Return to Transcripts main page
Issue Number One
New Lending Rules Effective Immediately; Saving Fannie & Freddie; IndyMac Taken Over by Federal Government
Aired July 14, 2008 - 12:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN ANCHOR: It's the perfect storm for issue #1. Fannie and Freddie are rescued, and everyone who is anyone has something to say about it.
A major bank gets taken over by the FDIC, leaving consumers in the lurch. Could it happen to your bank?
There are new rules for borrowing money effective immediately.
And the president makes a big decision, hoping it will affect record-high gas prices.
Buckle your seat belts, everyone. It's a packed hour of ISSUE #1, and it starts right now.
Well, from the ISSUE #1 headquarters to the CNNMoney.com newsroom that you are looking at, we're all over the stories that matter to you.
Hello, everyone. I'm Ali Velshi. And this is a special edition of ISSUE #1.
The second biggest bank failure in American history. Mortgage lender IndyMac collapses.
The FDIC says there are a total of 90 banks on its problem list. Is your bank one of them? And are your savings protected?
And in the wake of IndyMac, help for mortgage giants Fannie Mae and Freddie Mac. Treasury Secretary Henry Paulson says the government is ready to lend billions of dollars to the two companies, securing their future.
(BEGIN VIDEO CLIP)
HENRY PAULSON, TREASURY SECRETARY: In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, congressional leaders of both parties, and with the two companies to develop a three-part plan for immediate action. The president has asked me to work with Congress to act on this plan immediately.
(END VIDEO CLIP)
VELSHI: Now, that plan would include increasing the line of credit for both Fannie and Freddie, allowing the Treasury Department to buy stock directly in those companies, and giving the Federal Reserve more oversight of them.
That, of course, Gerri, is if Congress approves.
GERRI WILLIS, CNN ANCHOR: That's absolutely right. All eyes on Washington. Congress will play a big role in securing Freddie Mac and Fannie Mae. Legislators have been keeping busy responding to the issue.
CNN's Kathleen Koch is live on Capitol Hill with the very latest.
KATHLEEN KOCH, CNN CORRESPONDENT: Gerri, reaction here on Capitol Hill to the proposal has largely been positive, with Senate Majority Leader Harry Reid in a statement saying, "Senate Democrats stand ready to work with the administration to quickly and effectively address the situation currently facing these institutions."
Now, top lawmakers here on Capitol Hill were over the weekend talking with the Federal Reserve, talking with the Treasury Department about the plan. These measures would be tacked onto a housing bill that the Senate passed Friday night.
Senator Chris Dodd, the chairman of the Senate Banking Committee, says that these are "... probably the right steps."
(BEGIN VIDEO CLIP)
SEN. CHRISTOPHER DODD (D-CT), CHAIRMAN, SENATE BANKING COMMITTEE: We're getting towards the bottom of this, but we're not there yet. That put pressure on Fannie and Freddie to GSEs.
But again, I want to emphasize to you, again, they're not primary lenders. They buy mortgages that are sold by other banks, primarily, and they're in very sound shape. The important thing for people to recognize here, there's no reason to be fearing about Fannie and Freddie going under, mind you, and the steps the administration are offering are to shore up and to try to stop and calm those fears down.
(END VIDEO CLIP)
KOCH: Now, Senator Dodd is holding a hearing here on Capitol Hill tomorrow to learn more. Fed chairman Ben Bernanke will be testifying, and at that hearing, or perhaps at a later hearing, Senator Dodd is also inviting to testify S.E.C. Chairman Christopher Cox and Treasury Secretary Henry Paulson.
Now, at this point, the House is not planning any hearings, but a spokesman for Speaker Nancy Pelosi says they hope to move that housing bill this week -- Gerri.
WILLIS: Kathleen Koch, thank you for that report.
VELSHI: Well, Congressman Barney Frank is the chairman of the House Committee on Financial Services, and he's been at the forefront of the fight for new regulation. Representative Frank joins us live right now from Capitol Hill.
Thanks for being with us, Congressman.
REP. BARNEY FRANK (D), CHAIRMAN, HOUSE COMMITTEE ON FINANCIAL SERVICES: Thank you.
VELSHI: There are a couple of issues going on here, and I think to our viewers they can easily get confused. One is the failure of IndyMac, and the other one, of course, is Fannie and Freddie.
Do we think this is the right move to shore up Fannie Mae and Freddie Mac?
FRANK: Yes. It's got nothing to do with IndyMac. IndyMac is a bank and a completely separate operation.
I agree with Secretary Paulson, with Jim Lockhart, frankly, the regulator for Fannie Mae and Freddie Mac, who has been somewhat skeptical of them, says, I think correctly, they are not insolvent. They're not in trouble.
It was more the market sort of overreacting. So what the secretary did was entirely appropriate, which is to say, look, we have confidence in them and we're putting our money where our mouth is. We're ready to lend them money, confident we'd get it back, but thinking they won't even need it.
But the other point to make is this -- we're not simply responding to the crisis. We are also taking three very important actions to make it less likely that we'll have the problem in the future, to make it less likely that the subprime crisis, which is how we got into this, will recur.
VELSHI: What are those actions?
FRANK: Well, today, in a very important move, Ben Bernanke is actually repudiating Alan Greenspan. Greenspan was given the power by Congress in 1994 to promulgate rules that would ban the inappropriate subprime mortgages. He never did it because he believed in deregulation. Bernanke, as we are sitting here today, is getting the Fed to adopt rules that will outlaw many of the kinds of mortgages that got us in trouble.
Secondly, in the bill that we're going to pass -- and Chris Dodd is right, we are going to pass it soon -- we use the FHA, the Federal Housing Administration, which has been allowed to dwindle. They're going to be back as a primary source for insuring mortgages. They don't make these kinds of adjustable mortgages and these other hinky- dinky types of mortgages.
But finally, with regard to Fannie Mae and Freddie Mac, the bill that we've been working on for several years will finally pass, and we approved the regulation there -- higher capital standards, et cetera. So we are responding to a short-term crisis. We think it's a crisis of confidence, not of basic economics. But we're taking a number of steps to say that the kind of bad mortgages that got us into this trouble in the future won't happen again. VELSHI: All right, Congressman. I mean, we're going to cover the rules that the Fed has brought in that you just mentioned. We're going to cover the exposure that taxpayers have to Fannie and Freddie, with action that's being taken. But let's just talk about that for one second.
Are taxpayers going to somehow be on the hook because of the problems that Fannie Mae and Freddie Mac have gotten themselves into? And I understand what you're saying. You're not saying they're insolvent, but they have been in trouble, and there's a reason why investors have been selling the stocks of those companies off, because people are worried about how solvent those companies are and how long they'd be around.
FRANK: Yes, but they're worried inaccurately about solvency. I understand the market.
Look, the market over the long term is a very reasonable allocator of resources. In the short term, it can be prone to nervous hysteria. And yes, the taxpayers are theoretically on the look, one, by the way for loans.
I am reasonably certain the loans will never have to be made, and certain that if they were made, they would be paid back. We'd be in a superior position. And that's why it's relevant that we're talking about what Bernanke and others are doing, because we aren't simply putting that money out there on a wing and a prayer.
We are putting the money there, available, saying we know that we're taking steps so that they're not going to face this problem in the future. Fannie and Freddie suffered not from their own decisions, but form the bad mortgage decisions that have been made throughout the economy. We're not going to have those in the future. So, it is not simply hoping, it is taking action to make it less likely that they'll be the problem.
VELSHI: All right. Barney Frank.
Congressman, thank you for joining us. Always good to talk to you.
Congressman Frank was talking about Fannie Mae and Freddie Mac. We've all been talking about them. Here is what they do.
Fannie and Freddie both buy mortgages from banks. Now, when they buy those mortgages from the banks, it frees the banks up to issue more mortgages to consumers.
Fannie and Freddie then resell those mortgages that they bought. They bundle them, they repackage them, and they sell them as mortgage- backed securities. The money that they get for that is then used to buy more loans from banks.
Now, Fannie Mae and Freddie Mac were supposed to be the rescuer in the mortgage meltdown. They were supposed to make it all better, but what happens when the rescuers needs to be rescued like we've seen today?
CNNMoney.com senior writer Jeanne Sahadi joins us now.
I'm sure you're breathing a sigh of relief, because Barney Frank thinks it's not going to be -- not going to keep taxpayers on the hook, but as he said, ultimately taxpayers are responsible.
JEANNE SAHADI, SR. WRITER, CNNMONEY.COM: Well, any time the government steps in to help anyone, it's the taxpayer who is going to be on the hook potentially.
I think what the federal government said this weekend was we're setting this up. It doesn't mean they're necessarily going to activate the various steps.
You know, they're asking Congress for the right to buy equity in these companies. It doesn't mean that they will. They want to let the Federal Reserve Bank of New York loan money to Fannie and Freddie if they need it, but they may not.
So it's, I guess, the way they think of it, is putting in safeguards in case these things are needed. And they're making explicit what was an implicit government guarantee of these two companies.
VELSHI: I don't know if I characterized this properly, but in talking about this earlier today, I said maybe it's kind of like your operating system in your computer. It runs in the background. It kind of needs to be working properly, but you don't really know the impact of it. So, if Fannie and Freddie have been in economic -- bad financial health for the last little while, what's been the net effect to borrowers?
SAHADI: Well, one very concrete effect is that the average 30- year fixed mortgage rate is about a percentage point higher than it might otherwise be. And that's because the cost of doing business for Fannie and Freddie, the cost of raising money, which is what the market perception says that they must do, has gotten more expensive.
VELSHI: Right.
SAHADI: Their stock prices have been falling. The interest rates on their bond yields have been going up. And those are the two ways in which they would raise money. So, the translation for borrowers is that you're paying about a percentage point more.
I was talking with a mortgage expert this morning, and he said, you know, the 30-year fixed is averaging around 6.5 percent, which is still a pretty good rate. But in a normal market...
VELSHI: But it might be cheaper.
SAHADI: It might have been 5.5 percent, or something like that.
VELSHI: And when you calculate that across everybody who has got a mortgage -- so there is some valid reason why our viewers should be concerned about Fannie and Freddie, even though you may not think it has got anything to do with your daily life.
SAHADI: Well, you want to be concerned about Fannie and Freddie, too, because they are -- like it or not, whatever you think of the companies or the government backing of those companies, they are really important to the functioning of the mortgage market as a whole. So, even if you're not in the market to get a mortgage, if you own a home and things go badly, you know, your home price can be effected.
VELSHI: Your buyer may not be able to get a mortgage.
SAHADI: Yes, your buyer may not be able to get a mortgage.
VELSHI: All right, Jeanne. Thanks very much.
SAHADI: Thank you.
VELSHI: You will be with us a little later on in the show -- Gerri.
WILLIS: Well, the stock market is always a good barometer for how this news will affect the economy. Lucky for us we have Susan Lisovicz. Own a home and things go badly, you know --
Your buyer may not be able to get a mortgage.
Thanks very much. You will be with us later in the show -- Gerri.
WILLIS: Well, the stock market is always a good barometer for how this news will affect the economy. Lucky for us we have CNN's Susan Lisovicz. She practically lives at the New York Stock Exchange, and she is gauging the market reaction to all these major stories.
(STOCK MARKET REPORT)
VELSHI: And we've been talking about IndyMac. That big bank taken over by the Federal Deposit Insurance Corporation, leaving some consumers frantically trying to get their hands on their own money. How this happened and if this could happen to your bank.
And the CNN Money team breaks down all of this news and what it means to your bottom line. We are all over issue #1 right here on CNN.
Stay with us. We'll have more for you.
(COMMERCIAL BREAK)
VELSHI: If you took the weekend off and you didn't watch any TV, you're lucky, because if you did, your head would be spinning. The banking industry has been rattled over the past few days as the Federal Deposit Insurance Corporation actually shut down IndyMac Bank and took it over.
That caused all sorts of panic for IndyMac customers. After all, what happens to their money? And it caught the attention of many Americans wondering if the same thing could happen to their bank.
CNN's Deborah Feyerick has been working with me all through the weekend on this. She joins us with the latest on IndyMac and its customers.
DEBORAH FEYERICK, CNN CORRESPONDENT: Well, you know, Ali, also one thing to keep in mind is that there was panic, but it was really more of kind of intellectual panic, because for the majority of people, nothing happened to their money.
Now, the FDIC was put in charge Friday after regulators announced that IndyMac could not meet demands of its depositors. The mortgage lender simply did not have enough money to cover accounts.
Now, it's no secret that IndyMac was in trouble. What was surprising was just how quickly the situation spiraled out of control over the last few weeks, with customers withdrawing about $13. billion.
Now, IndyMac became unsound, in the words of its regulators, and so the FDIC stepped in. One banking expert explains it, saying, well, the reason the FDIC took over is in part to make sure that IndyMac didn't make any drastic business decisions that would have further undermined the value of the company.
The FDIC can now preserve the assets, sort through the problems, with the goal of selling the mortgage lending institution to a company that can simply run it better. IndyMac is the latest casualty of the foreclosure crisis, which, in fact, it helped create in part.
Their business was to offer mortgages to people with no documents. They didn't have to prove they had a job, or income, for that matter. The loans were then bundled up and sold to investors. That was the business model, but then foreclosures went up, the values of the houses went down, no one wanted these types of investments. And in recent months, default on the loans mounted, increasing the strain on IndyMac's financial condition, and ultimately dashing investor confidence.
So, the takeover is significant because it means the problems in the housing market and economy aren't going away soon. But in terms of the actual effects on people with money in that bank, at least for the majority, they're unaffected. It's the 10,000 who had over $100,000. They're the ones who have got some problems right now.
VELSHI: And the lesson to everybody out there who's not an IndyMac customer is, check where your money is and whether you're covered. You can go to the FDIC Web site, but there are ways to protect yourselves even if your bank does fail.
FEYERICK: Exactly. Exactly. And you can even have more than $100,000 in the same bank. You just have to make sure it's in accounts that are each separately covered by the FDIC.
VELSHI: Right. OK. Thanks for that. WILLIS: Well, the trouble with IndyMac Bank has left consumers in limbo. We want to go out to Pasadena, California, right now. That's where IndyMac has its headquarters.
Kara Finnstrom is live there with some bank customers who have been impacted by this failure.
Kara, what are you finding?
KARA FINNSTROM, CNN CORRESPONDENT: Well, Gerri, a lot of nervous customers here this morning.
The bank just reopened its doors about 15 minutes ago. FDIC officials came out and they told folks in this very long line that they're going to be taking in about 10 people at a time.
We're going to pan around and give you a look at this line. So, some of these people are going to be here for quite a while today, because all of the customers we have been speaking with have lots of questions.
Joining us live here now is Tonya (ph).
You came out at around 7:00 this morning. Tell us what some of your concerns are.
UNIDENTIFIED FEMALE: Well, we're concerned that some of our funds might not be insured. We were given every assurance that our funds are insured. And now we're hearing that they might not be insured, or a part of it might not be insured, and that's a real concern, because we have a significant part of our savings here. And if a part of it is not insured, then that's a big concern for us.
FINNSTROM: And these were assurances that you had from the bank. Were you aware that over $100,000, you were going to face some problems with it being insured by the FDIC?
UNIDENTIFIED FEMALE: Well, we have three signers on the account. And we were told that each signer would be guaranteed for $100,000. Now we're being told, well, not so much, because the account is an LLC. And I'm very curious to go in there and see what they have to tell me, what the final result is.
I called them as late as Thursday afternoon to see what's going on, if everything is fine, and they gave me every assurance that everything was fine. Friday afternoon, of course, as we all know, the FDIC takes over the bank. So...
FINNSTROM: All right. Well, thanks for taking a little time with us this morning.
Gerri, as you can see, a lot of complicated questions from the people in this line who had over that $100,000 limit. Now, if they're underneath that $100,000 mark, the FDIC telling people you can come tomorrow, you can come the next day, that money isn't going to go anywhere. They are now running the bank, and it will be here. There's no rush to get in.
The people who have over $100,000, though, lots of questions. Many of them not quite sure if they have it structured correctly.
WILLIS: Kara, all those people in line, there's got to be so much frustration there. Are people telling you they're immediately going to move their money?
FINNSTROM: Yes. I mean, everyone we've spoken with can't wait to get in there and get their hands on it. Even the people who have less than $100,000, you know, they have heard the reassurances from the FDIC, but because of everything that's happened, they want to have their own hands on that money.
WILLIS: Well, Kara Finnstrom, thank you for that. Great report.
Now, if you're worried about your account, check to make sure your bank is insured by the FDIC. Individual accounts are protected up to $100,000, $200,000 for joint accounts.
As for your retirement accounts, they are protected to $250,000. That's for IRAs.
Now, one thing IndyMac customers need to know, for any money above the FDIC insured limits, they will give these folks 50 cents on the dollar. Now, if you were an IndyMac customer, the FDIC has set up a special toll-free hotline to answer all your questions. That phone number is 1-866-806-5919. That phone line will operate daily from 8:00 a.m. to 8:00 p.m. Pacific Time.
VELSHI: Well, we're giving you a lot of information today, a lot of facts on Freddie, Fannie, IndyMac. Next, we're going to put it all in perspective with the CNN Money team and talk about what it all means to you.
Also, we're covering this very fully on CNNMoney.com. So you can go there at any time to get more information.
Plus, we'll tell you about new lending rules that will change the way you borrow money. We're going to break those down for you.
You're watching ISSUE #1, right here on CNN.
(COMMERCIAL BREAK)
VELSHI: This is quite a day. We're following some big stories for you -- the government rescue of Fannie Mae and Freddie Mac, the FDIC takeover of IndyMac, and whether that could happen to your bank.
We want to put it all in perspective for you with the CNN Money team. CNN correspondent Deborah Feyerick has been covering the IndyMac story since it broke on Friday night. Paul La Monica and Jeanne Sahadi from CNNMoney.com have been working on very different angles of this. And CNNMoney.com has really broken this down into the many, many component parts that people have to think about. We went -- after Deborah talked to us a few minutes ago, we went out to Kara Finnstrom in California, in Pasadena, where there are people lined up, seemingly, around the block to get their money out of IndyMac. So, while we've been giving people assurances that the money is safe if it's an insure amount, whether it's in IndyMac or anywhere else, folks are not necessarily taking that lead, Jeanne.
SAHADI: A completely human response. But the reality is, they might take their money out of IndyMac, and what are they going to do with it? They're going to go to another bank.
VELSHI: Right.
SAHADI: So, there is a lot of concern among a lot of consumers across the country, what about my bank? What about my bank? According to the FDIC, there's only about 90 banks on their trouble list.
VELSHI: You say only. You say only. That's...
(CROSSTALK)
SAHADI: Only out of about 8,500 -- but there are about 8,500 depository institutions, and the FDIC chairwoman this weekend came out and said, you know, the majority are safe and sound, and she is, if you have ever seen her speak or read her material, is a fairly conservative person. So, she's not going to, you know, be hanging on a ledge saying that. So...
VELSHI: Paul...
PAUL LA MONICA, EDITOR-AT-LARGE, CNNMONEY.COM: A number of problem loans, problem banks that are on this list, is much lower than what we saw in the S&L crisis in the late '80s and early '90s.
VELSHI: Well, explain to me then why there are a whole bunch of stocks that are moving down today in that sector.
LA MONICA: Yes, clearly what happened with Fannie and Freddie over the weekend, the plan to rescue, bail out, hover you want to phrase it, combined with the IndyMac failure, has a lot of people fearful right now. And I think people are just not really taking the time to ask questions about whether or not their bank is safe. They're just assuming maybe it isn't.
And you've got two prominent banks today that are getting killed on Wall Street. National City and Washington Mutual, both of their stocks were down over 25 percent...
VELSHI: Wow.
LA MONICA: ... early this morning. Fears that there may be creditors taking money or depositors taking money out of the banks. National City has already come out and said nothing's going on here. We're still waiting to hear from Washington Mutual about what's going on with that situation. FEYERICK: You know, one point to add to that, though, is that you may take your money out of IndyMac federal now and put it into another bank, and you don't even know how financially sound that bank is. And that's sort of a problem.
People are saying, wait, do this wisely. At least for the time being until that bank is sold, your money is safe. At least it's insured up to a certain amount. If you pull it out, put it in another bank, you may be...
(CROSSTALK)
VELSHI: Right. The trick here is understanding those rules that you have been talking about all weekend, understanding how much of your money is actually insured. The corollary to this is that if people don't believe what we're saying, what the FDIC is saying, or what their banks are saying, you could have a run on the banks. That's exactly what caused this thing to happen.
SAHADI: Yes, I suppose you could. But I also think that, you know, saner minds will prevail.
It's a huge economic system, and it's -- you know, the companies like IndyMac, that were heavily exposed to subprime loans -- Senator Christopher Dodd, who runs the Senate Banking Committee, called them bottom feeders. He says that to distinguish them from Fannie and Freddie, which invests primarily in 30-year fixed rate mortgages, that it's those banks that are going to get hurt the most. So, if you're in a large national bank that is not overly exposed -- I mean, a lot of people had exposure. You know, no one was necessarily safe from it, but banks are such diverse businesses that they have got a lot of different pieces of business that are not subprime lending.
VELSHI: So the feeling amongst the three of you who have been following it very closely, and different parts of it, is that we don't have an impending banking crisis in terms of a failure of banks.
LA MONICA: Historical standards doesn't appear to be the case. The big problem is, as you point out, there's only 90 banks on that problem list. That's a little bit of a lagging indicator.
There's going to be more banks probably added to the problem list once we see the latest FDIC report come out in a couple of weeks. And we don't know which names exactly. The FDIC doesn't come out and say, hey, these are the 90 banks.
VELSHI: These are the ones, because they don't want this happening.
LA MONICA: So, it's a little bit understandable why someone might be fearful.
VELSHI: All right. We're going to come back to you guys. It's a big discussion that we have to have. So thank you very much for this, the members of our CNN Money team.
Gerri, take it away.
WILLIS: Thank you, Ali.
Well, we've been talking a lot today about Fannie and Freddie and how much the mortgage industry really relies on them. But are we asking too much?
Plus, new rules for borrowing money. Effective today, what they're all about and what they mean to your bottom line.
You're watching ISSUE #1, right here on CNN.
(COMMERCIAL BREAK)
WILLIS: Well, you might not think your money has anything to do with Fannie Mae or Freddie Mac, but you would be wrong. CNNMoney.com's Poppy Harlow is here with more.
Hi, Poppy.
POPPY HARLOW, CNNMONEY.COM: Hi, Gerri.
Yes, it's very interesting. So, folks, listen up. Whether you agree with it or not, one thing seems certain, more of our taxpayer dollars are going to be used to prop up Freddie Mac and Fannie Mae. This morning I spoke to Connecticut Senator Chris Dodd, the Democratic chairman of the Senate Banking Committee. He says these moves are very necessary.
(BEGIN VIDEO CLIP)
DODD: In my view, we now need to stabilize this as quickly as we can. And Fannie and Freddie, but for them, 30-year fixed rate mortgages would never exist. And they've been the source of liquidity over the last couple of years, which is bearing a tremendous amount of the burden for them on (ph) this problem.
(END VIDEO CLIP)
HARLOW: These two companies have used their connection to the government to get cheap loans. And they've passed those loans down to homeowners. Now Dodd says the two companies are still on strong footing, but he does say, at the same time, they have not been well- regulated.
(BEGIN VIDEO CLIP)
DODD: This didn't need to have happen. Again, the failure to have regulators doing their job four, five, six years ago when they should have been doing it, and this administration has to bear that indictment by history. This did not have to happen.
(END VIDEO CLIP)
HARLOW: Yes, pretty strong words there. Keep in mind, if it weren't for Freddie and Fannie, the mortgage market may have ground to a halt. But still, the government is moving into some new territory here. If it buys shares of the two companies, taxpayers will have a stake in their future. And with the companies now able to tap funds from the Federal Reserve and get even more money from the Treasury, the risk to us, the taxpayers, becomes that much higher. But it seems lawmakers still view the potential of a total collapse of the mortgage market to be a worse outcome than that.
You can see my full interview on Senator Dodd on our Web site, CNNMoney.com.
But, Gerri, I think it's important to note that these things are all possibilities, but this has not happened yet. The Treasury has not bought stock in the companies yet. And if it does, that's still to be seen.
WILLIS: Strong words from Senator Dodd.
HARLOW: Yes, very.
WILLIS: And, of course, lots of people to blame for this mess -- Ali.
VELSHI: All right, Gerri, and there's some who actually think Fannie Mae and Freddie Mac might to better as a result if taxpayers are involved. There might actually be a gain for them.
Listen, we've got a lot going on today. And just in case you are just joining us, here's the very latest.
A rescue plan for battered mortgage giants Fannie Mae and Freddie Mac. The Bush administration will ask Congress to allow the Treasury Department to lend both companies more money than their current limits permit and allow them to buy stock in them.
In California, mortgage lender IndyMac reopened today under new management, the FDIC. It also has a slightly different name. It's now called IndyMac Federal Bank. The Fed stepped in on Friday after a massive run on deposits. IndyMac is the second largest bank failure in American history.
On to another big issue today. Number one issue for you, energy. News out today that President Bush will lift an executive ban on offshore oil drilling. But that lift is mostly symbolic. CNN's Elaine Quijano is live at the White House with this.
Why only symbolic, Elaine.
ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Well, you know, Ali, the White House mantra on this issue has been that there is no quick fix to the problem of high gas prices. And they're not saying there's going to be a quick fix now. But they argue here at the White House, that doesn't mean people in Washington shouldn't start trying to address the problem.
So next hour we will see President Bush in the Rose Garden talking about what you just said, lifting the executive ban on offshore oil drilling. A move that's really designed to put the pressure on members of Congress to do the very same thing, to lift their own legislative ban on offshore oil drilling.
Now aides say that the president's decision is coming after the White House and lawmakers failed to come together on this issue. But experts, even those who support the ideas, have long said that opening offshore oil drilling will have no immediate impact on gas prices. That it's simply a time-consuming endeavor to explore for oil. And that once you actually find the oil, it takes several years to get the oil produced.
So why now with less than seven months left in President Bush's term? Well, certainly the economy, as you noted, top of the list when it comes to voters' concerns right now. High gas prices a big part of that as well. We'll wait to hear from President Bush himself, again, speaking in the Rose Garden about an hour from now. But certainly, Ali, this will provide more fodder on the campaign trail for what has already been a heated issue -- Ali.
VELSHI: All right, we'll be on top of that. We'll be watching that statement from the Rose Garden.
Thanks very much, Elaine.
WILLIS: Starting today there are new lending rules from the Federal Reserve. Find out what they could mean to your mortgage.
And an American institution is about to be sold to a foreign company. We'll tell you all about that.
ISSUE #1 rolls on next.
(COMMERCIAL BREAK)
WILLIS: Well, say it ain't so, joe. An American icon, the king of beer, is being sold to a foreign company. Anheuser-Busch has agreed to a $52 billion takeover bid from the Belgian brewer InBev. Now the deal heads off what was shaping up to be a bitter fight for the maker of Budweiser and Bud Light beers. Instead, the agreement creates the worlds' largest brewer and the fourth largest consumer product company Anheuser-Busch InBev. It's not immediately clear just how long approval of the deal will take.
VELSHI: Well, what a day for the Federal Reserve to unveil now lending rules. Nice timing. But that's exactly what happened. New rules overhauling mortgage lending. Jennifer Westhoven is here to explain them and how they can have an impact on you.
And these aren't just some kind of rules. These are the ones that would have prevented the mess that we're in had they been in place five years ago or 10 years ago.
JENNIFER WESTHOVEN, CNN CORRESPONDENT: I mean, in a way, this story is getting overshadowed by these big problems that we're having. But this goes right to the source of most of these problems that we've been talking about all day. It's a preventative medicine. How do we prevent another housing crisis? So the Fed wants to put the brakes on the loose lending that got us into this mess, right. Got people in over their head. Many people losing their homes. The new rules cover nearly all subprime loans.
Now brokers would have to take assets and income into account. They can't ignore them and just base the loan on the value of the home. Right, that was betting that the home value . . .
VELSHI: Which is part of what IndyMac was doing and part of what these ninja (ph) loans you told us about, no income, no jobs, no assets. You get a loan without even verifying any of that.
WESTHOVEN: Yes, and they were just betting that the house value would keep going up. So everything was kind of pyramiding up. That doesn't work. They also have to stop misleading advertising and there is going to be a banning of some prepayment penalties. You know people who want to pay off their loans early while the rates are low. Then they got socked with these huge fees so they really couldn't do it. They were locked into the huge interest payments.
There's a lot of debate about this. You know, is it the buyers who were irresponsible? Is it that brokers were unscrupulous? Bernanke is very clear that unscrupulous brokers did do some damage here. He said, "although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high- cost loans, that were inappropriate for or misled the borrower."
And I think it's very clear from some of the people, the letters we get, that they were mislead. There were seven misleading practices that are banned. We'll do a few of them here. One is, chorusing a real estate appraiser to fudge a home's value. People were really doing this. Also, you know, a lender has to make a credit when they receive a payment.
You imagine you send in your payment and then they kind of say, well, we haven't processed it. You still get hit with a huge late fee. They pile up. That's not fair. And one that's really I think the most obvious if you go out and apply was in three days you'll get a schedule of what all the costs would be for the loan and what your payments would look like in the future.
VELSHI: So you're not finding that out right before you sign your documents.
WESTHOVEN: Exactly. Or even some people said, you know, my broker said it would only go up to 22. It went up to 3,000 and, you know, they couldn't handle that.
VELSHI: All right. And these rules are going to apply to all lenders.
WESTHOVEN: Yes. And that's a big deal because before it was just those that were basically supervised through the FDIC. So a lot of people didn't have to play by the rules. VELSHI: All right. Good information. Get to know those rules if you're planning to buy a house or, frankly, if you're going to sell one -- Gerri.
WILLIS: Well, we haven't forgotten about gas prices today. The latest on record prices at the pump.
Plus, chances are you have lots of questions about Freddie, Fannie, IndyMac, your money. The Help Desk is going to tackle them all. We're all over issue #1 right here on CNN.
(COMMERCIAL BREAK)
VELSHI: Well, it sort of got buried in all the other news we've got, but there's a new record at the pump today. AAA says the national average of unleaded regular gasoline now costing you $4.11 a gallon. And there's a new record for diesel, too. It's now $4.82 a gallon.
And this just in to CNN. CNN has confirmed Midwest Airlines will be cutting 40 percent of its workforce. That's about 1,200 employees. The airline says it's part of a restructuring plan to remove all MD-80 aircraft from its fleet -- Gerri.
WILLIS: Well, all this talk of Fannie and Freddie and bank failures and Fed rules have a lot of you out there asking, what about my money? Let's answer those questions. Jack Otter is deputy editor of "Best Life" magazine, Laura Rowley is with Yahoo! Finance and Hilary Kramer is an AOL Money coach and author of "Ahead of the Curve."
I want to start with you, Hilary. My first question today is, is my bank going to go under? I think a lot of people out there are worried about their own money, even if they're not IndyMac people. We heard earlier today in our conversation that there are a couple of banks that are down, their stock prices down hard today. One of them Washington Mutual. A very large bank. How do I know when to be worried?
HILARY KRAMER, AOL MONEY COACH: Well, the FDIC is insuring everyone's deposits up to $100,000, plus the whole financial system is not going to crash. There are a few losers in all of this. There were a few shoes that needed to drop. And, chances are, your bank will not have a problem going forward. There won't be insolvency.
WILLIS: I just want to mention to our viewers here that at bankrate.com they actually have a safety and soundness rating. So if you're wondering about your bank, you might point your browser to that Web site. It's bankrate.com. Not a bad place to go.
All right, Hilary, let me get you on the topic of Freddie Mac and Fannie Mae. How did this all happen? Where did we go wrong?
KRAMER: OK. What happened is that Freddie Mac and Fannie Mae were providing the money to all the banks around the country so they could give mortgages. Basically the banks just were selling the mortgage. Freddie Mac and Fannie Mae were buying them. They were buying them with bonds. They were issuing all over the world.
What happened is, Freddie Mac and Fannie Mae started a portfolio of those bonds, turned out they weren't worth what everyone thought, including Fannie Mae and Freddie Mac. They don't have the money anymore to go out there and support the mortgage market. They were founded to provide liquidity. And basically, Gerri, what we're seeing now is this is a very serious problem for the mortgage market.
WILLIS: Serious problem for the mortgage market . . .
KRAMER: At the end of the day, mortgage rates are going to go up because when you go into the bank and you ask for a mortgage, Freddie Mac and Fannie Mae aren't there bidding for that mortgage. It will lie with that bank itself, especially if it's a small bank, to give you the loan. They may not want it on the books. That's what spurred the entire mortgage business was the fact that Freddie and Fannie could go out there and buy mortgages.
WILLIS: All right. OK. And, you know, that created a nice marketplace where people felt like they understood what they were buying.
Laura, let's turn to you. IndyMac. I know a lot of people out there familiar with the name but maybe they didn't do business with this bank. I mean, at the end of the day, this wasn't one of your hall of famers bankers. It was pretty much somebody who was only known regionally and on the web. Tell me a little bit about their story.
LAURA ROWLEY, COLUMNIST, YAHOO! FINANCE: Well, it was known regionally and it did buy a lot of subprime mortgages. It made a lot of subprime loans. And what was interesting is we did see sort of a run on the bank and their assets went down quickly and that required the Fed to step in and take over.
Interestingly, 5 percent of their depositors had more than $100,000 at the bank. So there are 5 percent who are trying to figure out what's going to happen beyond that $100,00 threshold. The FDIC has said they'll do 50 cents on the dollar and may do more.
So I think one of the things to be aware of, if you're a consumer, is to be very careful that you don't have more than $100,000. Even if you're a business that has payroll, you can do $100,000 in the bank and then you could do an online bank. Like ING Direct offers online banks -- online links.
KRAMER: I mean you know what concerns me so severely is that there's going -- that talk like that is going to create a run on the banks. I mean, I know people that are in the financial markets. I'm on the street and I have analysts asking me, should I take my money out of banks? And so it becomes a self-fulfilling prophecy. So it's a very fine line to walk.
WILLIS: Jack, I've got to tell you, I don't care if I'm making a banker unhappy. If I want my money safe, I'm going to move it around. What do you recommend? JACK OTTER, DEPUTY EDITOR, "BEST LIFE": Well, first of all, it's very important to keep in mind that this money is safe, under $100,000 per account holder. It is insured by the government. You know, people on Friday were scared to death. On Monday, they had access to their funds. So it's really not a big problem.
But we're also having this big Casablanca moment here where everyone is shocked that Indy Bank was lending money to people who didn't have to say what their income was and now suddenly we've got a problem. Surprise, you know. And it really bothers me -- you can go back to congressional testimony that you aired on CNN five years ago and Greenspan would say, well, I really don't think we ought to step in and get tougher on these liar loans. And now, you know, this is what we've wrought.
And now the government is getting involved in the market to a degree that a lot of people, I mean including myself, are uncomfortable with. But it was forced upon the government because they didn't take the relatively narrow regulatory steps they should have taken five years ago. Now we're taking them, but the horse has left the barn.
WILLIS: Well, the horse has left the barn and obviously you guys have great responses to what is a very difficult problem for so many people. I want to thank my guests today. We have Jack Otter, Laura Rowley and Hilary Kramer, thank you so much for helping us out.
VELSHI: Well, it's been quite a day, but next, learn something new. Find out the best place to live in this country. The absolute best place. It could be your hometown.
Make sure to log on to cnnmoney.com right now for today's Quick Vote. What makes your hometown the best place to live? We'll be back with that.
You're watching ISSUE #1 right here on CNN.
(COMMERCIAL BREAK)
WILLIS: Why is your hometown the best place to live? That's today's Quick Vote question.
Let's check back in with CNNMoney.com's Poppy Harlow for the results -- Poppy.
HARLOW: Hey there, Gerri.
What an interesting poll. Unfortunately, 54 percent of people said my hometown isn't the best place to live. I guess we could consider moving. It's hard to do that with this market right now. Eighteen percent said it's because of affordable housing. Sixteen percent said because of good schools. Twelve percent said because of good jobs.
And I'm going to toss it back to you guys. But I would like to note that the number one place on the best places to live is right near my hometown of Minneapolis, Minnesota. So what is it, guys?
VELSHI: Oh, it's Plymouth, Minnesota.
WILLIS: Yes.
VELSHI: Look at that.
WILLIS: Population 70,100.
VELSHI: Nice.
HARLOW: Minnesota's fantastic when it's not 20 below.
VELSHI: Minnesota makes good people.
WILLIS: Yes, very good people.
VELSHI: Poppy, thank you.
WILLIS: And blond people, I think.
VELSHI: Donna Rosato of "Money" is here with the scoop of all those places. I know we gave away the first place, but what's the criteria here that you're using?
DONNA ROSATO, SENIOR WRITER, "MONEY": "Money" magazine's been doing the best places to live for 25 years. But this year we looked at the most livable, small city. So those are cities between population of 50,000 and 300,000 that had great schools, affordable homes, plentiful jobs and short commutes.
WILLIS: And what about Plymouth?
ROSATO: Yes, Plymouth was number one. It's a quintessential Midwestern city. It had all the things that we were looking for. It has top notch schools. They're ranked number three in the state. Has plentiful jobs. About 30 minutes from the twin cities, but it's a real community in itself. Known for its outdoor concerts. Some cold winters though.
VELSHI: Yes.
WILLIS: That's the downside.
ROSATO: Yes.
WILLIS: Let's talk about Fort Collins for a minute because a friend of mine lived there. She absolutely loved it. What are the positives?
ROSATO: Fort Collins. It was number one a couple years ago. It's in the Rocky Mountains. It's beautiful. It's a real green city. It literally has a bike lane in every major road. It has a bicycle library where anybody can rent a bike -- actually it's free up to seven days in the middle of town.
VELSHI: Nice.
WILLIS: A bicycle library.
ROSATO: A bicycle library. You check out that bike and you can ride around town. But plentiful jobs as well and a very affordable place to live.
VELSHI: Well, Chicago's my favorite big city. It doesn't make the list. But Naperville, Illinois, nearby, does.
ROSATO: That's right. Naperville has made our list three times in recent years. It's the ultimate best place to live. It has lots of jobs as well. A beautiful river walk. A really vibrant downtown. A good sense of community. And it's relatively affordable. A it's a little pricier than some of the other berbs (ph) in the Midwest, but for a lot of us on the coast, it's ultimately affordable as well.
WILLIS: Irvine, California. A beautiful part of the country. But, boy, those home prices sure are high there.
ROSATO: Yes, that's the one drawback. It's beautiful. Lots of green space in Irvine. Lots of jobs. Lots of tech. But the average home there is up to $700,000. So that's pricy.
VELSHI: Again, New York City can't make the list, it's to big, but Franklin Township, New Jersey is not to far away.
ROSATO: That's right. It's only an hour from Manhattan. It's got lots of pharma companies. Lots of jobs. And there's a forest preserve. You might not necessarily always associate that with an hour from Manhattan, but it's -- they've got beautiful green space right there and lots of jobs. And it's, you know, near Princeton as well. So it's got some of the university area.
WILLIS: Now you guys play with this survey each and every year. Sometimes it's big cities. Sometimes it's little cities. What was the most surprising fact out of this year's survey to you?
ROSATO: I think the most surprising fact was how many people really -- the housing factor, affordable homes, and short commutes. People want to live in a nice place but they want to work close to where they live. And the ability to have a green place where they can walk.
VELSHI: And I would imagine gas prices play into that whole short commute idea.
ROSATO: Yes, that's right. You know, you want to be able to -- can you walk, bike to your job, or have a very short commute. That was a big deal this year.
VELSHI: Now tomorrow you're going to come back or we're going to do more on this best cities and it's going to be about the best city -- the best small cities with good job opportunities.
ROSATO: That's right and who wants -- everybody wants that. WILLIS: Absolutely. All right.
VELSHI: Donna, thanks very much for that.
ROSATO: Thanks, Ali. Thanks, Gerri.
WILLIS: Donna, thank you.
The economy is issue #1 and we here at CNN are committed to covering it for you. ISSUE #1 will be back here tomorrow, same time, 12:00 p.m. Eastern, right here on CNN,.
VELSHI: Time now to get you up to speed on other stories making headlines.
"CNN NEWSROOM" with Kyra Phillips starts right now.
