difficult.

KATSUYAMA: When you look at the number of places that exist to trade, if there's only a single exchange it would be really hard for intermediaries to get in between buyers and sellers. There are 58 places to trade now in the United States. Everything by the New York Stock Exchange and NASDAQ, which are both public companies, all the others ones have been started by intermediaries, by middle men. So what that does is it skews the incentive structure more towards the intermediaries and it places the traditional investors farther away from the point of transaction.

You talked earlier about blind trust people have in the market. They know a little and trust the system works. And I think the biggest part about that is that trust has been broken. The markets should just really just be a neutral place where buyers and sellers can meet, almost like a referee. You hope when watching an NFL game that the referee is not skewed for one team to win over the next.

ROMANS: For the average investor buying a mutual fund or the average investor who maybe has a small account on e-trade, 401(k) through Fidelity, should they be concerned or is this something that only affects customers with very large trading volumes?

KATSUYAMA: Everyone in some way, shape, form is an investor. So whether you're big or small, the problem still exists. I think it's our job to raise the level of education amongst all investors so that they can make better decisions on how their orders are handled.

(END VIDEOTAPE)

ROMANS: It's important to remember if you're not in the market you won't make any money from investing. So don't shy away from stocks just because of your fears about a rigged market. Traders have always looked for ways to beat the system. Regulators have always been playing catch-up. The biggest crime is not investing. A solid long- term strategy is still your best bet regardless of what traders are doing in dark corners of Wall Street.

All right, thanks for spending your Saturday smart with us. Have a great weekend, everybody.