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Issue Number One
JPMorgan Chase to Buy Bear Stearns; Federal Reserve With Weekend Surprise Cut; Rising Debt in America
Aired March 17, 2008 - 12:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, HOST: JPMorgan Chase to buy Bear Stearns. The Federal Reserve with a weekend surprise cut in the discount rate. More and more homes are in foreclosure, more and more Americans are losing their jobs. Savings plans are taking hits, debt in America is rising.
You hear the headlines, but what does it mean to you? What does it mean to your money?
"Issue #1" is your economy. "Issue #1" starts right now.
Hello, everyone. I'm Ali Velshi.
This is "Issue #1."
Poll after poll shows that Americans' top concern is their financial security. So for the next hour we're going to focus on housing, on debt, savings, jobs, everything that matters to your bottom line.
CNN Personal Finance Editor Gerri Willis will be along in a minute, but first, here's the very latest.
Wall Street remains jittery in the aftermath of the Bear Stearns/JPMorgan deal and the unusual move by the Fed to cut its discount rate and expand the pool of banks that are eligible to borrow money at that rate. The goal, to help banks who find themselves with cash flow problems.
President Bush says that his administration is on top of the economic situation. He met with Treasury Secretary Henry Paulson and other senior economic advisers this morning. The president acknowledged the challenges the economy is facing, but he praised the Fed's efforts.
And markets tumbled at the open of the trading day in response to all of this, but they've regained some ground now. Investors continue to process what these moves mean to them in the long term.
Gerri Willis.
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Ali, I'm at the help desk.
Now, this program is about bringing you the very latest information on your money and helping you to answer your questions. We've got a whole panel of experts to do just that.
Send us an e-mail to issue1@cnn.com. That's issue1@cnn.com. And we'll answer those questions coming up a little later in the hour.
Over the past week, Americans have been asked what issue is most important to them, and the answer is clear, it's the economy. Your house, your job, your savings, your debt.
(BEGIN VIDEOTAPE)
WILLIS (voice over): The mortgage meltdown, the credit crunch, up-and-down investments, uncertainty in the job market.
UNIDENTIFIED MALE: I'm worried about really bad changes coming up if people can't pay their bills.
UNIDENTIFIED FEMALE: People are starting to spend a little bit less money on luxury items.
WILLIS: The stock market went up yesterday, but the last three weeks have been horrible.
UNIDENTIFIED FEMALE: We're going to have a are huge recession. It's kind of scary.
WILLIS: Today, issue #1 is the economy. The nation's housing crisis has one in 10 homeowners under water. That's 8.8 million families owing more than their home is worth according to moodyseconomy.com.
And many of those could lose their homes. Nine hundred thousand households are currently in foreclosure, according to the Mortgage Bankers Association, an industry trade group.
American debt doesn't help the problem. The average American household with a credit card owed nearly $10,000 in 2007, according to cardweb.com, which serves the credit card industry.
Adam Levin of consumer information Web site credit.com...
ADAM LEVIN, CO-FOUNDER, CREDIT.COM: It's a disastrous threat. And it's a threat based on the fact that the more debt that you get yourself involved in, the less income your going to have available to pay for other things.
WILLIS: If all that debt isn't enough to pinch your pocketbook, the loss of value in your investments certainly could. The stock market continues its wild ride, tanking one day, soaring the next. Despite some positive signs this week, the market is still down dramatically for the year.
And it's harder to save money when you're spending more for everything you buy. Gas prices, for one, are at record highs. All this leads to fears of recession, and with recession comes the possibility of job losses. JACK OTTER, DEPUTY EDITOR, "BEST LIFE" MAGAZINE: Job loss is about as serious a threat to your financial security as there is. It's not terrible right now. The problem is the trend is going in the wrong direction. Jobless claims are creeping higher.
WILLIS: The Bureau of Labor Statistics says 63,000 people lost their jobs in February, and economists say that number will likely rise.
Mix all of these factors together, it signals a threat to your bottom line, your issue #1.
(END VIDEOTAPE)
VELSHI: Now, how do latest developments work into your bottom line, your issue #1?
Dean Baker is the co-director of the Center for Economic and Policy Research in Washington, D.C. Peter Morici is a professor with the University of Maryland School of Business.
Dean and Peter, good to have you both with us.
We've been following this Bear Stearns news, everyone has been following it, the near-collapse of the fifth largest investment bank in America, the intervention by the Federal Reserve, and now the purchase of that bank.
What on earth are regular people supposed to make of this, Dean?
DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC POLICY RESEARCH: Well, it's a very scary situation. What's going on is there's an awful lot of bad debt in the economy, first and foremost, coming from the collapse of the housing bubble. And we don't know exactly, you know, where it's showing up.
Obviously, a lot of it was on Bear Stearns' balance sheets. Clearly, there's a lot more out there.
I mean, by my calculation, we're looking at $8 trillion in housing bubble wealth, much or all of which is likely to disappear over the next year or two. And a lot of that is going to be reflected in bad mortgage debt on the balance sheets of major banks. So, you know, Bear Stearns is the first to go. Unfortunately, it's almost sure not to be last.
VELSHI: Peter, this is a situation that has got people very confused. We've got a low U.S. dollar, we've got oil hitting records, we've got gas prices obviously hitting people in their pocketbooks.
What does this -- how do you sort of calculate everything that's going on in the investment community, in Wall Street, and how that affects you and your daily life? Can you make some connection between those two?
PETER MORICI, ECONOMIC PROFESSOR, UNIVERSITY OF MARYLAND SCHOOL OF BUSINESS: Well, basically, global financial markets are shorting the U.S. economy. They have lost confidence, wholly, in the stewardship of President Bush, Treasury Secretary Paulson, and most of all, Federal Reserve chairman Ben Bernanke.
The size of the losses expected in the -- at the banks is at least $1 trillion, when you add up not just the subprime, but all the rest. That likely means that asset markets are going to continue to decline -- both housing prices and stock prices. Ordinary people, this is a time to put their savings in insured deposits. Don't do anything fancy.
VELSHI: When you say insured deposits, you mean in bank accounts where if something goes wrong you get money back?
MORICI: Exactly. FDIC insured deposits. If they're fortunate enough to have more than $100,000, then break it into two deposits and put it in two different banks.
VELSHI: All right. Peter, that's bleak.
Dean, do you think it's going to get that bad? I mean, tomorrow we're expecting the Fed to cut interest rates.
BAKER: I'd actually agree with Peter...
MORICI: I understand that they're going to cut interest rates and the interest that you're going to get is pretty low. But if you need money over the next five years, then you best keep it as money.
Now, that doesn't mean you should empty out your IRA or your Keogh if you're under the age of 55, for sure. And the lesson of the depression is to just ride it out, and the stocks will come back.
VELSHI: What do you think, Dean?
BAKER: I'd agree very much with Peter. I think that this is very much a time for caution.
I mean, house prices are going to continue to drop. I just see no way around that.
We have a glut of inventory. People's ability to buy homes is being cut back because banks are finally using some good judgment and not lending money to everyone in sight.
Then on top of that, you know, the markets are still coming to grips with the fact that we have, you know, as Peter said -- I think $1 trillion figure is a good ballpark number as to how much bad debt we have out there. So, I would suggest, you know, this is a time for most people to be cautious. I mean, if you want to, you know, play games -- you know, if you have money to spare, you know, obviously you could go gamble with it. And, you know, there's opportunities to do that.
VELSHI: Money to spare.
Dean Baker and Peter Morici, thanks very much. It's bleak, but at least you're giving our viewers advice on what they might do.
These two gentlemen are urging a lot of caution.
I want to just take you over here to Allan Chernoff, our senior correspondent.
Allan, you have been covering markets and business for years and years and years. This is a complicated situation we're in right now. What do you make of this whole Bear Stearns situation, and what should our viewers out there be thinking about their own economy, their own money?
ALLAN CHERNOFF, CNN SR. CORRESPONDENT: Ali, the truth is that Bear Stearns is only a very small fraction of this story. The Federal Reserve, our central bank, is taking historic measures to rescue the credit markets, the markets that really are the engine of American capitalism.
The problem here is that major investors, major lenders, are freezing up. They are just scared of losing their shirts and they're pulling back.
That's the reason that Bear Stearns collapsed. It could happen with other firms. The Federal Reserve is trying to inject money into the system to keep everything going.
If it doesn't work, our economy could face far, far worse than a recession.
VELSHI: Allan, we'll be back to you. Thank you.
WILLIS: Well, faced with all that bleak news on the economy, President Bush says his administration is on top of the situation.
CNN's Elaine Quijano is at the White House with the latest -- Elaine.
ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Well, Gerri, President Bush is aggressively trying to calm fears about the economy. We saw that once again today.
The president did not wait until a previously scheduled afternoon meeting to talk about this issue. In fact, he opened up to reporters a previously closed session that he had with his economic advisers, essentially policy time.
The president's message, that despite the sluggish economy, his administration is on top of the situation.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: One thing is for certain, we're in challenging times. But another thing is for certain, that we've taken strong and decisive action. The Federal Reserve has moved quickly to bring order to the financial markets. Secretary Paulson has been -- is supportive of that action, as am I. (END VIDEO CLIP)
QUIJANO: Now, the White House is rejecting any notion that the action taken by the Fed amounts to a bailout. Officials here insist that the act was taken in order to minimize disruptions to the financial markets, the broader financial markets.
Now, as for those markets, the president is going to be getting a briefing later on this afternoon, in about two hours or so, from the president's working group on financial markets. And among the officials attending, that will be Treasury Secretary Henry Paulson, as well as chairman of the Federal Reserve, Ben Bernanke -- Gerri.
WILLIS: Elaine, thank you for that.
Ali?
VELSHI: Thanks, Gerri.
Why do we call this "issue #1"? Well, we asked, you answered. The whole concept behind this program is that you, as Americans, spoke out and told us what worries you most about your money.
We have new polls being revealed for the first time today. CNN's senior political analyst, Bill Schneider, is live right now in Philadelphia with the latest on what Americans are thinking -- Bill.
WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: Ali, it looks like the economy is beginning to swallow up the agenda for 2008.
Asked which issue will be most important when you decide how to vote for president this year, 42 percent of Americans say the economy in the new CNN/Opinion Research Corporation poll which was taken over the weekend. The economy now leads the war in Iraq by 2-1.
Now, concern over the economy has doubled in this country since October. The reason, nearly three-quarters of Americans think the economy is now in recession. That's up from two-thirds who felt that way last month. Just under half thought the economy was in recession just five months ago in October.
There's a big difference here by party. Republicans do believe the economy's in recession, 54 percent of them. Forty-five percent say it's not. But Democrats are virtually unanimous. Ninety-one percent of Democrats across the country believe the economy is in recession.
The ruling politics is, when the economy is bad, the economy is the issue. That was certainly true when Bill Clinton first got elected in 1992. And it appears to be true now.
Voters usually hold the president's party responsible for the state of the economy. But what about the fact that the Democrats control Congress? Well, the president's party is still seen as responsible for managing the economy, particularly when the president has been in office for the past seven years -- Ali. VELSHI: All right, Bill. So we're going to see the campaigns shape up probably around that information.
We'll be back with you tomorrow as we check in on Issue #1.
Bill, thank you.
WILLIS: Up next, protect your savings in this volatile economy. Important information on how to do just that.
Then, what happens when you lose your house and have virtually nowhere to go?
If you have a question, send it to us. The address: issue1@cnn.com. Answers from the help desk, well, they're coming up.
(COMMERCIAL BREAK)
VELSHI: You are so much a part of Issue #1, we want to hear from you right now.
CNNMoney.com anchor Poppy Harlow is live on the CNN Money set with today's "Quick Poll" -- Poppy.
POPPY HARLOW, CNNMONEY.COM: Hi there, Ali.
The economy, it's the number one issue in the presidential race. It's something on the minds of Americans at every economic level.
We saw foreclosure filings surging 60 percent last month, a surge in jobless claims. We want to know what you are most concerned about. Here is our "Quick Vote" question today.
What are you most concerned about: your house, your debt, your job, or your savings? Log on to cnnmoney.com to vote.
We'll be back later in the show with those results -- Ali.
VELSHI: All right. Poppy, thanks. We'll be back to you with those results in a little bit.
WILLIS: Well, the federal government has taken steps to help out Wall Street, but most of you are probably more worried about helping yourself and protecting your savings.
Paul La Monica is with CNNMoney.com. He's joining us right now.
Hey, Paul. Great to see you.
PAUL LA MONICA, CNNMONEY.COM: Great. Thanks.
WILLIS: I just have to start you off asking you a question about, did the Fed go too far in bailing out what is the nation's number five investment bank?
LA MONICA: I think that's what a lot of people are concerned about right now. When you look at what's go on with the bailout of Bear Stearns, with lowering interest rates as dramatically and as quickly as the Fed has done, you look at what happens to your savings account rate and it's just plummeted. So, even though the Fed is supposed to be helping the economy with these rate cuts, there are a lot of people out there who say it's not really working that way.
VELSHI: We had a couple of economists on here just a little while ago who actually said -- and they're not given to being sort of fearmongers -- they said put your money into some kind of a deposit that is insured. They're that worried about where the economy's going.
You really follow this closely. Do you think it's that bad?
LA MONICA: It does seem that right now stocks are probably not a safe investment, like people pointed out, if you need money for the short term. Longer term, I think stocks are still going to be a decent place to keep money in. But having money in a savings account, even though the savings rate is not going to be as high as it used to be, is probably a safer way right now.
WILLIS: Well, I mean, come on, savings CDs are at 2 percent, for goodness sakes. I mean, that's no place to put your money right now. And it seems to me that you could be buying some stocks, at lows right now.
LA MONICA: Yes. There are a lot of stocks, especially if you stay away from the financials, I think, right now. Some people would argue that maybe we're finally seeing a bottom with the banks. But if you look at what's going to happen when a lot of companies report their first quarter earnings in April, companies aren't going to do that badly outside of the banking sector. There are probably areas like tech and health care that should do reasonably well.
VELSHI: The thing -- you can go to cnnmoney.com, where they've got -- I mean, a whole lot of stuff, but some stuff on Issue #1. And part of it is, you're right, Gerri, I think with inflation better than 4 percent, it's hard to take 2 percent as your savings.
WILLIS: Because you're losing money, let's face it.
VELSHI: But if you do a little research...
WILLIS: If you've got your money in a CD or a savings account right now and you're making 2 percent, you're losing money.
VELSHI: But go and take a look at what those options are, because you're right, there are some investments that actually do make money.
Thank you, Paul.
LA MONICA: Thank you.
VELSHI: Appreciate that.
Well, coming up next, the presidential candidates and their plans for your money.
Plus, as we hear so many negative stories on banks, we're going to talk to a couple about a couple of banks that actually seem to be connecting with customers.
Send us an e-mail, issue1@cnn.com. We're going to answer your questions later on in the show.
(COMMERCIAL BREAK)
VELSHI: Well, it's Issue #1 for CNN, the economy. Today we're looking at the banking sector. And while many banks are struggling because of the subprime mortgage crisis, two banks are actually succeeding by setting themselves apart from the competition.
WILLIS: "AMERICAN MORNING'S" Polly LaBarre joins us now. We're talking ING and a bank called Umpqua, which is based in the Pacific Northwest.
Tell us about that, Polly.
POLLY LABARRE, CNN CONTRIBUTOR: Sure. Well, we're looking at banks that not only have sized (ph) up subprime losses in all the cascade of crises that we're looking at today, but they have developed a really deep emotional bond with their customers.
Now, when you think of customers that have developed deep emotional bonds with customers...
VELSHI: You don't think of banks.
LABARRE: Right. You think of Apple or Starbucks. But not banks.
So Umpqua is a really neat one to start with. This is a regional bank, it's got 150 locations up and down the West Coast. And it thinks of its business not as a bank, but as a retail service operation. So instead of branches, they have stores.
You walk in. They're like hotel lobbies. You get a sense of service, you get great technology. You can get their own branded coffee.
WILLIS: It couldn't be more different from Bear Stearns if you tried, right?
LABARRE: Sure. And the idea is nobody wants to hang out in a bank branch. You don't even want to go to your bank branch.
VELSHI: Right.
LABARRE: So the CEO's idea there is, how do we get people to actually browse, spend time, develop a relationship? So, they've got a lot of great technology building.
You can do work, you can download music. They have their own music label. They even host events later in the evening -- knitting clubs, movie nights, music nights. It's a real community center feel.
WILLIS: Polly, I don't want a club. I want a really good return on my money. You know what I mean?
LABARRE: They offer all of these things, too. This is just their way of differentiating themselves and saying, look, here's a way to connect, we offer you all of these things. This is a way to understand what our brand is, what we're about. They do really well in terms of selling banking products, but it's through this strategy.
VELSHI: All right. What if I'm not interested in any of the coffee, the song and dance, but I want a simple place to save money?
LABARRE: Sure. The whole point is you can have a different strategy. It's not the one right strategy.
So, ING Direct is the opposite strategy. No bank branches, no ATMs, just a really simple menu of savings-based products.
You know, you can get their orange savings account which they advertise so heavily. And the idea here is, how can we build a bank around the idea of bringing average folks back to savings? Whereas the financial services industry is, hey, how can we get people to spend more, borrow heavily, and kind of mess around with their investments?
So, everything they do is about that. They actually have no fees, they have no minimums. They actually impose maximums. They turn away deposits that are too big. They fire customers that are too high maintenance, because they're trying to keep this terms of engagement low cost.
WILLIS: Of course, what you want to be doing now is not necessarily just savings, right? Because we were talking before about how the returns on that are so low.
VELSHI: Right.
WILLIS: It used to be ING Direct had great returns. But now it's harder. You've really got to do a lot of different things with your money in addition to saving.
LABARRE: Sure. And they're building products now.
They have something called Share Builder, which is again for ordinary folks who don't have a lot of means to start investing in a low-cost, low-fee or no-fee way. Acknowledging that you can't just put your money in a savings account.
VELSHI: All right. ING and Umpqua.
Polly, thank you so much.
LABARRE: Thank you.
VELSHI: All right. Coming up, some folks after losing their home to foreclosure have nowhere to go. We're going to show you how some families are dealing with the situation.
And by the way, make sure to vote in our CNNMoney.com "Quick Vote." You can get it on CNNMoney.com.
WILLIS: What are you most worried about right now: Your house, your job, your debt, your savings?
Your results and much more coming up right after the breaking news from the CNN newsroom.
(COMMERCIAL BREAK)
(NEWSBREAK)
ALI VELSHI, CNN ANCHOR: Democratic presidential candidate Barack Obama is on the stump today in Pennsylvania, site of next month's big primary. And his big topics is, well, the economy. Obama held a town hall meeting at a community college in Monaca earlier this morning. CNN's Suzanne Malveaux is part of the best political team in television. She's there.
Did I say that right, Suzanne?
SUZANNE MALVEAUX, CNN CORRESPONDENT: He's in Monaca, that's right. He is answering questions from the audience right now and essentially he's talking about health care. He is talking about the economy. Both of the Democratic candidates are trying to prove to the voters they have the credential to be the best steward of the economy issue number one.
Now what we're hearing where from both of them, they are drawing connections, parallels, saying that the Iraq War has been very costly in the tune of some trillion dollars. And so what they're saying is that both of their plans in pulling out of Iraq would free up some funds to allow them to do the kinds of things they're talking about. Whether it's universal health care, whether it's not (ph) grants, education programs, these type of things.
Now earlier today we heard from Senator Clinton. She said she was on the phone. She was talking to the Treasury secretary, as well as the president of New York's Federal Reserve. Obviously, she says that she is in touch with what is happening. And she is not only making the case that she has a very specific economic agenda, but she also used the example that it was during her husband's administration, it was the first time that there was economic prosperity and a balanced budget. Take a listen.
(BEGIN VIDEO CLIP)
SEN. HILLARY CLINTON, (D) PRESIDENTIAL CANDIDATE: The only four years that we spent less than we took in as a federal government were from '98 to '01 because of the balanced budget that we reached during the Clinton administration. I cannot stress to you what a significant accomplishment that was for our strategic and economic interests. And we have blown it.
(END VIDEO CLIP)
MALVEAUX: Senator Obama also talking about his economic plan. Specifically he has been emphasizing tax credit for working class families in the tune of $1,000. He's talking about amending the North American Free Trade Agreement, NAFTA, to create and at least protect U.S. jobs. He's also talking about these kind of green jobs, trying to find renewable sources of energy, alternative sources of energy, to make our country less dependent on foreign sources of oil. Let's take a listen.
(BEGIN VIDEO CLIP)
SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: One of my jobs as president is going to be to restore a sense of fiscal responsibility to this White House and to Congress because we can't keep on running up a credit card from the bank of China in the name of our children. We aren't even planning to pay it back. We're going to make our kids and our grandkids pay it back. That is not acceptable. That's something that I'm going to change when I'm president of the United States of America.
(END VIDEO CLIP)
MALVEAUX: So, Ali, certainly a lot of promises from both of these candidates as they try to convince voters that they have the specifics, they have the plan that is going to make people's lives better. The voters clearly paying very close attention to those issues, gas prices, how they send their kids to college, how they make sure that they're staying in their homes, keeping their jobs, all of those things. Voters are asking these candidates and they are trying their best to put forward those specifics. So, obviously, both of them competing, putting forward their credentials to try to convince them that they will be the one who's the best steward for the economy.
Ali.
VELSHI: Suzanne, and as this gets to become a bigger and bigger issue, they're going to have to get more and more specific. So we'll be hearing much more about it.
Suzanne, thank you.
Suzanne Malveaux, part of best political team in television.
GERRI WILLIS, CNN ANCHOR: The mortgage meltdown may have shown a slight improvement over January, but year-to-year foreclosures are up 60 percent. That according to RealtyTrac. It's hard enough to lose your home, but then there's, what's next? And for some folks there's virtually nowhere to go. CNN's Thelma Gutierrez is live from Yucaipa, California.
Hi there, Thelma.
THELMA GUTIERREZ, CNN CORRESPONDENT: Hi there, Gerri.
Well, I can tell you we're in this very idyllic setting, in the mountains, high above the hubbub of San Bernardino. But for the family who lives here in this RV, the experience of being out here in the campground has been try. It's been very emotional because they're in the process of foreclosure, in the process of losing their home. That is also the case for the McCue family, who lives in the space right behind me. They had dreamed of retiring to a cabin in the woods, but they never expected it would be forced upon them.
(BEGIN VIDEOTAPE)
GUTIERREZ, (voice over): High in the mountain, behind a white picket fence, is space number 96, a place Bill and Vicki McCue now call home.
BILL MCCUE, LOST HOME TO FORECLOSURE: What you see here, our fireplace, our fountain. This was all part of our house decorations.
GUTIERREZ: This was the 2,700 square foot home the McCue's once owned in Las Vegas that went into foreclosure. This is the 28-foot camper trailer they now own.
What is it like living in a campground?
B. MCCUE: The two sides of it, number one, it's beautiful. Number two, it's insulting because I worked very hard all of my life to get where I had gotten and I wound up here.
GUTIERREZ: A camp that leaks when it rains and is designed more for weekend getaways than full-time living.
B. MCCUE: This is not what I had planned to be 50 years old and wind up on a little lot for the rest of my life in a little camper.
VICKI MCCUE, LOST HOME TO FORECLOSURE: In here is our bathroom.
GUTIERREZ: They say living here has been a huge adjustment.
V. MCCUE: Up in here, our desk. In here, food. My kitchen before was huge. I had granite counter tops, stainless steel appliances.
GUTIERREZ: The McCues thought they were doing everything right. They worked full time. He was a technician a five-star casino. She was an administrate assistant. They were ready to buy their dream home.
V. MCCUE: And we walked in and it was like, we can get this for $265,000, no money down. Oh, my God.
GUTIERREZ: Soon their home nearly doubled in value.
So for a while you were sitting on a mountain of equity in your home.
V. MCCUE: Yes.
B. MCCUE: Yes. GUTIERREZ: Then, Vicki lost her job. They took out equity and their payments went up 57 percent to $1,100 a month. The McCue's decided to sell. The buyer fell through, so they took out a $35,000 emergency loan to help pay the mortgage.
What would you say to the money people on the other end who are going, yes, but you wanted free money. I mean, you signed the loan document. You knew that it was an interest-only loan. You should have read the fine print and you shouldn't have signed that loan. What would you tell those people?
V. MCCUE: I would tell them they shouldn't have lied to us on the phone and convinced us that was the way to go and that our payment won't go up more than $100 each year per month.
GUTIERREZ: Did you read the fine print?
V. MCCUE: They way that they word things, its not real clear. It's not real straightforward. And you put together what you're being told with what you're reading.
GUTIERREZ: So you were trusting the people who trying (ph) to give you the loan?
V. MCCUE: We were trusting the people because they kept telling us, this is the only way to go.
GUTIERREZ: The McCue's say they were just trying to build for their retirement. In the process, lost it all.
B. MCCUE: It hurts because you worked so hard and you don't expect this to happen. It hurts emotionally. It hurts physically. I didn't cause this to happen. Others caused it. Nobody cared. Everybody just walked away.
(END VIDEOTAPE)
GUTIERREZ: And the McCues are now in the process of bankruptcy. And before they lost their home, before they went into foreclosure, they went out and they bought that trailer camper while their credit was good. And that's the same situation here with Chris and David Lauriel (ph). They bought this 34-square foot trailer about, what, two years ago.
Chris, can you tell me, what has been the biggest challenge of living in such a confined space after coming from a home that was 2,000 square feet?
CHRIS LAURIEL: Not having space to have company like we used to. Not having my personal items.
GUTIERREZ: You said it's challenging also on the relationship?
C. LAURIEL: Very challenging. But, luckily enough, I know him well enough, or he knows me well enough when it's time to get away.
GUTIERREZ: It's time to leave the RV, you leave?
C. LAURIEL: Yeah.
DAVID LAURIEL: Have a little space for each other, then you go outside.
GUTIERREZ: David, you were saying that it's been very difficult to start over again at the age of 60 in a campground.
D. LAURIEL: Well, it's true.
C. LAURIEL: And having disabilities.
D. LAURIEL: I'm having a problem with workmen's comp in California here right now and I don't see any light at the end of the tunnel to be retrained for anything, to be -- even to solve my case or have it resolved at this time.
GUTIERREZ: And you were saying you were very angry upon news of this buyout, rather the bailout for the banks?
C. LAURIEL: Well, the banks are being taken care of. They're being saved. But what about us that made the banks? If it wasn't for us, people that have homes, they wouldn't have no business.
GUTIERREZ: All right. Chris and David, thank you. Good luck to you.
And this is a very difficult situation for many of the families up here.
Gerri, back to you.
WILLIS: What an amazing story. And, of course, what she said about, we made the banks, why aren't we being made whole.
Thelma, thanks for that story.
VELSHI: All right. It's ISSUE NUMBER ONE. It's your issue. Make yourself smarter now. It's a good way keep yourself financially happy. We're going to show you how to increase your financial I.Q. with best-selling author Robert Kiyosaki up next.
(COMMERCIAL BREAK)
WILLIS: Well, part of navigating your way through financial times like these is getting all of the right information.
VELSHI: Well, one way you can do that is to work to increase your financial I.Q. Robert Kiyosaki is a best-selling author on finance and he joins us now from Phoenix.
Robert, welcome to the show. What is the -- we have a little bit of time to tell our viewers how they can get better, how they can increase their financial I.Q. What are you talking about? ROBERT KIYOSAKI, AUTHOR, "INCREASE YOUR FINANCIAL IQ": Well, thank you for having me on the program. This is the first day I'm talking about how to increase your financial I.Q. And it's ironic that it is the day that Bear Stearns goes insolvent and you have all these articles about these people who are struggling now living in trailers. Well, very good people. And financial I.Q. is about how you navigate these tumultuous financial times. Unfortunately, this book is at the right time at the wrong place -- you know, wrong time, wrong -- whatever you want to say.
VELSHI: You don't want to have it out there, but the fact is you do. So what's the first thing people can do to increase their financial I.Q.?
KIYOSAKI: Well, I cover in the book is why we're in this situation right now. The reason we're in trouble right now is in 1971 the U.S. went off the gold standard. And every time that has happened, financial volatility has hit. And as Gerri said, savers are losers. Your home is not an asset. And to put your money into a well diversified portfolio of investments is not very bright. And the problem with most people is they're taking financial advice from salespeople, not rich people. That have no financial I.Q.
WILLIS: Robert, let me ask you this question. You know, I agree, we all have a lot to learn about money. One of your interesting ideas that I thin is pretty controversial, frankly, is you are a big fan of personal debt. Explain.
KIYOSAKI: Well, there's good debt and bad debt. And most people have massive amounts of bad debt. When you read "Financial I.Q.," you'll find out how I'm still using debt as an asset to get richer. But the biggest thing here is this advice one of the advisers gave is to save money. The problem is, our money, the U.S. dollar, is toxic and it will only get worse. So to save money, all that will happen is prices will keep going up, food will go up, oil will go up, and you try and save money. That is not very intelligent. "Financial I.Q." is about doing something differently.
VELSHI: All right. So what's the real answer for people out there who, you know, the option is, you're saying, saving money in U.S. dollars doesn't make sense. Are you suggesting you save in something else? Because they don't really have a lot of options.
KIYOSAKI: I talk about why we're in this problem today. It started in 1971. They other thing I talk about, which I've said with you guys before, is I think silver, right now, is probably the best investment at around $20 an ounce. Of course, I was buying it at $5. But silver is a hedge against a dollar continuing to drop. Savers are going to get wiped out just as homeowners are getting wiped out right now.
So it is a time for financial intelligence because real estate isn't the problem, money isn't the problem, it's a lack of financial education in our school systems is the problem. And that's what Donald Trump and I constantly talk about. Why don't we teach people about money in school before they get in trouble? WILLIS: Robert Kiyosaki, thank you for your ideas. All very interesting, all very contentious.
How folks in one election hotbed city are taking innovative steps towards finding new jobs.
VELSHI: And for more on your finances, check out cnn.com special report "Right on Your Money." Get tips on how to better manage and invest your money with video tutorials and interactive guides. You can also read or share I-Reports with other people, which is particularly useful in tough times like this. That and a lot more at cnn.com/rightonyourmoney.
(COMMERCIAL BREAK)
WILLIS: So this show is all about you. And now we want to turn it over to you. You've been sending us e-mails to issuenumberone@cnn.com and we want to help you get some answers. Here to help us with that, CNN senior correspondent Allan Chernoff, Jack Otter, deputy editor of "Best Life" magazine, and personal finance author Lynnette Khalfani Cox.
All right. Let's go straight to our first e-mailer. It's Jason in Missouri. He asks, "if foreclosure is imminent, what can one do? Chapter 13?" Bankruptcy? "Sell the home at a severe loss and try to get into something much cheaper?"
Lynnette, let's start with you. A lot of people out there, we've covered them today, facing foreclosure, bankruptcy. What do you do if you think your house is going to be taken away?
LYNNETTE KHALFANI COX, AUTHOR, "INVESTING SUCCESS": Right. If you can't pay the mortgage, rule number one is to call your lender and try to work out a deal. Maybe get a loan modification, a forbearance. I wouldn't automatically go to bankruptcy protection, although that can stave off the process of you losing your home. Try to do that as a last resort.
And, yes, you can bring in a third party to buy the home to do a short sale, is what he's referring to, where you sell the home for less than perhaps the mortgage that's actually due, the bank approves it and then the homeowner actually won't even have to pay taxes on the difference that's due, due to a new federal law. So a short sale might be the best order of day for that person.
WILLIS: I like that idea. And, of course, call your lender, call your lender, call your lender, if you even think that you're in trouble.
Let's move on to the next e-mail. Rob asks, "I am sick of interest rates so low and watching my savings return drop lower and lower. What can I do to try and reap a higher rate of return and still remain liquid?"
Jack, what's your best thought here? JACK OTTER, DEPUTY EDITOR, "BEST LIFE" MAGAZINE: Well, be careful, Rob. I mean, the reason that Bear Stearns folded today was because they were chasing yield. They were taking more and more risk to try to get a few more basis point. And no personal finance adviser would say that you ought to follow in those footsteps.
But you can go to places like ING, which someone mentioned earlier in the show. And there are ways to bump up your return a little bit. And one final thing. He wants to remain liquid. He has to be in federally ensured deposits. But for that extra money that you don't plan to tap for years, now is the time when the Warren Buffetts of the worlds are buying stocks, not when everything looks great.
WILLIS: And real estate.
OTTER: And real estate. Absolutely.
WILLIS: You know, the smart guys are in there bottom fishing right now. He may not be ready for that yet, but it's worth giving a thought to.
Let's go to the third e-mailer here. Paula asks, "the Fed has lowered the prime rate to 3 percent. Why are the 30-year home loan rates still at 6 percent?" Big gap there, Alan. I know you know a lot about this.
ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Gerri, well, unfortunately, the Federal Reserve does not control long-term interest rates. They really manage short-term rates. And, of course, 30-year mortgages, longer-term mortgages, they're longer term rates and they are tied to the longer-term bond markets. And the 10-year note in the Treasuries, that's really what we're looking at very often for housing rates. That is determined partly because of inflation expectations and inflation does appear to be picking up. So that could be a bad sign.
The other issue also is, how willing are investors to buy U.S. Treasury notes? And that can determine the rates and ultimately determine mortgage rates. So it's really those issues that can be so critical to what we are paying for our fixed rate mortgages.
WILLIS: You know, what is so, I think, frustrating for all of us out there, you know, the Fed began cutting rates six months ago. Mortgage rates are at about the same level they've been. So you're absolutely right.
CHERTOFF: But they're not to bad. They're really not outrageous right now.
WILLIS: Yes, a little over 6 percent, 6 percent and change, long-term average 8 percent.
Let's go to the last e-mail here from Emily in Minneapolis. "I'm a senior graduating in May. I am coming out of college with a large amount of student loans. Should I pay the minimum payment and invest the rest, or pay off as much as I can each month? And what is your advice on consolidating loans?"
WILLIS: Lynnette, this is a favorite topic of yours.
KHALFANI COX: Yes, exactly. I say try to pay off the loans as quickly as upon. You've got four different options. The standard loan repayment plan will let you pay off those student loans in 10 years. If you stretch it out, if you consolidate, you might be having those loans for 20, 25, even 30 years. That's a mortgage on your back. You really don't want to do that. Pay those loans off as quickly as possible, even though that student loan was a form of quote/unquote good debt, do knock it out as quick as possible.
WILLIS: Jack, you want to weigh in here, because I think for college students there are many threats out there. Not just their debt on their loans, but also credit cards.
OTTER: Well, absolutely. I mean, as you're saying this, but clearly do not pile any more debt on to your existing debt. Can I be the risky guy, though, again? I think Lynnette has clearly pointed out the conservative option. The other option would be to look at what you're paying in interest rate. If it's 3 percent or 4 percent, can you get a better return on your money by just paying the minimum on that student loan and investing the rest. In it takes intense discipline.
WILLIS: It takes a lot of work, Jack, I don't know about that.
OTTER: Discipline and a little bit of risk, but it's worth considering.
WILLIS: OK, Jack, thank you for that.
Allan, Jack, and Lynnette, thank you for being with us today. Every e-mailer we answer today will receive a copy of my new book. It's called "Home Rich. For more on "Home Rich," log on to cnn.com/openhouse and keep those e-mails coming. Questions, tips, suggestions, we want to hear from you. The address, of course, is issueone@cnn.com.
VELSHI: Up next, a new retraining trend in one city's job market. And it could work for your hometown.
Also, the results of our cnnmoney.com poll when we come right back. Stay with us.
(COMMERCIAL BREAK)
WILLIS: Time now to check back in with Poppy Harlow for the results of today's quick vote. She's on the CNN Money set right here in New York.
Hi there, Poppy.
POPPY HARLOW, CNN CORRESPONDENT: Hi there, Gerri.
Well, we asked and you voted. When asked, what you are most concerned about, take a look at the numbers here. As you can see, it's overwhelming. Forty-six percent of people said savings are their biggest concern. Your IRA, your 401(k), they're likely taking a hit as U.S. markets continue to decline. And with the Fed cutting interest rates, you're earning less money on that money your saving. Keep in mind, the Fed cuts again likely tomorrow and that means less interest on your savings. We'll be back tomorrow with another question that you can weigh in on.
Back to you, Gerri.
WILLIS: Poppy, thank you for that.
VELSHI: Pennsylvania's now a battleground. A battleground for the Democratic nomination. Who wins in that state's April primary likely will depend on who can convince voters there that they have what it takes to fix the troubled economy. CNN's Alina Cho has more.
(BEGIN VIDEOTAPE)
ALINA CHO, CNN CORRESPONDENT, (voice over): Regis Wintermantel never dreamed he'd be doing this one day.
REGIS WINTERMANTEL, REGISTERED NURSE: His blood pressure is going to end up dropping.
CHO: He's a critical care nurse at Allegheny General Hospital in Pittsburgh. A complete mid life career change. The 42-year-old used to be a purchasing manager at a steel mill. But steel is no longer the driving force of Pittsburgh's economy.
WINTERMANTEL: t has its ups and its downs. And I've seen two downs and I didn't want to have to live through a third down.
Right now, the ventilator will . . .
CHO: So Wintermantel traded in his hard hat for scrubs.
He's not alone. Once the steel city, Pittsburgh now touts health care as its number one industry.
BARNEY OURSLER, JOB COUNSELOR: The future of jobs in Pennsylvania is really service industry jobs. That's what's replacing the manufacturing jobs.
CHO: With the Pennsylvania primary just six weeks away, experts say the key to winning here is finding the right balance, crafting an economic message that plays well in Philadelphia and struggling communities like Pittsburgh. For 18 years, Jim Neiman was a maintenance mechanic at a suburban Pittsburgh electronics plant. A month ago, the father of three lost his job.
JIM NEIMAN, UNEMPLOYED: This one, it starts at $9 an hour.
CHO: Now he's looking for work.
J. NEIMAN: What am I going to do? I have a family, kids and all of that, a house payment. How am I going to find another job to be able to provide for my family?
CHO: Wife, Carmi, works part-time at K-Mart. Her salary is barely enough to pay the bills.
CARMI NEIMAN, JIM NEIMAN'S WIFE: You don't know what the future holds for you. It could turn out to be good. It could turn out to be bad.
CHO: Many voters in this state share that uncertainty, but Regis Wintermantel is hopeful. Retrained, working again, in Pennsylvania's new economy.
Alina Cho, CNN reporting.
(END VIDEOTAPE)
VELSHI: All right. So jobs showing up as number two concern on our quick poll and savings number one, which I think is saving and investments, probably, the 401(k)s.
WILLIS: I think it's 401(k)'s. I think people are really concerned about their money. Don't forget, ISSUE NUMBER ONE will be back tomorrow, same time, 12:00 p.m. Eastern.
VELSHI: See you then. CNN "NEWSROOM" with Don Lemon and Kyra Phillips starts right now.
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