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AMERICAN MORNING

Wall Street in Crisis: Lehman Brothers to File For Bankruptcy; A Look at Hurricane Ike's Aftermath; NTSB to Investigate Train Collision; Presidential Campaigns Slam Each Other for Attacks; Gov. Perry Interview

Aired September 15, 2008 - 07:00   ET

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


BILL BENNETT, CNN POLITICAL CONTRIBUTOR: You go on that show, maybe, you know, that people think it's a soft venue. But when you're running for president, you better be ready for tough questions. She got tough questioning from Charlie Gibson, I think some unfair questioning. But if you're running for president or vice president, you got to expect it. Now the real game begins, I think. Now the inquiry really gets tough, and I think both hard questions for both sides.
JOHN ROBERTS, CNN ANCHOR: Bill, it's great to see you. Thanks for being with us this morning.

BENNETT: Thank you, John, appreciate it.

ROBERTS: We'll see you again -- Kiran.

KIRAN CHETRY, CNN ANCHOR: It's 7:00. We begin with breaking news this morning.

Wall Street on red alert. Investment banking giant Lehman Brothers saying it will file for bankruptcy. This comes as Wall Street endured one of the most tumultuous weekend. Executives in crisis mode working around the clock, trying to come up with some sort of solution. The company's stock which sold for as much as $67 a share in the past year has plummeted to just over $3.50 per share.

Well, the U.S. economy is in a "once in a century crisis." Those words from former Fed Chief Alan Greenspan adding that more big firms could still go under.

(BEGIN VIDEO CLIP, ABC'S "THIS WEEK")

ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN: There's no question that this is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go. And indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes.

(END VIDEO CLIP)

CHETRY: Our business team is all over that for you this morning.

Meanwhile, the biggest rescue effort in Texas history continues at this hour. Two thousand people who did not get out ahead of Hurricane Ike have been saved since the storm hit. The hurricane killed at least 15 people across three states.

ROBERTS: Well, back to our top story now, Wall Street in crisis mode this morning. Lehman Brothers says it will file for Chapter 11 bankruptcy today. The fourth largest U.S. investment bank crippled by billions of dollars in bad loans and no investors out there willing to bail it out.

Meantime, Bank and America tossing a big financial lifeline to Merrill Lynch. The $50 billion deal said to be all but done and a $70 billion loan. A group of major global banks rolling out a relief pool, a loan program for financial companies to offer some relief from the credit crisis.

CNN's personal finance editor, Gerri Willis, is with us now this morning. And this looks to be a pretty bad day on the markets.

GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: A pretty bad day and you just heard Alan Greenspan say that there could be more bad news on the horizon. We've been talking all morning about the frantic 48 hours on Wall Street over the weekend as regulators, Wall Street executives try to find some kind of solution for Lehman Brothers reeling because of these bad real estate loans. Barclays, B of A at the end of the day walked away from buying Lehman. That company, Lehman Brothers, will go into bankruptcy.

You're looking at video right now. These pictures, these are employees who were hearing what was going on downtown and decided to, you know, take out some of the stuff out of their offices. They even posted cops, police at the doors of Lehman.

ROBERTS: It's just like the days of Kohlberg (ph) Kravis Roberts.

WILLIS: Absolutely. You know, and worse, I have to tell you. This is really shaking the foundation of Wall Street, John. That's what we're seeing today.

Now, I want to tell you with what's going on today, we mentioned, obviously, Lehman Brothers but also with Merrill Lynch being bought by Bank of America. What's going to happen now, three of Wall Street's five independent brokerages are going to disappear. That means there's only two left, Morgan Stanley and Goldman Sachs. A very different scenario for Wall Street.

And as we mentioned, Merrill Lynch is being purchased by Bank of America for some $5 billion in stocks. Merrill Lynch is the largest brokerage in the country with thousands upon thousands of brokers serving people across the country. That's what Bank of America wanted was that retail arm there.

Other bad news, AIG restructuring. Washington Mutual may find a buyer out there. A lot going on on the financial beat this morning. And, of course, the big watch word here, John, is stabilization. That's what the regulators are trying to do. That's what Wall Street executives are hoping for.

ROBERTS: We thought we had that maybe a few months ago.

WILLIS: No.

ROBERTS: Dow futures down 360 at the moment.

WILLIS: A little scary this morning. We'll be watching that stock market all day.

ROBERTS: Gerri, thanks for that.

WILLIS: My pleasure.

CHETRY: On the phone right now is senior business correspondent Ali Velshi. And, Ali, just paint a picture for us of how serious this is for the average investor and the average American.

VOICE OF ALI VELSHI, SENIOR BUSINESS CORRESPONDENT: It's serious, Kiran, and so far, the average American is not able to figure out what's been going on on Wall Street for the last year and a half, but we sort of expected that the smart money would. We are talking about investment banks. These are the smartest money on Wall Street. How have they been getting it wrong for so long?

When I say getting it wrong, some of it is just that wave that's washing over the financial markets and the credit industry. But some of the problem here is that these companies can't even sell themselves for 3.50 bucks. Lehman Brothers couldn't find a buyer somewhere in the world, in China, in the Middle East, someone who thought it was a deal. That's the big problem.

The Federal Reserve stepped in when Bear Stearns was in trouble and tried to deal for them. They were able to back up a deal. When they couldn't do that for Wall Street, it means the world's confidence in Wall Street is eroding. And if you look at where major markets are today, Asian markets are closed for the day. But we have some major European markets right now, down more than four percent on this news.

Not confident that OK, Lehman is going to be out of the wash. Merrill is being taken over by Bank of America and there's $70 billion on the table to help banks that are in trouble. They're not confident. They're selling off. That's got to be a big source of concern for people who have financial stocks and their 401(k)s or their IRAs. Might be a time for a visit to the financial planner, Kiran.

CHETRY: I don't think I'm even going to look this morning. But you know, everybody -- all seems to agree, at least the business experts, that the subprime crisis is really the impetus for all of this. But how will this change the way that banks, these investment banks and mortgages, all of them, how will it change the way that business is done in the future?

VELSHI: Well, they've all been on one or the other side of this problem. They might have been on the side where they've been giving out loans to people who shouldn't be getting them. Or in the case of the investment banks, they've been buying loans from the banks that they shouldn't have been buying. So the bottom line is credit is going to get tougher. It probably will just be harder to get that. We already know that. We know you can't get the best rate on a 30-year fixed mortgage if you don't have the best credit.

Well, the same thing extends to businesses. So as we're trying to get out of this economic slump and businesses want to borrow money at lower interest rates to try and expand and hire people, they, too, are going to have those sorts of problems. That's what that $70 billion that those seven investment banks are doing. That's what that's supposed to be.

But the bottom line is nobody with any risk is going to get any money for a little while. And that's a bit of a problem because there are some good risks. That's what keeps America growing. That's what we're worried about.

CHETRY: All right. Ali Velshi putting it in perspective for us this morning, thanks.

And we're moving on to our other stories this morning. Topping the news, and that's the aftermath of Hurricane Ike. The island of Galveston, Texas, still cut off from the rest of the world this morning and still in the dark. Ike's 100 mile-an-hour winds and 15- foot storm surge plowed through homes and businesses. Galveston's city manager says that he counted at least 30 homes in the water.

Rescue crews have saved 2,000 people since Ike's winds died down on the Texas coast. An estimated 20,000 Galveston residents decided to push their luck despite the warnings that came out before this storm hit that they would face "certain death." There are families stuck there right now who say they have no food, no water, no power, and this is the third day since the hurricane hit.

Lines stretching blocks outside of some Texas gas stations. Some people waiting 45 minutes or longer to fill up. A few drivers pushed their cars to the pump. There are major supply concerns because of possible damage at the refineries hit by Hurricane Ike. The Gulf Coast is home to a quarter of U.S. oil refining capacity.

AAA says that average gas prices jumped 18 cents in the past three days. Some drivers say they saw prices shoot up $1.50 in just a day.

And Rob Marciano is live for us in Galveston, Texas, this morning with more on this crisis for people who stayed behind. And now, they're finding themselves without power, without food and other really necessary supplies. What's going on, Rob?

ROB MARCIANO, AMS METEOROLOGIST: Well, so much so that they brought in buses yesterday and they evacuated hundreds of people to get them off the island so they can restore some of the infrastructure. Still, some people are staying behind with friends and family. There's a lot of this island that even as the floodwaters recede are still cut off from the rest of the island due to water.

Now, we found one family yesterday who wanted to go back to see their home but simply couldn't get there. So we borrowed a boat and gave them a ride.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: It's a long ride, so we better get going.

UNIDENTIFIED MALE: I can imagine what underneath my house looks. It's going to be similar to that probably.

UNIDENTIFIED FEMALE: The garage is gone. The garage is gone.

UNIDENTIFIED MALE: Yes. The house is there.

The garage is gone but I just wonder how high the salt water got now.

UNIDENTIFIED FEMALE: It's horrible. But at least it's there. At least it's there. (INAUDIBLE)

MARCIANO: This got to mean something.

UNIDENTIFIED FEMALE: It means everything to me. We have family and all our friends are gone. Their houses are all gone back there. There used to be rows of houses back there.

UNIDENTIFIED MALE: Right here was a whole row of houses. Then on the other side was a row of houses.

(CROSSTALK)

UNIDENTIFIED FEMALE: There were row of houses. They're gone. They're all gone.

UNIDENTIFIED MALE: And I don't know where they're at.

UNIDENTIFIED FEMALE: What are we going to do? Where are we going to go?

UNIDENTIFIED MALE: The stuff just banged against the house, you can see that. The walls were made to break away, which is a good thing so it didn't drag the whole house down. So that's a good thing.

Nothing has been touched inside. There's not a window broke. Everything's dry. No salt water got in here. You're good. Everything's good, just the downstairs.

MARCIANO: The inside looks immaculate.

UNIDENTIFIED MALE: The inside is dry, that's the main thing.

MARCIANO: You're smiling now.

UNIDENTIFIED MALE: I feel a lot better. You wouldn't believe. I thought this house might be like, you know, or not even here at all. So, yes, I feel pretty good.

MARCIANO: You've got to feel lucky. I mean, look at your neighbor's house over there. UNIDENTIFIED MALE: Oh, God, he really got wrecked. I don't know where that sailboat (ph) -- that might have come from the other side of the bay like Tiki Island or something, I'm thinking, because it looks like it came from this side. So --

MARCIANO: It don't belong there.

UNIDENTIFIED MALE: No. That's not a neighborhood sailboat. That came probably from Tiki or down the west of Galveston Island for sure.

MARCIANO: Your neighbors across the street, some of their houses --

UNIDENTIFIED MALE: Their houses are gone. I'm telling you, the whole houses are gone. That's one of them sitting right there, but I don't even know where the other ones are at.

MARCIANO: What makes somebody live here?

UNIDENTIFIED MALE: Well, I just love it here.

(END VIDEOTAPE)

MARCIANO: Well, the Schmidts (ph) told us they would sleep a lot better last night after having seen that their house did a lot better than they expected. Hopefully that scene will continue here in the next several days and several weeks as folks finally are allowed or able to get back to their homes. But the western and the isle, really the bay side parts of the island, Kiran, are the ones that took the biggest hit. The seawall did its job, but the back side and the east and west sides really, really got hammered with a lot of water -- Kiran.

CHETRY: All right. That was really fascinating. The one thing he said was this -- the parts of the outside of the house were meant to break away so that the rest of the house would stay standing?

MARCIANO: Yes. Because they're built on stilts, if you're going to close off the bottom part, you want to make sure those walls are made to break away, otherwise they'll act to pull the house down. We saw a lot of houses that had garages with their walls down, but the upper part of their house is still standing. So that building code seems to work.

CHETRY: Wow, amazing. Rob Marciano for us in Galveston this morning, thanks.

ROBERTS: Heavy rains from the remnants of Hurricane Ike are forcing hundreds of evacuations across the Midwest. Officials say flash floods killed two people in Missouri. A tornado was spotted in Arkansas. Hurricane force winds in Cincinnati temporarily shut down the city's main airport.

And in Chicago, the worst downpour in a century. Crews saved people from high water and their homes and in their abandoned cars. O'Hare International Airport recorded seven inches of rain on Saturday. And the city got the end of Hurricane Ike making things even worse.

CHETRY: And a deadly crash and a shocking turn this morning in the investigation. Could a text message be behind the accident? We're live from the crash on the other side of the break.

ROBERTS: Also, pay for an "A"? A new CNN special investigation, broken schools. Whether it's a good idea to pay students to learn and pay parents to be more involved.

You're watching the "Most News in the Morning."

(COMMERCIAL BREAK)

CHETRY: Welcome back to the "Most News in the Morning." There are disturbing new reports surfacing this morning about the train crash near Simi Valley that killed 25 people in California. Investigators are looking into whether the engineer was text messaging at the time of the crash. Now the train apparently went through a red signal and then collided head on with a freight train.

CNN's Chris Lawrence joins me now live from Chatsworth, California, with more on this investigation. Good morning, Chris.

CHRIS LAWRENCE, CNN CORRESPONDENT: Good morning, Kiran. Yes, right now, you know, we're about a quarter of a mile away from the crash site. At the station where that train left from, and it's just a couple of hours, thousands of people are going to be getting on trains like these heading to work and they've got no real guarantee that this won't happen again.

(BEGIN VIDEOTAPE)

LAWRENCE (voice-over): Passengers saw the freight train bearing down, then felt an explosive collision.

AUSTIN WALBRIDGE, TRAIN CRASH SURVIVOR: It was like running into a brick wall at 60 miles an hour. I don't remember much. I just woke up and there were people laying all over the ground. It's just a disaster.

LAWRENCE: But wasn't a preventable one. Officials say the engineer ran threw a red signal then switch. That tripped an alarm in the control center. But by the time the dispatcher warned the conductor, the trains had already collided. Now one question is, was the engineer text messaging with others while operating that commuter train?

KITTY HIGGINS, NTSB: We're going to be obtaining records from their cell phones and from the cell phones of the deceased engineer to begin to, you know, determine exactly what might have happened.

LAWRENCE: Either way, civil engineer Nash Miscotti (ph) says too much is left to chance.

(on camera): You don't want to put the lives of hundreds of people on a red light.

UNIDENTIFIED MALE: On a light bulb of a red light.

LAWRENCE (voice-over): Miscotti (ph) says railroad officials need to outfit more trains with a collision avoidance system. Positive train control uses a combination of digital communication and GPS. And if engineers miss a signal, these electronic devices automatically apply the brakes.

HIGGINS: It could have prevented this accident. If this engineer had run a red light, run this signal, the train would have stopped. It would stop. He could not -- he could not have moved forward.

LAWRENCE: Right now, that system only covers a small section of track, including Amtrak's Boston to New York route. For years, the NTSB has been pushing to make it mandatory. But right now, the legislation is stalled in Congress with an estimated price tag of over $2 billion.

HIGGINS: I guess I ask myself, what's it going to take? How many more accidents are we going to have to see like this that could have been prevented if this technology were in place?

(END VIDEOTAPE)

LAWRENCE: Railroad industry executives say hundreds of millions of dollars have already been invested in researching this technology and there are still reliability problems. They say the sheer cost of the system outweighs the safety benefits, but in this particular accident, so far, has killed at least 25 people and injured well over 100 -- Kiran.

CHETRY: Yes, just devastating for sure. Chris Lawrence for us this morning in Chatsworth, California. Thank you.

ROBERTS: Broken schools.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: We got to reconnect our parents.

(END VIDEO CLIP)

ROBERTS: The school system that's paying parents to get involved in their kids' education.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I get a (INAUDIBLE) and at the same time I get knowledge as well.

(END VIDEO CLIP)

ROBERTS: You're watching the "Most News in the Morning."

(COMMERCIAL BREAK)

ROBERTS: To the "Most Politics in the Morning" now, and both presidential candidates setting a fund-raising record in August. Barack Obama raised $66 million. John McCain raised $47 million.

And going negative against your opponent, for going negative against you? Priceless. With 50 days to go before the election, both candidates are accusing each other of hitting well below the belt.

CNN's Jim Acosta is live in Grand Junction, the battleground state of Colorado, where Obama will have an event later on today. Good morning, Jimmy.

JIM ACOSTA, CNN CORRESPONDENT: Good morning, John. After some bruising campaign ads from John McCain, Barack Obama is now playing for keeps. If this were a football game, somebody would be throwing the flag for unnecessary roughness.

(BEGIN VIDEOTAPE)

ACOSTA (voice-over): It was this speech by Barack Obama in New Hampshire that touched off a campaign fire fight.

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: They will try to distort my record. And they will try to undermine your trust in what the Democrats intend to do. I mean that's what they -- that's what they do every election.

ACOSTA: Obama unloaded just as Hurricane Ike was lashing the Gulf Coast. Complaining that a national disaster was no time for smash mouth politics, the McCain campaign said in a statement, "Barack Obama showed zero restraint in the ferocity of his attacks despite the wreckage in the gulf."

In response, the Obama campaign hit back hard saying, "We will take no lectures from John McCain who is cynically running the sleaziest and least honorable campaign in modern presidential campaign history."

In North Carolina, it was running mate Joe Biden's turn, slamming McCain on the economy.

SEN. JOE BIDEN (D), VICE PRESIDENTIAL CANDIDATE: I could walk from here to Greensboro. I wouldn't run into one person who thought we made great economic progress unless I ran into John McCain on the road.

ACOSTA: With so much attention lavished on Alaska Governor Sarah Palin, some Democrats say it's time for Obama to remember who he's really running against.

PAUL BEGALA, CNN CONTRIBUTOR: They seem to just not be able to resist the shiny object of Sarah Palin who is not running against Barack Obama.

ACOSTA: With both campaigns running neck and neck in the polls, McCain tried to rev up the so-called NASCAR dads in New Hampshire, an appearance designed to resonate with the millions of stock car racing fans across the country, including some crucial southern states.

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: When I'm in Iraq and Afghanistan, they're watching you. You are their role models. You are their heroes.

ACOSTA: Palin targeted women in Nevada during her first solo campaign swing on the Republican ticket.

GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: This November with your help, we're going to shatter one glass ceiling once and for all.

(END VIDEOTAPE)

ACOSTA: And as for those rough and tumble TV ads from both of these campaigns, Barack Obama has a new spot of his own this morning. Let's take a look at it.

It accuses the McCain campaign of "sleaze and deception." And we just have just 50 days of this to go, John, until the -- until the election.

ROBERTS: Just 50 days. All right, Jim, looking forward to it. Jim Acosta in Grand Junction, Colorado, this morning. Jim, thanks so much.

Coming up now at 25 minutes after the hour.

CHETRY: Ike's aftermath. Millions without power. Thousands homeless. We've got the latest from the extreme weather center.

You're watching the "Most News in the Morning."

(COMMERCIAL BREAK)

ROBERTS: Twenty-eight minutes after the hour. Breaking news this morning.

Wall Street in crisis mode. Main Street waiting for the fallout after two major financial institutions fall. Lehman Brothers says it will file for Chapter 11 and Bank of America buying Merrill Lynch for some $50 billion.

Joining us now, welcome back, Andy Serwer, managing editor of "Fortune" magazine. He happens to have a cover story this week about the U.S. Treasury Secretary Henry Paulson. Very, very timely.

So, dissect this all for us. I mean, Lehman Brothers, 158-year-old firm, founded around 1850. I mean, this is a big long-standing operation.

ANDY SERWER, MANAGING EDITOR, "FORTUNE" MAGAZINE: Yes. I mean, and this crisis, John, has been unfolding obviously for months and months now and unfortunately shows no sign of ending, culminating in this episode with the demise apparently of Lehman Brothers and also Merrill Lynch being forced, if you will, to merge with Bank of America. And when we went into this weekend, we knew things were bad particularly for Lehman Brothers. But what happened was an extraordinary series of events where the CEOs and the heads of all the large banks and investment banks got together with the chief regulators in Washington and communicated all throughout the weekend. Merrill Lynch realizing that things might look bad next week and decided to go with Bank of America. Amazing.

ROBERTS: We have pictures there of Lehman employees cleaning out their desks. I mean, you know, it harkens back to the days of the S&L crisis...

SERWER: Yes.

ROBERTS: ... all these failing banks.

SERWER: I was there last night and watching the people carrying these things out, John, it was really just devastating. You know, some people were giddy, some people were crying. It was an amazing bunch of pictures there watching that.

ROBERTS: So the Feds orchestrated a buyout of Bear Stearns by J.P. Morgan. They bailed out Fannie Mae and Freddie Mac. Why didn't the government come to the rescue here?

SERWER: Well, I think, you know, very simply it's a matter of no mas. You know, that government is really, you not running out of capital per se, but running out of capital that it wants to use in this manner. That's number one. And also they don't have a taste for it.

You know, banks, investment bankers have to learn that there's a consequences, it's called a moral hazard in this field that if they do the wrong thing, that there are consequences and that their investment banks might fail.

JOHN ROBERTS, CNN, ANCHOR: So what does this mean for people, normal investors with accounts with Lehman Brothers, Merrill Lynch. What does it mean for the employees? As we said we saw the people carrying out their personal items there. 25,000 at Lehman. 60,000 at Merrill. What's going to happen?

SERWER: Well, it's uncertain. Right now, if you work in Lehman Brothers, you're not in good shape. Your whole stock net worth has been wiped out. You may or may not have a job. I would say it's probably pretty unlikely, depending on where you work, there are certain parts that are going to be retained by other companies. Merrill Lynch, you probably will be working at least for a while. Because you're going to be bought.

ROBERTS: And investors who have accounts?

SERWER: And investors who have accounts there, you don't have to worry right now. I mean, that's the last piece of the business that they want to hang on to both at Lehman Brothers and Merrill Lynch. So it's you know, a fast moving story. And the scary part is, John, to be quite honest, I don't use that word lightly, is it's not over yet. We're still scrambling here.

ROBERTS: Well, not great news.

SERWER: Sorry about that.

ROBERTS: Andy, good to hear from you this morning.

SERWER: Thank you very much.

ROBERTS: Appreciate you coming in.

SERWER: Yes.

KIRAN CHETRY, CNN, ANCHOR: It is 7:31 here in New York. Some of the top stories we're following this morning. Gas prices jumping in the wake of Hurricane Ike. AAA saying the national average price for a gallon of regular is now $3.84 a gallon. It's a nickel higher than it was yesterday, close to 20 cents higher than before the storm hit. There are many reports of gas price gouging across the country. Some gas prices hiked as high as $1.50 in just a day.

Defense Chief Robert Gates is in Iraq this morning overseeing the change of command there. General David Petraeus is ending his 21 month term as commander of U.S. forces in Iraq. And that includes supervising the troops surge. He's taking over as chief of U.S. central command, the headquarters in charge of military operations throughout the Middle East and Afghanistan. And General Ray Odierno is taking over as U.S. commander in Iraq.

Hurricane Ike killed at least 15 people this weekend across Texas, Louisiana and Arkansas. But almost 2,000 people have been rescued and many more could still be stranded, awaiting rescue. I'm joined now by U.S. Coast Guard Chief Albert Shannon in Houston this morning. Thanks for being with us.

CHIEF ALBERT SHANNON, U.S. COAST GUARD: Thank you, good morning.

CHETRY: You and your crew were out there all of this weekend. How many rescues were you guys involved in?

SHANNON: Personally, my helicopter crew, we were involved with 13 or 14 rescues ourselves and our other helicopter, gosh probably 20 or 30 per helicopter.

CHETRY: So describe the situation under which these people were calling for rescues? What was it like out there?

SHANNON: Well, initially were we went out the day before the storm hit, the Friday morning, right before the storm, the surf, I think, the storm surge had caught a lot of people off guard because it had come in so much sooner than the actual storm itself. And the surf line had moved in across the beach onto the roadways where a lot of people were trying to evacuate. So we had a lot of people stuck in the surf. And like I said, they were caught off guard. And that posed a lot of problems, we had a lot of people in breaking surf trapped in their cars and we were plucking people off the rooftops of their cars and off rooftops of houses, oil rigs and any other structures above the ground, above the water level.

CHETRY: Now, we're actually looking at video right now of you, I guess you're rappelling down there to pluck somebody out of the water. Is that a pickup truck?

SHANNON: Right, that's probably the video of a white pickup truck. We had two victims down in that truck. They were actually in the surf line, which was the road. It was probably a couple of hundred yards inland. They were taking breaking waves over the top of that truck. And we - they lowered me down on the cable and I extracted those two people. And that was just one of many.

CHETRY: Yes. It was a mother-in-law and her son. You said that a lot of these people were caught off guard. Now, explain that because there was a lot of warning given and in fact people were told if they stayed on Galveston Island, they were facing certain death before the hurricane hit.

SHANNON: Right. With the conditions down in Bolivar, I think what had happened was, typically, I don't think you get storm surge, 12, 14, 16 hours in advance of an advancing hurricane. I think a lot of these people from the ones I talked to, they were waiting to evacuate that morning because they knew that the storm wasn't going to hit for an additional 12 hours, but when they woke up that morning the storm surge had already moved in and trapped a lot of those folks on there. So we flew out there midnight the night before and started to evac people out of there at midnight. The next morning when everyone started waking up, I think they realized they were in trouble.

CHETRY: You've been doing this for 18 years, you've been a member of the Coast Guard for 20 years, how would you rank Ike when it comes to the aftermath and what you guys two were trying to fight against?

SHANNON: It's up there. It's up there. I've flown in a lot of hurricanes, I've been stationed on the Gulf Coast a lot of years and I've done a lot of search and rescue with hurricanes. And this one was pretty sporty.

CHETRY: Yes, it's unbelievable. Thank god you guys were there though. You rescued a lot of people. Saved a lot of lives. Right now we have the number of dead at 15. It might have been much higher if the Coast Guard hadn't been out there helping people. Well, thanks for bringing us that video. It's very neat to see it in action. Chief Albert Shannon for us from the U.S. Coast Guard. Thanks.

SHANNON: Thank you.

ROBERTS: Paying to improve school perform any, kids get money for good grades, parents get cash for being involved. Will it pay off down the line.

And "Saturday Night Live" gets it's first chance to spoof Sarah Palin. We'll show you the first impression. It's amazing. You're watching the most news in the morning.

(COMMERCIAL BREAK)

CHETRY: In a special CNN series we're taking a look at "Broken Schools" across the country. And unique and creative ways to try to fix the system. Today is part one getting parents more involved by paying parents to be more involved. CNN's Deborah Feyerick joins us now. We know this is a very controversial practice in places where they've done it?

DEBORAH FEYERICK, CNN CORRESPONDENT: Well, it definitely is. Because, you know, your first reaction maybe well aren't parents supposed to be engaged in their kids' education without being paid? But it's not that simple. Especially in areas where families are struggling just to survive and in Des Moines the school system is willing to try just about anything to reverse the course.

(BEGIN VIDEOTAPE)

FEYERICK (voice-over): Fed up watching kids fail in school. Activist Paulette Wiley came up with a plan. She called a meeting and gave parents $25 just for showing up.

PAULETTE WILEY, EDUCATION BRAIN TRUST: $10 isn't dignified, $30 is too much. But $25 sounded real good.

FEYERICK: Strange as it sounds, schools across the country, New York and Texas and Arizona are now paying students to take tests and get good grades. Wiley, who lives in Des Moines, Iowa, decided to target parents throughout the largely African-American school district.

WILEY: Our parents are disconnected. The disconnected from a system that doesn't respect them. They're disconnected from a system that they didn't have a positive relationship with. So we got to reconnect to our parents.

FEYERICK: Wiley's program, the Education Brain Trust runs day-long seminars that show parents how to work with teachers, help with home work and support their kids. Laconda Obie whose girls are in fifth and tenth grade went to the seminar to learn her rights as a parent.

LACONDA OBIE, PARENT:I get a stipend and at the same time, I get knowledge as well.

FEYERICK: But critics say paying parents and students for that matter cheapens the learning process.

ALFIE KOHN, AUTHOR, "PUNISHED BY REWARDS": When our educators going to work with children and their parents to create the kinds of learning environments that will be naturally engaging to kids? Instead of doing things to them to make them jump through hoops for a prize.

FEYERICK: Nearly 60 percent of African-American fourth graders in Des Moines cannot read at grade level. Superintendent Nancy Sebring says if turning that around means paying parents every time they go, she's for it. SUPT. NANCY SEBRING, DES MOINES PUBLIC SCHOOL: From my experience, the lack of parental involvement is not about parents not caring. They may be working two jobs. They may not have transportation to and from school. They may not speak English.

FEYERICK: 300 parents have attended the program paid for by $20,000 county grant and co-sponsored by the Ask Family Resource Center.

SUSAN MEYERS, ASK FAMILY RESOURCE CENTER: Our goal is to interrupt that pipeline from school to prison. And parents have the power to interrupt that cycle and get them to school.

FEYERICK: Now that she knows what the class are about, Laconda Obie says she would go even if there were no money.

What kind of future would you want for her?

OBIE: Just basically put her best foot forward. And get her education.

(END VIDEOTAPE)

FEYERICK: Now the goal for Wiley and her colleagues at Ask Family Resource Center is they want to become the number one state for African-American parent involvement in children's education. Kiran.

CHETRY: What happens to the kids who do drop out anyway?

FEYERICK: Well, that's what's really interesting. And that is statistics shows that the state not only expels a high percentage of African-Americans but it also incarcerates the disproportionate number. So when you heard that woman say they want to interrupt the pipeline. That's what they're really trying to do. And by getting the parent involved, they think it's a way to do it.

CHETRY: It's also interesting because she said that it's not that they don't care, sometimes they have to work two jobs or they have to take transportation that they don't have, are they working toward trying to improve that as well?

FEYERICK: Well, they are. And that's really what the $25 is for. The $25 is to show people that we respect your time, you need a baby- sitter, $25 will pay for a baby-sitter. You need gas, we'll pay for your gas. So it isn't a lot of money, but if you don't have a lot of money, it's exactly what you need to get you over that hump.

CHETRY: Very interesting stuff. And tomorrow - by the way, tomorrow she's going to be taking a look at drop out high. It's a school where more than half of incoming freshmen will never graduate. We're going to have our Chris Lawrence take a look at the economic factors behind that. Deb, thanks.

ROBERTS: Missouri underwater this morning as the remnants of Hurricane Ike spread across the midwest, but first our Jacqui Jeras in the CNN weather center tracking Ike's trek across the country. Good morning, Jacqui. JACQUI JERAS, CNN METEOROLOGIST: Hey, good morning, John. Good morning, everybody. Certainly everyone has heard of Ike by now, but what about Lowell? Lowell actually brought record rain to Chicago. We'll tell you how all that happened coming up.

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ROBERTS: 44 minutes after the hour. Welcome back to the most news in the morning. You might think that that's a picture of Texas, but it's not. Missouri still trying to recover from the devastating flooding in May, now it's underwater again, thanks to Ike. Seven inches of rain fell in some parts of the state causing flash flooding, raising concerns about swelling Missouri and Mississippi Rivers. At least two deaths in Missouri now blamed on the weather. Extraordinary pictures coming out of the midwest this morning. Jacqui Jeras down in our hurricane center. Tracking the extreme weather for us today. What are we looking at today and what has Ike left in its aftermath?

JERAS: Well, so much water is still out there, John, it's just amazing. Pictures like those out of Missouri really stretch from places like Oklahoma all the way into Illinois and Indiana. And believe it or not, this not just Ike that we're talking about. Lowell, yes, I said Lowell, you're like who the heck is that? That was a tropical storm that was in the eastern pacific, hit Baja, California and the moisture, the remnants from that system got caught up in the cold front, the same cold front that accelerated Ike and brought all those strong winds into the Ohio Valley.

So we actually really got the three punch in this area and the rainfall amounts just incredible. Look at this. Fairview, Oklahoma, nearly a foot of rain. South Bend, Indiana, nearly 11 inches. About 10 1/2 there in Illinois. Chicago, record flooding. You had more than 6 1/2 inches on Saturday alone. That was from Lowell and the front. And then we had additional rainfall from Ike yesterday, about an inch. About 340 homes were affected along the Chicago River and about 40 people had to be evacuated. There you can see some of that video there.

Many high water rescues were also conducted across the Chicagoland area because of all that heavy rain. The Chicago River flooding that is a rare thing, my friends. Check out all the flood warnings that are still out there at this time. All that green on the map, so it's going to take a while for all that water to run off, get back into the rivers and watch those rivers begin to drop on down. In fact, many of you aren't going to be seeing crest until Thursday. Ike, now where is that? The remnants way up here into Canada, cold front with it, still some gusty winds behind that front. So we're going to see a gust at times around 50 miles per hour for you in northern parts of New York, on up towards Burlington into the Caribou area. We could see a few airport delays maybe at Boston Logan and also down towards the New York City metros because of it.

Hurricane force winds in Ohio, Kentucky and Indiana. Because of the remnants of Ike as it blew on there through. If you guys watched the "Titans and the Bengals," boy that was a tough passing game there yesterday with all of those winds. One good thing about all of this, some nice refreshing cool crisp fall-type air. How about Minneapolis, later today 65 degrees. 61 and drying out in Chicago. So a little bit of silver lining along with it all. John.

ROBERTS: Jacqui, thanks so much for that. Appreciate it.

CHETRY: Hey, we need some of those good weather because the clean up is continuing this morning in Texas. Hurricane Ike leaving behind shattered lives, crumbled homes. We're going to be talking with Texas Governor Rick Perry who got a bird's-eye view.

Also, another storm brewing on Wall Street, one of the country's largest and oldest investment banks now filing for bankruptcy. There you are seeing video of some of the workers literally gathering up their belongs from their desks and leaving. What will be the fallout on Wall Street and Main Street? We're going to take a look when AMERICAN MORNING comes right back.

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(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: You know, Hillary and I don't agree on everything.

UNIDENTIFIED FEMALE: Anything. I believe that diplomacy should be the cornerstone of any foreign policy.

UNIDENTIFIED FEMALE: And I can see Russia from my house.

(END VIDEO CLIP)

CHETRY: That was Tina Fey or was it Governor Sarah Palin on "Saturday Night Live" this weekend? It was an uncanny resemblance between the two and it's hardly gone unnoticed. Here's Lola Ogunnaike now with more. I mean from the very beginning when we saw this nomination, a lot of said she looks a lot like Tina Fey.

LOLA OGUNNAIKE, CNN ENTERTAINMENT CORRESPONDENT: And we knew that if anyone was going to play Sarah Palin on "Saturday Night Live," it would be Tina Fey. And she nailed it. It was the funniest five minutes of television I've seen in a long time. She obviously got the look right. She got the hair. She got the makeup. She got the glasses and the clothes. But the thing that I found even more interesting was that she nailed her mannerisms and she just nailed the way she spoke. She got the accent down perfectly.

CHETRY: Yes, in fact, let's hear a little bit more of Fey as Palin.

(BEGIN VIDEO CLIP)

TINA FEY, COMEDIAN (AS SARAH PALIN): But tonight we are crossing party lines to address the now very ugly rule that sexism is playing in the campaign.

UNIDENTIFIED FEMALE: An issue which I am frankly surprised to hear people suddenly care about. FEY: Hillary Clinton, who came so close to the White House, and me, Sarah Palin, who is even closer. Can you believe it, Hillary?

UNIDENTIFIED FEMALE: I cannot!

(END VIDEO CLIP)

CHETRY: What did Sarah Palin say about Tina Fey's impersonation?

OGUNNAIKE: Well, her spokesperson said that she found it really funny and that actually Sarah Palin dressed up as Tina Fey for Halloween one year. So she already recognized the resemblance a long time ago.

CHETRY: It's funny, Tina Fey didn't have long to study up on that and she nailed it.

OGUINNAKE: And she's got a day job. She's got "30 Rock" to worry about. Now the big question is will she return and do Palin again? Because she nailed it this time.

CHETRY: Wow, I forgot she's not even on that show as a regular anymore. She has to be now. At least until the campaign is over.

OGUNNAIKE: Yes.

CHETRY: Lola Ogunnaike, thanks.

OGUNNAIKE: Thank you.

(BEGIN VIDEOTAPE)

ROBERTS (voice-over): Hot and bothered.

UNIDENTIFIED FEMALE: Hell, just hell.

ROBERTS: Texas waits for federal aid. Three days after Ike, the governor joins us live during an historic search and rescue effort on the most news in the morning.

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ROBERTS: Coming up on 55 minutes after the hour, rescuers in and around Galveston, Texas, scrambling to find thousands of people who refused to evacuate ahead of Hurricane Ike. At least 15 people are confirmed dead in Texas, Louisiana and Arkansas as a result of the storm. This morning, millions of people are without power, many without drinking water. Texas Governor Rick Perry surveyed the damage late yesterday, went to Galveston Island to meet with emergency management officials.

This morning he is live from the Governor's mansion in Austin, Texas. And Governor, give us a sort of an overall view of the situation there. Where is the greatest need? How many people without power? How many people without water this morning and what about the search and rescue? GOV. RICK PERRY, TEXAS: Yes. Search and rescue continues to go forward. That's obviously our number one priority. But at the same time, there's some parallel efforts going to push food, ice, water into Houston and Orange County and Beaumont, those other areas that were hit very hard. So fuel is also a great concern, making sure that we have the fuel in place.

Again, it's the power. And getting the generators into place. But it's all moving that direction. So hopefully people will be patient over the course of the next few hours as we move that in there. The message to Houstonians who may have evacuated appropriately is wait until you hear from your local officials. Wait until you hear a clear signal to come back into town. The last thing they need to do is you leave the comfort or the relative comfort of where they are and go back in to the city of Houston. Still about 2.5 million people without power. And hopefully we can get that back up as soon as possible.

ROBERTS: Governor, yesterday, a lot of complaints about the slow pace at which federal aid was making it into areas that really needed it, Houston being one of them. What was the reason for that? And are you confident that today that aid will start flowing at a pace that it needs to?

PERRY: When an event like this happened, you can never get the resources into an area fast enough. It doesn't make any difference who's doing it, you can't get it there fast enough. So I can assure you that the mayor of Houston, the mayor of Galveston, they're pushing hard to get those resources in there. So - and we're assisting them as well as we can, pushing water, pushing fuel, pushing those meals ready to eat into the areas that need them.

ROBERTS: Were you happy with the initial pace in which this relief was being delivered?

PERRY: I'm never happy when people are being put out. So you can never do it fast enough.

ROBERTS: You mentioned there, wait until the mayors of the individual towns and cities tell you to go back for the people that evacuated. The mayor of Galveston says it could be a long time before people can come back. Do you have any kind of an idea for anybody who is watching this morning, maybe in a shelter, maybe with a loved one or staying in the hotel when they might be able to go back to Galveston?

PERRY: That's correct. I think it would be a little premature to be saying anybody gets back in there any time in the foreseeable future. There's substantial structural damage. Obviously, there is electrical power. And they also get their power from gas, which has been cut off. So, it's going to be a while.

ROBERTS: When you say a while, do you have any kind of time estimate?

PERRY: I would be - I don't think it would be appropriate to try to be guessing at this particular point in time. But weeks is a number that's been pitched around by the local officials down in Galveston when we were there yesterday.

ROBERTS: You know, governor, prior to the storm, in addition to the threat to the population down there, there's also a threat to the oil refineries, chemical industry, pipelines coming in from offshore oil drilling platforms. Do you have any idea the extent of damage to the oil infrastructure down there?

PERRY: the good news is that the storm surge was nowhere near as high as what was anticipated, projected. The oil and gas industry dodged a bullet the best that we can tell, the petrochemical industry. Some of those refineries are actually back in operation as we speak. They generate their own electricity. So that side of the story is at least a bit more bright, if you will, than what's happening to people and just the suffering that's going on from lack electricity, water and food that needs to be pushed hard into those areas. So hopefully our federal counterparts are getting that done today.

ROBERTS: And governor, we've seen a lot of pictures of the damage of the southwestern tip of Galveston Island, which is not protected by a seawall. But the Bolivar Peninsula just to the north and slightly to the east was literally wiped out. The town of Gill crest almost non- existent. What happens to those people?

PERRY: That's some of the most hard-hit area of Texas. You go over to Orange and to Port Arthur where the flooding was just massive in those areas. The reconstruction from Rita has taken us about three years. And unfortunately, we're starting over again in southeast Texas. God bless them. We're going to be giving them every bit of support that we can. Hopefully the federal government again will treat Texas just as well as Louisiana was treated when Katrina came. That's our request to them. We're not asking for anything more. Just give us the same type of treatment you did to Katrina back in 2005 and that will be very helpful.

ROBERTS: Well, governor, I'm hoping that you're talking about weeks after Hurricane Katrina. You don't want the same type of response immediately after Katrina.

PERRY: I'm talking about the dollar flows there. We'll appropriately get those dollars spent and get Texans back on their feet again.

ROBERTS: Governor Rick Perry of Texas, I know you got a big task ahead of you as well as all of the other officials down there. We wish you luck, sir. Thanks for being with us.

PERRY: Thank you.