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Issue Number One
Obama Addresses Issue #1 in Flint, Michigan; Ways to Save on Gas; Utility Companies Across U.S. Request Rate Increases; College Costs Get Tougher with Higher Costs of Oil, Energy and Food
Aired June 16, 2008 - 12:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
GERRI WILLIS, CNN ANCHOR: Welcome to ISSUE #1. I'm Gerri Willis.
Ali Velshi is on assignment.
From ISSUE #1 headquarters, to the CNNMoney.com newsroom, we are all over the stories that matter to you. And there are two major stories we're working on right now.
Historic flooding in the Midwest. Our reporters are standing by to bring you the very latest from Cedar Rapids and Iowa City.
And an offer by oil -- pardon me. And an offer to up oil output by the Saudis in an effort to lower gas prices.
Let's start out in the Midwest, where folks are still dealing with some of the worst flooding on record. It's so bad that the administrator of the Federal Emergency Management Agency declared the flooding the worst he has seen since Hurricane Katrina.
We begin our coverage with CNN correspondent Jim Acosta in Cedar Rapids, Iowa.
(BEGIN VIDEOTAPE)
JIM ACOSTA, CNN CORRESPONDENT (voice-over): It was a flood of frustration as thousands of people stood in long lines at police checkpoints to reenter their neighborhoods. Men, women, even children were given wristbands to quickly go home and carry out whatever they could in plastic bags.
Carla Morford didn't know whether to laugh or cry.
VOICE OF CARLA MORFORD, FLOOD VICTIM: We're safe. We've got our kids. We got our pets.
ACOSTA: One detective admitted they are making it up as they go along.
DET. BRAD NOVAK, CEDAR RAPIDS POLICE: It's been compared to a 3,000-year flood, or a 2500-year flood. And so, something with that rarity of an event, there is no playbook to go by.
UNIDENTIFIED MALE AND FEMALE: That's our boat house.
TRACY MURPHY, FLOODING VICTIM: Right there.
ACOSTA: We gave the Murphy family a ride home.
UNIDENTIFIED MALE: I don't know safe it is to go in.
ACOSTA: That is, what's left of it.
MURPHY: My whole entire life is gone. I don't know what we're going to do.
ACOSTA: Holding back tears, Tracy frantically grabbed all the family photos she could find.
MURPHY: Everything could be replaced but your photos can't.
ACOSTA: Like scores of other homeowners here, she was told she didn't need flood insurance. Guess what the insurance company is telling her now?
MURPHY: And they said because it's a flood, they're not going to help us.
ACOSTA (on camera): What's going to happen to this town?
MURPHY: I don't know. Is the government going to come in and buy all these houses, knock them down?
ACOSTA (voice-over): There is going to be plenty to knock down and clean up from this grain silo that split open in the rising waters to this fuel tanker pinned under a highway. But for many of the people who live here, it's the smaller things that matter most.
CANDICE RIBBLE, FLOODING VICTIM: House, our home.
ACOSTA: Everybody is out safe?
RIBBLE: Everybody is out safe now. Now they are.
(END VIDEOTAPE)
ACOSTA: And Cedar Rapids officials have gone ahead and decided to suspend those checkpoints that were set up yesterday to allow residents to go back to their homes. And this is all you need to see behind me to tell why, this tractor-trailer that that has rammed into the side of this church.
And as I walk here, you can see some of the businesses here, Gerri. Talk about issue #1, issue #1 is under water here in Cedar Rapids. This Enterprise rent-a-car, it is out of business for the time being. The sandbags, piled up in front, hardly made a dent when these floodwaters came through. And this Dairy Queen above me right now, you can take a bass boat up to it if you wanted to, but it's not open for business at this point either.
And Gerri, you can just take a look at all of this devastation behind me. It is going to take days, weeks, perhaps months, for any of this to get back to normal here.
WILLIS: But Jim, getting back to normal for so many folks, they don't have the money to do it because they were told not to get flood insurance? Do I have that right from your story?
ACOSTA: That's right. And I can't speak for every citizen in the city of Cedar Rapids, which is a city of 120,000 people, but anecdotally, yes, many of the people that we talked to said because they were told they live in a 500-year floodplain, meaning something like this only happens every 500 years, that they did not need flood insurance, and so they didn't buy it.
Now they wish they had it. And, of course, these insurance companies are telling them, you know, look at your policy. You didn't have flood insurance. And so many of these people, like the woman you saw in that piece, told us that's it, they're ready to get out. There's really nothing to salvage here.
WILLIS: Well, there's a moral in that story, Jim. Thank you for that. And try to stay dry today, if you can.
Now, while folks in Cedar Rapids pick up the pieces, people in Iowa City, they're bracing for the worst. Farmers hoping their crops can be saved before it's too late.
CNN senior correspondent, Allan Chernoff, is live right now in Iowa City with more.
Hi there, Allan. You guys have all got your waders on today.
ALLAN CHERNOFF, CNN SR. CORRESPONDENT: Absolutely. Very necessary here, Gerri.
Welcome to the University of Iowa. You can see the campus is essentially under water. Sixteen buildings here flooded, millions of dollars in damage just here alone.
Then add the thousands of homes through the state, the thousands of businesses that have suffered flood damage, and then you can include the roads, the bridges, the rails. Some of those bridges destroyed by the floodwaters.
So how much is this damage? Well, nobody knows just yet, but state officials are saying it's going to be far worse than the 1993 flood, and the damage back then, $2.1 billion.
Now let's talk about the farm economy. Fifteen percent of the state's farmland is under water right now. We're talking primarily corn and soybeans, two of the most important crops for this nation.
So you know that prices for anything made from corn are heading up, as well as soybean. And corn and soybean also are the essential feed for livestock. That means that beef prices will be headed higher, milk, eggs as well, because chickens eat so much corn. So this is going to ripple out to affect not just people here in Iowa, but throughout the country, even throughout the world. Add in also ethanol. Now, ethanol, it's a little tougher to determine the impact because we do have a few ethanol plants offline here in Iowa, but the ethanol plants are still working off of last year's corn harvest. So we can't say just yet what's going to happen to the price of ethanol, but you know this certainly would put some upward pressure on that.
And, of course, Gerri all of this is happening at a time when we've had inflation absolutely soaring -- Gerri.
WILLIS: Well, you've got that right, and lots of ripple effects, obviously. But let's get back to Iowa for just a second. Is there any glimmer of hope for people out there?
CHERNOFF: Well, number one, you can see the sun is shining. So gradually this water is going to be receding. So things will dry out.
Longer term, if we talk about the economics of this, what will be positive for the people of Iowa is the fact that there's going to be a tremendous building boom here. So that will be a big boost to the economy. Lots of money is going to be spent rebuilding, so the economy at least will be able to overcome this in some aspects, in some regards -- Gerri.
WILLIS: Well, Allan, thank you for that report. We know you're going to stay on this story and cover it for us here at ISSUE #1. Thank you for that, and stay safe.
Another big story making headlines today, a plan to increase oil output by the Saudis in an effort to lower gas prices. How exactly will it impact you?
CNNMoney's Poppy Harlow is here with your "Energy Fix."
Hi there, Poppy.
POPPY HARLOW, CNNMONEY.COM: Hi there, Gerri.
Well, folks, today another record for gas, another record for oil. AAA says the nationwide average for gas now $4.08 per gallon. And this morning, oil prices soared to an record high of nearly $140 per barrel. Pretty hard to imagine. That is despite news of a production increase.
Well, this weekend, Saudi Arabia reportedly said it plans to boost production by 200,000 barrels per day in July. That would raise the Saudi's production to 9.7 million barrels per day. That's about a two percent increase. But just compare that to the 86 million barrels consumed each and every day around the world.
It's really just a drop in the bucket when you talk about an additional 200,000 barrels. It's just about two-tenth of one percent.
Now, the Saudis will have boosted production by about half a million barrels per day since May. That's when the kingdom announced a 300,000 barrel increase. But some feel the Saudis could be doing more.
There's ongoing debate about how much the Saudis can actually produce. Most analysts peg that number just around 11 million barrels per day. So the current increase would bring them pretty close to capacity, but not at capacity. But more in focus today, what you're seeing raise those oil prices, a weak U.S. dollar, coupled with a fire at a very important oilfield off the Norwegian coastline, all contributing to the price of oil.
And by the way, Gerri, the reason the Saudis say that they really want to boost production, they're worried consumers are going to find a way to work without as much oil. They want people to still buy it.
We're following it closely on the "Energy Fix" desk -- Gerri.
WILLIS: Well, Poppy, you know, interesting, any little thing upsets oil prices, right?
HARLOW: Anything. Anything at all.
WILLIS: Right, exactly. Well, you know, and that brings us to today's "Quick Vote" question.
HARLOW: Yes.
WILLIS: We have got a question that's all about your energy.
HARLOW: All about your energy. Another record high for gas, but a lot of us, folks, let's be honest, we're still very dependent on fuel.
So we want to know how you just may be trying to change that. Here is our CNNMoney.com "Quick Vote" today.
"To become less independent on fuel, I would be most inclined to grow my own food, install solar panels, buy an electric car, or none of the above?"
Maybe you're not going to do anything.
Please let us know. Weigh in on CNNMoney.com -- Gerri.
WILLIS: All right. We'll be back to you Poppy a little later in the show.
What if we told you a U.S. senator that once railed against the mortgage meltdown took a special loan with all sorts of favors from one of the biggest subprime lenders? Well, we'll explain.
Plus, we'll debunk one of the biggest gas myths of all time. It could save you money.
We're all over issue #1, the economy, right here on CNN.
(COMMERCIAL BREAK) WILLIS: All right. What if we told you a U.S. senator, one that has fought against the mortgage meltdown, took a special loan with all sorts of favors from one of the biggest subprime lenders in the nation?
Brian Todd has the story.
(BEGIN VIDEOTAPE)
BRIAN TODD, CNN CORRESPONDENT (voice-over): As chairman of the Senate Banking Committee, Chris Dodd has tried to crack down on companies accused of predatory mortgage lending at the center of the home foreclosure crisis. He's pushed for more regulation and even criminal charges against some lenders.
SEN. CHRISTOPHER DODD (D), CONNECTICUT: Obviously, they've been engaging in practices in some instances where they knew the borrowers were incapable of meeting their financial obligations.
TODD: But one company being investigated for fraud in the mortgage crisis, Countrywide Financial Corporation, reportedly gave Senator Dodd cut rate deals on two loans. Deals not available to the general public. According to a report in "Conde Nast Portfolio" magazine, Dodd's fellow Democrat Kent Conrad, chairman of the Senate Budge Committee, got similar deals.
The magazine cites internal documents and e-mails saying, "Countrywide CEO, Angelo Mozilo, directed staffers to give lower interest rates and points to influential people." Countrywide didn't return our calls and e-mail. Contacted by CNN, Dodd and Conrad reacted with outrage to the report.
They acknowledge they got competitive rates, but both say they never sought favorable treatment and were not aware they were getting it. Records from Conrad's office show he got below market rates for one property on at least two occasions but in a telephone interview Conrad said this about Countrywide's loan for another property, an apartment building in Bismarck, North Dakota.
SEN. KENT CONRAD (D), NORTH DAKOTA (via phone): With respect to the Bismarck property, which was a loan of less than $100,000, that I actually paid above market rates.
TODD: There's no evidence of anything illegal here. And one watchdog group says Dodd and Conrad may not have violated Senate ethics rules if they didn't know they were getting loans not available to the public but...
MELANIE SLOAN, CITIZENS FOR RESP. & ETHICS: Particularly I think for Senator Dodd being on the Banking Committee and then getting a loan that is at such a better rate than what is generally available, I think that's going to be a tough sell politically. How did he really not know this loan was on such better terms?
(END VIDEOTAPE) TODD: Melanie Sloan says her group is calling for a Senate ethics investigation of these deals, but the senators have stated clearly they have done nothing wrong. Senator Conrad says he's never met Angelo Mozilo in person, says he spoke to him only once over the phone. And when we asked about that conversation, an aide to Senator Conrad said he simply told Mozilo he was looking for a mortgage on a property and asked Mozilo if his company would be interested in the business. This aide reiterated Senator Conrad did not ask for favorable rates and never knew he was getting them -- Gerri.
WILLIS: Well, Brian, you know, we've covered this for a long time, and it's just outrageous that the very people who said publicly they were seeking a solution to the mortgage meltdown were actually benefiting from some of these companies.
How much money did they actually save in these sweetheart deals?
TODD: We have a little bit of drill-down on that. Portfolio reports Dodd was saved about $75,000 over the life of two loans. We have inquired about that with Dodd's aides this morning and haven't heard back yet.
Now, an aide to Senator Conrad said they were read some internal Countrywide e-mails over the phone, and just from that it appears that a point was taken off a mortgage. They believe it might have been worth about $10,500. So the senator has written a check to Habitat for Humanity for that amount, but they're not even sure with mortgage that point was taken off of. They just got e-mails read to them over the phone.
They are trying to work with Countrywide to get some of the documentation to find out exactly, you know, what was saved and when. So they want to disclose as much of this as they can.
WILLIS: Brian, I could talk to you about this all day long. Thanks for your time today. We appreciate it.
TODD: Thank you.
WILLIS: Both on ISSUE #1 and before that, on "OPEN HOUSE," we talked a great deal about the mortgage meltdown since we first reported on it nearly two years ago. But you may be wondering, hey, how did we get to this point?
Zachary Goldfarb is a financial reporter for "The Washington Post."
Zachary, you've written a lot about this topic. You've got some really interesting stories running in The Post.
Let's just talk a little bit about sort of the excesses you saw. This is so much like the dot-com boom and bust. What surprises did you find when you really looked into this thing?
ZACHARY GOLDFARB, FINANCIAL REPORTER, "THE WASHINGTON POST": Well, what we found was really that the U.S. housing bubble was an extension of what's -- what the best is and the worst is about American capitalism. The housing bubble started as a way to offer loans to people who are low income or minorities, people who otherwise didn't have access to buying their first home or becoming a homeowner.
But what we saw is that this was drawn to extreme excess where people would get, you know, loans for a $500,000 being on a $20,000 or $30,000, $40,000 income. Loans where they would get no money -- where they would have to put no money down or not have to verify their income or employment. And that was possible because Wall Street, for a fee, could bundle these loans and sell them to investors around the world.
WILLIS: Right.
GOLDFARB: And they really -- it just was a period of greed and speculation that started out with a good idea, but quickly went to considerable excess.
WILLIS: Greed and speculation. Greed and speculation. It seems like it's a part of every boom and bust cycle.
You know, one person who has gotten a lot of criticism of this is Alan Greenspan, the former Federal Reserve chairman. He has been very defensive of what he has done, his role in this.
You've talked to him. What did he tell you?
GOLDFARB: That's right. Well, Greenspan, of course, was once called one of the most powerful man in the world and was really celebrated for most of his tenure as perhaps the best central banker, best economic official in history. But given the subprime crisis, the downturn that started -- you know, the seeds of which started the months after he left office, he's been bluntly defending his tenure.
In our discussions with him, he pointed to a few things that haven't been out there yet. First of all, that he noticed in early -- in late 2002, excuse me, that there was already a housing bubble and it was being financed by large mortgage debt. And he told this to his private meeting of central bankers. But his words to the public weren't as explicit.
And in fact, as he exited office in late '05, early '06, he saw numbers showing that the subprime market, loans to people with poor credit history...
WILLIS: Right.
GOLDFARB: ... had exploded over the previous years. And when we asked him, "Did you mention this to your successor, Ben Bernanke?" He said he didn't recall. So he was aware of what was going on. Only in retrospect, though, he says in his defense, he says that economics shows that Federal Reserve policy didn't play a role.
WILLIS: All right. Interesting stuff. Lots of people to blame, I think. Lots of blame to go around. I want to get you to today's headlines and this issue of sweetheart deals for people in the government who got these favorable loans from Countrywide. Friends of Angelo Mozilo.
What do you make of this? Was this just business as usual for the mortgage industry?
GOLDFARB: Well, of course, details about these cases are still coming out. What I think it really shows is, it's just an extension of how the euphoria over housing and mortgages, you know, extended even to policymakers whose job was to protect against excesses and against speculation that might hurt the average American.
So while, you know, ordinary Americans were getting loans that they couldn't necessarily afford, believing they were buying their first home, lawmakers, it appears, and I haven't personally reported on this, and we're learning this on a day-to-day basis, it appears that some lawmakers got special deals.
WILLIS: Right.
GOLDFARB: And so it's just, I think, another sign of the excess and euphoria over housing. And, you know, just like you mentioned, the dot-coms were the big things of the late '90s. Anyone who wanted to get a dot-com, they thought they could make a lot of money quickly. People felt the same way about housing.
WILLIS: That's right. And Zachary Goldfarb, we'll have to leave it there.
You should read his two-part series though on the housing crisis in "The Washington Post." It's great reading.
Thanks for that.
GOLDFARB: Thank you.
WILLIS: We'll tell you why high gas prices could be causing some trouble for your child's school district and what's being done about it.
That's next on ISSUE #1. Stay with us.
(COMMERCIAL BREAK)
WILLIS: Skyrocketing fuel prices are hitting everybody hard, especially school districts. Many are having to rethink their priorities, even cutting programs in order to keep school buses from running on empty.
Kate Bolduan looks at one district's dilemma.
(BEGIN VIDEOTAPE)
UNIDENTIFIED FEMALE: OK. Have a nice day. Here we go. Last day. KATE BOLDUAN, CNN CORRESPONDENT (voice-over): Ah, that sweet summer freedom.
UNIDENTIFIED FEMALE: Have a nice party.
BOLDUAN: And freedom is exactly what school systems are looking for from fuel prices.
DEAN TISTADT, FAIRFAX COUNTY PUBLIC SCHOOLS: We didn't think it would get this bad, but...
BOLDUAN: Dean Tistadt oversees the budget for the Fairfax County school system. He says it was hard enough to keep things running this year battling ever-rising fuel prices.
TISTADT: We didn't implement the next day of full-day kindergarten in a lot of schools that we wanted to implement. We actually cut back on textbooks and library books this year.
BOLDUAN: Tistadt says it will likely mean making even more difficult cuts next year.
TISTADT: This kind of thing is just going to keep taking money away from the structural side of the house to the support side, and that's just not a good outcome for student achievement.
BOLDUAN (on camera): In the past 12 months, these Fairfax school buses used 3.5 million gallons of fuel. And school officials say every one-cent increase at the pump costs them an extra $34,000 a year.
(voice-over): Fairfax isn't alone. With buses getting nine miles to the gallon, Culpepper, Virginia, schools are considering shortening bus routes to save on fuel.
LAUREN THOMAS, CULPEPPER COUNTY PUBLIC SCHOOLS: We'll delay some maintenance projects. We may look at charging some fees for activity runs or field trips, things of that nature that we've always provided for free in the past.
BOLDUAN: School districts across the country are feeling the pinch. In West Virginia, schools are pressing the governor for more help.
GOV. JOE MANCHIN (D), WEST VIRGINIA: In West Virginia, we're not geared for $4-a-gallon gas. Our economy is not geared for that. I'm appropriating special appropriations right now, as governors do, an extra $5 million for my school districts just to pay for their fuel bills.
BOLDUAN: Bottom line: school administrators say the buses have to keep running. But with fuel prices unlikely to drop, that ride is starting to cost schools more than just dollars.
Kate Bolduan, CNN, Fairfax, Virginia.
(END VIDEOTAPE)
WILLIS: You're watching presumptive Democratic nominee Barack Obama speaking to Kettering University students in Flint, Michigan. Let's listen in.
(JOINED IN PROGRESS)
SEN. BARACK OBAMA (D), PRESUMPTIVE PRES. NOMINEE: ... Social Security and provides workers a means to increase savings. And a plan that cracks down on unfair and sometimes deceptive lending in the credit card and housing markets to help families climb out of crippling debt and stay out of debt in the first place.
(APPLAUSE)
Now, these steps that I have proposed are all paid for, and they're designed to restore balance and fairness to the American economy after years of Bush administration policies that tilted the playing field in favor of the wealthy and the well-connected. But the truth is that none of these steps, none of these short-term steps alone, will ensure America's future.
Yes, we have to make sure that the economic pie is sliced more fairly, but we also have to make sure that the economic pie is growing. Yes, we need to provide immediate help to families who are struggling in places like Flint, but we also need a serious plan to create new jobs and new industries here in Flint and here in Michigan.
(APPLAUSE)
In other words, we can't simply return to the strategies of the past, for we're living through an age of fundamental economic transformation. Technology has changed the way we live and the way the world does business. The collapse of the Soviet Union, the advance of capitalism, have vanquished old challenges to America's global leadership.
But new challenges have emerged from China and India and eastern Europe. Even countries like Brazil. Jobs and industries can move to any country with an Internet connection and willing workers. And Michigan's children will grow up facing competition not just from kids in California or South Carolina, but also from young people in Beijing and (INAUDIBLE).
You know, a few years ago I saw a picture of this new reality during a visit to Google's headquarters in California. Towards the end of the tour I was brought into a room where there was a three- dimensional image of the Earth that rotated on a large...
WILLIS: You have been listening to Senator Barack Obama speaking on issue #1 in Flint, Michigan. He's been talking about deceptive lending practices, which he said hurt Americans across the country.
He talks about the need for creating new jobs. And, of course, speaking in Flint, Michigan, has special interests because people there really suffering with the economy. Some of the highest jobless rates in the country.
Well, we talked before about dispelling a gas myth and that it could save you a whole lot of cash. Well, we'll tell you all about it next.
(COMMERCIAL BREAK)
WILLIS: A big part of this "ISSUE #1" is saving you money. You have probably heard about all sorts of ways to cut back and save on gas. But as your mom probably told you, it's not necessarily true just because someone says it is.
CNN's Rusty Dornin explains.
(BEGIN VIDEOTAPE)
ROD BUDDY, GAS PURCHASER: I'm getting like $10 in a hurry?
RUSTY DORNIN, CNN NEWS CORRESPONDENT (voice-over): Like many car owners, Rod Buddy is conflicted. Premium or regular? Mercedes says to use premium. His wallet cries otherwise. So today he pumped a few gallons of the cheaper stuff.
BUDDY: I figure it can't hurt the car and it's a buck in my pocket.
DORNIN: As prices climb ever skyward, the premium versus regular question nags at more drivers with 282 models of new cars, from Chevrolets to Mercedes, recommending or requiring premium.
Adam Goldfein, host of the radio show "Auto Scoop" says no wonder people are confused. So many people seem adamant -- I have to put premium in my car.
(on camera): Some people are so adamant -- I have to put premium in my car.
ADAM GOLDFEIN, HOST, "AUTO SCOOP": They don't know what it is. They don't know the difference. They're assuming or they're buying into the myth of the marketing. When you go to the pump, the odds are you can get away with regular unleaded and can save the money, keep the money in your wallet.
DORNIN (voice-over): What's the difference? Premium has a more octane than regular. Octane affects how gas burns. High performance engines like sports cars have higher compression engines and require higher octane.
(on camera): Are there some cars that really absolutely do require premium?
GOLDFEIN: Sure. If you have a vehicle that's a turbo charged car like this Audi here, you will see this vehicle definitely requires premium fuel.
DORNIN: It will operate differently if you tried to put in regular?
GOLDFEIN: Absolutely. You won't be giving enough nutrients to your car so to speak.
DORNIN (voice-over): My car is not a turbo or a sports car, but it does say that I should be putting premium in the tank. I haven't been for the past seven years, and I haven't had any problems, not at least so far.
I told that to former auto mechanic Dean Jarami. He believes there could be wear and tear I don't know about yet.
DEAN JARAMI, AUTO MECHANIC: I have been working on all kind of cars, BMW, Mercedes, Corvette, anything else.
DORNIN (on camera): And you believe the premium gas is better for the...
JARAMI: For the newer cars. That's how they build it. They build it for premium gas.
DORNIN (voice-over): Goldfein doesn't believe it.
GOLDFEIN: It won't harm the car. It won't hurt the car. It won't void your warranty. There's nothing for the consumer to worry other than the fact that they've kept a little more money in their pockets instead of the oil company's pockets.
DORNIN: If you're wondering, can I do it, check your manual. If it recommends premium, experts say you can probably get away with regular. If it's required, you may notice a different. Or you can do what buddy does and cheat a little.
Rusty Dornin, CNN, Atlanta.
(END VIDEOTAPE)
WILLIS: You can, can live without a credit card. It can be done and you can live debt-free. We'll tell you all about that in just a minute.
First, let's get caught up on some of the day's headlines. Don Lemon is in the "CNN NEWSROOM."
DON LEMON, CNN ANCHOR: Hey, Gerri. Thank you very much for that.
No matter how many times we see these pictures, it's unbelievable, Gerri. We're talking about misery in the Midwest. Five deaths now being blamed on the massive flooding in Iowa. Three rivers pour out of their Iowa banks and swallow nearby towns. Even a college campus isn't spared, isn't immune to all of this.
Floodwaters have swamped more than a dozen buildings at the University of Iowa, but it could have been much worse. Students and faculty had spent days building sandbag fortresses. Today, in Cedar Rapids, safety officials have blocked the return of worried homeowners. They say it's too dangerous for the thousands of evacuees to make their way back into the flood zone.
And in the "CNN NEWSROOM" at the top of the hour, we'll look at cities and states down river preparing now for the floods that are headed their way.
Jacqui Jeras joins us from the CNN Severe Weather Center.
She's tracking severe weather right no -- Jacqui?
JACQUI JERAS, AMS METEOROLOGIST: Yes, absolutely. The good news for Iowa here is that high pressure is in control. And that's going to keep the rain out of the picture over the next several days. We're talking maybe Thursday at best before we have our first chance of rain here.
Now, our weather system that brought all of the rain into the Midwest is now in parts of the east. There you can see that we've got our cold front here, and that is going to bring in some very strong storms from new York city down into Philadelphia, Baltimore, and down into Washington, D.C., as well. A couple of watches have already been posted. So we'll be watching this over the next several hours for damaging winds and also some hail -- Don?
LEMON: Jacqui Jeras, we will see you in the "NEWSROOM" at the top of the hour.
Weather -- that's been our breaking news for the last few days in the "CNN NEWSROOM."
You see that picture there of "Star Trek"? A "Star Trek" actor prepares to boldly go where he has never gone before. He is getting married. George Takei, better known as Mr. Sulu, and his longtime partner, plan to get a California marriage license. That state is just hours away from legalized same-sex marriage. Takei and his partner join me live straight ahead in the "CNN NEWSROOM" and we'll talk to them about what their plans are.
I'm Don Lemon in the "CNN NEWSROOM."
Now let's throw it back to Gerri in New York -- Gerri?
WILLIS: Thank you, Don.
It was bound to happen with gas and food prices burning a hole in your budget. Just flipping on the light switch or the A.C. is going to cost you more. Utility companies across the nation are seeking rate hikes, some as high as 29 percent. They say that extra money is needed to offset soaring fuel costs for coal, natural gas used by many utility companies. It's also expected to foot the bill for building new power plants and upgrading that aging power grid.
Well, life without plastic, it conjures up all sorts of dreams of being debt-free and not having to fear getting your latest bills in the mail. Living with the weight of owing so much money, well, it can be done and we'll show you how.
Donna Rosato is a senior writer for "Money" magazine.
Donna, good to see you.
DONNA ROSATO, SENIOR WRITER, "MONEY" MAGAZINE: You too, Gerri.
WILLIS: This is a fascinating story. I want to start with the idea that you put in there which is that credit card companies have so changed their practices that about anybody could be a deadbeat.
ROSATO: That's right. In credit card industry lingo, a deadbeat is actually somebody who pays off their bill in front every month. It's counterintuitive.
WILLIS: They hate those people.
ROSATO: They make no money on them because they're not racking up interest. Just in that world, a deadbeat is not a good thing.
WILLIS: You found some really interesting stuff about people who use credit cards. Let's start with the idea that you typically spend more money even if you're buying the same thick.
ROSATO: It's incredible just using that piece of plastic will influence how much you spend. In one study by behavioral researchers, they found that grocery shoppers, who used a credit card, spent 30 percent more and bought more nonessential items, splurges, than when they pay with cash or a check.
WILLIS: You buy extra stuff too, but you also pay more for the same item. If you go out and say, I'm buying that red dress today, if you have your credit card and you use that, you will spend more than if you don't.
ROSATO: That's right. There was a great study with a sold out game to the Celtics. Half were allowed to use the credit card, half were allowed to use cash. The people with credit cards were willing to bid twice as much as the people who had cash. Of course, it was the Celtics.
WILLIS: That's crazy though.
(LAUGHTER)
We'll let me ask you about this. There are credit cards and there are debit cards. A lot of people favor debit cards because they know they don't have the problem of paying extra fees, late fees. It comes directly out of the account. Is that a better idea than using credit cards?
ROSATO: Debit cards are almost a stop loss. You're not going to be able to spend money you don't have, but they still influence you because you're not writing down what you're spending. It decouples the purchase from your actual spend too. They're still better though. And today they work virtually the same, have almost all the same protections as a credit card. Yes, debit, better than credit, not quite as good as cash.
WILLIS: But I have to give you a push back here. There are needs for some credit cards sometimes. I mean, you hear stories about people who don't have credit cards. They have a death in the family. They can't even get home to go to the funeral. It's a way that people establish credit in this society. Should you throw them away, put them down the garbage disposal? What do you do with them?
ROSATO: You bring up a good point. Definitely with travel, it can be an issue. So you can use PayPal. Most debit cards are accepted with travel these days. But there can be trouble.
The real big issue though is your credit score. When you're trying to repair credit or just to keep a good credit score, having credit cards just gives you a diversity of accounts and it's a factor. If you want to pay them off, put them away, hide them from yourself, keep them open. That's probably the best way to do it. Keep those kids hidden from yourself and you won't use them, probably don't close those accounts.
WILLIS: Donna, great stuff.
I heard about a woman today who froze her credit card in a block of ice.
Donna, thank you for that. We'll have you later in the help desk.
How you can pay for your child's education. We're all over "ISSUE #1" right here on CNN.
(COMMERCIAL BREAK)
WILLIS: Paying for college is tough, now more than ever with the economy in shambles, gas and oil prices sky high.
Ali Velshi is on assignment today. But before we sent him off, he sat down with the Raza Kahn, the co-founder and co-president of My Rich Uncle.
(BEGIN VIDEOTAPE)
ALI VEHLSHI, CNN ANCHOR: To some degree it's a trap. To some degree it's an investment in your education. It may not always be a bad thing. You have surveyed about 1,000 parents about their concerns about college education. What's the general feeling out there?
RASA KAHN, CO-FOUNDER, CO-PRESIDENT, MY RICH UNCLE: You have hit the nail on the head, which is debt isn't always as bad if it's going to help you get the education that's going to get you a better job when you graduate. So it's really making sure that the debt is affordable.
But the survey, what it found was parents were frustrated about the cost of education and the challenges in how to get a loan. Some of them cited it's a big issue when they go to vote in November. While I think legislation can help, there are things parents can do today to prepare themselves for the cost of education.
VELSHI: It is complicated. Of all the things we cover here in terms of money, the process when you've got a kid going to school of financing does appear to be more complicated than even the admissions process into college. What's sort of the best advice you have for parents?
KAHN: I think the idea of preparation for getting in is where we all focus, and then we get this sticker shock when the bill comes, which is right about now. I think there are things they can do to prepare, and one of them is to really understand what the total cost is going to be. That includes things like tuition, books, housing, transportation, and then really factoring in that tuition is going to cost more every year.
VELSHI: You're talking about factor a 5 percent to 6 percent increase every year.
KAHN: Tuition for 30 years has grown about 6 percent a year. So if tuition were $20,000 today, expect that it's going to go up by about $1,200 to $1,300 every year.
VELSHI: That's roughly double the long-term level of inflation. That's worth considering. It's not like everything else in your budget. Some things go up more. Education is one of those things.
One of the things people don't often think -- because it's so onerous to think about is grants and scholarships, even before loans, you're suggesting.
KHAN: Absolutely. I think the cost of a grant or scholarship is zero and loans cost money. It's better to maximize the free money that's available. You can find free money online. and there are places through your university that you can get grants and scholarships. If that's not enough, then shift on your focus on borrowing and borrow as cheaply as possible.
VELSHI: When you say borrow as cheaply as possible, does it tend to be government-sponsored loans that are the cheapest or can private loans be cheaper?
KAHN: Generally government-sponsored loans are cheaper because of the government support behind that program. But I think what's important is that it's shopping among the government loans as well as the private loans to really get the best deal for you. And so we make available information on our Web site that helps you calculate the cost of different products. and if you applied with us today, the next step is to really go out and see what terms are being made available by other lenders and pick the one that's most affordable.
VELSHI: The Web site is?
KAHN: myrichuncle.com.
VELSHI: Very good. Thank you for being with us.
KAHN: Thank you.
(END VIDEOTAPE)
WILLIS: We're going to get you some good old-fashioned ISSUE #1, help at the help desk. The CNN money team takes on your e-mail questions. That address, issue1@cnn.com. Stay with us.
(COMMERCIAL BREAK)
WILLIS: It is time now for the help desk answers to all your "ISSUE #1" e-mail questions. Let's get straight down to it.
Donna Rosato is a senior writer for "Money." Jennifer Westhoven is with "Morning Express" on "Headline News," and Steve Hargraves is a writer with cnnmoney.com.
Welcome all. Let's get right down to it.
Angel asks: "I have a large SUV which is leased. I have 24 months left on the lease. The problem is that I cannot afford the fuel any longer on this vehicle. I'm now disabled and on social security and cannot afford anything but my mortgage and food. I have no way to afford this vehicle and nobody wants to buy it. What's your advice?"
This is a very tough situation, Donna.
ROSATO: It is. A lease is a legal contract. Just simply turning it in and terminating it would cost you thousands of dollars. She can try to talk to the leaseholder and try to extend the payments to lower her monthly payment or check out a site like Swap a Lease.
There are leasing agents where you can get someone to buy out your contract. That may be a good option. For now, probably just drive less.
WILLIS: Drive less. It's a tough situation. So many people in those SUVs aren't making any money.
James in Florida asks: "Does breaking a rental lease hurt your credit score" -- Jen?
JENNIFER WESTHOVEN, CNN CORRESPONDENT: Yes. I assume that James means an apartment rental, the first thing I was looking into this. So the deal is that if you pay your rent every month, it doesn't do anything for you. You know, I know that from living in New York City all these years. It's OK if you miss it just by a few days here and there, but the deal is that if you break your lease in a way that you upset the landlord so much...
WILLIS: That they sue you?
WESTHOVEN: That they send you to a collection agency.
WILLIS: OK, then life is over, right?
WESTHOVEN: Yes. Then it goes on your credit score. A few days, no bring deal, but really breaking a lease -- you want to see if you can get another tenant in or talk to your landlord.
WILLIS: It's really your credit cards is really ruling your credit score. That's probably the most important thing because that information is so easy for the companies to get.
Dave in Michigan asks: "During the oil crisis of the 1970s speed limits were decreased to 55 miles per hour to increase fuel efficiency. Why hasn't the government re-implemented this policy?"
Steve, what do you think?
STEVE HARGRAVES, CNNMONEY.COM: It's a really good idea actually. You save about 20 percent in gas for every ten miles an hour slower you drive, but it's very hard to do politically. People seem to think that 55 is just too slow.
WILLIS: And they think it's a right to drive faster.
WESTHOVEN: Just drive on the right. You can save money if you want.
WILLIS: They'd have to change the law.
Michael asks: "I have three 401(k) plans, one with my current employer and two from previous employers. Should I roll the old plans into the current plan? I know diversifying is important when saving for retirement. So that would point to leaving things as they are."
Donna, this is interesting. Sounds like he's a little confused about what diversification means.
ROSATO: Just because you're in three plans doesn't mean you're diversified. You might be over diversified. You may have a lot of overlap and being in many different funds would be counterproductive. Better to roll all those over into one plan. It will be easier to manage. And if you're not sure which investment, many of the 401(k) plans have target retirement dates. Look for a low cost index fund. Better be diversified among a mix of stocks, bonds, maybe some foreign, real estate. But the number is not what counts. It's the quality of what's in there and the mix.
WILLIS: It sounds complicated but it's not that bad, especially if you put it all in one thing.
David asks: "I was wondering how the weakening state of the dollar affects the U.S. economy. What does this mean for us domestically"?
Well, Federal Chairman Westhoven?
(LAUGHTER) WESTHOVEN: It means one word, inflation. That's the big problem. There's so many things that we want to buy these days that are not made here in the United States. So maybe the TV you're watching on right now, the lunch you're thinking about eating, a lot of that food can be from outside the U.S. Your kids backpack and clothes. It really means the costs of so many goods are going up inside the United States. And especially if you're on a fixed income, that's a real problem.
WILLIS: Great answer, Jennifer.
Thanks to all my guests today.
Donna, Steve, thanks for joining us. We really appreciate your help.
And the secret of small business success. Grab a pen and paper. We've got some really good stuff. and it's not too late to be heard. Logon to CNNMoney.com for today's "Quick Vote." Poppy Harlow's coming up with the results. That's next.
(COMMERCIAL BREAK)
WILLIS: Welcome back to "ISSUE #1."
What would you do to become less dependent on fuel? Poppy Harlow is here with the answer.
What is the verdict?
HARLOW: The verdict is most of you out there, you want to buy an electric car. 45 percent of you say you will pick up an electric car. 27 percent say you will install solar panels. 11 percent of you, very brave people out there, will grow their own food. and 17 percent say none of the above. I would like to see people grow their own food in New York City.
WILLIS: I grow tomatoes. I grow tomatoes. That's not hard.
All right, we're going to move on to small businesses. Small businesses are a driving factor of our economy. So as a small business owner what are some of the vital steps you should take to make sure your business survives the economic downturn and thrives in the future.
Wayne Rivers is the president of the Family Business Institute.
Wayne, welcome.
WAYNE RIVERS, PRESIDENT, FAMILY BUSINESS INSTITUTE: Thank you.
WILLIS: It's kind of contrary to reasoning. You're saying that you can actually do things in this economy to help your small business. It seems like this would be a time that you were really threatened. What are the positives? RIVERS: Well, the positives are that there's now time to do some things that you didn't have the luxury of time to do a year or two years ago when things were busier.
Now instead of working 80 hours a week, maybe the small business owner is working just 60 hours a week. That's 20 hours of time, and so we recommend that the first thing, the highest payoff activity that a small family business owner could undertake is to examine how he himself spends his time. That's the greatest determinant in how successful the business is going to be.
Most small business owners are mis-utilizing their time by doing things they shouldn't do, things other people could do better or doing things that don't need to be done at all.
WILLIS: I think a lot of people are guilty of that.
RIVERS: That's true.
WILLIS: Let's talk about contingency plans. You say now is the time you really should have a contingency plan in place. That's a fancy phrase. What does it mean?
RIVERS: The ideal time to have a contingency plan in place is before you need it, right? So at this point, if people are looking at making some cuts in three to six months, now is the time to begin contingency planning to get ready for the fallout from those cuts. So if you know you're going to have to lay people off, you have to figure out ways to stay productive and make sure your products get out the door and your customers remain satisfied.
WILLIS: Wayne, you talk about laying off and how that's so important in today's economy, to make sure you have the right people in the right place in your business. What if one of those people who should lose their job in your organization is a member of the family? What do you do then?
RIVERS: Well, you know, that's the hardest type of change to make. , but for better or for worse, it's good to prune the family free from time to time. There may be family members who are working in the business who just don't belong there, who aren't happy there, who aren't contributing, and who aren't productive there. That not only has a business effect, but the ripple effect on family harmony is pretty significant.
In the many ways, for the family to make that determination to prune the family tree, they're doing themselves and the family members who leave a favor because everyone ends up happier after the event and morale goes up.
WILLIS: All right. So, you know, so many businesses fail, and particularly during bad times. You say a little planning will get you over the hump. Is that right?
RIVERS: A little planning. A little bit more familiarity with the numbers, for example, because most entrepreneurs don't start businesses because they love business bookkeeping. They start businesses because they love to sell cars or they love to build structures. So getting in touch with the business bookkeeping...
WILLIS: Wayne, we're going to have to leave it there. I apologies for interrupting you. I want to thank you for your help.
Wayne Rivers from Family Business Institute. Great organization.
You know, we'll see you back here tomorrow at noon Eastern. And "CNN NEWSROOM" with Betty Nguyen and Don Lemon starts right now.
