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Fed Looks at Sweeping Financial Fix on the Money Crisis; The Problem of the Next President: Voters Wait for Economic Solution; Todd Palin Refuses to Testify in Trooper Scandal; Hurricane Victims Outraged at FEMA; Ron Paul's Take on the Wall Street Crisis; Tony Blair to Teach at Yale University

Aired September 19, 2008 - 07:00   ET


JOHN ROBERTS, CNN ANCHOR: Crossing the top of the hour now, and here are this morning's top stories.
North Korea says it's getting ready to restart a key nuclear reactor. We all watched as North Korea blew up a cooling tower on the site in a symbolic move back in June. A North Korean negotiator says further destruction is on hold now because the U.S. is not keeping up its end of the disarmament deal. No comment yet from the White House.

A week after Hurricane Ike and Galveston residents are still waiting to go home. Texas Governor Rick Perry is asking for more patience this morning. Search teams say they swept every house there and the few homes remaining on the nearby Bolivar Peninsula where the damage is much, much worse. A 15-foot wall of water flattened that Texas town washing entire neighborhoods out to sea. Gilchrist, literally not there anymore.

And tainted baby formula blamed for killing four babies has been traced back to three Chinese dairies. A chemical in powdered baby milk was likely used to fake higher protein content after the real milk was watered down. More than 6,000 other children have been sickened. At least 18 people have been arrested in connection with the case in China. The Food and Drug Administration says it has not found any of the tainted formula here in the United States.

CHETRY: And back to our top story now, and that's talk of the biggest bailout yet to stop a recession or something much worse. The Treasury Department and the Federal Reserve are working on a plan to buy up all the bad mortgage debt from the nation's banks. Congress and the leaders of our nation's financial system are all in on it. Here's Nancy Pelosi, the House Speaker, after a late briefing.


REP. NANCY PELOSI (D), HOUSE SPEAKER: We just had what I believe was a very productive meeting, where we heard from the administration and from the chairman of the Fed an initiative to help resolve the financial crisis in our country. Our purpose is to do that and in doing so to insulate Main Street from Wall Street and recognize our responsibility to the taxpayer, to the consumer, and to people all across our country.

(END VIDEO CLIP) CHETRY: Asian markets soaring overnight on the news. The Hang Seng almost 10 percent up. The Nikkei up almost four percent. And right now, we're getting details of this big plan right now.

Ali Velshi is joining us right now with more on it. Hey, Ali.

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Hey, Kiran. Yes. I want you to know I'm sort of staying here working on this at my desk because I'm trying to get sort of as much detail as we can on this plan. The best way to describe it and you saw that they've all come together -- Henry Paulson, Ben Bernanke, Chris Cox, the secretary of the -- the chairman of the Securities and Exchange Commission, Nancy Pelosi, Harry Reid, John Boehner -- all of these -- it's a big bipartisan effort to try and fine some solution to this mess.

What they want to do is not have to deal on a daily or weekly basis with some new collapse of a financial institution or some other business. So the idea here is coming up with some massive rescue plan and when I say massive, at the low end we might be talking about hundreds of billions of dollars, and at the high end, over a trillion dollars. The idea here might be something like what happened after the saving and loans crisis. Something like the Resolution Trust Corporation which went up and bought up all these houses that were flooding the market, all those property that was flooding the market.

In this case, they would probably be buying out some of this bad debt, holding that debt until maturity, until it's actually worth something and it's fully paid. And then sort of packaging it, repackaging it, and selling it, as if someone who bought stuff from your garage sale that was junked to you, repackaged it and sold in their fancy store for more money.

These types of trusts and bail outs have actually worked in the past. But this would be very big but it would face some opposition from those who think there shouldn't be any sort of government bailout at all. For the moment, though, they are trying to deal with this before Congress goes into recess on September 26th. And there's certainly some sense that Congress or these congressional leaders and Secretary Paulson and Ben Bernanke will actually sit around probably through the weekend to make sure that there's a deal on this. We'll probably be hearing about it by the end of the weekend, maybe Monday -- Kiran.

CHETRY: All right. Working overtime for sure, Ali.


CHETRY: Thanks so much.

ROBERTS: Regardless of what the results of this emergency plan are, it's going to be the next president's problem to kind of deal with all of this in terms of regulation and making sure something like this doesn't ever happens again.

Right now, both candidates are scrambling to keep up with America's money crisis. John McCain added an economic speech this morning in Green Bay, Wisconsin. Barack Obama also added a meeting with his economic team. And meantime, the attacks on each other keep getting in the way of the issue.

Our business correspondent Christine Romans is here now with more on all of this. Good morning.

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Where is the clear defined language, the leadership about how each of these guys would handle this crisis? It is the deepest financial crisis to hit our economy since the Great Depression. By all accounts, weathering it will take almost unprecedented financial leadership.


ROMANS (voice-over): It's been six months since Bear Stearns collapsed, and the dominoes have fallen one by one. Until Lehman Brothers went bankrupt Sunday and Uncle Sam seized AIG on Wednesday. The men who want to be president have struggled with a coherent message. Oh, there are insults.

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: Senator McCain then bragged about how, as chairman of the Commerce Committee in the Senate, he had oversight of every part of the economy. Well, all I can say to Senator McCain is nice job.

ROMANS: And vague promises.

GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: And in this race, there is one man of action, one proven reformer who will clean up Wall Street and fix our economy and that man is John McCain.

ROMANS: Economists Peter Morici says both approaches lack substance.

PROF. PETER MORICI, UNIVERSITY OF MARYLAND: Neither candidate is showing real leadership. McCain is demonstrating is that neither he or his economic advisers understand the scope of the problem. And Barack Obama busily raising money on Wall Street has such a conflict of interest, it's ludicrous to expect that somehow he's going to go in there and protect the taxpayers' interest.

ROMANS: On Thursday in Iowa, John McCain was trying to take charge of his message. He called for a new agency to clean up after the mortgage mess and blasted the chairman of the SEC.

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: If I were president today, I would fire him.

ROMANS: Both candidates searching for the right tone and the right response for the economy.

OBAMA: And that's why I'm calling on the Treasury and the Federal Reserve to use their emergency authorities to maintain the flow of credit, to support the availability of mortgages, and to ensure that our financial system is well capitalized. ROMANS: Each in the rare position of running for president during a crisis unlike any since Franklin Roosevelt was running for office.

MORICI: What he promised in 1932 is, and I quote, "bold persistent experimentation," which isn't a very specific claim or appeal or plan of action at all. All he promised was he'd do something.


ROMANS: It works for FDR. But many are still looking for more leadership about this crisis from both candidates -- Kiran and John.

CHETRY: You also know that it's going to be very, very telling and vital as to who these candidates pick as their economic advisers.

ROMANS: That's absolutely right. I mean, they have to pick a team that can get in there immediately and follow-through on what Henry Paulson has already started. Now, Ben Bernanke, of course, the Federal Reserve chairman, would still, you know, go through. But whoever wins picks is going to be incredible. And there's already the wagering on Wall Street about what that team is going to look like and who would want that job. You know, it's going to be a really tough job.

Paulson has really been the point man on this. So, you know, continuity with him will be critical as well.

ROBERTS: Transitions are always fascinating to watch.

ROMANS: Aren't they?

ROBERTS: This one even more so, though.

ROMANS: Right.

ROBERTS: Christine Romans, thanks so much.

Here's what we're working on for you this morning. The first dude won't take the stand. Why Todd Palin is refusing to testify in the investigation into his wife.

CHETRY: Also, a big kink in the FEMA plan to help Hurricane Ike survivors. What displaced residents are facing now.


CHETRY: Time now to get a check of our political ticker. The GOP making a comeback. According to a new poll, the Pew Research Center says half of registered voters have a favorable opinion of the Republican Party. That's the highest measure in three years. Still a little bit lower than the ranking for the Democrats.

And former Florida Congressman Mark Foley will avoid criminal charges. Sources say that the state will close the investigation. You may remember two years ago sexually suggestive e-mails and messages allegedly from Foley to teenage house pages were leaked to the media. After the incident, Foley resigned and checked into alcohol rehab.

ROBERTS: A possible expect in the Sarah Palin hacker investigation. A Democratic state representative in Tennessee says he is aware of Internet reports saying his son is the focus of the investigation. Representative Mike Kernell said he talked to his son David but would not confirm or deny if his son was contacted by the FBI or the Secret Service.

Earlier this week, a hacker posed as Palin, or posing as Palin rather, tricked Yahoo into changing the password on her e-mail account giving the hacker access.

Sarah Palin is no longer invited to a rally against Iran's president in New York next week. The group staging the rally said that they have decided that having a political candidate appear there could obscure their message. Palin and Senator Hillary Clinton had been slated to attend. Clinton already dropped out because Palin was going to be there.

And for more up-to-the minute political news, just head to

CHETRY: The investigation into Sarah Palin by the Alaska State Legislature is hitting a roadblock. None of the witnesses subpoenaed by the committee is willing to testify, including Palin's husband Todd. Our Jessica Yellin explains.

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: John, Kiran, it was the McCain campaign that announced the governor's husband will not testify into the investigation of his wife's alleged abuse of power. They say he will not show up today when the Senate Judiciary Committee convenes this morning. So they will not hear from any of the 13 people they subpoenaed to testify last week.

The campaign says that Todd Palin has a legal objection to the inquiry and they cite a little known Alaska law. It says that the legislature cannot conduct an ethics investigation into anyone running for public office. And even though Todd Palin is not himself running for public office, they say the law makes the inquiry invalid and Todd Palin will not participate in an invalid inquiry. Here's the campaign.


MEG STAPLETON, MCCAIN CAMPAIGN SPOKESWOMAN: In passing the law, Alaska's legislature rightly recognized that investigations should not be abused to affect the outcome of an election. That is exactly what is happening here. This law should not be ignored in this unprecedented case simply because the governor is running for the second highest office in the nation rather than the statewide position.

(END VIDEO CLIP) YELLIN: Several lawmakers involved in the inquiry say this could delay the investigation until after the election is over because they can't compel testimony until the Senate reconvenes in January. Several also say that both the attorney general and the governor have broken their pledges to cooperate with the investigation -- John, Kiran.

CHETRY: Jessica Yellin, thanks.

And Hurricane Ike is out of here but tell it to almost 140,000 people in Ohio. First, though, Rob Marciano in the CNN weather center. They're still facing a lot of problems there as you even pointed out yesterday with standing water and, you know, a lot of the services still not up and running.

ROB MARCIANO, AMS METEOROLOGIST: Yes. Between power outages in Ohio and, yes, you're right. Still standing water and coastal flood warnings remain in some of the southern parishes of Louisiana and counties of Texas.

When is that water going to go away? What's out there tropical wise? And the fall in the northeast. Weather is coming up when the "Most News in the Morning" comes right back.


ROBERTS: Sun coming up over the capital building in Washington, D.C., where right now it's 63 degrees and partly cloudy. It's going to go up to a high of 73. Very pleasant there today. Mostly sunny. It looks like they're in for a half decent weekend as well.

Sixteen minutes now after the hour. We're checking the weather across the nation. Rob Marciano is with us.

Rob, it was pretty quiet for the last couple of days. What are we looking at today?

MARCIANO: Still kind of quiet. We got a little bit of action in the tropics. We'll talk more about that in the next half-hour.


MARCIANO: You know, it's just a little flair up. Nothing too serious right now.

More importantly, for folks who are waking up in the northeast, you've got frost and freeze advisories, temps in the 30s, lower 40s. New York area, more like the 50s, so a little bit of a chill in the air, feeling more like fall.

All right. Coastal flood warnings still in effect in parishes in Louisiana Counties and Texas right along the coast. This is from a storm surge that came in, kind of settled in and is having a hard time draining back into the Gulf of Mexico. So evaporation and just infiltration into the soil is what we're kind of waiting on, and it's just kind of makes life even more miserable for the folks who are still cleaning up obviously, and that's going to be a long go.

All right. On the weather map today, that chilly air across the northeast, big area of high pressure that's diving offshore, rotation around and bringing those onshore winds. You're going to have a lot of wave action along the beaches.

I know it's kind of late in the air, but there are still some folks trying to get the deals out there after Labor Day. So if you head to the beach, be aware of that. You will see some waves and you will see some rip currents. It would be dangerous.

66 New York. 79 Chicago. 80 Degrees in Kansas City. We'll be pretty warm out west. Although the fire danger is less today than it was yesterday, 59 in San Francisco. That feels like summer in San Francisco but feels like more like fall everywhere else. John, back up to you.

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

MARCIANO: You bet.

ROBERTS: Seventeen minutes after the hour.

CHETRY: And billions of tax dollars used to rescue banks from mortgage debt. Our next guest says these bail outs are unconstitutional. Former presidential candidate Ron Paul joins us live with his take.

And also, what fear and anxiety over your finances can do to your health. Dr. Sanjay Gupta tells us how to lose money without losing your mind.


CHETRY: Well, there is still hundreds of thousands of customers still without power in Ohio after Hurricane Ike's remnants slammed the state. In fact, 90 percent of one company, Duke Energy's customers in Tristate Ohio have been without power since Sunday.

Also, the fallout from Hurricane Ike continues. FEMA saying it will pay for hotel rooms for displaced residents.

But CNN's Susan Roesgen shows us why for some it's still a problem.

SUSAN ROESGEN, CNN CORRESPONDENT: Well, you know, John and Kiran, you've seen the long lines here for food and water and ice. But there's something that these people want that is equally valuable, and some say FEMA let them down.


ROESGEN (voice-over): Walk into Erica Chambers Houston apartment and you'll notice two things. No light and an awful smell from wet and moldy walls. Erica and her two daughters can't stay here, so this is where they wound up. Erica is one of thousands here with no way to apply for FEMA paid housing.

UNIDENTIFIED MALE: Have you already done your initial application?

ROESGEN: People who've lost everything don't have the money to pay for a motel room upfront. And to apply for FEMA's help, they have to have access to a computer to apply online or a working phone to call FEMA. These people didn't have either.

REP. NICK LAMPSON (D), TEXAS: It needs to be lean and mean and it needs to be able to go out and get its work done, and get its work done quickly.

ROESGEN: Texas Congressman Nick Lampson is so fed up with FEMA, he got permission from House Speaker Nancy Pelosi to bring 200 computers and 200 phones owned by the House of Representatives to Houston. So far, more than 5,000 people have used them to apply for FEMA help.

LAMPSON: The department is uninhabitable and she cannot get a claim number. We can do better. And we must.

ROESGEN: In response, FEMA tells CNN that the agency has had 300 employees helping people in shelters sign up for assistance. And while the agency appreciates the congressman's help, FEMA's first priority was the life-saving supply of food, water and medical aid.

Erica Chambers agrees that those things were essential right away, but without some place to live she's afraid many people's misery will last much longer.

ERICA CHAMBERS, HURRICANE VICTIM: I see if it was Katrina when we didn't have a good understanding. We didn't know how to handle these disasters like this -- these mass problems. But Katrina should have been a lesson learned.


ROESGEN (on camera): Now she feels at least the wheels are in motion. Right now, these people are just grateful to have some way to reach the outside world. They're just grateful, John and Kiran, to have some way to ask someone for help.

ROBERTS: Our Susan Roesgen reporting for us this morning. Susan, thanks.

John McCain says Barack Obama is the most liberal senator. Is that fact or fiction? Alina Cho is here with an A.M. reality check that you're going to want to see on the "Most Politics in the Morning."


ROBERTS: 25 minutes now after the hour. Welcome back to the "Most News in the Morning." A broad plan this morning to rescue the country from economic crisis. The federal government may take on the bad mortgage loans at the heart of the current financial turmoil. It is the mother of all bail outs and it's billions of your tax dollars. So what about all of this?

Well, I'm joined now by the former presidential candidate and current Congressman Ron Paul from Texas. He's live in Washington this morning.

Congressman, great to see you. What's your take on this whole idea, this potential plan floated by Ben Bernanke, Henry Paulson and now being discussed with the leaders in Congress.

REP. RON PAUL (R), TEXAS: I think it's grasping its straws. I don't think it's going to solve the problem at all because they're in the business of price fixing. You know, they're talking about illiquid assets. Well, their illiquid because they're not worth anything.

So they're looking around now who's going to get stuck with them. And you know, it looks like they're getting together and sticking it to the taxpayers who weren't responsible. The people who were responsible should all go bankrupt because they speculated, and it was a process that was an outgrowth of our monetary system and the Federal Reserve. But just for the taxpayers to pick up illiquid assets and not looking at the real cause, they're not looking at the cause.

Paulson said it's the collapse of the housing prices. Well, that's important but that's the symptom. And they need a lot more work and just inflating the currency, putting more money, running up deficits will not hold this together. And the longer they do this, the longer the problems will last. They should allow bad debt to be liquidated, and that's what's really hard to understand or accept politically.

ROBERTS: So if you were in charge, what would you do?

PAUL: Well, I would try to get the government out of the way. If something is not worth anything, the market needs to know this. And the one reason why socialism always fail, it interferes with prices. And this is what we're doing. We're interfering with prices and we're taking over companies, and we're moving towards a social system. But the cause of the whole problem is messing around with prices of money, the messing around and fixing interest rates and central economic planning through the Federal Reserve. That is -- that is the problem. So you need to go back to the fundamentals --

ROBERTS: So what would you do? So what would you do?


PAUL: I would allow -- I would allow the liquid --

ROBERTS: Would you (INAUDIBLE). PAUL: I would -- oh, yes, you need to get rid of the central bank. You can't do that today or tomorrow. But you need to get the Federal Reserve out of the way and you need to allow these prices to go down, because if you keep doing this you just prolong the agony.

This is like a fix on a drug addict. Today, yesterday people were feeling better because they're getting another fix, but it doesn't help the addict. And we're addicted to easy money and easy credit and excessive spending and deficits. And that cannot solve the problem. We need market economy. We need to allow this correction to occur. It would be painful but it would be short. Then we go back --

ROBERTS: Would it be painful to the point though that if an AIG failed, that it could take a lot of the economy down with it, and not just here in America but around the world as well? And with that be worse than stepping in to bail it out?

PAUL: No. I think it would be a bailout but not worse, because what is worse is the collapse of the whole dollar system. And that's what we're facing. And that's what the market is saying that if you keep doing this, the dollar system is going to collapse and it's worldwide because we have the reserve currency. So you worry about AIG, but I worry about the entire financial system of the world and the destruction of the dollar. Because you cannot bail out everybody by just putting more dollars because the value will go down, prices will go up, interest rates are soaring in some areas already.

And so, yes, you say it could be worse if we didn't bail out AIG. But who's going to bail out the world markets based on the dollar economy and that's not quite the picture they're looking at.

ROBERTS: You know, we had Jeffrey Sachs, the world-renowned economist on with us earlier this week. And, of course, he was famous for going into places like Bolivia, Poland and Russia, where they were having similar problems in trying to get their economies turned around. He has noticed some similarities with those situations and what's happening here in the United States.

Did you have any kind of forecast on how much this bailout is going to cost? I heard projections anywhere from half a trillion to $2 trillion.

PAUL: Well, I don't think anybody knows. It's unlimited because since we own Fannie Mae and Freddie Mac now, that could be $5 trillion if it gets out of control. So it's unlimited. It's into the trillions.

Nobody understands it because we're involved in a market that's based on a pyramiding of derivatives. And when Warren Buffett says he doesn't have any idea how they work and he stays away from those, you know that it's very complicated. But I say it's into the trillions but it's irrelevant because the market will quit functioning before we're able to handle all that.

So the sooner we get back to the basics, look to the constitution, look to the morality of who gets stuck with the debt, and look to the Federal Reserve system, I tell you what, this could get a lot worse. But the answers are there. They're just not that difficult. We just make them so much more difficult for us...


PAUL: --- by compounding our problems and looking -- and not looking to the basic fundamentals of a free market economy and southern money.

ROBERTS: Certainly, this something Congress is going be very focused on over the coming weeks and months. Dr. Paul, it's always great to hear your take on all of these. Appreciate you coming in this morning.

PAUL: Thank you.

CHETRY: It is 7:30 here in New York. The top story this morning, signs pointing to a major rally on Wall Street this morning. Futures are up more than 200 points on word that the Feds could announce a major financial rescue plan as early as today. The S.E.C. also taking the extraordinary step of placing a temporary ban on short selling of financial company stocks.

Responding to a sex, drugs and oil scandal, the Interior Secretary promising to clean up his department. Investigators have said workers there rigged bids, did drugs and had sex with energy company officials who were supposed to be overseeing them. The Department could fire as many as eight employees.

And anxiety alarm at the airport. It could be a futuristic weapon to spot a terrorist. The Homeland Security Department showed off a technology that's still in its infancy stage. It senses a person's racing pulse and heavy breathing even a rise in body temperature. It could be years away from reality though. Critics say it could single out innocent people who are just nervous about flying.

And more now on our top story the nation's financial leaders, President Bush and Congress all coming together and working on a plan to steer us out of a financial tailspin. Kate Bolduan is live for us on Capitol Hill this morning with more on all of the discussion and what could finally be this hammered out plan of rescuing us from this financial crisis.

Hi, Kate.

KATE BOLDUAN, CNN CORRESPONDENT: Hi there, Kiran. Yes, a rescue I think is what everyone is kind of looking for. This was a rare showing of unity, bipartisanship here on Capitol Hill in that late evening meeting. 15 lawmakers, members from both parties, leaders from both chambers coming together to meet with three of the government's top money men, Treasury Secretary Henry Paulson, Fed Chair Ben Bernanke and S.E.C. Chair Chris Cox.

They are all coming together to really pledge their commitment to getting something done and to hammering out one comprehensive plan that everyone can agree on so that they can get something done quickly and really get to the heart of this credit crisis and turn it around, the housing market. At the same time, they are also trying to work out this proposal and the details. They really came out to prove to the public and to the markets that they are on top of this and they are taking action and they are going to get something done. Listen here.


HENRY PAULSON, TREASURY SECRETARY: This country is able to come together and do things quickly what it needs to be done for the good of the American people. And what we are working on now is an approach to deal with the systemic risk and the stresses in our capital market. And we've talked about a comprehensive approach that will require legislation.

SEN. HARRY REID (D), MAJORITY LEADER: We have all committed to work with them on their proposal. We've explained to them how things work on Capitol Hill. They work different than downtown. But we understand the crisis. We look forward to working with them. And we're anxious to see their proposal which we hope to receive in a matter of hours not days.


BOLDUAN: Hours not days. You hear that from Senate Majority Leader Democratic Senator Harry Reid. While they still haven't worked out the details of the plan, we've been talking about that all morning, kind of waiting to hear a little more about it, you did hear from Treasury Secretary Paulson that very likely going to require legislative action. And that puts the ball right here in the court in Congress's court as they are going to have to pass legislation to get it done. And you can be very sure that they will be working very much through the weekend and as much time as they are going to need to get this done.

But at least they have overcome the first obstacle, Kiran, which is agreeing to get bipartisan work together and as we know on Capitol Hill that doesn't mean there aren't going to be more obstacle but at least they are moving forward.

CHETRY: Yes, clearing at least one hurdle, for sure. Kate Bolduan for us this morning. Thank you.

ROBERTS: Well, sorting fact from fiction is not always an easy thing to do out on the campaign trail. Sometime statements or ads by the candidates can be misleading or taken out of context. There's often a blizzard of information and things come at you so fast it takes you a minute or two to come back and take a look at them and say is that true or was it not. That's why we have Alina Cho here. Here with another "A.M. Reality Check."

Good morning to you.

ALINA CHO, CNN, CORRESPONDENT: Good morning. And a whole team of researchers, John, the truth squad as you're calling it, and we're starting today with a charge that the McCain campaign has been making against Barack Obama's voting record. Out on the campaign trail, John McCain has been calling Obama's record the most liberal in the Senate. Many people have heard that. The charge was also leveled early this month at an ad comparing Sarah Palin to Obama. Take a listen.


UNIDENTIFIED MALE: The "Journal" says Governor Palin's credentials as an agent of reform exceed Barack Obama's. They are right.

UNIDENTIFIED FEMALE: He has a record of bipartisan reform.

UNIDENTIFIED MALE: He's the Senate's most liberal.

UNIDENTIFIED FEMALE: She took on oil producers.

UNIDENTIFIED MALE: He gave big oil billions in subsidies in giveaways.

UNIDENTIFIED FEMALE: She's earned a reputation as a reformer.

UNIDENTIFIED MALE: His reputation, empty words.

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: I'm John McCain and I approve this message.


CHO: Well there's the ad. Here's the reality check. The "National Journal Magazine" which bills itself as a non-partisan publication did report recently that Obama moved so far to the left last year that he did rank the most liberal senator after ranking 16th and 10th most liberal in his first two years in the Senate.

But the Americans for Democratic Action, a liberal activist group disagrees. No surprise there. The group says when you look at Obama's entire Senate voting record, Hillary Clinton, John Kerry and Ted Kennedy actually have higher liberal ratings. So is Obama the most liberal senator? The verdict, true, according to the "National Journal." But this is the only source we could find. Other groups say liberal but not the most liberal.

So, John as you can see, not always black and white and this is where the campaigns seize on it and use to it their advantage as you well know after covering politics for a very long time. Hey, in the next hour too, McCain has said he plans to shake up the old boys' network if he's elected. Obama says hey, not so fast. You know, you've hired some of the most powerful lobbyists for your campaign. Is it true? We're going to have a reality check on our next hour.

ROBERTS: You had the line that Obama uses, his old boys' network at the John McCain's next staff meeting. See if that's true. And this stuff is great and our viewers really love it.

CHO: I have to say -

ROBERTS: It is quickly one of the most popular segments in the program.

CHO: I've really enjoyed doing it. Yes.

ROBERTS: Keep doing it. You're doing good work. Thanks, Alina.

CHO: You bet.

CHETRY: And still ahead the credit crisis overhaul. The new proposal from the federal government. How will it work? Senator Richard Shelby tells us what it mean for your bottom line.

Also stressed over the state of your finances. The economy is suffering. It doesn't mean that your mental health needs to as well. Sanjay Gupta with more on staying sane.


ROBERTS: 39 and half minutes after the hour. And the news just keeps on breaking here on the financial front. Ali Velshi here with the very latest news from the Treasury Department.

ALI VELSHI, CNN, SENIOR BUSINESS CORRESPONDENT: I do want to tell you by the way, there's a method to this madness. There are things that the Treasury has been dealing with. And they seemed to be releasing this information on a regular basis to allow it to be covered and distributed. This one involves money market mutual funds.

Many of you are invested in money markets. First of all, money market mutual funds are mutual funds that buy different money markets. Money markets are investment in corporate bonds and government bonds in some cases. They are funds that are supposed to be very stable and pay you a return. The value of money market mutual fund is always supposed to be above a dollar or a dollar in general.

What has happened in the last few days is the actual value of the funds have broken the buck, as we call it. They have gone below a dollar. This is alarming a lot of people. It's causing people to withdraw their money from money market mutual funds and is contributing to the collapse of the financial system because that is where banks and financial institutions are financed. So the decision now from the Treasury that's just been announced is that they will insure for one year money market mutual fund. They will insure that the value of those funds does not go below a dollar. They don't break the buck. It's a $50 billion insurance scheme. It might be similar to the FDIC. We're just trying to get details on this.

But the idea is if you have a money market mutual fund if it goes below a dollar, this insurance will kick in so you are protected. Your investment is protected. You will get a notification that your money market mutual fund has gone below a dollar. That is what we know about this right now. The idea is that people stop taking their money out of these money market mutual funds so that those banks that are financed by it don't all of a sudden face a credit crisis.

CHETRY: You have to leave it there though. VELSHI: Yes, yes. You leave it there. But you are assuming the value of that money market does, mutual fun does not go below one dollar per unit. It did that earlier in the week -

CHETRY: Right.

VELSHI: - in some mutual fund. They are saying to you that they will guarantee your asset value doesn't go below a dollar.

ROBERTS: What's the next move? They're going to guarantee that you don't lose in the slots in Vegas.

VELSHI: What they're trying to do is guarantee that you don't take your money out of the system. What they don't want is a run on the banks. They don't want people taking money and you know, we've heard a lot of people saying this. Yesterday, we did this call in show. People are saying I'll take my money out. I want to hold it in my house. I don't care if inflation is going to eat my money up, at least I know where it is. I'll take an eight percent loss against inflation just to know that I have my money. What the government is saying is don't take your money out of banks, don't take your money out of money market mutual funds because they need that money to keep going. That's the grease for the financial engine.

ROBERTS: Well, Wall Street certainly likes it. The futures are up 300 points.

VELSHI: Yes. It looks like we'll have a strong day. As I say, I think every few hours over the next few days you will be getting little bits of news like this that are meant to shore up the industry.

ROBERTS: Right. Ali, thanks for that update. Appreciate it.


CHETRY: So we're talking once again about this overhaul of the credit crisis. The federal government working on a plan. Senator Richard Shelby from the Senate banking committee was in on the talks. He's coming up next on AMERICAN MORNING to explain.


ROBERTS: 15 minutes to the top of the hour. New plan in the works from the federal government aims to get at the heart of the credit crisis. The proposal could let banks get rid of the bad mortgage debt that they have on their balance sheets. So is it the fix that we need? Senator Richard Shelby is the ranking member of the Senate Banking Committee. He was at the meetings last night with Ben Bernanke and the Treasury Secretary as well as the head of the SEC. He joins us now live from Washington. So Senator Shelby, what kind of form is this plan taking here?

SEN. RICHARD SHELBY, RANKING MEMBER, BANKING COMMITTEE: Well, that's a good question, John. Senator Dodd, who is now the chairman or was the chairman of the committee, our staffs will be working and waiting from Treasury for the specific proposal as of today and will be working over the weekend and the early part of the week. We want to see the details.

We realize that there's stress, there's a lot more than discomfort in our financial markets. But I think we have to balance this with the taxpayers. This is a plan that could cost $500 billion and if you add the other extensions of credit and loans that the Fed is going, has already been on to, this could be a trillion dollars. That is a lot of money. So we got to balance this. There's a lot of euphoria out there right now, the markets are rallying. And that's all well and good. But at the end of the day, we in Congress has to say at what cost, is it a big cost if we don't do something but we need to do it right.

What my concern is, John, is and I have a lot of respect to Hank Paulson and Ben Bernanke at the Fed. But they seem to be jumping from one crisis to the other rather than having an overall plan. Will this work, for how long, will it be more? What would be the next to fail? I hope nothing. But I have my doubts.

ROBERTS: Are you comfortable, Senator, with this whole idea of the government bailing out these institutions. I know that you said a couple of days ago --

SHELBY: Absolutely not.

ROBERTS: You didn't receive a satisfactory answer from the Treasury Secretary when you said where do you drew the line on who gets bailed out and who doesn't.

SHELBY: Absolutely. You know, you pick and choose and you have no real comprehensive plan. They would they have a plan but I haven't seen the plan yet and I've spent years on the banking committee but I can tell you the taxpayer can't front everything, can't pay for everything. Some people have got to pay themselves and our regulatory system seems to be more than stressed, maybe broken down because too many failures in our financial institutions.

ROBERTS: Yes. This whole thing would seem to many, many experts needs much deeper reforms than just -

SHELBY: Absolutely.

ROBERTS: -- this idea of creating a temporary bailout system or one to at least get us through this part of the crisis. You know, there appears to be a lot of repeat offensives when it comes to financial institutions in this country. Maybe not the same people but it's almost every decade, every decade and a half we have a big crisis like this.

SHELBY: John, you're absolutely right. We've been - we went through it with a thrift crisis. We're going through it now. We got to do better. We got to look at our whole regulatory structure, especially where the taxpayer could bail out somebody. This is probably the mother of all bail outs.

ROBERTS: And when it comes to this idea of repeat offenses, you know, there's a rate of recidivism in the financial markets that I think some people would find stunning. Are you concern that by the government stepping in and bailing out these companies it will take the pressure off of these people who have been playing in these funny markets and just allow them to go out there and do it all over again?

SHELBY: Well, if you look at history. That's what's happened. You know, they leverage things to a great extent thinking, my gosh, you know, the government is going to bail us out at the end of the day. And that's what's been happening. It shouldn't be that way.

ROBERTS: Senator Richard Shelby, a lot of people counting on you to get something done. Thanks for being with us this morning, sir.

SHELBY: Thank you.

CHETRY: Well, the credit crunch not just an American problem. The entire world feeling the pinch. Will the new plans we're hearing about actually work? We're going to ask former British Prime Minister Tony Blair.

And as part two of our exclusive interview with House Speaker Nancy Pelosi, why the Speaker thinks Republican vice presidential candidate Sarah Palin will not be a good choice for American women.


CHETRY: You know, a lot of people are just sick over what the Wall Street mess has done to their 401(k)s. Does that mean anxiety and stress are unavoidable? We're "Paging Dr. Sanjay Gupta" for answers. You know, financial fallout really does have an effect on people's health.

DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT: People take psychological factors and look at the impact overall on the physical body. This is something that sort of intuitively we've known for some time but we can now measure. The American Psychological Association decided to take it a step further and try to figure out what are these top stressors. If you take a look at what they found, this is from June of this year. They found that over all the economy was the number one cause of anxiety, economic fierce. 74 percent of people said it was the number one. Money overall, 73 percent of people said was the number one.

Overall back in 2006, for example, for the sake of reference, 59 percent of people said work or money was their number one cause of anxiety. And again, I point out, Kiran, this survey was done in June of this year, that obviously things have gotten a little bit worse since then. So these numbers might be a little bit bad off.

Now, I want to take a look overall at what stress does to the body. If you look at the overall impact starting from the head, going all the way down to the toes. Stress can affect your jaws, for example, which can cause headaches. People tend to clench their jaws a lot. It can affect the heart, increasing the likelihood of heart disease. The digestive system, people will become nauseated, they feel sick to their stomach. And the overall body, you don't sleep as much. You're worried. That can depress your immune system. So again, if you're someone who has had some physical illnesses, the stress may not cause physical illnesses but it may exacerbate ones that you already have. And this is something that again there's a lot more evidence of.

CHETRY: Is there anything you can do about it? I mean, you know, you've got to worry about your finances?

GUPTA: Well, you know, part of it I think is to look for what are some of the concerns in your family members or your friends, the things that are sort of red flags if you will, overall, people who tend to change their overall eating habits, their sleeping habits. Are they talking about being desperate? Are they talking about in any ways any suicidal thoughts. Those are obviously going to be red flags.

To do something about it, I mean, there's a couple of caveats. One is pause, don't panic. You can take a look at the list there, the warning signs overall. But pause, don't panic now. As Ali was talking about, panicking, making some rash decisions. Pause for a second instead and take an assessment. Plan a budget if you can. Plan a budget, sit down with your friends and your family, try and do that. Have a family meeting, be realistic about what you can control. Obviously a lot of things you can't control right now.

I would also say this is as a doctor, Kiran that a lot of people tend to fall into some pretty bad habits now. They may start smoking, they may start eating too much, they may develop addictive behaviors. Recognize this. This, too, will pass. Try not to fall over that pattern. Those can lead to lifelong problems.

CHETRY: All right. Sanjay Gupta for us. Thank you.

GUPTA: Thank you.


ROBERTS: Crisis mode. The Fed hits the reset button on the mortgage meltdown. The candidates talk tough in tough times.

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: On the biggest issue of the day, didn't know what to think.

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: Put somebody in there who's going to fight for you.

ROBERTS: Where voters are putting their money on the most politics in the morning.




JON STEWART, HOST, : First, we would like to congratulate you on your teaching position at Yale. You have picked timing wise, I think the perfect time to come work in America. May I ask you this, sir, did you get your money up front?


STEWART: American dollars or euros?

BLAIR: I'm still working on that one. Actually, British pounds will be fine.

STEWART: I think that would probably be the wise choice.


CHETRY: Some light-hearted jabs from Jon Stewart about the falling American dream. As we get word this morning of a major plan in the works to rescue the economy. It's a credit crunch that the entire world is feeling.

Tony Blair, former British Prime Minister and distinguished fellow at Yale University joins us now from New Haven, Connecticut. Good morning, Mr. Prime Minister. Thanks for being with us this morning.

BLAIR: Good morning.

CHETRY: Will start with this news of the Central Banks from around the world yesterday agreeing to inject as much as $180 billion into the global money market. Is that the right approach right now to get the world economy back on track?

BLAIR: I think so. Because you've essentially got two problems. You've got an underlying problem, a solvency problem that's going to take some time to unravel. And the important thing is that you unravel it in an orderly way. and that means restoring immediate stability and confidence into the financial system which at the moment is pretty frozen.

So, you know, there are no easy answers in any of this. And there's no rule book that tells you what to do in a situation like this. But I think concerted action and saying that the full power of government is to be brought to support the system is probably the right choice in policy terms, yes.

CHETRY: If the situation with the U.S. economy continues to worsen, what type of impact does that have globally?

BLAIR: Well, a huge impact. In fact, back in my own country, there are problems in the banking system and financial sector as well. Indeed all over Europe and all over the world. When you see what's happening in the Chinese and the Russian stock market as well as what's happening here.

So the important thing, as I say - and this is the real problem - is that once you get a crisis like this, then if you're not careful, the whole system freezes up and the most important thing, therefore - and this is I think what your Treasury Secretary and the Federal Reserve are trying to do here, rightly in my view, is to say, OK, we've got an immediate problem. Here is what we're going to do. We're going to put the full power of government and the state behind making sure that system has enough liquidity, enough cash to offer aid effectively.

CHETRY: You know, we're facing what some people are calling the worst financial crisis since the Great Depression. At the same time, here in the U.S., we are about to embark on a historic election. And there's a lot of things for people to think about and worry about at this time. I'm not asking you to tell me, to weigh in on who you'd be supporting.

But, what issues should people be focusing on, as they try to decide whether Barack Obama or John McCain is the best man to lead this country?

BLAIR: Well, I think it's more, what should anyone want to do in this situation. And in my view, the two key things are, as I say, first stabilize the system. And then second, I think what people will want to do because there will be a lot of concern at the effect on ordinary families, on their mortgages, on their homes, on their living standards. Then, to work out in a thoughtful and in a purposeful way, what is it that we need to do to put this system right and to make sure that people are properly protected and such a crisis doesn't recur.

Now, I think, you know, this is the two issues (INAUDIBLE). There's the immediate, which is stabilizing the situation. And then there's the more deliberative process that's about working out what we do for the future.

CHETRY: I want to ask you about your seminar. You're starting your seminar on religion and globalization at Yale University. People have been discussing a lot about faith as it relates to politics.

What are you teaching and what are some of the important lessons that you learned in your own life, about these issues?

BLAIR: Well, the one thing for sure that you can see from this economic crisis, is the way that the gullible economy works today. And basically what's happening is, that people are being pushed together. There's increasingly one global community. And the experience in one part of the world reverberates some experiences in another part.

The question is, does religious faith play a positive role in making that system work with values that are shared, with people being able to live peacefully with each other and respect each other. Or, does religious faith become, as it can do, a source of division and conflict and pulling people apart. So, what we're doing with my foundation and also with this course at Yale, is exploring these issues and seeing how we can get the right basis for people to live peacefully with each other, to respect people of different faiths and also to understand the importance of faith in the 21st century. CHETRY: Tony Blair, former British Prime Minister and the Howland Distinguished Fellow at Yale University, thanks for being with us this morning.

BLAIR: Thank you.