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Issue Number One
Celebs Facing Foreclosure; Town Gone Bankrupt; Peak Oil Survivalist; State of the Market; Air Force Resignations
Aired June 05, 2008 - 12:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN CORRESPONDENT: right on your iPod.
UNIDENTIFIED FEMALE CORRESPONDENT: CNN NEWSROOM continues just one hour from now.
HARRIS: "Issue #1" is next with Gerri Willis and Ali Velshi, but first a check of the headlines.
Again, first let's take a look at the headlines, dramatic new pictures, sketches from Guantanamo Bay, Cuba. These are sketches from inside the courtroom, the confessed mastermind of the September 11 terror attacks says he wants to be a martyr. Khalid Shaikh Mohammed He told the military judge he would plead guilty to charges in connection with his alleged role in planning the terror attacks. He and four other top al Qaeda suspects arraigned before a military tribunal at the U.S. naval base in Cuba. They face the death penalty if convicted. This was their first public appearance before the court after years in secret CIA prisons. Let's get you to Jacqui Jeras in the severe weather center. She is tracking dangerous and severe weather. Jacqui, good to see you.
(WEATHER REPORT)
HARRIS: We'll keep our fingers crossed for the best possible outcome here, Jacqui, appreciate it. Thank you and that's the news for now. I'm Tony Harris. "Issue #1" starts right now.
GERRI WILLIS, CNN ANCHOR, ISSUE #1: Record gas prices as we inch ever so close to $4 a gallon. The airline industry takes another big hit. What it means for the price you pay to fly. And see what happens when a whole town goes into bankruptcy. Why Ed McMahon is wrapped up in the mortgage meltdown. "Issue #1" is your house, your job, your savings, your debt. "Issue #1" starts right now.
Welcome to "Issue #1," I'm Gerri Willis. Ali Velshi will be here in just a bit. Record gas prices, but oil is down. The average price for a gallon of gas is up to $3.99 a gallon. That's according to AAA. What a surprise. It's the 28th time in 29 days we've seen a record; 13 states and Washington, DC are now paying more than $4 a gallon.
Trouble in the air for so many airlines too. Today Continental Airlines becomes the latest carrier to announce big job cuts and plans to take planes out of service. CNN senior correspondent Allan Chernoff joins me now. Hi there Allan. Tell us about this.
ALLAN CHERNOFF, CNN CORRESPONDENT: Gerri, talk about turbulence. This industry is in big trouble. It is at the mercy of oil prices. Jet fuel is now 75 percent more expensive than a year ago. That is by far the biggest expense for airlines. Guess who is going to be paying, airline employees and the flying public. Continental has joined competitors in announcing major cuts today. In a letter to employees, Continental CEO Larry Kellner wrote, the airline industry is in a crisis. Its business model doesn't work with the current price of fuel and the existing level of capacity in the marketplace. Here are the cuts. By this winter, domestic departures from Continental will be down by 16 percent. The company plans to retire 67 relatively inefficient 737s, that's nearly one of every five planes Continental flies though the airline will be adding more fuel- efficient aircraft and the company will chop about 3,000 jobs. To share the pain, the chief executive and president from the airline will work without salary for the rest of the year.
WILLIS: Now, why do I think this is going to cost me more money when I fly?
CHERNOFF: Oh, it definitely is. There's no doubt about that. Higher fares are a guarantee. In fact, already airlines have been jacking up prices. Many are double, even triple what they were last year. And even big companies that get discounts, they are going to be paying more. And there will be clearly fewer flights, fewer small planes, which are not fuel-efficient. This is especially troublesome for people who live in mid-sized cities like Omaha or Ames. They may lose service to some cities and because there will be fewer flights, expect more crowds.
WILLIS: There's got to be some good news out there Allan. What is it?
CHERNOFF: There will be a little bit of good news, maybe a silver ling in this very dark cloud. Fewer delays because we're going to have fewer flights in the air. In fact, already on-time performance is picking up. The airlines of course have already started cutting back. So in April, 78 percent of flights were on time, a big improvement from the year-ago period. And f or many business people who are weary road warriors, your company may decide that teleconferences are the way to go. There may be less flying for those business people, a little bit of a rest Gerri.
WILLIS: Well, a cold comfort if there will be fewer delays if I can't get where I want to go. I am really interested in what's going to happen to the industry here because my understanding is that people are saying the airline industry just does not work with gas prices, oil prices at these levels.
CHERNOFF: And if they keep on rising, it will work less and less. It is really a function of what happens to the price of oil. We definitely could see more bankruptcies; some airlines that have been in Chapter 11 may go back in. Some airlines may shut down. We could even see more airline mergers. Gerri, it is really an industry in turmoil. They've seen this sort of thing before, I mean horrible volatility, horrible losses. The loss this year could easily reach $10 billion, with a "B" dollars.
WILLIS: Wow, wow, wow those are big numbers. Allan, thank you for that report.
ALI VELSHI, CNN ANCHOR, ISSUE #1: Well, the airlines as Allan said are obviously feeling the fuel price pressure, but so are you and we wanted you to understand exactly how gas prices break down so you know exactly what you are paying for. CNNmoney's Poppy Harlow is here with her energy fix. Poppy.
POPPY HARLOW, CNNMONEY.COM: We want to know how do you get to $4 a gallon gasoline? Who is making the money? Who is setting these record high prices? Some of you may be pointing your finger at your gas station owner. Don't do that. That's the wrong place to look. Local gas station owners really are working on razor-thin margins, just about a few pennies per gallon. Rather you should aim your blame at the oil market. The price for oil accounts for more than 70 percent of the price of gas, roughly right now about $2.87 of the current national average which is $3.99. But that is just an average. Today take a look at this average, $4.37 in California, versus $3.83 in Arkansas.
So why do you pay more in your states than a friend or relative in another state? It really comes down to taxes, distribution and marketing. They may vary from state to state. For example, how close is your state to the nearest refinery because it matters when it comes to price. A big hurricane that knocks out a refinery in the Gulf of Mexico, that could drive prices higher. And although capacities at refineries have grown over the past years, the U.S. has not built a new refinery since the 1970s. We all suffered through these high gas prices. Keep in mind, prices are a lot higher in Europe. Ali, in the UK right now, $8.47 a gallon. We have it easy compared to them.
VELSHI: A lot of that is taxes.
HARLOW: Yeah, a lot of that has to do with taxes, certainly.
VELSHI: Poppy, thanks very much. Poppy will bring us our energy fix every day. More job cuts are coming in the auto industry. Ford now expected to slash white collar worker salaries by 15 percent. Ford executive Mark Fields is the president of Ford of America, sent employees an e-mail that the cuts will take place by August 1st. A Ford spokeswoman said the departures will be involuntary. This is not the first step by Ford to reshape their business. In May the auto maker announced it was cutting North American car production for the remainder of the year. So was GM.
WILLIS: Coming up, breaking news from the CNN severe weather center. Then, well prepared or paranoid? We'll introduce you to one man who has been preparing for an economic doomsday for the past 10 years.
Then a city in crisis.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: We spent the last 15 years robbing Peter to pay Paul so Peter is now broke also.
(END VIDEO CLIP)
WILLIS: An entire city filing for bankruptcy. How did it get to this point? That's next on "Issue #1."
(COMMERCIAL BREAK)
VELSHI: Breaking news from the CNN severe weather center. Jacqui Jeras what is going on?
(WEATHER REPORT)
VELSHI: Hillary Clinton is bowing out of the election race, but her future is still up in the air. CNN's Suzanne Malveaux looks at the debate over Clinton for vice president.
(BEGIN VIDEOTAPE)
SUZANNE MALVEAUX, CNN CORRESPONDENT (voice-over): The day after she refused to concede the race to her rival Barack Obama, an apparent olive branch.
SEN. HILLARY CLINTON (D) PRESIDENTIAL CANDIDATE: It has been an honor to contest these primaries with him. It is an honor to call him my friend and let me be very clear. I know that Senator Obama will be a good friend to Israel.
MALVEAUX: Hillary Clinton before a pro-Israel lobby group. Obama addresses the same crowd.
SEN. BARACK OBAMA (D) PRESIDENTIAL CANDIDATE: And I want to publicly acknowledge Hillary Clinton for the outstanding race that she has run.
MALVEAUX: Aides say the two bumped into each other in the hallway, allegedly by chance.
OBAMA: I just spoke to her today and we're going to be having a conversation in the coming weeks. I'm very confident that (INAUDIBLE) Democratic Party is going to be to win in November.
MALVEAUX: But before that happens, Democratic insiders say Hillary Clinton has to decide what role she'll play now having lost the nomination.
CLINTON: A lot of people are asking, what does Hillary want?
MALVEAUX: The vice presidential slot on Obama's ticket is one thing she's publicly acknowledged. Clinton's close friend, billion Bob Johnson is among a group of high-powered supporters who are pushing the idea. Johnson has consulted with Clinton about his lobbying effort and has sent a letter urging the Congressional Black Caucus to endorse the so-called dream ticket.
BOB JOHNSON, FOUNDER, BET: There's no question that Senator Clinton will do whatever she's asked to do for the party and she will certainly, as she said to some of the New York delegation, entertain the idea if it's offered.
MALVEAUX: But Clinton's campaign for the number two spot even tacitly is seen by some as a risky strategy.
DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: It's one thing to signal yes, I would be interested in talking. It's another thing entirely to put pressure on Barack Obama in a public way. He must take her as a price of getting her voters to support you.
MALVEAUX: And for one of those long-time Clinton supporters, there is disappointment.
HILARY ROSEN, DEMOCRATIC PARTY ACTIVIST: It was hard for me to come to terms with the fact that she's lost, but now that she has, it's time to get on with it. Her voters and her supporters are not part of a negotiation with Senator Obama. We're not bargaining chips.
(END VIDEOTAPE)
MALVEAUX: And Obama aides say that it is much too soon to even discuss or talk about the possibility of her essentially being on the ticket. They say she would be on anybody's short list, but they have a team that's in place that will actually vet and there's a complete process that they'll go through and that's a process they think is going to take weeks.
VELSHI: In the world in which you cover this, there are real distinctions between ending the campaign, terminating the campaign, suspending the campaign and they actually have real implications for Hillary Clinton because of the debt that this campaign has.
MALVEAUX: Absolutely, because she actually, she's about $20 million in debt, so by suspending the campaign as opposed to completely abandoning it, it allows her to continue to raise money, to ask the voters to contribute and voters can as long as they have not hit that $2,300 mark, the cap, they can continue to give to her campaign. They are also talks that are going on, negotiations between the Obama and Clinton camps about some way of helping her alleviate that debt through the Obama campaign.
VELSHI: And that is very much in play, that kind of thing could happen, because he's got the money.
MALVEAUX: Oh, absolutely. I think we've already heard one of his top advisers Tom Daschle is one of the people that's involved in those talks.
VELSHI: OK, Suzanne thanks very much, Suzanne Malveaux who will continuing our coverage as part of the best political team on television. Gerri.
WILLIS: Thank you Ali. Now with that two presumptive nominees are in place, the latest poll out shows Senator Barack Obama 2 points ahead of Senator John McCain. CNN's Susan Candiotti is traveling with Senator McCain and she joins us now live from Orlando, Florida. OK, Susan, what do we expect to hear from McCain? SUSAN CANDIOTTI, CNN CORRESPONDENT: Well, probably the same message that he has been sending throughout the states as he crisscrosses the country in order to win the presidency. But certainly in the state of Florida, at least right now, he will be addressing the Florida Press Association and editors and will be taking questions from them. We can expect, for example, probably questions about the environment here in Florida among other matters and certainly the economy, which is so important to everyone.
The Florida GOP sources tell me that here in Florida that they are confident that McCain will win, but there is no doubt it's going to be a close race. These sources acknowledge to me that Senator Obama is very strong. They know that he's got a youth movement behind him, that his message is catching on with so many people. Plus he has charisma that admittedly Senator McCain doesn't have, particularly when he reads from a teleprompter. GOP saying they are taking nothing for granted here and they're going to pull and push for every vote. The latest poll taken among Florida voters, taken just last month, the middle of May by (INAUDIBLE) shows McCain ahead by just a few points, 45 percent of Senator Obama or 41 percent.
The Florida Democratic Party later today is going to be unveiling a new attack ad against Senator McCain that will illustrate his opposition to a national catastrophic fund that would spread the responsibility for paying for disasters among all the states instead of just Gulf states. Senator McCain prefers a more regional approach. What is interesting about that is that Florida's Governor Charley Crist favors a national catastrophic fund. So perhaps there will be some questions about that today. Gerri, back to you.
WILLIS: Susan, great report. Very big issue that catastrophic fund. Thank you very much.
Now the way you vote in November may very well have a lot to do with your financial help and that is the subject of today's quick vote question. Poppy Harlow is with us from money.com. Hi Poppy.
HARLOW: Hey, Gerri, yeah, we really want to know how you feel out there. Are you secure in your finances, are you worried about all those bills? This show is all about you and how "Issue #1" the economy affects you. Here is our question today. My financial situation can best be described as -- healthy, shaky, recovering or flat lining? We want to know. Weigh in on cnn.com. We'll bring you the results just a little later in the show. Gerri.
WILLIS: Great question, thank you.
VELSHI: Prepared or paranoid? How some folks get ready for the worst-case scenario.
And we're going to show you a car that gets 300 miles per gallon. That's the one you are looking at right there. It's 200 miles per gallon, but it's a lot more than most cars get. Stay with us. You're watching "Issue #1" on CNN.
(COMMERCIAL BREAK) VELSHI: You are looking at live pictures of the "New York Times" building in Times Square, New York. We are trying to get a handle on what we are looking at. But here's what we believe is the case. There is a man climbing the "New York Times" building, apparently without the aid of ropes. That is what we know right now. Those are police officers you see at some point on the top of the building and they've got ropes. I suspect they are trying to fish him in. We don't know where he is exactly or who he is, but we are looking at it. I'm going to guarantee that Gerri has more information than I do on this one. So Gerri, take it away. Tell us what's happening.
WILLIS: What I can tell you is that these pictures come courtesy of WABC. As we look at these pictures, it looks like he might have been moving closer to the police officers, Ali. Is that what you're seeing, as well?
VELSHI: If the dude in white is the one who's climbing, then that's what we've got. Looks like they pulled him up and they - that's him. They got the guy who climbed up the "New York Times" building. Gerri, do you have any sense of motivation for climbing up the "New York Times" building? I wouldn't climb much without ropes.
WILLIS: I wouldn't either. But you know what, these extreme sports guys do all kinds of things like this and we often carry these stories of people climbing the Eiffel Tower, you name it, all kinds of high-profile buildings. We really don't have that kind of detail yet on what the motivation might be. It looks like this fellow might be in custody or pulled away now having a conversation, it looks like, with officials right there on the roof of the "New York Times" building.
VELSHI: Here is what we are attempting to confirm all this information. He looks a little occupied at the moment. As soon as he's freed up, we'll ask him. We think that this is Alain Robert (ph), who you may know as the French super man. He has as you can see, apparently turned himself - spider man, spider man obviously, because if he were super man, he would have just flown onto the top of the building. Clearly he's spider man. And we believe he's turned himself in.
You got to expect that he knew that was coming. So he has turned himself in at the top of the building. He looks to be in custody of the New York police. That's an interesting thing to do for a Thursday afternoon in New York. All right. If I climbed a building once in my life that would be it for me and I would retire. We'd all really like to retire early, but how about retiring while you are still working? I don't even know what that means. It sounds impossible. But our next guest says anyone at any level can do it with just a few simple tricks. You will know him as Stanley Bing. He's the alter ego for Gil Schwartz, an executive at CBS. Bing is a columnist for "Fortune" and the author of "Executricks" and many other things I've been reading Stanley Bing's stuff before I could read even. Stanley, good to see you. What are we talking about, retiring while you are still working?
STANLEY BING, AUTHOR, EXECUTRIX" (sic): It's pretty much impossible to retire right now. We really all have to work for a living. But there is really no reason why you can't get all the benefits of a good, relaxing lifestyle while you are still being paid for it.
VELSHI: In other words, living the life, but you are not chasing the dream until the end. You're actually living.
BING: You are living in the middle of it and you're basically emulating the lifestyle of successful executives.
VELSHI: OK, I'd like to know how to do that
BING: There is a wide variety. There's delegation, which is a huge tool. You have great delegators throughout history include Ronald Reagan, Bill Gates, for instance, Steve Ballmer is running everything. Yoda, he basically delegated the galaxy to the protection of Luke Skywalker. You have of course the Blackberry which confers the right to be absent on people. These are not tricks that only executives can use. We can learn from successful people about it.
VELSHI: This is the thing. You said not only executives because if you are an executive, you take these hints and you hire the right people and you are good. What about for the rest who feel overburdened and it's time. It's the leisure. It's the idea that I can go and do something else.
BING: You have a problem being in television because you actually have to be here physically. People who are really successful in business, they really never have to be anywhere. If you are talking to somebody, you'll see them working the Blackberry and you say what are you doing? They'll say, I'm working. What they are doing is sitting on a beach or having breakfast at a restaurant. The business life has a wide variety of things that we can use, breakfast, lunch, dinners, drinks, drinks before dinner. There is just this whole panoply of things that are available to us.
VELSHI: Makes me feel like you're getting work on when...
BING: If I had breakfast with you, we could be anywhere that we wanted to.
VELSHI: We would have our blackberries.
BING: We'd have our Blackberries. We would be working.
VELSHI: I'd be responding, excellent idea. We should definitely cover that story.
BING: We could even do it across the table from each at the same moment. There is all this technology available to help people.
VELSHI: Tell me, you got something in the book that's called intensely engaged.
BING: Well, obviously..
VELSHI: I'm trying to be intensely engaged as I ask you the question.
BING: We are. Obviously there is a time when they turn the red light on the top of the camera for you or where somebody calls and says, the famous phone call for everybody which is can you come up for a minute, one of those? Then you are on the line. Then you have to intensely engage. And then the goal for the executrix is to work as intensely and powerfully for the shortest amount of time possible.
VELSHI: When you come, you come strong.
BING: You bring it on, and then the rest of the world stretches before you in an infinite variety of ways.
VELSHI: A great tip and you just know so much about these things so I enjoy reading these things. You got a great way of presenting it. You say be decisive eveb when confused.
BING: Mostly when confused. You know, most of the waste of time takes place when people are actually thinking, having meetings, doing power point presentations. When you are confronted with a confusing situation, true executives can make a spot decision that can make work unnecessary for weeks or produce work in others for months.
VELSHI: You have a lovely flavor about the way you do this. I should warn our viewers though, when you reading it, you get some sense of the sarcasm that Stanley is bringing to the operation. Good advice and good sarcasm. Thank you very much. Gerri.
WILLIS: I'm just working here.
VELSHI: ...going to be intensely engaged.
WILLIS: I am intensely engaged and I'm working. It's one thing for a person to go through bankruptcy, even a company, but what happens when an entire town hits rock bottom? We'll show you.
Plus why Ed McMahon is finding himself wrapped up in the mortgage meltdown and a way to make some big money by flipping homes. "Issue #1" rolls on next.
(COMMERCIAL BREAK)
GERRI WILLIS, CNN ANCHOR: For years, Ed McMahon enjoyed the glitz and the glam of being an American TV icon. But now he is sharing a common hardship with many other Americans, the possibility of losing his home to foreclosure. Brooke Anderson reports.
(BEGIN VIDEOTAPE)
ED MCMAHON: Here's Johnny!
BROOKE ANDERSON, CNN CORRESPONDENT, (voice over): His famous lead-in to Johnny Carson made Ed McMahon a household name. But fame doesn't make him immune to the mortgage problems plaguing countless Americans. The 85-year-old entertainer, who also hosted "Star Search," is fighting possible foreclosure on his posh Beverly Hills home.
ROBERT PITTS, REAL ESTATE BROKER: Let's face it, he is a normal person. Foreclosures happen to everyone. You just get behind and you just -- you know, it's a snowball effect.
ANDERSON: McMahon fell more than $643,000 behind on a $4.8 million loan from Countrywide, according to a notice of default filed in March. His publicist wouldn't talk finances, but did tell CNN, McMahon broke his neck in a fall a year and a half ago and hasn't worked since. That the potential loss of his house is due to "a perfect storm of bad events, bad economy, bad housing market and bad health."
McMahon has owned the property since the early 1990s. Five years ago, he won a multimillion dollar lawsuit against his home insurance company for the spread of toxic mold throughout the home. The house has been on and off the market for the past two years. The latest listing price, $6.25 million. Beverly Hills mortgage broker, Steven Kosen, says McMahon can still save his home.
STEVEN KOSEN, THE MORTGAGE HOUSE, INC.: The bank is not going to want the foreclosure to happen. They want their money. And if they can reinstate the account and bring the mortgage current, then it will be as it was.
ANDERSON: Through his publicist McCahon says, "many good, hard- working Americans are going through the same thing and my heart goes out to them."
Brooke Anderson, CNN, Los Angeles.
(END VIDEOTAPE)
WILLIS: And Ed McCahon isn't the only celebrity dealing with foreclosure. Retired baseball star Jose Canseco and boxer Evander Holyfield have also faced foreclosure.
ALI VELSHI, CNN ANCHOR: All right. Breaking news from the CNN Severe Weather Center. We told you we'd bring it to you as it comes in. Let's check in with Bonnie Schneider.
Bonnie.
BONNIE SCHNEIDER, CNN METEOROLOGIST: Well, Ali, we have a new tornado watch. And this one is issued as a particularly dangerous situation. It will go until 7:00 p.m. tonight and it covers parts of South Dakota, Iowa, Kansas and Nebraska. A very large area. And when a tornado watch is issued with such language, it means that we are expecting large and violent tornadoes over the next few hours. As you can see, we're going to be getting some very heavy rain across this region as well.
The extreme weather that we're looking at in terms of the outbreak for today shows the area in purple is where we're looking at the most violent tornadoes possibly breaking out. And these are likely to be long-lasting tornadoes that could be on the ground throughout a while. At least 30 minutes or longer. High risk means we're looking at a larger concentration of severe storms, possibly up to 20 tornadoes or more with the intensity being some of the strongest.
We're going to be keeping track of the threat for tornadoes and severe weather here in the CNN Weather Center throughout the day. We'll have another live report for you at the top of the hour. If we get any warnings, we'll bring them to you live as well.
Ali.
VELSHI: Yes, we'll break in. If you do get any warnings, we'll break in and tell our viewers about that as they develop.
Thanks, Bonnie, and to everybody at the Weather Center for checking that out.
Well, it's bad enough when individual people in businesses have to file for bankruptcy, but you don't really think of an entire city filing for bankruptcy until now. Dan Simon has the story.
(BEGIN VIDEOTAPE)
DAN SIMON, CNN CORRESPONDENT, (voice over): Vallejo, California, was once the state capital. Its claim to fame now being the largest city of California ever to file for bankruptcy.
MAYOR OSBY DAVIS, VALLEJO, CALIFORNIA: We spent the last 15 years robbing peter to pay paul until peter is now broke also.
SIMON: Vallejo Mayor Osby Davis cites a steady increase in labor costs. For years, he says the city has been able to get by. But the downturn in the economy sent the community of 120,000 over the edge. And now Davis says the city can no longer afford the cost of its most treasured public servants, police officers and firefighters. The biggest problem is that three quarters of Vallejo's general fund goes to pay for them.
DAVIS: It is sad that we have to make this decision and we find ourselves in the this circumstance.
SIMON: The city wants to trim salaries or benefits by thousands of dollars. The unions are fighting it, so the issue will be decided in court. The average pay now for its 128 police officers is $122,000 a year. And for its 123 firefighters, it's $130,000. Both figures do not include overtime. It may seem like a lot, but it's the going rate in the pricey San Francisco Bay area. The to help pay for that, budget have been slashed for things like libraries and senior centers.
Vallejo gets its revenue from sales and property taxes, but the housing slump has hit this area hard. More than 2,000 homes have been foreclosed or are in the process of being foreclosed. And as for sales tax receipts, they're off by about 10 percent. It didn't help that the town's Wal-Mart closed up shop and moved to a nearby community.
The bankruptcy has sent chills throughout the state.
UNIDENTIFIED MALE: All around California state people say, I don't want to be the next Vallejo. Are we going to be the next Vallejo?
SIMON: But not everyone agrees the action was necessary.
MATT MUSTARD (ph), VALLEJO POLICE DETECTIVE: There is a lot of cities in this state and a lot of cities in this country that are facing difficult times right now in reference to their finances. I don't see anybody else filing bankruptcy.
SIMON: Vallejo Police Detective Matt Mustard says the city has been mismanaging its funds for year and is now declaring bankruptcy as a way to cut wages. He says morale has plummeted and many are looking for other jobs.
MUSTARD: People come to work as police officers and firefighters to deal with crisis and help you with your problems. And now they're put into a crisis mode on a daily basis.
SIMON: Mayor Davis is also in crisis mode. He knows a bankruptcy will damage the city's credit rating and cost Vallejo millions in legal fees. But he's hoping a judge will allow the city to rip up its labor contracts and bring compensation down.
DAVIS: You cannot continue to pay what you don't have. And something has to happen.
SIMON: And what has happened is causing this historic city to make history once again.
Dan Simon, CNN, Vallejo, California.
(END VIDEOTAPE)
WILLIS: Sad story.
Well, still ahead, running out of oil. Meet a man who's spent the last 10 years preparing for the day world oil reserves run dry. Well prepared or simply flipping out, you'll be the judge.
And speaking of flipping out, Jeff Lewis is stand buying in the CNN greenroom to share his trick -- there he is right here -- of staying cool and making money in this tough housing market.
You're watching ISSUE NUMBER ONE. Stay with us.
(COMMERCIAL BREAK)
VELSHI: OK, here's a way to save some cash on gas. It's called the Aftera (ph) Type One. It's a three-wheeled concept vehicle, although it does seem to be working. It's conceived and designed by a couple of engineers in Carlsbad, California, who claim that you can go coast-to-coast on a tank of gas. More than 200 miles per gallon. Tentative sales price is $20,000 a piece. And at 200 plus miles per gallon, one thing you'll definitely see on the road is a lot of fuel savings if you want to drive one of those. It's all about aerodynamics, by the way, the idea that there's less car surface hitting all that wind and that's where you're saving a lot of the gas.
Well, the economy's bad, but some think it's so bad that they are preparing for the worst. Or are they just too worried or are they being smart? Deb Feyerick reports.
(BEGIN VIDEOTAPE)
DEBORAH FEYERICK, CNN CORRESPONDENT, (voice over): Iver Lofving is convinced the world is running out of oil. He spent the last 10 years getting ready for that day. A mainstream survivalist, chopping his own wood, installing solar panels, growing vegetables, even driving a solar-powered car, all this gear to becoming self- sufficient.
IVER LOFVING, PEAK OIL SURVIVALIST: Call me crazy, but I'm crazy like a foxes. This household makes half its own energy. I mean, you know, half the -- you know, two-thirds of the hot water, half the heat right there, smaller part of the electricity, half the gasoline.
FEYERICK: Lofving is a high school teacher who lives in Skowhegan, Maine, roughly two hours north of Portland. He believes a world driven by cheap oil is coming to an end.
How does peak oil play into the changes you're making in your life?
LOFVING: Well, peak oil has everything to do with it.
FEYERICK: Peak oil is the point when global oil production peaks, then goes down. The remaining oil supply is limited and would be harder to get at. And that means fewer barrels a day. Some oil experts say that day is here. Others predict it's 20 to 30 years away.
But as gas prices rise, web sites like peakoil.com and survivalblog.com are getting more and more visitors talking about the end of cheap oil and the possible threat of political and economic instability around the world. And peak oil groups, like Lofving's, has seen a spike in members.
LOFVING: I think that things can get -- have the potential to get very, very bad if we don't do anything. I really do.
FEYERICK: Unlike some survivalists, Lofving has not started raising chickens or stock piling a years worth of food and ammunition. But he is thinking of a bigger garden and maybe a small boat, just in case.
Deborah Feyerick, CNN, Skowhegan, Maine.
(END VIDEOTAPE)
WILLIS: All right. Well, my next guest knows a thing or two about flipping houses and flipping out. That's the name of his new TV show on Bravo. So what's his secret to staying cool and making money in a down market? Jeff Lewis joins us now to talk about it.
Jeff, your show is amazing. But flipping in a down market? It sounds like a crazy, crazy strategy. Aren't you guaranteed to lose money?
JEFF LEWIS, BRAVO's "FLIPPING OUT": I know. It's definitely more risky now. I am paying very close attention to my budgets. The buys are -- it's very important that you get a good buy in this market.
I used to spend up to four to, I would say 12 months remodeling a house. If a house is going to take me longer than 12 months, I'll pass. I'm focusing on getting in and out quickly because I do believe that we probably will have some more depreciation.
WILLIS: Some more depreciation, obviously.
LEWIS: It's possible.
WILLIS: We've seen a ton of it already.
LEWIS: Yes.
WILLIS: Now you're doing sometimes multiple houses at a time.
LEWIS: Yes.
WILLIS: And last year you had lots and lots of houses. This year, though, are you going to have fewer houses, as well as holding them a shorter period of time?
LEWIS: Last year I was doing five, six houses at a time. The lenders simply won't let me do this anymore because now that I own more than four properties, they're actually turning me down because they're saying, you own more than four properties, you are a risk. And I had, for the last, I would say until recently, there was a 10- month freeze for me. I could not get a loan for the life of me. And it was really tough.
WILLIS: Wow. The bankers are making the important decisions in this marketplace.
LEWIS: They are. And you know what, I have to say, I mean, the restrictions were a little -- they went to the extreme. I mean at first they were too lenient. Then they were too strict. And I was seeing people with money in the bank, good credit, strong incomes that couldn't get a loan. They were looking for reasons to not give you a loan because they didn't have the money.
WILLIS: Right. Right. We've seen a lot of that. Let's talk about some of the things you do on your show that we all can benefit from. And we're showing pictures of your show right there. Let's talk about negotiating. LEWIS: Yes. I never look at the price of a house. I will walk in a house and I will figure out what I think it's worth. And I will make that offer.
WILLIS: Really? You don't even look at the little MLS listing and say, hum, per square foot, make the comparison, no?
LEWIS: I don't even look at the price. But I track houses for up to a year and a half, believe it or not. I'll go and look at a house. Let's just say it's listed at $1.5 million. I think to myself, it's worth $1.1 million. I'll wait up to a year and a half for that seller to become realistic. And through price reductions, when it gets close to the number that I want to pay, that's when I'll make an offer. So I'm looking at houses now that I may not make offers until six months from now.
WILLIS: Wow. OK, one question I get from viewers every single day. Do I buy foreclosures?
LEWIS: Well, just because it's a foreclosure doesn't mean it's a good deal. And remember, the banks don't necessarily need the money. I find the better deals dealing directly with private parties because they might be in situations, financial dire situations, where they need to get out quickly and they sell 20 percent or 30 percent under market. The banks are smart and they have the money to hold it if need be.
WILLIS: All right. Well, Jeff, I've got to tell our viewers, your season starts June 17th on Bravo. "Flipping Out." It's a fun show.
Ali, over to you.
VELSHI: Thanks, Gerri.
All right, breaking news in to CNN right now from the Pentagon. CNN's Jamie McIntyre is live there with the latest.
Jamie.
JAMIE MCINTYRE, CNN CORRESPONDENT: Well, Ali, I don't use these words very often, but really it is a stunning development here at the Pentagon today. CNN has learned that both the Air Force chief of staff and the Air Force secretary are going to be effectively fired as of today. Formally they are being asked for their resignation. That's the Air Force chief of staff, General Michael Moseley, and the Air Force secretary, Michael Wynne. That's the top civilian and the top military leader in the Air Force. And the apparent reason is the inability of both of those leaders to make the kinds of changes that Defense Secretary Gates expected, especially with the handling of nuclear weapons.
You may recall just about a year or so ago, a B-52 bomber flew across country with six nuclear tip war heads onboard. Nobody knew about it until after the fact. Big changes were supposed to be made, but a report on what the Air Force has done and how they've handled that has just come to the desk of Defense Secretary Gates. And as near as we can tell, that was the last straw.
Gates has done this before. He fired, of course, the Army secretary over the short comings at Walter Reed, to send a clear message that he expected real changes there. And that appears to be what's happening here. Although there have been a number of scandals in the Air Force, including allegations of conflict of interest in the awarding of a high-profile contract.
It's not the first time an Air Force secretary has been fired. Defense Secretary Cheney, back in the 1990s, fired the Air Force chief of staff at the time, Mike Dugan, over statements he made to the press about the Persian Gulf War.
So it's one way that defense secretaries can show that they're really in charge and they really expect results. Clearly Defense Secretary Gates was not happy with the performance of these two men. We're not exactly sure when the resignations or firings will take effect. We expect that's going to be announced later today.
Ali.
VELSHI: Jamie, what's the ripple effect through the Air Force? Does this tend to have a negative effect on morale? Is this something that you said it's stunning, so it wasn't expected necessarily. How does that play out? Were these -- do we know if these were men who were highly regarded amongst the rank and file in the Air Force?
MCINTYRE: Well, they are highly regarded. But as I said, the political leader is the political appointee. The civilian leader is a political appointee. General Moseley, of course, is a distinguished Air Force officer who's run through the ranks.
But this is about accountability. This is about the responsibility lies at the top of the chain of command. And when expected changes -- when things are supposed to get better, and they don't get better, Secretary Gates has made it clear, he's going to hold the top leadership accountable. And that's what he's doing here.
VELSHI: Jamie McIntyre live at the Pentagon with that breaking news.
Jamie, thanks very much for joining us.
MCINTYRE: Thank you.
VELSHI: All right. You're watching ISSUE NUMBER ONE.
Coming up next, answers to your money questions from the CNN Help Desk right behind me. The e-mail address, you can still get one in, issue1@cnn.com. We'll have your questions right after this break.
Stay with us. You're watching CNN.
(COMMERCIAL BREAK)
WILLIS: Welcome back to ISSUE NUMBER ONE. The e-mails keep on coming in to us. A lot of you out there asking for answers to your money questions. And that's what this Help Desk is all about. Mike Santoli is with "Barron's" magazine, Stephanie Elam -- also Stephanie e-mail on that prompter here -- is a CNN business correspondent. And we also have Jeanne Sahadi from cnnmoney.com.
Welcome all. Great to have you here.
Let's go to the first e-mail from Glenna who asks, "how come people in Europe are currently paying $8 plus for gasoline and the United States is paying about $4 a gallon for gasoline? Boy, life is tough."
You know, this is one of those questions that's not really a question, it's more of a comment. But what do you make of it, Mike?
MIKE SANTOLI, ASSOCIATE EDITOR, "BARRON'S": Yes, well the differences are almost entirely the higher tax rates that Europeans charge on gasoline. They want to discourage consumption. They want to do something to keep us burning less and keep them burning less. And that's almost entirely -- the wholesale price is almost the same everywhere.
WILLIS: Wow. OK. Well, that's interesting to know.
STEPHANIE ELAM, CNN BUSINESS CORRESPONDENT: Yes. So and if you think about it, they're also paying more in taxes than they are for the actual price of gas there.
WILLIS: You don't want to go there.
Kendrick in Louisiana asks, "I'm interested in real estate investing. Are foreclosures the safest way to get involved if you are new to the real estate industry?"
I don't know about this one, Jeanne.
JEANNE SAHADI, SENIOR WRITER, CNNMONEY.COM: Yes, I don't think safe is the word you're looking for here. It's maybe you'll luck out and do really well, but it's a tough market. You really have to know what the prices are in the neighborhood. And with prices that are still falling, it's going to be hard to kind of gauge where the market is. Plus, you're going to probably have to -- either have a lot of money to do repairs or have to be really, really handy. So if you've never . . .
WILLIS: And you never (ph) know what you're getting either, right?
SAHADI: No. And you don't know what you're getting. You may not be able to see the home. You may be competing with professional investors. And they know how to outwit you.
SANTOLI: I'd just point out that the areas with most foreclosures are the worse housing markets. WILLIS: All right. Guys, I have to interrupt you right here. We've got some breaking news. We're going live now to Bonnie Schneider in the Severe Weather Center.
Bonnie, what do you have?
SCHNEIDER: Well, Gerri, we have a new tornado warning that has just been issued for southern Colorado. This is for Baca County. Now a tornado wasn't spotted, but a funnel cloud has been indicated by storm weather watchers in this region. So it's something we're watching closely. This goes until 11:45 a.m. Mountain Time.
Now that's not the only thing that has just been issued. A new tornado watch has been issued until 8:00 p.m. tonight. And this goes further south, into Kansas and Oklahoma. As we zoom into the region, you'll see this is just north of Oklahoma City and our Reynolds Wolf will be reporting from Norman, Oklahoma, in just about five minutes. And we'll get a live report from him there.
This tornado watch is in addition to the other watch that we had further northward toward South Dakota and into Iowa that actually expires later on this evening as well. So the day is getting very active very quickly, Gerri. We're going to have more at the top of the hour.
WILLIS: Bonnie, thank you for that report.
We're going to get right back to the Help Desk here. We have one more question from Glen. He asks, "what is the earnings cut-off for a Roth IRA? Do you have to be working to be eligible?"
Stephanie, this sounds like you.
ELAM: Yes, you do have to have income that you've worked for. And the cut-off is $101,000 if you're single, it's $159,000 if you're filing as a joint married couple. And you can make that full $5,000 contribution to it. However, it decreases as your income goes up. So the top end, $116,000 if you are single and it's $159,000 if you are married filing jointly.
WILLIS: All right, guys, great information today. We really appreciate your help today.
Jeanne, Mike, Stephanie, thank you so much.
Ali.
VELSHI: All right, Gerri, thanks.
The results of today's Quick Vote. Log on to cnnmoney.com and be heard.
This is ISSUE NUMBER ONE. We're coming back in just a moment.
(COMMERCIAL BREAK)
WILLIS: What can your financial situation best be described as? That's today's Quick Vote question. And here are your results.
VELSHI: Well, 45 percent say healthy, 28 percent say shaky, 9 percent say recovering and 18 percent say flatlining.
That's kind of a hopeful outlook. I'm glad about that.
I want to clarify something we told you about a little bit earlier. Some cost cutting over at Ford. We talked about a 15 percent cut in salaries. It's actually, just to be clear, it's 15 percent cut in salary-related costs. So it doesn't necessarily mean it's coming right out of salaries. Just wanted to make sure that that's clear.
WILLIS: Ali, you've always got all the details.
Another detail you'll want to know about, Ed McMahon, who we mentioned earlier being in foreclosure. He will be on "Larry King Live" live tonight at 10:00 p.m.
VELSHI: Yes, you're going to want to hear about that.
The economy is issue number one. We here at CNN are committed to covering it for you. ISSUE NUMBER ONE is back here tomorrow, same time, 12:00 p.m. Eastern right here on CNN.
WILLIS: Time now to get you up to speed on other stories making headlines. CNN "Newsroom" with Don Lemon and Brianna Keilar starts right now.
DON LEMON, CNN ANCHOR: Skip the trial, go straight to the execution.
