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Issue Number One
Fannie Mae's Big Loss; Four-Day Work Week; Steve Preston Interview; North Dakota Oil; Business of the Olympics
Aired August 08, 2008 - 12:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CO-HOST: Hello, everyone. I'm Christine Romans. Gerri Willis is off today.
But it's been a busy Friday, so let's get right to it.
Gas prices continue to go down as the value of the U.S. dollar goes up. We're breaking it all down for you.
There's a lot of buzz about the four-day workweek. The state of Utah just finished its first four-day week, and Governor Jon Huntsman is going to come back and talk to us about that.
And a look into why fewer and fewer folks are flying these days.
The big story today though, of course, Fannie Mae. That's right, Fannie Mae, the mortgage finance giant, posting much larger-than- expected losses for the second quarter of this year, a staggering $2.3 billion.
CNN Senior Correspondent Allan Chernoff joins us now with more on that -- Allan.
ALLAN CHERNOFF, CNN SR. CORRESPONDENT: Christine, got your checkbook ready?
ROMANS: Yes, because we pay for it, right?
CHERNOFF: We may very well be paying for this.
The federal government has committed itself to being the backer of both Fannie Mae and Freddie Mac, and the chances of a bailout are increasing with this very, very ugly earnings report. Let's have a look at some of the numbers, first of all, from Fannie Mae.
For the second quarter, the company losing $2.3 billion. That, after the first quarter loss of $2.2 billion. Over the past 12 months, the company has lost more than $9 billion. And their credit losses are just adding up.
They are anticipating that they are going to have more losses later in the year, also possibility next year, as well. This situation is very rough. About half of the losses coming from high- risk loans known as Alt-A loans. Christine, these are supposed to be better than subprime loans. It turns out they're really not.
ROMANS: It started in subprime, and it is spreading. Will the situation get worse?
CHERNOFF: The company is saying that's going to happen. In fact, have a look at some of the quotes this morning from the chief executive officer of the company.
Mr. Mudd, Daniel Mudd, saying, first of all, that, further increases in our loan loss reserves are definitely being put into place. He's saying this is the most difficult housing market in more than 70 years. That's going back to the Great Depression.
He's also saying it's impossible to know what inning we're in, when we're actually going to see a bottom in the housing market. This is very similar to what Freddie Mac was saying, its sister company, just a couple of days ago.
Remember, both Fannie Mae and Freddie Mac are companies that buy mortgages and guarantee mortgages. They buy them from the banks, they give the banks money so the banks can make new loans. They definitely led to a huge expansion in the mortgage market. But this is an expansion that perhaps is really hurting the economy. And potentially, Christine, hurting the U.S. taxpayer here.
ROMANS: Allan, what is this company doing to try to build up its cash reserves?
CHERNOFF: What they're doing is that they are cutting their dividend, they are slashing it down to 5 cents a share, and they also are saying that they're going to pull back from that Alt-A, those very risky loans. They're making all sorts of changes in their business, they're cutting their expenses, as well -- Christine.
ROMANS: All right. Allan Chernoff.
Thanks, Allan.
ALI VELSHI, CO-HOST: News like that, that Allan was just talking about, would take the winds out of the sails of U.S. markets, but the Dow is actually up right now almost 200 points.
Susan Lisovicz live for us on the floor on the New York Stock Exchange with investor reaction.
Susan, because I know how long you've done this, I know it must be tough to be asked, why is the Dow up 200 points today when this is just not good news right now for the economy or the market?
SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT: Well, it's because oil is down another $3.50. The dollar is at a five-month high against the euro.
But bucking the trends, of course, Ali, shares of Fannie Mae. Investors are reacting in a typical way. They're dumping shares that are down about 8 percent right now.
But the really full story comes what Fannie Mae shares had been doing from the beginning of the year. They're down nearly 80 percent. And really what the stock price is, is a reflection of just how serious Fannie Mae's problem are.
Another thing is that it limits Fannie's options when it goes to the market to try to raise capital. And that's what Fannie has to do.
Think about it. Fannie's shares over the past year, Ali, were trading above $70. Today, they're around $9.50. One trader said to me this morning -- he said, "If this was a standalone company, it would be gonzo."
VELSHI: Susan, any sense of the way these markets have been going in the last few days, a couple weeks? We've seen big, big gains, triple-digit gains, triple-digit losses. Hard to make sense of this. These do seem to be trades, as opposed to investments at this point.
LISOVICZ: Well, you know, we have seen some big moves. It's been very volatile. But you know, the end result is that we're kind of like retracing our steps.
We're not really going forward. We're just sort of churning. And that's because these are very difficult times.
I mean, we have rising prices, not only for energy, but also for food. It's being passed along for many things that we consume and use.
And at the same time, the jobless rate is going up. We got more evidence of that this week when we saw the weekly jobless hit a five- year high. And there's a lot of expectations that it will get worse before it gets better. And that's why you see these extreme moves.
VELSHI: Yes.
LISOVICZ: Two hundred points to the downside yesterday, just about 200 points to the upside today.
VELSHI: And we'll count on you to help us make sense of it.
Susan Lisovicz on the floor of the New York Stock Exchange.
Thanks, Susan.
ROMANS: With Fannie Mae and Freddie Mac in turmoil, and a new housing bill meant to help turn things around, we ask Steve Preston, the secretary of the U.S. Department of Housing and Urban Development, to join us.
Thanks for joining us.
You see the Fannie Mae and Freddie Mac news this week, staggering losses there. Concerns the taxpayer could be on the hook to some extent here.
How concerned are you by what you're seeing there? And what kind of pressure does that put on HUD and FHA, the Federal Housing Authority? STEVE PRESTON, SECRETARY OF HOUSING AND URBAN DEVELOPMENT: Well, I think, clearly, the GSEs are going through a challenging time right now. But I think it's important to note that the regulator has very recently said that he continues to think that they're well- capitalized, that the government -- the deal that was just passed puts in class a world class regulator to provide stability and confidence in these institutions. And we do have this government backstop in place.
They're also providing a very important role in the economy right now because they're financing such a significant portion of the mortgages out there. And increasingly, we're seeing that both the GSEs and FHA are important sources of capital for American homeowners.
ROMANS: What does it say about what's happening at these two entities, GSE and government-sponsored entities? What does it say about these -- the housing market right now and how dangerous it is out there for homeowners and homebuyers? In particular, when you've got two executives saying we haven't seen the worst of it yet.
What kind of assumptions are you making?
PRESTON: Well, I think right now, when you look the at those portfolios, there's a degree to which, you know, you've got a historical portfolio when you're looking forward. On the other hand, home prices are in a better situation for a new buyer than they've been in for years. And as a result, we've actually seen significant increases in FHA loans to new home buyers who want to come to us for a 30-year fixed secure mortgage.
ROMANS: Also in that big housing bill that just passed, there's room in there to renegotiate some of these troubled home loans.
PRESTON: Yes.
ROMANS: How well are you doing on that? I know, I think in October is when the program really starts -- gets going. How many of these loans can people work through? And how many of these homebuyers are really going to be able to stick to new plans and turn things around? Homeowners that is -- sorry.
PRESTON: Well, this bill -- this bill is another tool in our tool chest. And it will get kicked off on October 1st.
But we've already helped millions of people either through the FHA or through the industry refinance. Our refinancing volume was up five times over the last two years. The industry through the Hope Now Alliance has now already refinanced almost $2 million. We've already refinanced $300,000.
ROMANS: But there are more -- 1.5 million in defaults in the first part of the year, and many more expected to come in. There's a lot of mortgages out there in trouble.
PRESTON: Right. So the message is, don't wait for the bill in October. Come to us today, because -- either through the FHA or through the lending community -- a lot of people increasingly are working with lenders to modify these mortgages. The bill will help us help some more people, but there's a lot in place today, and people need to raise their hand, come to their bank.
We also encourage people to find a counselor. There's a lot of counseling resources available from not-for-profit groups. You can find them through Hud.gov, and really take a step forward and try to refinance into a better loan.
ROMANS: Part of that big bill was almost $4 billion to go to the states and local communities to try to clean up some of these neighborhoods where you've got foreclosures...
PRESTON: That's right.
ROMANS: ... that are really hurting other people's property value. And that was something the administration wasn't really a cheerleader for, but accepted it, along with some of the other things.
PRESTON: That's right.
ROMANS: What are you going to do? You guys are the ones who are going to figure out how to take that money and parcel it out. How are you going to do that?
PRESTON: Well, Congress has pretty much laid out how we should do that, but it will basically -- we'll look at communities, and there'll be a portion money based on delinquency rate, default rate and vacancy rate. And so we will, within 60 days, announce a formula for all the states, the states will have a good sense of how much money's going to go to them. And then we'll work with them to get them to the right communities.
ROMANS: All right. I've got to ask you about Morgan Stanley this week. Morgan Stanley being tapped to be an adviser to the Treasury on Fannie Mae and Freddie.
PRESTON: Yes.
ROMANS: It got a lot of attention because some people noted that Morgan Stanley also here had some write-downs because of mortgage exposure and is freezing HELOCs, Home Equity Lines of Credit, because they can't value the underlying value of some of the homes.
What about this partnership with sort of people in the game who have kind of been part of the problem, some would say, in the mortgage market?
PRESTON: Well, I think the idea here is to take financial institution experts from Morgan Stanley, partner with the Department of Treasury, and take a look at what a potential backstop mechanism would look like, and also to take a hard look at Fannie and Freddie's balance sheet and make good decisions based on good input from the private sector. So I don't think...
ROMANS: It's not a conflict? PRESTON: I don't think it's a conflict. And I think you have people that look at financial institutions professionally. They understand all these issues. And I think the Treasury Department wants to make sure that they're getting the best advice possible as they look how to structure things.
ROMANS: I think one thing is clear, is this unprecedented work with the government and with the private enterprise on the American economy right now.
PRESTON: Yes.
ROMANS: We haven't seen something like this in really a very long time.
PRESTON: Yes. From two angles. Number one, working with the private sector to come together to make good, consistent decisions. And then increasingly, the government is playing a role in supporting the mortgage sector in helping new buyers come into this marketplace, but also helping people refinance who might face foreclosure otherwise.
ROMANS: Steve Preston, thanks so much for joining us.
PRESTON: Thank you.
VELSHI: In just a few minutes, we're going to talk to the governor of Utah as that state wraps up its first four-day workweek, which leads us into today's "Quick Vote."
How many hours a day would you work in return for a four-day workweek: 10 hours, 12 hours, 14, or are you happy with your five-day work schedule?
Log on to CNNMoney.com right now and cast your vote. Results coming up a bit later in the program.
Well, we've got the latest on falling gas prices. Plus, you might be surprised to meet the new type of oil baron.
And jobs are a big concern in this country, big enough that the presidential candidates are both talking about the state of jobs and what they would do if they win the White House. What they're saying, coming up.
We're all over issue #1, right here on CNN.
(COMMERCIAL BREAK)
VELSHI: Well, the Dow's up almost 200 points right now, and that's partially because oil is down more than $4, or almost $4, since yesterday's settle. Down to almost $116 a barrel. They're giving it away.
For the 27th consecutive day, we are seeing a lower price for gasoline at the pump. AAA says the price for a gallon of gas, national average, was down 1.3 cents overnight, now averaging a paltry $3.84 a gallon.
Part of that might be due to the gaining strength of the U.S. dollar. It's gaining on the foreign currency exchange against, currencies like the Swiss franc and the British pound and the euro.
We're going to have more on that a little later in the show.
ROMANS: While the presidential candidates debate where we should drill for oil, drilling is going on in a quiet corner of this country, in North Dakota, in an area called the Bakken Formation. It's said to contain more than three times the quantity of high-quality crude than is found in Texas. And all that oil is making millionaires.
CNN's Thelma Gutierrez introduces us to the new oil baron.
THELMA GUTIERREZ, CNN CORRESPONDENT: Ali, many of the farmers in Montreal County say their fortune turned within the last year. For many, it began with a phone call or a visit from an oilman saying their property would be staked for a well.
(BEGIN VIDEOTAPE)
HERB GEVING, OIL WELL OWNER: It's real pretty, pretty.
GUTIERREZ (voice-over): For Herb Geving it is a sight to behold. His newest oil well roaring with the promise of good fortune. We met Herb at a sprawling ranch in Parshall, North Dakota.
(on camera): You have quite a view up here.
(voice-over): He took us to a room with sweeping views and pointed out the phenomenon that's changed his town almost overnight.
GEVING: You can see wells being drilled.
GUTIERREZ: Brand new wells dot the landscape.
GEVING: There's two of them right there.
GUTIERREZ (on camera): On your property, how many wells do you have?
GEVING: Three.
GUTIERREZ: Three. How have they done by you?
GEVING: Well, we had a garbage business and we sold it the next day.
GUTIERREZ (voice-over): Herb used to haul garbage. It's how he built this 11,000 square foot home. But he said he never imagined what was underneath until last year, when an oilman told him he might be sitting on black gold, on land that is part of the Bakken Formation, a 200,000 square mile area rich with more than three billion barrels of oil.
They drilled the first well, hit it big. Then a second, and a third.
GEVING: They dig the well and work on it three to four months before you get a check. So your first check is maybe around thousands.
GUTIERREZ (on camera): Like $2,000, $10,000?
(LAUGHTER)
GEVING: Well, you can keep going up and up and up.
GUTIERREZ (voice-over): Each month the royalty checks come.
GEVING: It's amazing. You don't have to work at all. You just walk to the mailbox and there it is. You know?
GUTIERREZ: Herb grew up during the Depression.
GEVING: Times were tough.
GUTIERREZ: His grandparents homesteaded the ranch 100 years ago. His parents raised cattle and four children.
GEVING: That's the three of us guys. There's Ron, who died, and myself and my sister and my mother. She was a cutie.
GUTIERREZ: He says his newfound wealth is bittersweet. It came late in his life and much too late for his beloved younger brother to enjoy.
GEVING: Some people don't believe it, but I have no high craving for money or wealth.
GUTIERREZ: Instead, Herb, who lives alone, has willed it all away to 70 family members.
GEVING: What would I have done with it? If we used the smallest ones, they would have years to draw on it and...
GUTIERREZ (on camera): Go to school?
GEVING: Yes, go to school, buy a hotrod.
GUTIERREZ (voice-over): Herb says at 74, the best thing money can buy is knowing your family will be OK.
(END VIDEOTAPE)
GUTIERREZ: Herb told us he's splurging on something else -- a brand new house for a foreman who has worked for him for 18 years -- Ali.
VELSHI: Wow, that's...
ROMANS: It's a great story. VELSHI: Yes. I mean, it's one nice story out of all these things we talk about, the high price of gas and the high price of oil. It's nice to see somebody getting some benefit out of it.
ROMANS: Millionaires in the Midwest.
VELSHI: Yes, exactly. There you go.
Now, how does a four-day workweek sound to you? What do you think of that?
ROMANS: It sounds good.
VELSHI: All right. Folks working for the state of Utah now get to live that. We're going to check it out and see if it might work where you live.
ROMANS: And we'll hear from both John McCain and Barack Obama on jobs in this country. What they're saying, coming up.
You're watching ISSUE #1.
(COMMERCIAL BREAK)
ROMANS: Well, welcome back to ISSUE #1.
Holiday air travelers, you may want to book your flight now, as opposed to later, as the confluence of record jet fuel prices, furloughs, canceled flights, and an entire industry flying on the brink of financial uncertainty is about to hit you where you sit.
The OAG, or the Official Airline Guide, is forecasting a 7 percent cutback in global airline capacities the last three months of this year. That's about 60 million less seats. And it may affect American domestic flights the most by roughly 20 million fewer seats.
VELSHI: All right. It sounds like a dream, and for state workers in Utah, it's a dream come true.
We spoke with Utah Governor Jon Huntsman right after his state decided to go to a four-day workweek to cut down on transportation and other costs. Well, that first four-day workweek is over.
Governor Huntsman is back with us, this time from San Diego.
And I'm guessing that's because, being the first four-day workweek for the state of Utah, he's kicking back and starting his weekend early.
Governor, how are you doing?
GOV. JON HUNTSMAN JR. (R), UTAH: Already started. That's right, Ali. How are you doing?
VELSHI: That's great. We've got a picture of sailboats behind you. That's theoretically part of the benefit of the four-day workweek, that people get a longer weekend. They're commuting one fewer day a week.
You got out and talked to some of the state workers this week. What's the initial reaction?
HUNTSMAN: I think the initial reaction is quite positive. And that is, you know, you're putting in the same number of hours per week, we're just repackaging it a little more intelligently. And many of them stated, you know, things that we expected to hear. You know, "I'm looking forward to a three-day weekend where I can spend a little more time with my parents, or with kids, or with my friends, or pursue a hobby or an interest."
You know, whatever they want to do. It's the quality of life issue. And I think quality of life will more and more be a prominent part of the workplace.
So one of the unspoken issues here is that, as we kind of reach out and we try to recruit the next generation of state employees, you want to get the best and the brightest. Many of them have, you know, many opportunities they can look forward to, many choices, private of public sector. But I think quality of life...
VELSHI: So you're thinking this makes you more competitive as an employer?
HUNTSMAN: I think very much it makes us a lot more competitive, when the quality of life looms large in the minds of a lot of young people.
VELSHI: What are the issues? What are some of the kinks that you've faced this week that might still need to be ironed out? What are some of the problems people have told you about?
HUNTSMAN: Some of the issues deal with, for example, child care; they deal with extended education opportunities, making sure the schedules can be met there; public transportation schedules, which we're working on with our public transportation authority, trying to get a little more flexibility there. Kind of, you know, the mobility issues, for the most part, are those that we had identified early on, those that we are addressing.
And I think by the end of the year, probably will have worked out in total. No organization this size has ever gone forward with a 4/10 workweek. We're kind of the first out of the shoot. And so, not surprising, we're going to run into a few obstacles, you know, a couple of road bumps here and there.
And as we approach them, you know, we're going to deal with them pragmatically, putting the employee first and foremost, realizing that these are real human issues we're dealing with. And want to make sure that we work them out to the benefit of the public employee, first and foremost.
And so, by the end of the year, I think we'll have most of them worked out. And then a year from now, we'll have several underlying metrics that we're going to look very closely at that will determine. VELSHI: Yes. And one of them, by the way -- one of them you talked to me about was that you thought this would be a bit of an energy saving.
HUNTSMAN: Right.
VELSHI: You wouldn't have to -- first of all, an energy saving for some workers because they drive four days instead of five.
HUNTSMAN: Right.
VELSHI: And for some of these buildings that you don't have to keep in operation. Have you got any data on that yet?
HUNTSMAN: No, only guesstimates at this point. But I would put it in the millions of dollars.
I mean, you take, you know, a thousand buildings or facilities that we're going to be throttling back on Thursday night, as opposed to Friday night, you're picking up a 20 percent increase right off the bat there. Not to mention the cars that you're taking off the road on Friday, you're staggering traffic patterns Monday through Friday -- or Monday through Thursday, rather.
I did hear some interesting things from some state employees a couple of days ago, and that was, "Gee, I left earlier." You know, "My commute into work was much less than what it had been before. My return home was much faster."
And so, there is some unanticipated positive consequences and implications here that I think we're going to find more and more of as we proceed.
VELSHI: Do other governors or other politicians from other states talk to you about this? Anybody sort of thinking about this idea in their own state?
HUNTSMAN: I think many are thinking about it, and yes, I've had several conversations. More along the lines of, "Let me wait until November gets behind us and then we'll make the decision."
VELSHI: Sure. Hey, listen, by the way, November, you and I talked about that last time. You want to handicap the VP race at this point? Who do you think John McCain is looking at?
HUNTSMAN: I think discretion is the name of the game right now. Only John McCain knows that, but there's several good people who are being talked about. I know them all, and I can vouch for every one of them.
VELSHI: All right, Governor. Good to see you again. Enjoy your slightly longer weekend. I know you're working today on the fifth day, so you're kind of breaking the rules. But good to see you again.
HUNTSMAN: Thank you, Ali. Bye-bye. ROMANS: Ali, what the presidential candidates are talking about in this country: the economy, unemployment, obviously a big concern. What they're saying next.
Why the dollar is getting stronger overseas.
And it's not just fun and games. We'll take you inside the big business of the Beijing Olympics. Live pictures there.
You're watching ISSUE #1, the economy, right here on CNN.
(COMMERCIAL BREAK)
ROMANS: Every day we're bringing you Senators McCain and Obama uninterrupted on the campaign trail. John McCain visited Lima, Ohio, with a message about restoring our economy. Let's listen in.
(BEGIN VIDEO CLIP)
MCCAIN: What we need are policies that create jobs. What we need is an economic strategy, an economic surge, a successful economic surge to keep jobs here at home and create new ones.
And I don't have to tell anybody in Lima, Ohio. I don't have to tell anybody how tough things are. I don't have to tell you how difficult it's been.
And I want to look you in the eye and tell you that I'm going to restore our economy. And I'm going to restore it in the heartland of America. And we're all going to be part of a team in a bipartisan fashion that gets it done.
(APPLAUSE)
We need to open new markets to U.S. products. We need to reduce the cost of healthcare. We need to end the out of control spending that's putting the debt on the backs of our children and our grandchildren. That's unconscionable.
Senator Obama says he wants energy independence, but he's opposed to new drilling at home, he's opposed to nuclear power, he said the high cost of gasoline doesn't bother him, only it just rose too quickly. Yes, tell that to the people that are driving the oldest automobiles the furthest to work. Tell them that the only problem is the price of gas rose too quickly.
He actually thinks that raising taxes on oil is going to bring down the price at the pump. He's claiming that putting air in your tires is the equivalent -- is the equivalent -- of new offshore drilling. That's not an energy plan, my friends, that's a public service announcement.
My friends, we need to drill offshore here and now. We need to drill offshore and it can affect the price of a gallon of oil, of gas. And, my friends, when we exploit and find these new reserves of oil off our coast, it will reduce the price of a barrel of oil. That's just a fact. When you increase supply, obviously, the price of whatever it is, is going to go down. So we've got to do it and we've got to do it quickly. We don't have to wait.
(END VIDEO CLIP)
VELSHI: Well, coming up next, Senator Obama in his own words on jobs in America. But first, let's get you up to speed on other stories making headlines today.
Randi Kaye, take it away.
KAYE: Hi, there, Ali.
More legal troubles for Detroit's mayor. Mayor Kwame Kilpatrick is facing new state felony charges of assaulting police officers. Those charges stem from July 24th incident when two officers were trying to serve a subpoena. Kilpatrick was in court this morning after spending the night in jail. He was accused of violating his bond on earlier felony charges. The scandal surrounding Kilpatrick started when the "Detroit Free Press" reported on romantic text messages between Kilpatrick and his former chief of staff.
Investigators think a blown tire might have triggered a horrible bus accident near Sherman, Texas, north of Dallas. At least 13 people were killed when the bus careened over a highway overpass and into a ravine. They were among 55 members of a church group traveling from Houston to Missouri.
And meteorologist Bonnie Schneider tracking some storms from the severe weather center.
Hi there, Bonnie.
BONNIE SCHNEIDER, CNN METEOROLOGIST: Hi, Randi.
We are watching out for flooding, especially in New England. There's been so much rain in New Hampshire that we're expecting more thunderstorms today and that may trigger some flooding later on this afternoon. Also, the flood threat continues, even though it's not raining right now, in Colorado and in Utah.
The flood threat exists, as well as a red flag warning, all the way up in the northern sections of the Rockies. We'll be watching for that throughout the afternoon, Randi, and into the evening due to cloud to ground lighting. I'll have more at the top of the hour.
KAYE: All right. And also at the top of the hour, we will have much more on this conflict in Georgia and the Russian bombing over there as well and what it means to you at the top of the hour.
Now let's throw it back to Christine and Ali in New York.
VELSHI: Randi, thanks very much. We'll catch up with you at the top of the hour.
Moments ago you heard John McCain say that he wants to restore the economy in America's heartland. Now let's hear from Barack Obama. He told reporters on his campaign plane yesterday that he and McCain have very different ideas for fixing the economy.
(BEGIN VIDEO CLIP)
SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: Well, we've been talking about the economy the entire campaign. And the stories that I hear on the campaign trail of single moms who can't afford groceries or don't have healthcare, folks who have lost their jobs, and if they find a new job, they're getting paid two-thirds of what they were making before with fewer benefits. You know, that's been the constant refrain of this election season.
The American people are hurting and they're anxious. And our economic plans specifically provide them relief and meet the short- term, putting more money into their pockets, and long-term relief in terms of serious healthcare policy, an energy policy that can drive down gas prices, making sure that we are investing in roads and bridges and schools and other infrastructure here in the United States that could put people back to work.
So, you know, my sense is, is that during the summer months, you know, people are not going to be paying as much attention as they're going to be paying in September and October. And the key, not just for our campaign, but I think the key for this election cycle is for the American people to be very clear about the choices that they face when they go into that ballot box.
(END VIDEO CLIP)
ROMANS: It has to do with the dollar. Why the Olympics are more than just a bunch of games. There's a whole lot of money at stake.
And say good-bye to Hollywood. We're taking you inside the booming world of Bollywood.
ISSUE #1 rolls on next.
(COMMERCIAL BREAK)
VELSHI: Welcome back to ISSUE #1.
Look at it. It may not look or feel any different, but this American dollar in your pocket is stronger. It's reversing the recent trend. The dollar's on the rebound against foreign currencies. Take a look at this.
The dollar enjoying a 17-month high against the British pound. Now going for about $1.93 to get one. It used to be over $2. It also improves upon the 15-nation euro. $1.52 to buy one of those. It was well over $1.60. And even the Canadian dollar, well, now only costs you 95 cents to get one of those. A lot of analysts attribute the dollar's rise to the declining price of oil, as well as inflation fear in Europe.
ROMANS: All right. The Olympics are getting underway in Beijing. And while we would all like to talk about it as a sporting even and get caught up in the Olympic spirit, in reality, Olympics are big business. Leigh Gallagher is from "Fortune" and has been tracking this for us.
It really is. And the Chinese sponsors of the Olympics have been boasting this is the biggest, the best, the most amazing Olympics ever. A lot of multi-national companies in there with their sponsorships. Is it the big dollar -- the biggest big dollar event of all the Olympics so far?
LEIGH GALLAGHER, SENIOR EDITOR, "FORTUNE": It is huge. I mean, think about it, this is the most populous country in the world hosting the biggest sporting event in the world. Nothing is done small in Beijing for the Olympics. This is a very big deal. It's very big business. And there's a lot of money involved for everybody involved.
ROMANS: A small irony about the capitalism involved in all of it too for the big -- for the Chinese authorities.
GALLAGHER: Exactly.
ROMANS: What about the Olympic committee? How much money are they getting from the sponsorship -- not from sponsorships, but from the broadcast rights and -- rack it all up for us.
GALLAGHER: Well, basically they're expected, the IOC, is expected to pull in about $3 billion, $3.5 billion. And the way that's broken up is, the biggest chunk is about half of it which comes from broadcast rights, which is sort of logical. And then a little bit less than that comes from sponsorships, what companies pay to be a part, have their brand be a part of this. And then the rest of that, a small fraction, 8 percent, comes from actual ticket sales. Now a small fraction is going to add up to about $300 million. That's still a lot of money.
ROMANS: I saw that some of the tickets for the opening events were more than $700.
GALLAGHER: Yes, the big ticket events are the opening and closing ceremonies. And the maximum asking price is -- there's a range, but it's $600 to $700 a ticket. The individual events are a lot less. I mean swimming is about $117 thereabouts. Then you have smaller events like shooting, which I think the asking price is something like $7.
ROMANS: Oh, $7. Affordable for the masses.
GALLAGHER: Right. Exactly.
ROMANS: Let's talk a little bit about the broadcast rights then. I mean, I don't think we've ever seen as many hours broadcast of an Olympics than we will see on this one.
GALLAGHER: No. That's true. It's setting a record, about 3,600 hours. And the bulk of that, obviously, on NBC. But this is a record. They're really blowing this up big because it's such a huge landmark event to have the Olympics in China.
ROMANS: These live pictures from Beijing are just amazing. So much happening. And this weekend is the big kickoff.
Let's talk about the sponsorship part of it. And the big multinationals are in an interesting position because they want to do business in China and they want to sell their products in China. On the other hand, for example, the American based multinationals have this little problem of some of their customers and the voters here who are a little concerned about some of the human rights issues in China.
GALLAGHER: Yes, it's tricky. But what most people don't know is that when a company buys in to be a sponsor of the Olympics, they actually buy -- the IOC only sells for both cycles. In other words, the summer and winter. So it costs about $80 million. But a company like Visa, McDonald's, Kodak, the sponsors of the Olympics in Beijing, also sponsored the Olympics in Turino. So for that price you kind of get both. It's like a one-two punch.
ROMANS: And what do they get?
GALLAGHER: They get the right -- I mean it's really up to them to sort of be creative about what exactly they want to do. But it includes signage. It includes -- sometimes it can include individual athletes. It really depends. But the interesting thing about this Olympics is that Linovo (ph) is the first Chinese company, it's a maker of computers, that's going to be a full scale sponsor with the IOC.
ROMANS: And they've given thousands and thousands of computers to -- for the event . . .
GALLAGHER: Lot's of equipment.
ROMANS: And they donated a lot of equipment. Tell me a little bit about that.
GALLAGHER: Exactly. I mean that's a big part of what they're doing. I mean there are tons of laptops, you know, back sort of technology to sort of keep the whole production running. They're really involved kind of from the ground up.
ROMANS: Meanwhile, so much of the press so far is as the athletes come is on the pollution, is on the question of whether there will be restricted Internet access, on all these sorts of things. It makes it kind of, as you said, kind of tricky for the sponsors and for the other countries who are going there.
GALLAGHER: Yes. It's tricky and it's also what's made it so expensive. The estimate of what was spent to sort of host these games for Beijing is anywhere from $20 billion, some estimates are $40 billion, which makes it by far the most expensive Olympics ever. I mean they had to add subways, highways, a new airport terminal. And, you know, that happens any time a city hosts the Olympics. But in this case, just the soup to nuts was so grand that the cost was just through the roof. ROMANS: Well, and the Chinese have an awful lot hanging on this from their end, as well. I mean they've been buying up raw materials and commodities to build up for the Olympics. I mean there's a cost that's not even sort of figured out there.
GALLAGHER: Yes, that's absolutely true. And commodity prices have been rising. So when they agreed -- when this was planned from when it actually -- they spent the money, prices of things like steel really spiked. So they're spending a lot more than they thought they were going to spend in the first place.
ROMANS: All right. Leigh Gallagher, thanks so much, "Fortune" magazine.
Thank you, Leigh.
GALLAGHER: Thanks for having me.
VELSHI: We've talked about a lot today -- big losses for mortgage giant Fannie Mae, the four-day workweek, the Olympics, you just heard about. The CNN money panel is going to break it all down for you next.
And we'll take you inside the booming business known as Bollywood.
We're all over issue #1 right here on CNN.
(COMMERCIAL BREAK)
VELSHI: OK. So we've been talking about huge Fannie Mae losses, the buzz of the four-day workweek and, of course, the start of the Beijing Olympics. All deserving of attention from the CNN money team. Let's get right down to it. Leigh Gallagher, who you just saw, from "Fortune," is back with us. Tami Luhby with CNNMoney.com. And Allan Chernoff is a CNN senior correspondent.
I really like that four-day workweek thing. I was just thinking of the implications of it. One of which would be, we wouldn't be doing this show right now. But we were talking to the governor of Utah. It's their first week. Has anybody thought about this? Is this something that would be generally good?
GALLAGHER: I think it's a great idea. I mean, personally, I'd love one. But if you think about it, it cuts down on energy costs. There's certain things you have to think about. For example, in this case it's city government. So if you're a consumer, you're trying to reach somebody in the city government office and you can't -- you're going to have to get used to not reaching them on Fridays.
VELSHI: Right. Not the way you're generally used to reaching them on (ph) Saturday and Sunday.
GALLAGHER: So it doesn't effect just the people that are working. It effects everybody in a certain way. But, I don't know, I think there's a lot to it. TAMI LUHBY, SENIOR WRITER, CNNMONEY.COM: There are governments that are doing different things. And this might be a better way to do it. Utah's shutting down on Fridays. Other governments are staggering and they're having Monday to Thursday or Tuesday to Friday. So that might be a better way to do it.
VELSHI: The advantage of the shutdowns, the governor's saying, one of the things is, they shut the buildings down. They don't heat or air-condition them on certain days. Now that's a -- this is an easy one to relate to our viewers because everybody can think about whether the four-day workweek would be better or worse for them.
You two have been very -- you've all been involved in this story. Fannie Mae and Freddie Mac. And, boy, again, it's a puzzling thing because we know they all exist, we know they're crucial and very important to the mortgage industry and we know they're troubled and we're not entirely sure how this relates to us.
Allan, you've been covering this very closely.
CHERNOFF: It's going to relate to us more and more. I mean so many of us have our mortgages either guaranteed or purchased by Fannie Mae or Freddie Mac. But really what's going to be happening here is that there's a growing chance that U.S. taxpayers are going to have to bail out at least one of these companies.
Let's have a listen to a quick sound bite. We spoke with one analyst earlier today on this. Very interesting commentary.
(BEGIN VIDEO CLIP)
JANET TAVAKOLI, PRESIDENT, TAVAKOLI STRUCTURED FINANCE: What we should all prepare for is that we will have to step in and bail out Fannie Mae, bail out their debt. We shouldn't be bailing out the shares. We shouldn't be buying their stock. Shareholders should know that they can lose all of their money.
(END VIDEOTAPE)
CHERNOFF: Now that plays off of the fact that the housing bill that the president signed only last week gives the Treasury authority to actually buy stock in these companies, in Fannie Mae or Freddie Mac. I mean analysts have said to me, that's outrageous. What, the U.S. government should become shareholders in these companies that many people think have been irresponsible in backing some of these crazy mortgages.
VELSHI: Yes, could be at risk.
Now that's the danger of the taxpayer on the -- you know, having to do a bailout.
Tami, there's another very obvious outcome of this and we've been looking at mortgage rates for even a 30-year fixed mortgage for people with good credit, it's been going up. LUHBY: Right. And it's probably going to be even more expensive soon because to shore up their own finances, Freddie and Fannie are having to take action. So they're raising their fees, they're getting out of certain, you know, controversial, difficult to value mortgages, such as alt-a mortgages. So, in general, it's going to be harder for people to get mortgage. And when they do, it's probably going to cost them more.
CHERNOFF: All right. You know what, that may be a very, very good thing. The fact is, to many people who had no business buying homes were getting easy mortgages. And they just didn't have the capacity to handle it. And that's why we're in this mess. The mortgage market needs to be cut and cut big time.
GALLAGHER: But the real risk, if Fannie and Freddie, you know, become insolvent, that's a huge risk. And some say that's a bigger risk than the risks faced by Bear Stearns, for example, which the government did bail out, that Fannie and Freddie are even more inextricably linked to the global economy.
VELSHI: Well, they're the operating system, as I like to say. They 're not -- Bear Stearns can still occur independently of what most of us do. But the mortgage system is so closely intertwined with Fannie and Freddie, without them you've got this whole middle equation that doesn't exist.
GALLAGHER: Exactly. The whole housing market falls apart.
CHERNOFF: There's one more factor here I think we need to consider. Fannie and Freddie are major campaign contributors.
VELSHI: Because these are public companies.
CHERNOFF: They're public companies, but they've been doling out the money to congressmen, to senators, including the people who are running for president right now.
LUHBY: Right. But just in their defense, until the housing market stabilizes, the economy is not going to stabilize. So Fannie and Freddie are an important part of that. And so we need things to get back on their feet.
CHERNOFF: They are. They are.
VELSHI: You were just talking with Christine about the Olympics for a little while. That will be a distraction from both the campaign and the economy for a little while with the Olympics starting. It does seem to be the kind of thing that captures the imagination of the public and maybe it will allow us to have a bit of a reset after the Olympics, going right into the conventions and Americans can take a break and look at it with fresh eyes again.
GALLAGHER: Maybe. That's a good point. I mean, I think all eyes are going to be on Beijing for sure. It's kind of a very uplifting, you know, moment for everybody. You know, but I think when we come right back to it afterwards, people are going to really be thinking about the election. The economy is number one concern when it comes to the election. And then everybody's really, in terms of the economy, housing prices are everything. So a lot of people think in another couple months they might stabilize.
VELSHI: There is a great advantage to voters right now because the two candidates are increasingly separating themselves on the issues. So candidates, come November, one way or the other, will have a choice to make. They'll be able to make a distinction between the candidates. The question is, how these things start to clarify, how their positions clarify. And I think energy will be the one place we've seen John McCain start to make some inroads on this -- on hammering away at offshore drilling and how quickly we can get oil if we do that.
CHERNOFF: And, fortunately, we're seeing that bubble beginning to at least deflate in the energy market. I wouldn't say its burst just yet.
VELSHI: No, we're about, what, about $116 for a barrel of oil. We're all celebrating. The Dow is up almost 240 points right now because oil is only, only at $116 a barrel.
GALLAGHER: Who thought we'd be saying that?
VELSHI: Things are a little upside down in our economy.
CHERNOFF: Let's celebrate when oil gets down to $60.
VELSHI: Yes. Well, invite me to that party. We'll be waiting for a while. Don't by any fresh goods for that one.
Thank you all for being here, our CNN money panel -- Christine.
ROMANS: All right, Ali.
Well, there's Hollywood and there's Bollywood. We'll take you inside the fastest-growing part of the movie industry.
And don't forget to vote. How many hours a day would you be willing to work in return for a four-day workweek? Log on to CNNMoney.com right now and be heard.
You're watching ISSUE #1.
(COMMERCIAL BREAK)
VELSHI: OK. Time now to get the results of today's Quick Vote. More than 15,000 of you weighed in on the question. What would you do in return for a four-day workweek? How many hours would you work? Sixty-five percent said 10 hours a day.
ROMANS: Twenty-three percent said 12 hours a day. Three percent said 14 hours a day. Nine percent said you like the five-day workweek. You know, you've got to have some creative solutions, though, because of high gas prices and all that. VELSHI: But you know what I like about that vote result? It means our viewers understand their math. Why would you trade in 14 hours a day to work four days a week. Ten hours is the logical sort of, you know . . .
ROMANS: Unless you're already working 14-hour days.
VELSHI: Right. In which case I'll take four of them instead of six of them.
ROMANS: All right. Forget "Batman" and "Sex and the City." Some of the real big screen hits around the world come from Bollywood.
VELSHI: And if you don't know what Bollywood is, you soon will. Here's CNN's Brooke Anderson.
(BEGIN VIDEOTAPE)
BROOKE ANDERSON, CNN CORRESPONDENT, (voice-over): They're called the Brad and Angelina of India. Bollywood icons seen here in the hit movie "Guru" and "Bunty aur Babli." Now Aishwarya Rai Bachchan, and her husband, Abhishek Bachchan, are taking the U.S. by storm. On tour, hoping to drum up excitement for Indian films.
ABHISHEK BACHCHAN, ACTOR: We're the largest film industry in the world. We sell the largest amount of tickets in the world.
ANDERSON: India produces more movies than any other country. And its movie industry, commonly known as Bollywood, is expected to double in size by 2012. That success is driving a strong fiscal relationship with Hollywood. Indian producers are a reliable source of cash for American film makers seeking financing outside the unpredictable U.S. economy.
NELSON GAYTON, UCLA ANDERSON SCHOOL OF MANAGEMENT: You're seeing a lot of the Indian producers or entertainment conglomerates really trying to become the Hollywood studios of the future. Certainly by buying into Hollywood content, but also by spending the money to build a distribution infrastructure to really create, you know, global products.
ANDERSON: Nelson Gayton, of UCLA's Entertainment Media Management Institute, asserts mutually beneficial opportunities abound. Steven Spielberg is reportedly in talks with India's Reliance Big Entertainment for half a billion dollars. An investment that would enable Spielberg's DreamWorks to break off from Paramount Pictures.
GAYTON: When you're talking about Steven Spielberg type movies, you're talking about movies that, you know, play all over the world, but you're also talking about movies to fill a very, very attractive pipeline in India.
ANDERSON: Reliance is also linked to production companies connected to Tom Hanks, Jim Carrey and George Clooney. The upcoming Bollywood themed "Cheetah Girls" movie was filmed in India. A sign of the growing synergy between Hollywood and Bollywood.
DEBRA MARTIN CHASE, PRODUCER, "THE CHEETAH GIRLS ONE WORLD": It was all of our hopes that we would begin to educate a whole generation of American kids and their families about the India of today.
ANDERSON: Brooke Anderson, CNN, Hollywood.
(END VIDEOTAPE)
VELSHI: Now have you been to an Indian movie at a theater?
ROMANS: Not at a theater, no.
VELSHI: Nearby, you know, in Queens, there's some Indian movie theaters. And the best thing about them is, I'm a big fan of Indian food and they serve Indian food instead of like the normal, you know, concession fare.
ROMANS: Oh, wow. Interesting.
VELSHI: So I don't really watch the film (INAUDIBLE).
ROMANS: One thing cool about Bollywood is that, you know, you go traveling around the world and it's American movies with some crazy like kungfu dubbing that doesn't match. But in India, I mean it has its own thriving, vibrant industry that's now influencing Hollywood. So interesting synergy Brooke (INAUDIBLE).
VELSHI: They're fun movies because people just randomly break into dance in the middle of -- for no particular reason.
ROMANS: Like Ali does as soon as we go to commercial break.
VELSHI: Right.
ROMANS: OK. For more ideas, strategies and tips to save you money and protect your house.
VELSHI: Watch "Open House" Saturday at 9:30 a.m. right here on CNN.
And for more on how the news of the week effects your bottom line, tune in to "Your Money" Saturdays at 1:00 p.m. and Sundays at 3:00 right here on CNN.
ROMANS: The economy is issue #1, so is Bollywood, we're committed to dancing around all the issues for you. ISSUE #1 will be back here next week, same time, 12:00 p.m. Eastern, right here on CNN.
You're going to get a zero-day workweek if you keep doing that.
VELSHI: Oh, we still have to do some work here.
"CNN NEWSROOM" with Don Lemon and Randi Kaye starts right now.
