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YOUR MONEY

Hurting Housing Market; High Oil Prices

Aired November 3, 2007 - 13:00   ET

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


CHRISTINE ROMANS, CNN HOST, YOUR MONEY: And how high the price of oil has to go before you feel it off the road.
ALI VELSHI, CNN HOST, YOUR MONEY: And why bad credit card habits can shake up the entire economy.

ROMANS: Can't wait. All that and more after a quick check of the headlines.

FREDRICKA WHITFIELD, CNN CORRESPONDENT: And here are those headlines. Success in space. After one of the most dangerous spacewalks in history, about an hour ago, an astronaut risked electric shock to repair a tear in a crucial solar panel. The panel had been ripped as it was being unfurled Tuesday.

And a state of emergency in Pakistan. President Pervez Musharraf has suspended the constitution, expelled the chief justice of the Supreme Court, and imposed a media blackout. A U.S. state department spokesman says the U.S. is deeply disturbed by these actions. Reiterated by Secretary of State Condoleezza Rice in a conversation with our state department correspondent.

And Noel may not be a hurricane any longer, but the powerful storm still poses a threat to the northeast. Residents along the New England coast are being warned that the storm could disrupt power. The worst of the storm could hit the northeast as early as a couple hours from now. We'll be watching the remnants of Noel.

We'll update the top stories at the bottom of the hour. I'm Fredricka Whitfield. I'll see you again an hour from now. Much more of the newsroom. Meantime, YOUR MONEY.

VELSHI: Welcome to YOUR MONEY, where we look at how the news of the week affects your wallet. I'm Ali Velshi.

ROMANS: I'm Christine Romans. Coming up on today's program see if the types of oil are high enough to make the economy scream for mercy.

VELSHI: Plus, why the force driving and the ex big load crises could be as plumped as your back pocket.

ROMANS: And figuring out whether all the talk about recession adds up to trouble ahead for you and the economy.

VELSHI: Now, it was a big week in business. Not just for the rich guys in suits. For anyone who shops or saves or invests or carries some kind of debt. On Wednesday, the Federal Reserve cut its key interest rate by a quarter of a percentage point, and that meant your prime rate also got cut by a quarter of a percentage point. And that was designed to make credit cheaper for businesses and consumers. As expected, stocks went up on that news.

ROMANS: But then to make it even more fun the markets dropped dramatically on Thursday. After investors decided what the Fed was really saying with that rate cut, was that its rate cut campaign was likely over.

And then some disappointing corporate earnings didn't help the market that day either.

VELSHI: But then there was good news on the jobs front on Friday, and stocks started going up and then down. I mean, I don't -- this is one of those days when it might have been -- one of those weeks it might have been better to be on vacation. We thought we'd take a look at what it all means to your wallet.

ROMANS: We're joined now by two of our very good friends, friends of the program. Mark Zandi chief economist at Moody'seconomy.com. Andy Busch, Global Foreign and Exchange strategist at BMO Capital Markets.

Gentlemen, welcome to the program. I want to start first, I guess, with you, Mark, and tell me what all of this means for my wallet and my budget this week. Every day was a little bit of whiplash and big headlines from the news. All of this matters. It's just hard to sort through.

MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: Yeah, it's difficult. I think the message, though, is the economy is struggling a bit, it has got its problems. When you look through all the problems, it's going to continue to grow and expand, and we're going to avoid recession. So the good news is, I think, when it's all said and done, the economy will be OK.

VELSHI: Andy, you agree? We've had this recession talk a little bit, are we -- we're done with that?

ANDY BUSCH, BMO CAPITAL MARKETS: I think it was overblown just as a lot of the credit crunch has been overblown. You can look at one item, I would guess, adjustable rate mortgage resets that are coming. I think they're estimated to be somewhere around 2.5 or 2.2 by the year 2008. If you really break down that, only 500,000 of those are from the most troubled sector, people not able to pay on those, 2 million are going to come from people who just made mistakes buying things, and I think will make their payments.

Part of the market action this week was the disbelief that the numbers are as good as they were. The GDP number was fantastic. The employment numbers are very strong, a lot stronger than most people expected. It certainly means going into the fourth quarter as Mark said, we've got a lot of momentum, and it's very unlikely we're going to see a recession.

ROMANS: Andy, I need you to explain something to me. We've got a dollar at the record low versus the euro. We've got gold at like $800 an hour. You've got -- what else we got going on here? We have $96 oil; we have stocks that are still up 8.5 percent this year. I mean, I take my sort of market textbook, and I got to kind of put to the side here.

ZANDI: These rules don't seem to make sense.

BUSCH: No, they don't. I can't recall a time where all the things you just mentioned and the Fed cut interest rates. To me, it's very inflationary. I think on the other hand the way that the market interpreted it Thursday was that maybe the Fed knows a little more than we do about this credit crunch. That's really the ying and the yang of it.

I'm on the side this is a very inflationary tack that the Fed has done, and my belief is that we're going to see such strong growth going forward we'll get through the credit crises or housing crises. By the time we get into 2008, the Fed is going to be faced with a dilemma about raising rates about midway through that year.

VELSHI: Mark, I want to show our viewers a map of something. We know the unemployment rate in the United States is 4.7 percent. What we did is came up with this map. The states that are in red have an unemployment rate that is somewhat higher than the 4.7 percent. And the states that are in green have an unemployment rate that are somewhat lower. One of the points that you have made to us in the past is that there are some states in the United States where people are feeling all the elements of a recession already.

ZANDI: Yes that is right. I think it's the change in the unemployment rate, and it's rising quickly in places like California, Florida, and Nevada, parts of the northeast corridor. Those parts, if they're not in recession, they're very close. And the economy is struggling. I think its right to be optimistic we'll avoid recession, but we're going to have a few bumps in the next few months. This economy is still struggling. You can see it in those states.

ROMANS: When I look at credit card debt, Mark, when I look at the number of resets and Andy has a good point. Some of those families are going to be able to figure it out and maybe even get some new terms for their mortgages, but the wages coming in are barely keeping up with inflation, but the costs that are coming in for families are not. Tuition, oil prices, heating your home, filling up your car. The list goes on and on. We can talk about averting a recession, but for families, there's no doubt there's a crunch here, right?

ZANDI: Oh, absolutely. Christine I agree with you totally. If you look at all the things that support consumers, house prices are falling in at least half the country. Mortgage payments are rising for many of the folks that took on mortgages over the last couple, three years. The job market is clearly softer. It's OK. But it's clearly softer than it was. Unemployment is rising.

Stock market is up, down, or all around. It's gone nowhere for six months. You add all these things together, and it does paint a picture of some significant stretch, particularly for the households you just mentioned. VELSHI: Andy, I want to talk to you about inflation for a little bit. You mentioned this might be inflationary. If you have inflation -- if you're the Federal Reserve and there's inflation, you want to increase interest rates. People borrow less money, they spend less money, demand goes down, and you control prices. If you have the potential of a recession, you want to lower interest rates like the Fed did, makes money cheaper, people borrow more, they spend more, prices go up. How can you be in an economy where there might be inflation and there might be recession?

BUSCH: Well, that's why they get paid the big bucks at the Fed. I think this is the dilemma for them. They are basically taking on a very large and potentially expensive insurance policy to help the banking community get through the credit crunch.

There were reports out this week about Merrill Lynch and some of the activities that they were doing. Citigroup got downgraded. There are still concerns that this credit crunch is going to be elongated through the third quarter and fourth quarter and maybe into next year. I think that's what the Fed is trying to do.

So far to me, when the dollar is at all time lows, and we have food inflation running above 4 percent, the economy is growing at 3.9 percent. The employment has been -- I can't even get that out. I'm almost apoplectic because I think it's so inflationary that the Fed is cutting interest rates. I think it's very, very unsettling. I can't say enough about it. It cracks me up.

ROMANS: Mark, we're going to let you have the last word. Do you think it's unsettling that the Fed cut rates again? Andy seems to be a little more optimistic than you are about what's going to happen next.

ZANDI: No, not at all. Inflation is not an issue. This economy is weak. It's soft. Unemployment is rising. Job market is softer. I don't think inflation is an issue at all. In fact, Federal Reserve has a lot of latitude to use interest rates if the economy doesn't cooperate, and I think there's a significant risk that it won't.

VELSHI: Guys, what a pleasure to have you both on the show. Two very smart friends of ours who have, you know, different outlooks on what's going on. I think the point here is that it's worth looking at all sides of this issue and deciding for yourself how you want to invest and protect yourself because we don't really know what's going to happen.

ROMANS: Andy Busch and Mark Zandi, two of the best names out there.

OK up next on YOUR MONEY, how high oil prices have to go before they take down the whole economy.

(BEGIN VIDEO CLIP)

ROMANS: This is the week when $90 a barrel oil started looking less like a crisis and more like a bargain. Crude hit a record $96 per barrel. Inflation fears helping push the Dow into a tail spin on Thursday. VELSHI: Steven Leeb is going to help us understand how rising oil prices could end up affecting Wall Street, the economy, and you, if it's not already obvious. He's the president of Leeb Capital Financial Management a high net worth asset Management Company here in New York and an expert on oil. Good to see you my friend.

STEVEN LEEB, LEEB CAPITAL FINANCIAL MANAGEMENT: Thanks Ali.

ROMANS: High net worth means he doesn't manage people like us.

LEEB: Not true.

VELSHI: Most folks know, when they fill up gas, what the price of oil, what impact it has on them, if you have heating oil, but it's way beyond that.

LEEB: It's so far beyond that, Ali. Recently, I couldn't believe that JAMA, which is the Journal of American Medical Association, had an article called "Peak Oil and Health Care," and the point of the article was that oil prices, high oil prices raise the cost of medicines.

VELSHI: Wow.

LEEB: It's all over. I mean, we're probably sitting on oil right now in some form or other. The Shah was once famously quoted and I'm not quoting him, but I'm paraphrasing him, as saying this stuff is too valuable to waste in automobiles. It's used everywhere from medicine to chairs to plastics. It's hard to find something that oil is not a part of.

VELSHI: And it's used to make all those things. The interesting thing is, if you look at recessions in the past, you know, few decades, they've all been preceded by a spike in oil. Why is that different now?

LEEB: It isn't really different. That's such a true point. That's exactly right. We have yet to have a recession or even a major market crash without a spike in oil. The question is what you mean by spike. The cutoff point in the past has been 80 percent. Once oil jumps 80 percent year over year, be careful. That's usually a recessionary trigger. It was true in 2000. I know we were in a tech bubble, but it took a catalyst, it took something to puncture that bubble, and I believe it was the price of oil, which jumped about 100 percent.

It was true in '87. It was certainly true in 1990, and it's been true, as you said, in every recession that we've had. What's different this time? Oil's simply not up on a year over year basis 80 or 90 percent. It's up a lot, but, you know, if we do get to, let's say, $110, you've got to be extremely careful because that probably would trigger the kind of spike that we've seen in the past readily associated with recessions to major market downturns. We're getting there, but we're not quite there yet.

ROMANS: There's some people who I would put in the category of market geeks, who get real concerned about the nominal price of oil and inflation adjusted oil, going back to '82 or going back to '79, if we get to $101 a barrel, we are at an inflation adjusted record, so we're right there in that territory. Why isn't that hurting the stock market more?

LEEB: Right. Because it hasn't affected inflation yet. That's the key thing. The last time oil was at the equivalent of $100 a barrel back in 1980, overall inflation was 10, 12, and 13 percent. Paul Volker, then chairman of the Federal Reserve, was doing his macho stuff and bringing it down. Raising interest rates to 15, 18 percent. Today inflation is still under 3 percent, but, Christine, what I fear is now oil and energy, overall energy prices, energy itself is about 10 percent of GDP. When it reaches that point, it does become an inflationary factor.

Until now, energy has not been that significant a component of GDP to affect overall inflation. I think we've passed that inflection point. So if oil does start to rise from here, even if it doesn't hit the 80 percent point, we can expect more inflation.

VELSHI: Where do you think oil goes in the longer term?

LEEB: Ali, I don't want to --

VELSHI: Come on. You wrote a book on it.

LEEB: I don't want to be depressing. I think we're in a long-term uptrend. Three, four, five years from now, it could be double the price it is today.

VELSHI: Wow.

LEEB: I mean, I hope I'm so wrong on this. I really do. I want to be dead wrong. Have me back in three or four years and say, wow, you were wrong. And I'll say, you know what, I am so happy I was.

VELSHI: That is the best pitch for getting invited back on the show. We will have you back. We've been talking to you for all these years. We will definitely have you back. Thank you so much.

LEEB: Thanks Ali.

VELSHI: Steven Leeb of Leeb Capital Management. If you have a lot of money, you might want to talk to him.

Coming up after the break, what you could be doing to contribute to America's next big lending crises. Yes you, stay and find out.

(COMMERCIAL BREAK)

ROMANS: You know the average family. Everybody listen to this. I'd like to know where we are on this. The average family already owes, roughly $8,000 to the credit card companies.

VELSHI: And that's all the debt out there divided by the people who have it. A lot of people could be in a lot more. And the holidays are right around the corner. Many shoppers are likely to pull out the plastic and plunge themselves even deeper into debt.

ROMANS: Carmen Wong Ulrich is the author of "Generation Debt." She is here to tell us why the credit card issue might be the next sub prime. Are a lot of people out there holding on, I mean. We know that we're addicted to credit card debt. Are we in trouble now?

CARMEN WONG ULRICH, AUTHOR, "GENERATION DEBT:" We've to see. I think the holidays are going to be a real litmus test. What is going to happen? What consumers feel? You know the consumer confidence index did go down quite a bit. What I'm interested in is the $915 billion number that's been going around. What I'm interested in is what is the revolving credit card debt rate? You know right now it's around half of Americans have revolving credit card debt.

VELSHI: The kind where you pay off a little bit and then basically the credit is available to you again.

ULRICH: Basically, you can't afford to pay off your credit cards in full every month. So I want to see where that is going to go. Because back in '91, that was up to 72 percent. I want to see where that's going to move because these are people that are not able to pay off their credit cards.

VELSHI: Christine and I always talk about the solicitations that you get in the mail. I would have thought with the credit crunch that we've been seeing that would slow down. I think that they've actually accelerated to my house.

ULRICH: They have accelerated, and there's been news they've not just accelerated with people with higher incomes, good borrowers, they call, but even the worst borrowers have accelerated. I don't understand why that's happening.

VELSHI: In the sub prime crisis, everybody went for everybody and said, we'll lend you every last penny we can possibly lend you, and we'll worry about the whole credit thing later?

ULRICH: They're worrying about it a lot now. It's going to hit. What consumers can do is not pay attention to those. And those opt out prescreen. That's the secret. If you need to shop for a car or a loan, go to bankrate.com and shop there. But the key is even good borrowers are having trouble borrowing, and a lot of them don't want to borrow because we're waiting to see what's going to happen the next couple of months.

VELSHI: You know after the subprime crisis, we had this big conversation about whether the government should get involved and they should do this and they should do that. Christine always talks about --

ROMANS: Moral hazard.

VELSHI: Moral hazard. If you go in and correct people's mistakes for them, they may not learn to make those mistakes. Now we're ahead of the credit card thing. You're telling us this could become a big problem. Should anybody be involved in this, or is this entirely your responsibility as a consumer?

ULRICH: You know I think the Fed should get involved to a point in terms of tightening restrictions on credit card companies. There's a bill in Congress right now to add on to the Truth-In-Lending Act. When you get an offer for a fixed credit card, a fixed rate, it should be fixed. That's not what's happening right now.

That sort of thing needs to be taken control of. And also too, there needs to be more education because we've got a community that doesn't understand what debt is and what borrowing is. I mentioned that I was in a high school, the kids -- I asked the kids, if you got a credit card offer for $2,000 in the mail and you got that card s that money yours? And they all said yes. They were thrilled. And I said no, this is not your money. You've got to understand that debt is borrowing someone else's money and paying for the privilege.

ROMANS: So if someone is listening to us now and saying, wow, I have more than $8,000 on my credit cards, and I'm not in a position where I'm paying off half of them every month. What do they do right now? Should they be trying to pull themselves out of that?

ULRICH: I think so. Right now is a really good time to get those debt levels down, not take on any more debt. Know why you're in debt in the first place and get a grip on that. Also, really own your debt. Know it inside and out. Know what your interest rates are, your due dates are.

VELSHI: What's going to make those interest rates change?

ULRICH: Exactly. Really know that inside and out. And also find the money. Visa released a study last month that found that Americans lose $2,300 in cash a year.

VELSHI: I saw that. It's fascinating.

ULRICH: They lose it.

VELSHI: Nobody can tell you where it went.

ULRICH: Exactly. They cannot tell you. It's lost cash.

VELSHI: Bar money and cab money and things like that.

ULRICH: Even just little things. ATM fees are tremendous. I looked at my statement, and I do this for a living, and I'm still paying $20 in ATM fees. It's got to stop. Track down that money, $2,300 is a lot of money to be losing every year. Track that down by pulling together your receipts, keeping receipts for everything, even if it's just for two weeks or for a month and get a sense of where that cash is going, it's going to help out a lot.

ROMANS: You could take a major vacation on $2,300.

VELSHI: I'm a total sucker. I never know where my money is. I actually went through my trousers this morning and found $200. How come I never have any money? Just because I leave it in my pants. ROMANS: And he's the guy that gets $40 a time at the ATM machine.

VELSHI: And I pay the fees. I shouldn't be involved in this show.

ROMANS: Tell us your official advice about somebody who takes $40 out of the ATM machine and spends $1.50.

VELSHI: Because I would spend it all. That's why you like me because I'm a sucker like you. Good to see you.

ULRICH: Good to see you too. Thanks.

VELSHI: Still ahead on YOUR MONEY, checking in to see how safe your savings actually are.

And later, we'll get to the bottom line of it. Recession or no recession? Stay here. We're going to tell you which one it is.

(COMMERCIAL BREAK)

WHITFIELD: Hello. I'm Fredricka Whitfield in Atlanta. Now in the news, another meat recall. If you have it, ditch it or return it for a refund. Cargill Meat Solutions is recalling a million pounds of its ground beef products. Here's a lit of the stores where it was sold. The beef could be contaminated with the deadly E. coli bacteria.

And take a look at this picture right here. Do you recognize this little girl? It's a composite sketch of Baby Grace. Authorities are desperate to find out who she is. Why? Because her remains were found stuffed in a plastic box. The remains were found by a fisherman near the Galveston Texas Bay.

And a new bomb shell. An O.J. Simpson memorabilia case. The FBI says it was tipped off about plans to retrieve his personal items from a Los Angeles dealer, but the FBI says they didn't know where or when or if a crime would be committed.

In the 2:00 Eastern hour, we'll ask our legal guys about that and where it's going in the case against O.J. Simpson in Las Vegas.

Overseas, a state of emergency in Pakistan. President Pervez Musharraf addresses his nation in 30 minutes. Live coverage in the CNN Newsroom at 2:00 Eastern.

Now back to more of YOUR MONEY.

ROMANS: You know, you don't have to own a home to get hit by the housing crisis.

VELSHI: You were telling us about this last week. It affects your tax base; it affects all sorts of other things. It even actually affects your investments. Some of the more conservative investments that you have might actually be at risk.

ROMANS: That's right.

VELSHI: That's kind of an interesting point.

ROMANS: I was surprised by this. Greg Hunter is going to tell us what of our conservative investments we might not even know are exposed to subprime and could be in trouble.

GREG HUNTER: Not just subprime. It's derivative too. The latest reports from home builders and retailers showing housing prices falling in most parts of the country. Everybody knows that's bad for home values, but what most people don't know is that declining housing prices can have a ripple effect on your other investments. How flush are your funds?

(BEGIN VIDEO CLIP)

HUNTER (voice over): It's easy to find for sale and foreclosure signs across the country, signs of financial pain for many families. Yale economics professor Robert Shiller says we're witnessing the bursting of the biggest real estate bubble in U.S. history.

DR. ROBERT SHILLER, YALE UNIVERSITY: A lot of people think, they say home prices can never fall, and you ask them why, and they'll say, well, because they've never fallen since the great depression. Well, it can happen again.

HUNTER: Shiller correctly predicted the stock market sell off in 2000. He anticipated how what he called an over inflated bargain led to a rapid crash. Now Shiller says a similar phenomenon is happening in the housing market.

If the housing market crisis is a nine-inning baseball game, what inning are we in?

SHILLER: First inning. I think. That's a guess.

HUNTER: Shiller says that downturn could cut home prices in half in some areas.

SHILLER: If home prices go down 50 percent, we are going to see some big problems in banks, in mortgage insurers, in hedge funds, in a wide variety of institutions that either invested in mortgage securities or insured mortgages. I really find it difficult to think through all the ramifications of this.

HUNTER: Industry estimates say nearly $3 trillion, that's trillion with a "t" could be exposed in non-FDIC insured money market funds. According to former Wall Street regulator Bill Singer, those funds could take a hit.

BILL SINGER, FORMER WALL STREET REGULATOR: We do know this can happen and it has happened, and that's one of Wall Street's dirty little secrets.

(END VIDEO CLIP)

HUNTER: So the best way to protect yourself is know what's the in your funds. How do you check on your money market funds? Ask for a prospectus by mail or online and see what the money market fund is actually investing. You can also call the fund managers and say, hey, is there subprime, is there mortgage backed securities, and are there collateralized debt obligations? Things like that.

You know assets from troubled companies. They should tell you straight up. Most people think money market funds are invested in more secure assets like U.S. treasuries. That's simply not true. If you want to fund and invest in treasuries only, you'll have to ask for it. It probably won't pay as high of an interest rate, but it will be more secure.

ROMANS: So much for safety, safety, safety. That's what you think when you put something in a money market fund.

VELSHI: Very important point. Most people will make the assumption. Even people who know about the stuff will say that's a safe investment.

HUNTER: Even Fidelity Funds and money market funds say, this fund can't lose money.

VELSHI: We don't know what that means. Everybody has to say, it could lose money.

HUNTER: I've looked at these funds. They have cut paper from like 60 companies or something like that, and they're traditionally safe. It all gets back down to what they've been calling subprime because it's simple for people to grasp. Really what it is derivatives. They derivatives on everything, subprime, car loans, this is a big mountain paper out there, that was off record.

VELSHI: How would you describe this?

HUNTER: Debt money. It's debt money, $400 trillion. You try to get your hands around it. Going out to the Time Warner Building and trying to hug the Time Warner Building, $400 trillion. And people out there saying $20 trillion of this stuff is no good.

ROMANS: Wall Street will trade anything. They'll package up and trade anything. Things have been traded and passed around and bought and parked someplace that might not have a lot of track record.

VELSHI: This isn't about the house where the mortgage isn't getting paid. We're two steps removed from this. This is an investment that has its own existence.

HUNTER: It's off books. It is no transparency. It is privately traded. It's like me saying, Ali, I want you to buy this mortgage- backed security. I'm not going to put it out there to the market. It's just between me and you. It's our little secret. And that's what's freaking out people with the financials as of yesterday, boom, the financials took a hit. All this is off the books. Wouldn't it be nice if you could take your bad investments and put them off the books?

VELSHI: That's the issue with the way the markets have been going. There are these surprises from the biggest of the banks and the smartest of the smart in money. How come you didn't know, Merrill Lynch that you were going to write down close to $8 billion, or Citigroup.

ROMANS: A lot of money. Greg Hunter.

VELSHI: Thank you, my friend.

HUNTER: You may not like what I say, but I'll never lie to you.

ROMANS: An energetic conversation with our friend Greg Hunter. Thanks, Greg.

VELSHI: Coming up next on YOUR MONEY, so Chicken Little, is the sky really falling? Our next guest tells us why all this recession talk is really just talk. Stay with us you will hear the other side of the story.

(COMMERCIAL BREAK)

VELSHI: I want to say a couple things about recession. First of all, every time I use the word on TV, I hear people say we are kind of responsible. When you talk about a recession, you get people worried about whether there is a recession. And the second thing is there really is a definition for recession, and there are people who spend time figuring out whether or not we're in one.

ROMANS: That's absolutely right. There's an actual model for what makes a recession and the like. Nearly half of all U.S. consumers believe we're already in one. A recent CNN poll said 46 percent of respondents feel we're in a recession now. But Anirvan Banerji, this economist argues recession isn't inevitable even though some parts of the economy are having a rough time.

VELSHI: He's with us now. Tell me the name, The Economic Cycle Research Institute, which I know how to say about every few years when we want to talk about whether or not there's a recession coming.

ROMANS: All you do, you decide whether we are in a recession or heading into one.

ANIRVAN BANERJI, ECONOMIC CYCLE RESEARCH INSTITUTE: Absolutely. This is what we study for the U.S. as well as abroad.

ROMANS: What are you finding about this current scenario?

VELSHI: Drum roll.

BANERJI: Not yet. This is the energizer bunny economy.

ROMANS: Wow.

BANERJI: We kept going. We've taken all these hits -- higher oil prices, housing downturn, credit crisis, we keep going.

VELSHI: And so you're saying that this holds out. We've certainly been talking to a lot of people about this, and most of them are skewing on the side of no. There's some bumps in this economy but not a recession.

BANERJI: Look, people have been predicting recession for years. 2005 with Katrina and all that, 2006, 2007. They keep predicting a recession, doesn't happen. And there's a reason for that. And the reason is that as long as people have jobs OK, you have to sort of tighten your belt, pay more for gas, more for your mortgage, but you can still keep going, and that's what's going on right now.

ROMANS: And we have a 4.7 percent unemployment rate.

BANERJI: Exactly.

ROMANS: We've been seeing layoff notices, particularly in financial services, they're about triple what they were last year yet other parts of the economy are holding in there.

BANERJI: That's exactly the point. A recession is when this malaise spreads through the economy, and what we keep looking out for are those signs of diffusion, we call it. And that's not happening yet, and that's why we are not at the tipping point.

ROMANS: Even though people like Ali and I keep saying the word recession over and over and over again on TV, that's why the polls say 46 percent, because we're talking about it?

BANERJI: Exactly. And that's not very good news for retailers this holiday season. Look, I'm not here as a bearer of good news that everything is fine and dandy, no way. But we are not going into recession yet. And what that means is we are not going to see widespread job losses, net, net, going on for months on end, quarters on end, maybe a year or two.

VELSHI: But we may see continued losses in the housing sector. We may see oil prices go higher. You're just saying and I think it's fascinating, you guys take all of those economic things we talk about every day and put it into your computer or whatever it is you do --

ROMANS: I think it's like a crystal ball.

VELSHI: Exactly. And you don't think those things are going to bring the economy down.

BANERJI: That's not what we're saying. We take the on the one hand, and on the other hand, and we sort through that. What's the bottom line here? The bottom line is no recession. Let's look at it this way. Look at the facts you mentioned. We have strong GDP growth, best in a year and a half. Best job growth since the spring.

Now, if you're flying at 40,000 feet and you hit a couple of big air pockets, you can still be down to 10,000 feet and still keep flying. Now, if you're in a nose dive and you're at 3,000 feet, well, you better not hit that air pocket. And so what we are watching for is are we losing altitude? Where are we? And are those air pockets going to really make us crash?

ROMANS: So I guess we are losing altitude, but we're not -- we're losing altitude from a relatively high level.

BANERJI: Right. And that's why it's OK. That's why we need to keep watching our indicators to see whether we are at a point where those shocks that everyone keeps talk about, $100 oil, $150 oil, the big housing downturn, whether that's going to tip us in a recession.

ROMANS: Mark Zandi said there's some parts of the country and there are some families, their own circumstances are clearly recessionary. You would agree with that. There are people who feel like they're in a recession, and they probably are having trouble.

BANERJI: There's no denying that there are parts of the country that are in trouble. There are industries, as we all know, that are in trouble. The key is that it doesn't spread to other industries, to other regions. That's the issue.

VELSHI: Anirvan, thank you for your very clear explanation of that. We'll keep in touch with you about those days that we wonder whether this is the thing that tip us over. BANERJI: I look forward to that.

ROMANS: Give us a call when you think we're going in a recession.

Coming up next on YOUR MONEY, a small but powerful group of business leaders is about to get even smaller.

(COMMERCIAL BREAK)

VELSHI: Stanley O'Neal stepped down as the CEO of Merrill Lynch less than one week after the firm posted an $8 billion loss on risky investments in subprime mortgages.

ROMANS: O'Neal was one of only seven African American CEOs named to this year's Fortune 500, and the group might get even smaller. Richard Parsons, CEO of Time Warner, the parent company of this network, is expected to step down sometime soon. They said he will retire sometime next year.

VELSHI: Special CNN contributor Roland Martin joins us now to tell us what all of this means for Corporate America. He's not a guest of CNN. He's just a first time on our show.

ROLAND MARTIN, CNN CONTRIBUTOR: Been on CNN a couple of times.

VELSHI: More than a couple. Good to see you, my friend.

MARTIN: Glad to be here.

VELSHI: What are we supposed to think? Is there any implication to this, or is it just pure coincidence that two of the leading African American CEOs in America will not be CEOs inside of a few months?

MARTIN: Well keep in mind that earlier this year, Anna Fudge stepped down and Franklin Raines he stepped down from Fannie Mae. The issue is you have so few. If you look at the process, many African Americans came into Corporate America, 1972, '73, '75, maybe mid to late '70s. And they spent 20-some-odd years operating in these companies, and it takes that long to rise up to the CEO level. The real issue is not that we have six or seven now, but we have coming up the next ten years. Are we going to see more over of the course of the next ten years?

ROMANS: That's what I was wondering. If the talent with ten years' experience, 15 years' experience, 20 years' experience is stacked, and if we're going to see real leaders starting to come up.

MARTIN: A lot of folks are concerned about that. You have individuals who feel as if they may not get the shot. It takes a lot of patience to get one of these CEO jobs. Some folks may say, really, what's the big deal having an African-American as a CEO? Well because the CEOs also decides so many different things in terms of philanthropy within the companies, in terms of also bringing things in.

Even if you have a woman who's a CEO whose more sensitive to bringing a wide talent pool as opposed to seeing the same folks over and over and over again. Look at the tremendous job that Dick Parsons has done when it comes to raising funds for the Apollo, Jazz at Lincoln Center, and same thing with other CEOs. And they widen the pool available for people on corporate boards. Another place where you have few minorities and women.

VELSHI: Let me talk about the other companies. If you look at the Fortune 500 list, take a look at some of these, you have Stanley O'Neal at Merrill Lynch. They're the highest on the Fortune 500 list of CEOs that had African American leadership. Sears, Time Warner, American Express, Delphi, Aetna. Then it jumps down to 404, Darden Restaurants, which includes one of my favorite restaurants, the Olive Garden.

MARTIN: And John Thompson was Symantec at 515. So he's just outside of it.

VELSHI: And the Fortune 500 companies, do they recruit better? They have better reach? Is or is it something we're not seeing on this list, a lot of leaders further down you get.

MARTIN: That's what I was getting at. Frank Clark, CEO of Comed. Desiree Rogers, president of a company there in Illinois as well, same sort of issue there. You have lots of CEOs out there, but then when you get to the Fortune 500 level; it's a whole different ball game.

The important thing, though, this is what is critical. People say, again, how big is it? When you're an African-American and you see someone who looks like you sitting in that position, you actually understand you know what; I could be there one day. It's no different than anybody else. Far too many African-Americans have not been exposed to a CEO. They often don't come across a person in that position. It's important, when somebody is there to say, yes --

VELSHI: At the starting point, you don't have a lot of people saying, I can be the CEO of that because they're not identifying with that.

MARTIN: Absolutely. You don't identify with that. You don't walk around thinking, you know what, and I want to run Merrill Lynch one day.

ROMANS: But this guy walks away with $160 million. Advertised on the front page of every newspaper. So maybe kids say, oh, I do want to be a CEO.

MARTIN: It's also a matter of wealth creation. When you look at the wealth gap that exists between African-Americans, whites, and Hispanics, so when you have fewer African-Americans in the corporate pool and as you go higher up, you have fewer people with the opportunity to make those kinds of dollars. When they do make those kinds of dollars, then that trickles back down to the sort of things they actually support.

Who they leave their money to in wills. Again, in sort of skews in terms of how you look at people in positions of power. That 1 percent of America. When you have fewer folks in those kinds of positions, they're not able to make that kind of wealth. And I think it's difficult when a Stanley O'Neal steps down, but the bottom line is you're judged by your actions. And so whether you're white, black, Hispanic, female or whatever, Carla Fiorina she was booted out of HP. Bottom line is you have to perform. I would hope the next generation we're going to see more people rise up and, again, give folks their shot based upon executing the strategy. That's what's most important.

VELSHI: Roland good to have you here my friend.

MARTIN: Glad to be here anytime.

VELSHI: Thank you so much. Roland Martin.

Well in a week when we've been talking about the new employment numbers, here's a story about how jobs can turn lives around. It start with a retired cosmetics executive and a prison system where getting out doesn't always mean staying out. CNN's Mary Snow has this report in our "Life after Work" series.

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MARY SNOW, CNN CORRESPONDENT (voice over): Prison. For those who enter, the odds are there will be a return visit upon release.

MARK GOLDSMITH, CO-FOUNDER, CEO, GETTING OUT AND STAYING OUT: The recidivism at Reichers is 66 percent, 2 out of 3 guys end up going back, who have been here before. In our classes, we talk to them about that.

SNOW: Mark Goldsmith is the cofounder and CEO of Getting Out and Staying Out.

GOLDSMITH: And we tell them our statistics. Of the 250 guys who have taken this program seriously, no more than 25 have gone back. That's 10 percent.

SNOW: His New York City nonprofit helps 18 to 25-year-old inmates with education and job training. GOLDSMITH: They go to jail, and eventually they'll go to prison upstate. Within those confines, I'm talking about what it's going to be like when they get out. It's very future oriented rather than past.

SNOW: Goldsmith's past was as an executive in the cosmetics industry where he worked for 35 years prior to retirement. Volunteering as a principal for the day at the prison school opened his eyes to the revolving door problem. So Goldsmith designed a solution to work with prisoners while they're locked up and as they get out.

GOLDSMITH: We're there with them as they go through the process of applying for school, how do you apply for a job? What does that application look like? How do you handle the fact that you've been incarcerated, you don't just tell them what's out there. We help guide them through the process. When I get back from those guys, once that process starts to happen, are rewards that I never ever got in the corporate world.

SNOW: Mary Snow, CNN.

(END VIDEO CLIP)

VELSHI: All right. Coming up next on YOUR MONEY, lead in some products that you buy might be a bigger problem than you think. We'll tell you why when we come back on YOUR MONEY. Stay with us.

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VELSHI: Christine is one of these do it yourself people. She's tired of hearing about how everything has lead in it. Several weeks ago, she introduced us to this whole idea, for those of us who didn't know about it, about the idea of the home lead testing kits so you can go around your own house and don't have to worry about the announcement as to whether something's got lead in it.

ROMANS: Actually there are a lot of consumer groups who have been saying they're worried that there are so many things out there; you don't know what your kid is using, especially if it's a small child. And the Consumers Union this week actually released a big study, even if you take the recalled things out of your toy box; they found things that had lead in them right on store shelves right now.

They went through and tested a bunch of those home lead kits. We told you a couple of weeks ago when we had them on, what their response was. They were testing them to find out is it even reasonable for a consumer to do something like this? They did find there are a few tests that work with some limitations if you're really concerned.

The Homax Lead Check is about $8. There's another one called The Lead Check Household Lead Test Kit and Lead Inspector. You can look at "Consumer Reports" or Consumers Union Website, and they break this all down for you. There were some that didn't work so well and had some false positives and false negatives. And that's -- you know, one of the reasons why the Consumer Products Safety Commission did its own study. The federal government says they don't recommend that American consumers should be checking their own toys. It's really confusing -- VELSHI: But people feel like they'd light to do something. You feel helpless because you have to wait until some announcement comes on the news.

ROMANS: I spoke with Kim Kleman, who is the editor and chief of "Consumer Reports." Here's what she said about the lead kit.

(BEGIN VIDEO CLIP)

KIM KLEMAN, CONSUMER UNION: We have found several lead test kits that work, but we really don't think it should be the consumer's problem to have to test every toy in their home for lead. Something is wrong when people are fearing the products they're buying for lead.

(END VIDEO CLIP)

ROMANS: So essentially, we're back where we started, where we've got the government saying, no, don't test. We've got Consumers Unions saying, we're sorry you have to do this, but this is what we found about these lead tests, and we have recall after recall after recall.

VELSHI: Well there is nothing like feeling helpless. If you don't know and you've got to wait for somebody to tell you, I don't know. Maybe I'd rather spend the time thinking that I'm testing.

ROMANS: The industry has said the recall is behind them, and you can be sure everything is safe for the holiday season. But the Consumers Union found one-third of consumers are going to buy less this holiday season.

VELSHI: Because of this fear.

ROMANS: I was even over at a bank across the street getting a savings bond for my niece for her baptism, and the guy behind the counter said, you wouldn't believe it all the guys getting savings bonds instead of toys. Even the guy noticed it. Maybe it's just here or that block or that one branch, but their people starting to rethink some of their purchases.

VELSHI: Well, do what you can with that information. We will keep telling you when the recalls come. Thanks for joining us for this edition of YOUR MONEY.

You can catch Christine later today at 6:00 pm Eastern of "Lou Dobbs This Week."

ROMANS: And you can see Ali every weekday morning on "American Morning." We will see you back here next week.

VELSHI: Saturday at 1:00 and Sunday at 3:00. See you then.

(COMMERCIAL BREAK)

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