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Open House

Best Places to Live to Get the Most For Your Money; 1,000 Gallon Gas Heist; Is Your Money Safe With Your Current Bank?; Where Should You Invest Your Money?; Solar Powered Cars

Aired July 19, 2008 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money.
On tap today, America's housing: the road to recovery turns out to be a bumpier ride than any of us could have expected, but we've got a list of the best places to live when it comes to getting the most for your money.

Plus, details on a 1,000 gallon gas heist, ahead.

But first, we've all seen the signs at our local banks, "Member FDIC." Now, those letters stand for Federal Deposit Insurance Corporation, the agency was created way back in 1933 in response to the Great Depression when thousands of banks failed. Now, in order to limit the effects on the economy, banks pay insurance premiums to the FDIC, so a portion of your money is always protected. It's basically the government's guarantee that you won't lose money.

But, what about your bank and your cash? IndyMac Bank was seized last week by the FDIC and now this week is under investigation for fraud by the FBI. Is your money safe where you have it now or should you move it to a more secure spot? Mike Santoli is with "Barron's" and he joins us here now.

OK, so the big question, is your money safe? Is your bank solvent?

MIKE SANTOLI, SR. EDITOR, BARRON'S: Well, the vast majority of banks absolutely are solvent, but it doesn't hurt to actually check things out. FDIC.gov will tell you if a bank is on a watch list, essentially if they are worried about the capital levels there. But, I would say that in general, especially if you stay to within the Federal Deposit Insurance Corporation limits for insured deposits, you probably don't have much to worry about.

WILLIS: Well, let's go over those here, now. Because I don't think people really understand that the insurance exists up to a limit.

SANTOLI: That's right.

WILLIS: The fist one, of course, $100,000 for an individual account. Let's go over the other ones.

SANTOLI: Two-hundred-thousand dollars for a joint account with two people, $250,000 for some retirement accounts. That's really the rule of thumb, here. And I guess if you have more than that, if you let the account balance kind of drift higher than that, chances are what you'll want to do is split it into two accounts or more accounts, whether at the same institution or different ones.

WILLIS: Well, would you move it around or would you keep it the same place?

SANTOLI: I mean, I think the reason to keep it at the same place is strictly convenience. It's not as if there is another reason that you would keep them both there. If you don't mind having two different institutions, then you could do it that way. But again, if your bank is seemingly sound which most are, then there is no harm in having it in two different places.

WILLIS: And the devil's in the details here, it's all about titling, what name is on the account. You really need to be careful of that. Because you may think that you have two accounts, one in you and your husband or wife's name and one in yours, but maybe they're the same. You need to check it out, right?

SANTOLI: Definitely confirm that, yes.

WILLIS: All right. So, let's talk about where your money would be safe right now, getting down -- drilling down here to maybe some investments people might want to think about. You know, banks sell CDs, they sell all kinds of things. Are those now not safe?

SANTOLI: No, they are safe, I mean, if the bank itself is OK, then the CDs that they're offering are OK. The one thing I would keep in mind, though, and this actually kind of comes into play with the IndyMac situation, if a bank is offering an unusually high interest rate on deposits, you might want to check out as to whether that bank is desperate for cash, because IndyMac was showing a premium for the deposit rates offered.

WILLIS: And the insiders call that "leaving a lead table."

SANTOLI: That's right.

WILLIS: You know, if you're getting a lot of money on a CD, if it's better than anybody else's offering, you might want to think twice.

SANTOLI: Yes, the rule of thumb is the same as anywhere else where basically you don't get more reward for less risk.

WILLIS: Where is this all going? Is this something that I'm going to have to watch as a bank depositor, as somebody that has savings for a long time or is this going to blow over quickly?

SANTOLI: I don't know about quickly, but I think it's going to play out over the next few quarters, here. It seems like we're in the meat of it and now of course the regulators are on alert, so they're going to have kind of an early warning system to make sure they clamp down on bank that's stray kind of under their capital limits. WILLIS: How many banks might go out of business?

SANTOLI: I think it's going to be in the hundreds, but very many concentrated on the very small end, not large institutions. In fact, IndyMac might very well end up being by far the largest.

WILLIS: So if you're at a small community thrift or if you're doing business with a regional bank, a small regional bank, you might think about doing some investigation right now?

SANTOLI: Exactly. They're not guilty until proven innocent, but you absolutely would like to check that out.

WILLIS: Mike Santoli, great information, we appreciate your help today.

WILLIS: So, now you know the safe places to stash your cash, but where should you invest it? Even if you've only got a tiny amount of money to put into the market these days, we're going to tell you how to get the best rewards.

Earlier this week, I sat down with Hillary Kramer, the AOL money coach to talk about investing on a budget.

(BEGIN VIDEOTAPE)

WILLIS: So, you say invest a small amount but why I would even bother investing $100?

HILLARY KRAMER, AOL MONEY COACH: It is the power, it is the power of long-term investing. What you have to realize that if you invest $500, $500 in an S&P 500 index, and it does 10 percent over the next 20 years, you're going to more than double your money. So, as long as you have a very, very long time horizon, decades rather than months or even years, there's a lot of money to be made, even with very small amounts in the market.

WILLIS: And it starts that way. You start incrementally, you build on it, eventually you have a lot of cash. Let's talk about what you would do with that $100 if you had it today to invest. Where would I put it?

KRAMER: Well, it depends when you need access to the money. If it's in the next one to two years, do it for a certificate of deposit, $100, $500, that way you have access to it, you can you receive 3.75 percent, even four percent on the money.

WILLIS: But Hillary, I've got to ask you, inflation running at four percent right now, aren't I just giving away all the money I make on that?

KRAMER: Well, if it's that small amount, you need access to it, you don't want to go and take out $500 and have it be $400 with the volatility in the market, right now. So, it really depends on time horizons. It's always time horizon and the risk-reward ratio.

WILLIS: Let's talk about if I have $500, what do I do?

KRAMER: OK, now we're talking. $500 and you're willing to put away for a while, right now with the S&P 500 down 15 percent, NASDAQ down close to 20 percent, on the year, this is the return for the year is negative, it makes so much sense to diversify, buy an index fund in the S&P 500, you're capturing 500 stocks or you could split it $250 and $250, the S&P 500 and NASDAQ, so you get some of the growth plays.

WILLIS: And the beauty of that is that these are so low on an index fund. You're really helping yourself out.

KRAMER: Gerri, that's so true, because when it comes to fees, if you go for a mutual fund, you're paying for some expert to cherry pick stocks and it's been proven over and over there is nothing better over the long term than a basket on one of these indexes.

WILLIS: All right. Listen to the income scale. I have $1,000, what I do?

KRAMER: All right, let's move up the income scale here, say I have $1,000, what do I do? I would do $500 of that $1,000 still in diversified index fund on one of the indices, including even the Dow Jones, but the other $500, I would start to pick some stocks. At least two stocks.

WILLIS: Really?

KRAMER: Yes.

WILLIS: That is really dangerous, isn't it? I mean, if you pick just one stock, you're going to spread so narrowly, it seems to me you're taking a lot of risk.

KRAMER: You are taking risk, but if you diversify those stocks out, so, for example, do one utility stock. A utility is a captive market, they pay a dividend, some of the utilities have been beaten down. Sometimes it make sense to invest in your own utility if you think it's well managed and you're paying them a lot of money each month on your electric bill...

WILLIS: Somebody you already know. Hillary Kramer, really fun advice. Think long term, start small. I love the ideas. Thank you so much.

KRAMER: Thank you.

(END VIDEOTAPE)

WILLIS: Coming up on OPEN HOUSE, Fannie, Freddie and friends of Angelo. It's a mortgage meltdown of epic proportions; we'll tell you how to keep your head above water.

Plus, of course, our silver lining: Towns across America where your dollar really goes the distance and we'll share with you the story of a gas heist you'll simply have to see to believe -- more that $4,000 of gas stolen in broad daylight from a Florida pump. (COMMERCIAL BREAK)

WILLIS: Well, it looked like good news, at first. Housing starts up nine percent for June. Could just signal a resurgence for the embattled U.S. economy? Well not so fast. A change in construction codes triggered a surge in new building in New York City. Now, excluding data from the notoriously robust northeast housing market, housing starts actually fell four percent.

It's really been a tumultuous week for America's housing. Here now to help us break it down is Jeanne Sahadi from cnnmoney.com and Pat Lashinsky, he's the CEO of ZipRealty.

Welcome to you both.

Jean, let's start with this crazy Freddie Mac/Fannie Mae brouhaha going on. Tell our viewers first what these two outfits are and what the fight is about?

JEANNE SAHADI, SR. WRITER, CNNMONEY.COM: These are the organizations that basically insure that we have a secondary mortgage market. They guarantee the purchase of typically 30-year fixed rate loans, but they also buy other types of loans as well. And they keep the whole system greased, basically.

WILLIS: If you don't have Fannie Mae and Freddie Mac in short, you don't have mortgages.

SAHADI: At this point, that's true. The housing market has come to that place where they're so critical that the government's really worried, investors just thrash the stock for the last week and a half. They started to recover a bit. But the concern is, you know, we don't want them to fall apart. So, the government came out on Sunday night and said, hey, we have a plan. We're going to help them out. We're going to give them this unlimited backstop. We want to tell the market don't you worry. If something goes bad, we've got your back.

WILLIS: yes, but there is a lot of debate out there. And now particularly some republicans are saying, boy howdy this is going to cost us a lot of money. It will be taxpayers on the hook. Do you agree?

SAHADI: I think that when we decide how much this will cost, yes, taxpayers potentially will be on the hook. If the plan works, if it does bolster Fannie and Freddie's prospect, it's very likely that any money they borrow from the government or any investment the government makes in the two companies could actually be paid back. Right, taxpayers could get paid back. But right now it's just so unclear, you know, what their fate is going forward that it's...

WILLIS: Up in the air. More questions than answers. And I think the interesting part of it for us really is: how is this affecting folks in the mortgage market, right now? Can you get a mortgage? Are mortgage lenders sitting on the sidelines because they don't know what's going to happen? PAT LASHINSKY, CEO, ZIPREALTY: As we look at all of our clients who work with us across the country, what we're finding is that our buyers are struggling to get mortgages, right now. And probably the biggest thing that is holding down the housing market we see is not a lack of demand for buyers. There are a lot of buyers interested who think that home prices are come to a good place. But the ability to get an appropriate loan with an appropriate monthly payment is without a doubt the biggest difficulty they face.

WILLIS: But Pat, what about the impact of this week, the last couple of weeks? Fannie and Freddie in such deep trouble. I got to think that is sending tremors through bank offices all over the country. It is worse this week than it's been?

LASHINSKY: It is. It is worse. And right now there is a fear about who's going to be able to go in and provide that secondary market. You know, I think at our perspective is we look at it from the consumer segment. There is not a choice about whether they're going to solve this problem or not. The government absolutely has to step in, they absolutely have to prop up Fannie and Freddie. And it's not whether there is going to be a cost to taxpayers or not. It's how much it will be. Because even if they don't prop it up right now, when they start -- if they -- if something were to happen to them, the government will have to step in and prop them up anyway.

WILLIS: Well Pat, I wish you had better news than my taxes are going to go up. But, let's get to this point, you know, there is a housing crisis in this country. Housing prices declined dramatically in some markets as much as 20 percent, 25 percent, even more. What is this going to do to the recovery of the housing market?

LASHINSKY: Well, a lot of it will depend on how long it takes for this to get into place and the comfort level that banks have that there is going to continue to be a secondary market for the mortgages that they'll be able to pass these loans on to. As long as banks continue to feel like there is a secondary market that they can provide the credit, I think it will come back to normal relatively quickly. If they start to think that they're not going to be able to get this money funded through on the secondary market, it's going to cause a bigger credit problem and more liquidity issues than we face today.

WILLIS: Back to normal soon you think, Jeanne?

SAHADI: You know, I -- not in a position to say that one way or the other. But, I also want to point out, though, that there is a big divide in the country, right now. Are Fannie and Freddie well capitalized enough to absorb the loss that's everybody acknowledges will be coming down the pike because the market is in tough shape. Its regulators, the two companies, lawmakers, government officials are all saying, yes, they are and you know what, we're passing a bill that will make them even better capitalized.

WILLIS: OK, so there is hope out there.

SAHADI: Right. WILLIS: And a lot of folks thinking this is sort of a last-ditch effort really to make sure they're OK. Pat, what do you think folks out there should be doing right now if they're in the marketplace? Should they keep their powder dry? Should they be shopping for a home? Should they be applying for a loan?

LASHINSKY: Well, I think you have to do multiple things all simultaneously. You have to look and make sure do you go out and get a loan. And I actually believe in something that they call taking a double application where you go to more than one bank and you apply for a loan at two different places just to make sure that in case one of them doesn't have the capital available, the second thing is you should go to the place where you have your best banks interest, because banks are always going to take care of best clients.

Even if they don't have a secondary market, the amount of capital they have available they'll give to the best clients. And if you find a home you like right now, there is some great inventory out there. There's a lot. Be willing to put an offer out, because this could be a very good time over the course of next 10 years to have gotten a place.

WILLIS: Wow, fascinating conversation. Jeanne, Pat, thanks for joining us, we really appreciate it.

SAHADI: Thank you.

LASHINSKY: Thank you.

WILLIS: Still ahead on OPEN HOUSE, solar powered cars: are they the answer to excruciating pain at the pump? They may be closer in your future than you think.

But next, the best places to live, locals to stretch your dollar to the max. You're watching OPEN HOUSE, the show that saves you money.

(COMMERCIAL BREAK)

WILLIS: This week on "ISSUE #1," we talked about best places to live, top towns, towns with the best jobs. But, this is OPEN HOUSE, the show that saves you money and that means we're talking about towns where you can get the most bang for your buck. Donna Rosato is with "Money" and she's joining me now to talk location, location, location.

Let's start with Nicholasville, Kentucky, a suburb of Lexington. Why is that so attractive?

DONNA ROSATO, MONEY MAGAZINE: Well, we looked at places where you get the most for your money, based on your income, you know, based on state median income. This is an area where you can buy a three bed room, two-bath home for less than $100,000.

WILLIS: Wow.

ROSATO: But, it is still an area, we eliminated any cities where the population was declining or there weren't jobs. So, this is an area that is outside of Lexington which is a big city in Kentucky, so it's a suburban community outside of -- it's in the heart of Bluegrass country, horse capital of the world.

WILLIS: I bet it's beautiful.

ROSATO: Yes, it's very nice.

WILLIS: Well, let's talk about Watauga, Texas.

ROSATO: Watauga, Texas is also a suburban area, it's outside of the Dallas-Ft. Worth metroplex.

WILLIS: That's huge, very dense, lots of traffic. Right?

ROSATO: Lots of traffic, but you're a bit outside of the city, there's lots of jobs there. But you have energy jobs in that area. You can buy a three bedroom single family home there starting at $65,000. That's a value.

WILLIS: Oh my goodness.

ROSATO: Texas is interesting. You never really saw the big run- up in home prices there like you did in many other parts of the country.

WILLIS: All right, let's talk about Georgia. You've got a town there called Readon. Where is that?

ROSATO: That is near something called Stone Mountain National Park.

WILLIS: That's really attractive. People love that area.

ROSATO: It's beautiful. But yet, you're only a 20-minute commute without traffic to downtown Atlanta, so again, it's a suburban environment, but it's a beautiful area and it's extremely affordable. The median home price there, $115,000.

WILLIS: Great, great. OK, let's talk about Clay, New York.

ROSATO: Ah yes, this is a colder area. You're outside of Syracuse.

WILLIS: The weather just changed dramatically, right?

ROSATO: Yes, but there's been a lot of business development in that area, as well, in the past five, 10 years. You can buy a really nice single family three bedroom, two-bath home starting at $110,000, so you have good value for your home, yet there are jobs and there are, you know, it's a pretty area if you can stand the cold.

WILLIS: And that's an area for tourists, too, right?

ROSATO: That's right. So you have, you know, a few tourism jobs, as well. So, you got a bit of a mix that boost the economy and gives you balance.

WILLIS: Omaha, Nebraska. Now, this was an interesting choice. Kind of surprised me. Why did you choose it?

ROSATO: That is also, for the income, there are a lot of financial services companies there, it's where Warren Buffett lives. You know? The man still lives in he apparently still lives in the same house he's lived in for quite a long time. But you really get a lot for your money in Omaha. The median home price is $113,000. You can buy a nice starter home for $130,000 and you can buy like a two- story family house with an acre of land for about $250,000. So, good jobs in the area. You've got the big city of Midwest Omaha, very friendly people and you've got Warren Buffett.

WILLIS: Friendly people, absolutely. Well Donna Rosato, you're a friendly person. We appreciate you're helping us out today. Thank you so much.

ROSATO: Great to be here, Gerri.

WILLIS: Right now, a fleet of cars is racing from Texas to Canada on solar power. The North American Solar Challenge requires not one drop of gasoline. The question though, how long will it be for the rest of us can drive solar powered cars? The surprising answer when we come back.

(COMMERCIAL BREAK)

WILLIS: All right, this is one story you just have to see to believe. We all know gas is expensive these days, but did you know just how cheap gas was the other day in Lee County, Florida?

Megan Smith of our affiliate WBBH has the story.

(BEGIN VIDEOTAPE)

MEGAN SMITH, WBBH REPORTER: This one is hard to believe.

UNIDENTIFIED MALE: We got vandalized, fuel stolen.

SMITH: We're not talking about a simple gas drive-off. Because as the price of fuel goes up and up and up, fuels people's creativity. Someone hit this Circle K in Lehigh, some how stealing 995 gallons of gas in brood daylight without anyone seeing a thing.

(on camera): You got to know what you're doing to do this.

MIKE MACHO, JMP SOLUTIONS: You got to know what operates what and how it works, yes.

UNIDENTIFIED MALE: These are obviously individuals that understand the technology.

SMITH (voice over): A technique so savvy they don't want us telling you how it's done. With our cameras rolling, Mike Macho fixes the broken pump. He says the crooks did their damage on the inside targeting a certain device.

MACHO: They only pumped $1, they only pay for $1 and get 20-30 gallons of gas.

SMITH: In this case, at $4.05 a gallon, the thieves pumped out more than four grand and it just so happens that the crooks chose the only pump security cameras couldn't see.

(on camera): But the store says they didn't even know all that gas was gone until they checked receipts the next day.

(voice over): And then the phone started ringing. Customers called Circle K saying they filled up their car for 15 bucks. The clerk then called the sheriff's office.

MACHO: yes, this is a big problem, everywhere.

SMITH: Macho says this happens more than you may think. He's fixing more than two pumps a week.

MACHO: The higher the gas gets, the worse it gets.

SMITH: In the meantime, gas stations will be on the lookout for a gas guzzling felon.

In Lehigh Acres, Megan Smith, NBC-2.

(END VIDEOTAPE)

WILLIS: So, as gas prices rise, so do gas thefts. So, perhaps we should wean ourselves off of the fuel just a little bit. The question: How long will it be before we can drive solar powered cars?

Here's CNN's Susan Roesgen.

(BEGIN VIDEOTAPE)

SUSAN ROESGEN, CNN CORRESPONDENT (voice over): Right now, they still look like alien spaceships. But if a bunch of college kids can make cars that average 65 miles an hour on nothing but sunshine, why can't the big automakers build solar-powered cars for the rest of us?

WALTER HERBST, NORTHWESTERN UNIVERSITY: And the solar cells we're running right now are as efficient as we can afford. And at that, they're terrible expensive.

ROESGEN: Northwestern Professor Walter Hertz says the current expense and the size of the solar panels both need to get smaller before mass production. But the technology is there and the concepts could be closer to reality than you think.

A Swiss adventurer is traveling around the world this month in his own solar car.

UNIDENTIFIED MALE: This is country number 28. ROESGEN: His car looks more normal than the racing cars, but that's because the solar cells are attached to this long battery that's hauled around behind it. Still, there's not even enough power for air conditioning -- and not really enough room for a passenger.

UNIDENTIFIED MALE: We have guys much taller than you in the car.

UNIDENTIFIED MALE: I can't even fit.

ROESGEN: It's not such a great ride now. But designers say you might be driving one in six or seven years.

HERBST: And as absurd as that sounds, the reality is that Google -- Google wasn't around seven years ago, so think where they are today. And that's why I'm enthused. Think where we'll be in seven years.

ROESGEN: In fact, Toyota is planning to have a few solar panels on some of its cars within two years -- not that long before we are driving on sunshine instead of on gas.

Susan Roesgen, CNN, Chicago.

(END VIDEOTAPE)

WILLIS: You can hear more about the impact of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN.

OK now, before we go, I want to leave you with this. If you're an average investor or saver, don't freak out over IndyMac headlines. Hey, it might even be a good time for you to jump into the stock market. It's not time for you to be storing your money in a mattress. For the latest financial news and advice, anytime, just logon to CNN money.com.

As always, thank you for spending some of your Saturday with us. Don't go anywhere, your top stories are next in the CNN NEWSROOM. Have great weekend.