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Issue Number One
Gas Prices Hit Yet Another Record; Secrets of Wealth
Aired May 28, 2008 - 12:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
HEIDI COLLINS, CNN ANCHOR: Still wondering if he's going to try it again at some point.
TONY HARRIS, CNN ANCHOR: I bet he does.
CNN NEWSROOM continues one hour from now. "ISSUE #1" is next with Gerri Willis and Ali Velshi, but first a quick look at the headlines. Let's take you back to Chicago right now. This is a situation we've been following for the last half hour now, a train derailment on the city's south side, live pictures right now. You can see a couple of tarps down on the ground. People were brought down from the elevated tracks, resting there, getting themselves together.
It must have been pretty rough for them. The train derailment happening about 10:10 a.m. local time. The green line if you are familiar with the Chicago transit system actually runs from the south side from downtown and the derailment taking place where the tracks split into two branches. Twenty four people we understand taken to the hospital with what's being described as minor injuries. We also understand as you would expect the line has been temporarily suspended until it can be cleared. We'll continue to follow with this story for you in the NEWSROOM. That is the news for now. I'M Tony Harris. "Issue #1" starts right now.
GERRI WILLIS, CNN ANCHOR, ISSUE #1: Gas prices hit yet another record. Why those scary oil forecasts may not be true and what it could mean for gas prices. Public transportation is hot while a major airline cools off. And why skipping the grocery store could save you big money on food. "Issue #1" is your economy, your job, your house, your savings, your debt. "Issue #1" starts right now. Welcome to "Issue #1." I'm Gerri Willis. Ali Velshi will join us in just a moment. For a change though some good news, yes some good news on the faithful topic of record high fuel prices. Oil retreated into the $126 range today before bouncing back to near $130. There are new indications that you may be using less gas. AAA says the average price for a gallon of regular unleaded today is $3.94. That's another record, but analysts say this is because of those bloated prices. there are signs you are spending less time on the road and less time on the road coupled with less demand for gas could eventually mean lower prices. Ali.
ALI VELSHI, CNN ANCHOR, ISSUE #1: Gerri, there are some people out there who believe that the price of oil hasn't reached its peak and could likely jump to over $200 a barrel. That would affect a lot of things in your life, specifically gas prices. There are some people say that we have peaked for now and that $200 number isn't too far away. One of those people is CIBC chief economist Jeff Rubin who analyzes energy prices and inflation. Jeff made a call very recently about oil going higher than it is now. Jeff, your calls have been fairly accurate in the past. Where do you think oil is headed right now?
JEFF RUBIN, CHIEF ECONOMIST, CIBC WORLD MARKETS: I think oil is headed higher. I see oil prices averaging $150 within two years and by 2012, probably averaging well over $200. We have a forecast of about $225 a barrel, which would translate roughly into around $7 a gallon gasoline. So if people think that the recent Memorial Day weekend had very high prices, get used to much higher prices in future Memorial Day weekends.
VELSHI: Now Jeff, one of the things we've seen, we've heard it from Ford that when gasoline hit $3.50 as a national average people pulled back from buying trucks and SUVs. We see that driving, people drove less during Memorial Day weekend. We see it affecting airline prices. It goes well beyond though the price of gasoline at the gas station. You've talked about all of the other effects that the rising price of oil is going to have. Very few of them are positive.
RUBIN: That's right and I think most of them are negative in the sense that we are ultimately going to have to get off the road. You mention that oil demand has been dropping. I'm forecasting that U.S. oil consumption right now just under 21 million barrels a day will probably drop by over two million barrels a day over the next four to five years because for every new car driver who buys a Cada (ph) or a Cheri (ph) and gets on the road in places like India or China, basically somebody is coming off the road here.
VELSHI: Can we do it? If Americans turn to fuel efficiency and conservation, can we even offset all of that growth in India and China?
RUBIN: Well, the paradox of fuel efficiency is at least up until now, we have used all those gains in efficiency to consume greater and greater fuel. For example, despite all the improvements in engine fuel efficiency, your average car in America consumes just as much oil as your dad's gas guzzler in the early 1970s because you drive it much more and your average car in America now is a light truck or SUV.
VELSHI: Jeff, we talked to one big Texas oilman Boon Pickens the other day when he announced that he is going to build the biggest wind farm in the world in Texas. This morning we heard from another Texas oilman, Rex Tillerson, the CEO of ExxonMobil who says all this wind and solar is largely hog wash when it comes to replacing the use of fossil fuels, real oil and gasoline. What do you think of that?
RUBIN: I think there is a certain element of truth there. I think the bottom line here is we are going to have to reduce our energy usage. Ultimately that's what energy prices are going to compel us to do. Where we use the most oil is, of course in transport fuels. You are going to see in the next couple of years less and less people on the road. That's going to have huge ramifications, for example, where people live because people aren't going to be able to commute 50 miles to work every day because the cost of filling your tank is going to make that prohibitively expensive. So property values in the suburbs will start to fall. Property values in the city will start to rise.
VELSHI: Very interesting. And another point you made in your report, something that I alluded to earlier, I said it's not all bad news.
RUBIN: That's right.
VELSHI: You mentioned that American jobs could actually benefit from the price of oil.
RUBIN: Exactly. Who would have thought that $130 a barrel oil would breathe new life into the rust belt, but that is exactly what's happening because in this kind of world, distance costs money. And yeah, Chinese steel workers make a fraction of what Pittsburgh steel workers make, but there is only 1 1/2 labor time in a ton of steel. When you consider the cost of shipping that ton of steel across the ocean at $130 oil, all of a sudden Chinese steel is more expensive than U.S. steel. All of a sudden U.S. steel is up 10 percent, Chinese export to U.S. is down 20 percent.
VELSHI: Jeff Rubin, good to talk to you. Thanks very much for being with us. Jeff Rubin is the chief economist with CIBC World Markets. Gerri.
WILLIS: Ali, at least a glimmer of hope there. The good thing about "Issue # 1" is that you get to participate. It's your turn to weigh in on today's quick vote question. That means it's time to check in with Poppy Harlow. Hi Poppy.
POPPY HARLOW, CNN CORRESPONDENT: Hey, Gerri, volatility in the stock market these days. Some experts say the best place to keep your money is in cold hard cash so right in your sock drawer. But have you even been saving? We want to know. Here is our question today. When did you first start saving money -- before I turned 18, in my 20s or 30s, after 40 or any day now. You are going to start, you really are. CNNmoney.com will bring you the results a little later in the show. (INAUDIBLE) can really add up, so I'm impressed with those who saved before 18.
WILLIS: It is impressive and Ali Velshi of course saying, I'm starting any day now. I love that. Up next, why one big airline is feeling a bit blue these days. Why public transportation is becoming more and more popular and we'll show you how some folks are saving big bucks on their grocery bills by turning away from grocery stores. We'll explain.
And we are standing by for a commencement address from President Bush at the Air Force Academy in Colorado Springs. We'll bring it to you live when it happens.
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WILLIS: Soaring fuel costs are grounding Jetblue's plans to expand its fleet. The company said today it is putting off buying 21 new Airbus jetliners for four to five years. By delaying delivery, Jetblue will be able to postpone paying for the aircraft and save on the additional operating costs it would bring. Jetblue isn't saying how much it expected to pay for the planes or how much it hopes to save by the move. Ali.
VELSHI: What a neat idea, an airline in America is actually expanding, actually buying planes. We'll see if that one works out, but interesting. We don't really hear about that much.
One area that is definitely benefiting from rising gas prices is public transit. Increasingly Americans are leaving their cars in the garage. CNN senior correspondent, a commuter himself, Allan Chernoff told us about this trend earlier this year. It does seem to be accelerating.
ALLAN CHERNOFF, CNN CORRESPONDENT: No question about it. The latest numbers from the Department of Transportation indicate that. Driving during the month of March was down by 4.3 percent. That was for the fifth consecutive month. Have a look at these numbers. This is very significant. If this continues this year, it will be the first year since 1980 that we actually have seen a decline in traffic on the roadways. So Ali, something is happening here.
VELSHI: What's happening on the other side? People are moving into transit. That's what's happening? We are seeing from various cities that they are feeling an increase?
CHERNOFF: Nationwide all over, mass transit organizations from San Francisco, Los Angeles, Denver, Washington, New York, all around the country, we are seeing big increases. Here you see the trend that's been in place for quite some time. It's actually been happening for the past dozen years. Now it is really accelerating quite a bit and that is very, very important here.
VELSHI: What Jeff Rubin just told us from CIBC is that, what you are going to see at the right side of that equation, the increase in vehicle traffic going down. I think San Francisco made the point that the transit authority, that it might not be just gas prices, but it's a combination of gas prices, congestion, time it takes, parking, tolls, all those kinds of things just making the final push for people.
CHERNOFF: It's all been building up as you see. Those numbers show us. Over the past dozen years, there has been a bit of a trend toward mass transit. Now it's really accelerating. People are more environmentally conscious, but also especially when it hits you in the pocketbook. That's when you really make the change. That's exactly what we are seeing right now.
VELSHI: You are a transit rider. You take the train.
CHERNOFF: I do. I walk to the train, take the train into New York and take the subway.
VELSHI: Around here that is a pretty common thing to do. Allan also was on the bike the other day just to test out how that worked and you looked pretty comfortable with that.
CHERNOFF: I ride the bike plenty, but it's a little far, wouldn't work well over the Hudson River.
VELSHI: All right, Allan Chernoff, thanks very much. Gerri.
WILLIS: "Issue #1" is all about you. You've been telling us how you are battling gas prices with commuting alternatives. I-reporter Janaki Barush (ph) says she graduated from college in December and you are seeing here. After she found a job, she found an apartment close to it. She says she lives within five miles of work and rides her bike every single day. She also lives within walking distance of the Washington, D.C., metro system so she has another option when it rains. Barush says she was careful to plan where she would live based on not having to drive.
Now Elizabeth Pizner (ph), great car, check it out, right. She loves her new car. It gets pretty good gas mileage but guess what? She is leaving it at home. She takes the Los Angeles subway system to her job in downtown LA and Liz says she recently organized a church event for 30 to 40 teens. She got metro day passes for all the kids and they couldn't believe how easy it was to use the subway.
Now, Carl Wijowski (ph) says he took the bus and train to work for the first time yesterday. You are looking out his window there. He sent us a picture of the bus stop outside his apartment. It's five feet from his front door. He said the trip takes about 20 minutes more than driving, but he'll save at least $50 a month.
And Michelle Carpenter is showing off her new car. She says she spent her Memorial Day trading in her SUV. She said the old SUV got only, listen to this, 13 miles per gallon. Now she is getting 33 miles per gallon.
And Bethany Deitz (ph) doesn't have to commute. She's a stay-at- home mom, you see her right there, but she is still cutting back on her gas consumption. She says if she needs to go shopping or run errands, she saves them all for one day. Now that way, she spends less drive time going from place to place. She says her family has to cut back because it's hard to put food on the table and gas in the tank at the same time. We can all relate to that. Be sure to send us your commuting stories to CNN. Log on to ireport.com and tell us what you are doing to save money on gas. What do you think of that Ali?
VELSHI: I love public transport, but that last one, I've been hearing a lot of, people saving up all their errands to do it on one day, so interesting tips. I'd love to hear what other people are doing.
Coming up next, are you handling your money the way you should? We're going to check out some ways to help you save some big bucks and we are just minutes away from a commencement address by President Bush at the Air Force Academy in Colorado Springs. You will hear it live here on "Issue #1" when it happens. Stay with us. You're watching CNN.
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WILLIS: You are joining us now live as the president begins his speech to the Air Force Academy in Colorado Springs. Let's listen in.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: You are the 50th graduating class in the history of the Air Force Academy. Each of you has worked hard to reach this moment. You survived beasts, torazo (ph) sailing, fatty bag (INAUDIBLE) You earned your crop and wings at pinnacle. And today you will receive your degree and commission as Air Force officers. Your teachers are proud of you. Your parents are proud of you and so is your commander in chief. Job well done.
The superintendent informs me that some of you are still on restriction, might be because you were caught running from the lightning van (ph) or it the might be because of Jimmy Chad's apple (ph). Whatever the reason you got your form 0 help has arrived. Keeping with a long standing tradition, I hereby absolve all cadets who are on restriction for minor conduct offenses. As for your grades, well some things are even beyond the powers of the president.
In becoming officers of the United States Air Force, you have chosen a vocation that is both hazardous and rewarding. As a former F-102 pilot, I know the exhilaration of flight. As a son of an aviator who was shot down in combat, I know its perils. Whether you serve in the skies above or on the ground below, each of you has stepped forward to defend your country. You've chosen to face danger in foreign lands so your fellow citizens do not have to face danger in our own land. I want to thank you for making this courageous choice and all of America is grateful to the class of 2008.
When you put on your second lieutenant bars in a few moments, you will become part of a great history, a history that is still only beginning to unfold. By any standard, air power is still a relatively new phenomenon. Men have been fighting on land and at sea for thousands of years, yet there are still Americans among us who were born before man ever flew. A lifetime of one generation our nation has seen aviation progress from that first tentative lift-off at Kitty Hawk to an age of supersonics flight and space exploration. As flight has progressed, it changed the face of war.
In the 20th century air power helped make possible freedom's victory and great ideological struggles with fascism and communism. Those struggles our nation faced evil men with territorial ambitions and totalitarian aims who murdered the innocent to achieve their political objectives. Through a combination of military strength and national resolve and faith in the power of freedom, we defeated these adversaries, secured the peace for millions across the world and now in the 21st century, our nation is once again contending with an ideology that seeks to sew anger and hatred and despair, the ideology of Islamic extremism.
In today's struggle, we are once again facing evil men who despise freedom and despite America and am to subject millions to their violent rule. Once again, our nation is called to defeat these adversaries and secure the peace for millions across the world. And once again, our enemies will be no match for the men and women of the United States Air Force.
What is remarkable about this class is that each of you knows the stakes in the war on terror. You applied to this academy. After seeing the attacks of September 11th, 2001, you came to this academy knowing that the responsibility of our military is to protect the American people. You now leave this academy to take your place in this great struggle. Today I've come to talk to you about the battle you are about to join. The lessons we can learn from the conflicts of the past and what they can teach us about the challenges we face in the war on terror that will dominate your military careers.
First lesson is this. In both the 20th century and today, defeating hateful ideologies requires all elements of national power, including the use of military power. The military power that you wield in your military careers is much more precise and effective than in past generations. When the United States entered World War II, there age of long-range bombing was just beginning. There were no computer guidance, no GPS targeting or laser-guided munitions. The allied bombing raids against Germany and Japan resulted in horrific civilian casualties and widespread destruction.
It took nearly four years before the regimes in Berlin and Tokyo finally capitulated. Difficult battles from the deserts of North Africa to the forests of France to the islands of the Pacific. Today revolutionary advances in technology are transforming warfare. During operation Iraqi Freedom for example, we employed military capability so precise that coalition air crews could take out a tank hiding under a bridge without damaging the bridge. With this military technology we can now target a regime without targeting an entire nation. We removed two cruel regimes in weeks instead of years. In Afghanistan, coalition forces and their Afghan allies drove the Taliban from power in less than two months. In Iraq with the help of the United States Air Force, our troops raced across 350 miles of enemy territory to liberate Baghdad in less than one month, one of the faster armored advances in military history.
These facts create both opportunities and challenges. One opportunity is that if we have to fight our enemies, we can now do so with greater precision and greater humanity. The age of advanced weapons we can better strike, we can better target strikes against regimes and individual terrorists. Sadly, there will be civilian casualties in war, but with these advances, we can work toward this noble goal, defeating the enemies of freedom while sparing the lives of many more innocent people, which creates another opportunity. That is by making war more precise, we can make war less likely. For hostile dictators it is a powerful deterrent to know that America is willing and able to target their regimes directly. When rulers know we can strike their regimes while sparing their populations, they realize they cannot hide behind the innocent. That means they are less likely to start conflicts in the first place.
Our unmatched military power also creates challenges because no adversary can confront and defeat our military directly. The enemies of the 21st century will increasingly turn to the use of asymmetric warfare. We've seen this in Afghanistan and Iraq. Those countries are adversaries did not lay down their arms after the regime had been removed. Instead they blended into the civilian population and with the help of stateless terrorists networks, continued to fight through suicide bombings and attacks on innocent people. In the 21st century, this nation must be prepared to fight this new kind of warfare. To meet this new challenge we need to continue to develop technologies that put unprecedented speed and precision and power in your hands. That's what we are doing. Since 2002, the number of unmanned aerial vehicles in our arsenal has increased nearly 40-fold to more than 5,000 and we are increasing them even more. We transformed the special operations command and more than doubled its budget. We are improving our intelligence and surveillance and reconnaissance capabilities. We are transforming our ground forces for the wars of the 21st century, making them faster and more agile and more lethal.
And you'll see the impact of these changes in your own Air Force careers. Instead of serving at 10,000 feet some of you will serve on the ground as battlefield airmen, deploying behind lines and using laser technology to fix targets for aviators circling above. Instead of sitting in jet fighter cockpits, some of you will sit at computer consoles at bases here in the United States where you will guide predator UAVs half a world away and use them to strike terrorist hideouts. These and other changes will increase your ability to prevail in asymmetric warfare. It will make you more effective in the defense of freedom.
Another challenge of asymmetric warfare is that it requires patience. Our new enemies know they can't defeat us militarily. So their strategy is to cause us to lose our nerve and retreat before the job is done. They take advantage of the information age and the 24- hour news cycles, creating images of chaos and suffering for the cameras in the hope that these images will horrify the American people and undermine resolve and morale here at home. This means that to win the first war of the 21st century we need to prevail not just in the battle of arms, but also in the battle of wills. And we need to recognize that the only way America could lose the war on terror is if we defeat ourselves.
The second lesson is this. In both the 20th century and today, defeating hateful ideologies requires using our national resources to strengthen free institutions in countries that are fighting extremists. We must help these nations govern their territorial, territory effectively so they can deny safe haven to our common enemies. And in Afghanistan and Iraq where we remove regimes that threatened our people, we have a special obligation to help these nations build free and just societies that are strong partners in the fight against these extremists and terrorists.
We've assumed this obligation before. After World War II we helped Germany and Japan build free societies and strong economies. These efforts took time and patience and, as a result, Germany and Japan grew in freedom and prosperity. Germany and Japan, once mortal enemies, are now allies of the United States and people across the world have reaped the benefits from that alliance. Today, we must do the same in Afghanistan and Iraq by helping these young democracies grow in freedom and prosperity. We will lay the foundation of peace for generations to come.
We face a number of challenges in undertaking this vital work. Once challenge is, an in the past in Germany and Japan, the work of rebuilding took place in relative quiet. Today, we're helping emerging democracies rebuild under fire from terrorist networks and state-sponsored terror. This is a difficult and unprecedented task and we're learning as we go.
For example, in Iraq, we learned from hard experience that newly liberated people cannot make political and economic progress unless they first have some measure of security. In 2006, Iraqis did not have this security. And we all watched as their capital descended into sectarian violence.
This year, we changed our strategy. Instead of retreating, instead of pulling back and hoping for the best, I made the decision to send in 30,000 additional troops with a new mission, protect the American people -- Iraqi people from terrorists and insurgents and illegal militias. Together, U.S. and Iraqi forces launched new offenses across the country to clear the enemy out of its strongholds. And as this military surge brought security to neighborhoods that were once in the grip of terror, it was followed by a civilian surge, with provincial reconstruction teams, deploying to work with Iraqis to ensure military progress was quickly followed by real improvements in daily life.
Today, we are seeing the fruits of the new strategy. Violence in Iraq is down to the lowest point since March of 2004. Civilian deaths are down. Sectarian killings are down. And as security has improved, the economy has improved as well. Political reconciliation is taking place at the grassroots and national level. The surge is working. Our men and women in Iraq are performing with skill and valor, and they have earned the respect of the people of the United States of America.
This experience will help shape your careers as officers in the United States Air Force. During your time in uniform, some of you have to help young democracies build free institutions amid chaos and confusion. You have to work with civilians on the battlefield in ways generations never imagined. To support your efforts, help you make young democracies transition from tyranny to freedom. One thing is for certain. The United States Congress better make sure you have all the resources you need to do your job.
Another challenge in this new and unprecedented era is defining success. In the past, that was relatively easy to do. There were public surrenders, a signing ceremony on the deck of a battleship, victory parades in American cities. Today, when the war continues after the regime has fallen, the definition of success is more complicated.
So in Iraq and Afghanistan we set a clear definition of success. Success will come when al Qaeda has no safe haven in those countries and the people can protect themselves from terror. Success will come when Iraq and Afghanistan are economically viable. Success will come when Iraq and Afghanistan are democracies that govern themselves effectively and respond to the will of their people. Success will come when Iraq and Afghanistan are strong and capable allies on the war on terror. Men and women of the Air Force, these successes will come. And when they do, our nation will have achieved victory and the American people will be more secure.
The third lesson is this. For all the advanced military capabilities at our disposal, the most powerful weapon in our arsenal is the power of freedom. We see this story in the 20th century. 1941, when Nazi bombers pounded London and Imperial Japan attacked Pearl Harbor, the future of freedom appeared bleak.
There are only about a dozen democracies in the world. Seeing the tyranny, not liberty, was on the march. And even after Japan and Germany were defeated in World War II, freedom's victory was far from clear. In Europe, the advance of Nazi tyranny was replaced by the advance of Soviet tyranny. In Asia, the world saw the Japanese empire recede and communism claim most of its former territory, from China, to Korea, to Vietnam.
You imagine if a president stood before the first graduating class of this academy five decades ago and told the cadet wing that by the end of the 21st century the Soviet Union would be no more, communism would stand discredited and the vast majority of the world's nation would be democracies. Cadets probably would have said he had done one too many chariot races.
Many throughout history have underestimated the power of freedom. To overcome tyranny and transform whole societies. Yet in the end, despite challenges and setbacks, freedom ultimately prevails because the desire for liberty is written by our creator in every human heart.
We see that desire in the citizens of Georgia and Ukraine who stood up for their right to free and fair elections. We see that desire in the people of Lebanon who took to the streets to demand their independence. We see that desire in the Afghans who emerged from the tyranny of the Taliban to choose a new president and new parliament.
We see that desire in the jubilant Iraqis who held up ink-stained fingers, who celebrated their freedom. And in theses scenes, we see an unmistakable truth. Whenever men and women are given a real choice, they choose to live in freedom. The enemies of freedom understand this and that is why they're fighting desperately to deny this choice to men and women across the Middle East.
But we understand some things, too. We understand that freedom helps replace the conditions of hopelessness that extremist exploit to recruit terrorists and suicide bombers. We understand that free societies are peaceful societies and that people who live in liberty and hope do not turn to ideologies of hatred and fear. And that is why, for the security of America, and the peace for the world, the great mission of your generation is to lead the cause of freedom.
It's the last time I'll address a military academy commencement as the president. Over the past eight years, from Annapolis, to West Point, to New London, to Colorado Springs, I have looked out at the best young men and women our nation has to offer and I have stood in awe and I stand in awe again today.
Each of you is a volunteer who stepped forward to accept the burdens of war. Knowing all the dangers you would face upon graduation, you willingly risk your lives and future so that our country can have a future of freedom and peace. Our enemies say that America's weak and decadent and does not have the stomach for the long fight. Our enemies have never set foot on the campus of the United States Air Force Academy.
A nation that produces citizens of virtue and character and courage like you can overcome any challenge and defeat any adversary. So I'll leave this campus today filled with the confidence in the course of our struggle in the fate of our country because I've got confidence in each of you.
We see the strength and spirit of this class in the cadet named Eric Miridet (ph). In 2003, Eric felt a tug at his heart from the almighty to take time off from the academy and do humanitarian work in Morocco. After nearly two years there, Eric, and his brother Alex, and two childhood friends, decided to ride across the African continent on dirt bikes. The last stop on their journey was Cairo, where a suicide bomber attacked them by exploding a bucket filled with nails.
The blast killed Eric's brother, injured his two friends and left Eric bleeding on the street. Doctors did not think he would ever walk again. He never gave up his dream of coming back to this academy. And 14 months ago, after surviving the blast, Eric returned to this campus. Today he begins his career as a proud officer in the greatest air force known to man.
He still has got dozens of nails in his body, but he has a fierce determination in his heart to protect his country, defeat the forces of terror. Eric puts it this way, "I'll live the rest of my life scarred inside and outside, but I've got a sense of calling. I want to prevent attacks on other good people."
Each of you gathered here this morning has answered that same call. I want to thank you for stepping forward to serve. The security of our citizens and the peace of the world will soon be in your hands. The best of hands. Be officers of character and integrity. Keep your wings level and true. Never falter. Do not fail. And always know that America stands behind you.
Thank you. May God bless and congratulations to the class of 2008.
GERRI WILLIS, CNN ANCHOR: You've been listening to President Bush making his final address to the Air Force Academy in Colorado Springs. He's walking away from the podium right there.
Interesting speech. The theme of which was comparing and contrasting, really, the careers of this academy, this class, with those of World War II.
And, Ali, I have to say, one of the interesting things there, he noted the investment that the U.S. made rebuilding Germany and Japan after World War II. He says a similar effort is really needed to help Iran and Afghanistan.
ALI VELSHI, CNN ANCHOR: Yes. And the example would sit well, the idea that that in with history's lens look liked the right thing to do at the time. The massive investment which, at the time, seemed disproportionate but turned out to be the right thing to do. And I think that's . . .
WILLIS: The pay-offs were huge.
VELSHI: Yes.
Well, coming up next, we're going to give you some important information about the way you handle your money.
WILLIS: We'll check out some ways to help you save some big bucks.
You're watching ISSUE NUMBER ONE.
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WILLIS: Did you ever wonder if you were doing all the wrong things when it comes to your money? That could be costing you big bucks.
VELSHI: Well, Robert Shemin is the author of -- well, he worked at Goldman Sachs, so he knows a thing or two about money. But he's the best-selling author of a book which has a title that I think people must say all the time, "How Come That Idiot's Rich and I'm Not?" I think that is a fantastic title.
But you have been rich for some time. You made your money early. You worked in Goldman Sachs. I don't think that relates to most people who watch us. So can you just give me the road map, for people who are watching us, who are struggling in life, what is the road map from the situation you're in, struggling with debt and high gas prices and high inflation, to being rich like you?
ROBERT SHEMIN, AUTHOR, "HOW COME THAT IDIOT'S RICH AND I'M NOT?": Well, it's simple. And I went around to a lot of people, rich idiots, and discovered why are they rich and other people aren't. And they're doing simple things.
And, number one, you've got to get your spending under control. And we make it into a fun game. How to reduce your debt, no matter how much you've got. And I've been there. I think my record was negative $89,000 in my checking account. So I want to be real clear, I started from basically not much. I've been there. I know how it feels. So we've got to get your spending under control.
Then the only way to get rich is own assets. It's very simple. And the question is, why aren't people doing it? The only assets to own are three. One, systemic, long-term stock and bond investing. $89 a week. If you pick the wrong mutual fund, the wrong one, it becomes about $1 million in 30 years. And that's what most people blew on coffee or martinis last week.
Number two is real estate. Even in today's market, rich idiots love great deals. And when everyone's selling is a good time to be buying. Three deals and you're done.
WILLIS: All right. I've got to stop you there because I think a lot about real estate. Where in the holy heck do you buy now with prices that are continuing to go down? Don't you risk, you know, buying in when prices only fall lower?
SHEMIN: Well, I wish people would have followed some basic principles in this book. And that is, you always buy well below market. And, Gerri, there's a wholesale market for everything, 20 percent, 30 percent, 40 percent below market and a retail market for everything. Real estate . . .
WILLIS: How do I get wholesale in the real estate market?
SHEMIN: Well, you've got to find a motivated seller. And right now, unfortunately, or fortunately, there's a lot of them. And we're hoping people (ph) get deals, 40 cents, 50 cents, 60 cents below today's market. And that's what my students and I were doing many years ago. So if the market went down 20 percent or 30 percent, like it did in some areas, you're still OK.
You didn't like it, you haven't made money, but you didn't lose any money and you always have a backup plan and a cushion. We don't speculate. We invest for the long term, not the short term. That's why a lot of people are in trouble right now. They didn't follow those basic, rich idiot rules.
VELSHI: All right, let's back up to those people who are in trouble. So let's say you could put the $89 down per week and you can make good investment decisions. We're dealing with a lot of people who, obviously, are in foreclosure or are heavily in debt or thinking about the fact that they could be in foreclosure. One of the things you talk about is that this kind of freezes the average person. They sit and they worry about it. I think we're all like that. We contemplate the problem. And you're saying that time that you spend contemplating the problem could be very damaging.
SHEMIN: It's called paralysis of analysis. And I've been there.
You know, a lot of people can relate to money and relationships. People have been in bad relationships. And you don't know what to do. And while you're in it, it's horrible. It's stressful. Like money. The minute you make the decision, I'm going to stay, I'm going to go, I'm going to do this, you feel better.
So we teach people how to make a plan, a simple plan of action. One, contact the creditors. Seventy percent of the people in trouble today have not even bothered to pick up the phone, call the bank, because, yes, the individual has a problem. The bank also has a problem. And we're seeing banks doing all kinds of things -- reducing interest rates, reducing payments, helping, in many cases, not all. But it's worth a few phone calls. Make a plan of action. The minute you make that plan and start taking action, that's what rich idiots do, you're going to start feeling better and start digging out of that hole and getting on your way to the light at the end of the money tunnel.
WILLIS: All right. I've got to get you to something. I think it's interesting. You are very clear about how much you started with, which is to say nothing. You said that in high school you were at the bottom of your class, 425 out of 425.
SHEMIN: That's right.
WILLIS: Dyslexic. Lots of issues. And he's very honest about it. Very up front. But, OK, what you're advocating sounds so difficult. How is it possible for the average joe to go out and put all this money together?
SHEMIN: Well, and right now, that's what you've got to do because the banks and mortgage companies aren't doing it. The bottom line is, everyone thinks they have to do everything themselves. We're taught not to ask for help. It's a sign of weakness. And getting rich is a team sport.
So when I found my first duplex, it was worth a lot more than I put under contract. Nobody would loan me money. Two types of people, I can't or how can I? I went to some people I know who had money or credit, showed them the deal. They're secure. They said that's a good deal. I'll go borrow the money. I'll go put up the money. We split the deal. Fifty percent is a lot better than zero.
So we teach people how to build a team. How to use other people's money ethically and legally and do it right. And that's how most idiots became very rich, like this one.
WILLIS: Well, Robert Shemin, we thank you for your time today. And I like the fake it until you make it. We'll have to have you back to talk about that.
VELSHI: Yes, good. Thanks, Robert.
WILLIS: Up next, we're taking your money questions. The CNN Help Desk is standing by to answer your e-mails. The address, issue1@cnn.com.
(COMMERCIAL BREAK)
WILLIS: Welcome back to ISSUE NUMBER ONE. The Help Desk is open for business. That means we're answering your money questions. Let's get right down to it.
Lynnette Khalfani-Cox is the author of "Your First Home." Allan Chernoff is CNN's senior correspondent. And Hilary Kramer is the author of "Ahead of the Curve" from AOL.
OK, guys, thanks for join us. Let's get right to the first e- mail. Joshua asks, "I am a student looking to do my masters and doctorate studies. With the current state of the economy, I am finding it hard to find good student loan lenders, as well as wondering what would be the best kind of loans?"
Lynnette, this is for you.
LYNNETTE KHALFANI-COX, AUTHOR, "YOUR FIRST HOME": Yes. The best kind of loans, no question, first start with federal loans and then go to the private loan market if you need to. Federal loans have lower interest rates. They have better loan forgiveness features. And, frankly, you're going to pay a lot less in fees in terms of loan origination fees, et cetera. Do a lot of searching online, comparison shop and make lenders compete for your business.
WILLIS: Yes, those private loans these days are very difficult to get.
Marie asks, "are the rebate checks considered income? Will we be required to include the amount on our 2008 tax returns?"
What do you say, Hilary?
HILARY KRAMER, AUTHOR, "AHEAD OF THE CURVE": The good news is, no. That is not income. And you can keep all of that money.
WILLIS: Think of it as a gift that you're going to save or use to pay off debt, right?
KRAMER: That's right.
WILLIS: OK. Good deal.
ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Well, the government wants you to spend it.
WILLIS: Well, but that's not my job. You know, my job is to make sure my family's doing really well.
Let's get the question from Sharon. "How does one locate foreclosure homes for sale in their given city or state?"
Allan.
CHERNOFF: Gerri, there are a lot of sites on the web. Foreclosure.com. RealtyTrac. They'll give you trials for about a week and then you start paying. RealtyTrac charges $50 a month for that service.
WILLIS: That's not nothing.
CHERNOFF: That's not nothing. Also, in terms of buying foreclosures, you have to consider, it sounds like a great idea, but there are a lot of caveats there. First of all, not easy to find something good. If it's at auction, you may not be able to actually see the interior of the house. You may have to pay cash.
WILLIS: And we know what that means, right? If you can't see the interior, there could be damage because it's very common.
CHERNOFF: Major, major damage. There is risk involved here.
KHALFANI-COX: And some homeowners, let's be honest, going out the door, they were mad about getting evicted and foreclosed upon. Sometimes they intentionally damage the property. So you've got to look out for that, too.
WILLIS: Absolutely. OK. Great ideas, Allan.
The next e-mail is from Maurice in New Mexico who asks, "if I'm looking to stay in my home for life, why should I be concerned about if decreasing value, due to neighborhood foreclosures?"
Hilary, I think this guy is on to a great idea here.
KRAMER: Absolutely. This is the principle we all should have. We should buy a home as an investment that we live in for our life, not speculative. As a matter of fact, there is some good news. If this house goes down in value, then his taxes may go down as well. And over the long term . . .
WILLIS: That's cold comfort, I've got to tell you, Hilary.
KHALFANI-COX: There is one other -- go ahead. I don't want to interrupt.
KRAMER: And over the long term, the house will increase in value. It's a long, long process in terms of real estate. We just saw it condense into a few year bull market for realty.
WILLIS: Very good point.
KHALFANI-COX: I was just going to point out, though, there is one reason that this homeowner should be concerned about declining values, even if they're never going to sell. Maybe at some point in the future they want to tap into the equity in that home, maybe to pay for kids college education, to do home improvements or upgrades. And so some of that equity might be sapped if your house has fallen in value because of foreclosures around you. So sometimes your neighbors' problems really do become your own problems, too, unfortunately.
WILLIS: That's a tough thing to think about. And, of course, you know, we see a lot of people, they don't stay in their houses that long. So it creates sort of a double whammy for them.
All right, the next e-mail is from JP who asks, "I recently settled a medical malpractice case and have taken two thirds of the award and purchased an annuity that guarantees a 6 percent minimum annual return or, if higher, the higher rate. I have the remaining one third as cash in the bank. What investment" -- this is really a straight up investment question -- "would be the safest and yet highest return."
CHERNOFF: The safest thing in the world are the U.S. Treasury Bonds. Thirty-year bonds, four and three-eighths percent. That's not bad.
WILLIS: Because, you know what, if the government isn't working, then you've got bigger problems than what your return is, right?
KRAMER: But there's a bigger issue here. Two-thirds of the money is already saved in an annuity that is continuing to pay that same amount of money. That 6 percent. That other third, there's a hint here of, I want a high return. So maybe that one-third would be great in the equity market. There are dividend-yielding stocks. Maybe not a growth stock. But they're out there. Companies like Line Energy. It's paying 10.5 percent. There are utilities, P&M Resources, paying 7 percent. That's the utility of New Mexico. So that may be the best bet for that other one third.
CHERNOFF: But that is -- consider that is a bet. If you're putting money in the stock market, there is certainly risk. But he's talking safety. He's talking safety here.
WILLIS: Particularly individual stocks.
KHALFANI-COX: But, frankly, if two-thirds is in an annuity paying that 6 percent, they don't need to be as conservative.
WILLIS: All right guys, we've got to wrap it up here. Great conversation. Thanks to my guests. Hilary, Lynnette and Allan, thank you so much.
Ali.
VELSHI: You sure you don't want another few minutes to argue about annuities?
WILLIS: It wasn't annuities, it was (INAUDIBLE).
VELSHI: We're going to take it up a that was actually very interesting.
Time to get the results of today's Quick Vote. Nearly 40,000 of you weighed in. Forty thousand. Don't you guys work? For how you voted, let's check back in with Poppy Harlow from cnnmoney.com.
It's because it's you, Poppy. When I do the Quick Vote, nobody votes.
POPPY HARLOW, CNNMONEY.COM: No, they work and they watch. They're hard at work earning money to save money. When did you first start saving? A majority of you said in your 20s or you 30s. Check out those numbers. Only 11 percent of you waited until after you were 40. Thirteen percent of you say you'll start saving any day now. We'll have another question for you tomorrow.
Ali.
VELSHI: I'll be one of those. Thanks, Poppy.
WILLIS: Well, the economy is issue number one. And we here at CNN, we're committed to covering it for you. ISSUE NUMBER ONE will be back here tomorrow, same time, 12:00 p.m. Eastern, right here on CNN.
VELSHI: Time now to get you up to speed on other stories making headlines. CNN "Newsroom" with Brianna Keilar and T.J. Holmes starts right now.
