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Open House

How to Protect Your Home for the Winter; Solving Your Money Problems; Congress Still Working on Bailout

Aired September 27, 2008 - 09:30   ET

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

GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money.
October is just days away, how to prepare and protect your home and heating bill from the cold winter months ahead.

Plus, you e-mailed us and we are going to answer some of those money questions with an expert panel ready to help you solve your money problems. You will not want to miss that.

But we begin with the big news from this week, Washington took center stage as Capitol Hill wrestled with America's money crisis, considering how much of your hard-earned money they're going to spend to fix the problem.

And as they talk, the mortgage meltdown continues to take a toll on America's economy. Existing home sales down just over two percent from July and nearly 11 percent from a year ago, new home sales down, as well. For both figure, the lowest level in 17 years. July home prices also down, just a bit from June, but more than five percent from a year ago. And workers in this country taking more hits. Unemployment filings jumped up by 32,000, meaning nearly half a million Americans are now jobless.

President Bush says it's a combination of all this, plus failed bets on Wall Street that led us to the need for desperate measures to solve the Wall Street crisis.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Major sectors of America's financial system are at risk of shutting down. The government's top economic experts warn that without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold.

(END VIDEO CLIP)

WILLIS: "Distressing scenario" may be putting it mildly. What if a bailout, though, just doesn't work and just how much is all of this costing you, the taxpayer? Eamon Javers is with "Politico" in Washington.

Good to see you, sir, again. You're with us often.

EAMON JAVERS, POLITICO.COM: Thanks for having me. WILLIS: OK, the tab for this, $700 trillion. Who pays for it? How much is it going to mean to me?

JAVERS: Well, $700 billion is a lot of money no matter how you slice it, and really the taxpayers are on the hook for this amount of money. It's going to be paid for by U.S. federal debt, basically, and it's going to be on the taxpayers' hook in the long-term.

The hope is here that somehow this bad debt that the United States is going to be buying from these lending institutions will somehow, over the course of several years, stabilize, gain in value and the taxpayers will be able to sell it back into the private market and maybe even take a profit. That's the best case scenario here, is that the taxpayers actually win over the course of the next several years. But, in the short-term, it's a big check.

WILLIS: Eamon, I know all of us taxpayers hope you're right, that ultimately this pays for itself and maybe we even make a little bit of money, but what if we fail? Is failure an option, and what's our plan B here?

JAVERS: Yeah, I mean, failure is really not an option, here. Policymakers in Washington spent pretty much the entire week throwing around words like "Armageddon" and "Great Depression." I mean, it's very scary out there. And the reason is because the credit markets, which a lot of businesses depend on for just their daily day-to-day interactions, have really been freezing up. And that means that businesses can't do the business they need to stay afloat. And that's a real disaster if that's to continue.

The hope here is that with the bailout, the credit markets will limber up and things will start going again. If this doesn't work, though, there's really not that much left on the shelf for policymakers in Washington. They can continue to throw more money at the problem, buying more and more bad debt until basically they've nationalized the entire federal -- the entire American banking system. That's really the only option left at this point.

WILLIS: Desperate measures for desperate men, I guess.

JAVERS: Right.

WILLIS: So, I guess the way we know this is working is that I can still cash my paycheck. Is that it? That's the low threshold we have here for success?

JAVERS: Yeah, absolutely. I mean, if you don't have to hide in your basement and can't cash your -- can't get any cash out of your ATM card. You know, what policymakers -- Washington folks and folks on Wall Street are going to be looking at are those credit markets and they're going to be looking at a couple key indicators.

One being the spread between the so-called fed funds rate and something called LIBOR, and if that spread gets wider and wider they're going to know that this is not working. If it starts to narrow and it should do that relatively quickly, they'll know they're on the path right, here. So, there are going to be a couple key numbers on Wall Street, everyone's going to be huddled around their terminals watching very, very closely going into next week.

WILLIS: Technical issues that won't be apparent, I don't think, to many Americans generally, but the experts will be watching them.

JAVERS: That's right.

WILLIS: There has been so much criticism of this plan and you used the word "naturalization of industry." We have seen the government take over a couple companies here, obviously buying back all of this debt. Is this the right way to go? Is there any other way to go?

JAVERS: Well, I think you wouldn't see the government going this way, particularly with a conservative Republican administration in power. This is the absolute last thing that the Bush administration wants to do. These guys are total free marketers, they don't believe in nationalizing things, they hate the idea that anything they do could be accused of bees socialistic, which this certainly could be. Because we're spreading the problem out to all the taxpayers rather than just those people who made the bad deals.

The problem is there's nothing else left to do. The bad deals have been made, those companies are going to suffer and the question is, how do you limit the pain from spreading into the broader economy so that it affects everybody? And the only answer they can come up with is throwing all of our taxpayer money into the pot and hoping that they can stop this thing from becoming a real financial panic.

WILLIS: Eamon, I appreciate your help today. The Web site is called politico.com. Thank you, sir.

JAVERS: Thank you.

WILLIS: When you send us e-mails, we actually read them, and when we can, we try to answer your questions. Next, our panel of experts take on your financial questions and we're gearing up for the cold all in the name of helping you save money on your heating bill.

Plus, a look at one market where women have more purchasing power than ever before. Stay with us.

(COMMERCIAL BREAK)

WILLIS: You've got questions and we are putting them straight to our money panel, today. Ryan Mack is the president of Optimum Capital Management. Donna Rosato is a senior writer for "Money," and joining us is Ric Edelman, he is the editor of "Lies about Money."

Rick, I want to start with you with the first question from Marie, she asks -- she says: "My husband and I realized that pulling out of our 401(k) and IRA is not the smart thing to do. Is it best to reduce our 401(k) contributions for a period of time due to market turbulences?" Now, they currently have been contributing the maximum, they want to know, should they dial back? But Rick, I got to tell you, people are asking me every day, shouldn't I just get out of the market altogether?

RIC EDELMAN, AUTHOR "LIES ABOUT MONEY": Yeah, a lot of folks are raising this same question, Gerri, and the answer is absolutely not. You need to keep doing exactly what you're doing. Interesting, the e- mailer began by saying, look, we know we shouldn't get out, but should we stop putting money in? No, think about it. By going in now with additional paycheck contributions you're buying while prices are low. That is how you make money in the long-run. As long as you have a long time to retirement, five years or more, you should definitely continue your contributions exactly as you've been.

WILLIS: Rick, I want to show you some numbers, here. It's a mutual fund chart we put together earlier this week, and it shows when people buy equity funds and when they pull their money out of stocks. Now, take a look at this. If you'll see this, this bottom line here, folks pulled their money out in '88 and '89, right before the stock market doubled, they pulled it out again in 2003, right before the big run-up in stocks. What does this tell you?

EDELMAN: It tells us that people are their own worst enemy. In other words, we love to buy when prices are rising, and we love to sell when prices are falling. That's the exact opposite of how you get rich. You don't buy high, sell low, you do the opposite. In other words, you need to invest when you don't want to. If you're thinking of selling now, that's a great indication that we're near the bottom of this and you should be excited.

WILLIS: All right. I want to get Ryan and Donna into this. Ryan, you know, there's a lot of fear out there. You were just saying that some of your clients are really confused, really worried. Let's go to one question that I know you're getting absolutely every single day. This is question No. 2 from Marie in Texas. She asks, "FDIC will insure if you're covered by FDIC; however, in a market when stocks go down, moneys go down, and if that time the banks goes down as well, if your bank goes out of business, will the FDIC still stand behind your money?"

RYAN MACK, PRES., OPTIMUM CAPITAL MGMT.: Well, at the end of the day --

WILLIS: This is how scared people are.

MACK: The FDIC is a federal corporation, so you have to understand that if the bank goes down, such as the IndyMac case, you know, a lot of individuals had FDIC insured, they had under the $100,000 limit, so they got all their money back. If they had money over the $100,000 limit, they got most of their money back. But, as long as it's FDIC insured, as long as you have the right amount -- if it's in a passbook savings account or regular checking account or any other thing that's insured by the FDIC, then you're pretty safe as long as it's under that $100,000 limit.

WILLIS: All right, so there is safety out there for you if you have your money in a bank. Let's go to the next question. Roby in Texas asks: "I am seriously considering getting into the real estate market. Is this a good idea, considering today's economy?" What do you think, Donna?

DONNA ROSATO, SR. WRITER, MONEY MAGAZINE: This could be the silver lining in all this turmoil. There's actually -- home prices are going down. And if you're a buyer you might be able to get some good deals. But, it depends, the credit crunch means it's harder to qualify for a mortgage so the days of you know, no doc, low doc are gone. So, if you have a good credit score, can prove you have good, solid income you might be able to qualify for a decent mortgage, so that's part of it, but prices are going to keep going down, so it could be a good move for you if it's -- if you've got good credit and you qualify for a good mortgage.

WILLIS: You know, the thing I'm concerned about is I think, though, that a lot of the banks are on the sidelines right now. It's really tough to get a mortgage. You might be able to shop for a house, but you may not be able to get the money.

ROSATO: That's right. You need a good credit score, at least 700 to even be considering something at a good rate.

MACK: And I think from both sides from this, from the lenders' side and the borrowers' side, we have to get back to basics. From the lenders' side, no more giving loans out to those individuals who have 550 FICO scores.

WILLIS: And collecting the commission.

MACK: Exactly and from the borrowers' side, don't let the bank dictate whether you can pay for a loan or not. They look at your loans and they look at your debt and your income, they don't look at your lifestyle, you spending habits, if you plan on having another child or not. You look at those things, you have to put your own budgets together to make sure you're responsible for that loan.

WILLIS: I think we're back to fundamentals, right now. Ric, let's talk about what's going on with first time homebuyers. They're out there, you know, they want to buy. We have this e-mail from Rob in Massachusetts. He says, "What does the bailout mean to me? I want to buy a home, now." But you got to think he's going to have to wait until the banks are ready to sign on the dotted line.

EDELMAN: Well, the banks are ready to sign on the dotted line if you can demonstrate that you can afford that home. In other words, it's no longer the issue of acquisition, but sustainability. Not merely can you obtain the mortgage, can you buy the house, but can you keep the house? Can you afford to? And if you can demonstrate your financial solvency and stability, the banks will in, fact, loan you money today.

WILLIS: OK. I want a one-word answer from everybody at the table for Rachel in Texas. She asks, "If I'm 26, debt-free, should I still deposit into my IRA right now?" Yes or no?

EDELMAN: Yes.

MACK: Yes. ROSATO: Yes.

WILLIS: All right. OK, we've a bunch of bulls, here. Keep the e-mails coming and you can also send us iReport questions. Head to iReport.com/issue1, ask a question, share a comment, hey, you can even share your tips on how you're getting by during these tough economic times. Bottom line, we want to hear from you. Thanks to panel, great jobs, guys.

ROSATO: Thanks, Gerri.

WILLIS: Next, get ready for the cold, tips, tricks and tools to winterize your home for less.

And why women hold the purse strings when it comes to one very important purchase. We are the show that saves you money.

(COMMERCIAL BREAK)

WILLIS: Colder months are on the way, bringing snow, ice and freezing temperatures to some areas of the country, and it is essential to prepare your home for the elements before winter sets in. Deb Soonian is a senior editor with "This Old House." She's joining me now to do some do it yourself tips for winterizing your home and saving you money.

OK, Deb, we know that the prices this winter are going to go up 20 percent to 30 percent at least for folks. It's really daunting. Let's talk about weather proofing your windows. What can you do to make sure that they're not just, you know, sieves for cold air?

DEB SOONIAN, THIS OLD HOUSE: Absolutely. Think of a draft in your window as money going out the window.

WILLIS: Right.

SOONIAN: If you seal up your windows and your doors you're going to save about 15 percent on your heating bills and that can be a lot of money, as you pointed out, this winter.

WILLIS: You know, I've read that enough folks have enough leaks in their house that it's the same as if they had a window open all year long.

SOONIAN: Exactly.

WILLIS: You've really got to seal the windows, seal the leaks. How do we do the windows?

SOONIAN: You can use adhesive-backed foam insulation, it comes in different widths. You just cut off a piece about the width of your window and you stick it right underneath, this is a little bit wide...

WILLIS: This is the sticky part, right?

SOONIAN: The sticky part. You it to size. And this makes the window sash fit no, sir snugly in the trim. And that's again, a cold draft is uncomfortable anyway, but at "This Old House," we're all about making these little fixes that will save you big money later. So, you would...

WILLIS: Little fixes save you big money later, and, of course, this isn't the only thing you do, you also use other materials as well, right?

SOONIAN: Of course, you can use caulking, you can use weather stripping that your home center will help you find the right thing for the situation that you have.

WILLIS: All right. I know a lot of people this time of year, they're taking the air conditioners out of their windows. What should they be doing to those air conditioners?

SOONIAN: Remember to clean them before you store them, because a dirty A.C. is inefficient, takes more energy to run. So, when you pull it out of the window, use a DustBuster to get all the dust off in the areas that collect dust, you'll see where they are. And then after you're done with that, use one of the microfiber cloths.

WILLIS: These are excellent.

SOONIAN: These are great and you can dampen them a little bit if you're having trouble getting the last bit of grime off. You know? And most important, before you store them, put like an old sheet over it or a drop cloth, that's going to keep out the dust and the cobwebs that can jam up the motor and then those kind of things will make your motor burn out faster and you don't want to have to replace the A.C. next summer.

WILLIS: I know you've got a great tip on ceiling fans. Tell us what you do this time of year with your ceiling fans.

SOONIAN: This time of year, you're going to flip the switch, it's usually on the base of fan, and it makes it turn in the other direction. Generally, you want it to turn so that it pushes the warm air down.

WILLIS: Clockwise, right?

SOONIAN: Yes, I think it's clockwise from when you're looking at it from underneath.

WILLIS: All right, let's talk about driveways. People are worried about cracks in their driveways, you can trip, you can hurt yourself. What do you do?

SOONIAN: You can use a vinyl concrete patcher. You can get this at any home store, just mix it up a little bit with a putty knife and work it into the crack until it's seamless with the surface. And then wait a little while for it to cure before you walk on it or drive over it. Again, like you said, it's a trip hazard, but also what happens is when ice melts it gets in there and then freezes and melts and it expands the crack and that's going to cost you big bucks for a repair later if the crack turns into a hole and then into a big pothole.

WILLIS: Now, we got a big piece of insulation sitting right over here. You know, I think the big problem is that for a lot of folks is they don't have the insulation sitting in their attics right and that, of course, is where a lot of hot air moves out of the house. How do you know when you need to replace insulation?

SOONIAN: Your insulation should be sitting at about the level of the joists in your attic. So, if you notice it's lower, just buy some rolls of insulation at the home store, they cost about $10 each, and you roll them perpendicular to the layer that's underneath. So, this is not an expensive thing to do and it's going to save you again on your heating bills all winter long.

WILLIS: Deb, how much money can I save by just doing a few simple things like we've described today?

SOONIAN: Well, it depends on the energy costs in your area. But again, these little fixes, none of these things cost more than about 20 bucks to do, they only take a few minutes, can save up to say 15 to 20 percent and with energy costs being what they are, that's a lot of money for every family, today.

WILLIS: Great tip, Deb Soonian, thanks for your help.

SOONIAN: Thank you so much.

(BEGIN VIDEOTAPE)

WILLIS (voice over): Only a few days left until the vice presidential debate. So, it's only fitting that "Local Lowdown" heads to the candidates' home towns. Wasilla, Alaska, home to Governor Sarah Palin, with a population of less than 10,000, Wasilla is the fourth largest population center in Alaska. Set between Lake Wasilla and Lucille Lake, the Wasilla outdoors offers residents a host of activities year round from fishing and hunting and snow machining and cross country skiing.

Home of the Iditarod Trail Committee headquarters, the town hosts it's annual winter carnival in conjunction with the world famous dog sled race. And the elementary school in Wasilla is named for the race.

Head southeast, way southeast, to Wilmington, Delaware, and you'll find the home of Senator Joe Biden. Delaware's largest city, Wilmington, is about 25 miles from Philadelphia, making this urban center a commuter's haven. Wilmington's most famous commuter, Senator Biden, himself. The VP candidate commutes dally to and from Washington, D.C. via Amtrak.

And check out Wilmington's riverfront. The town's dining and nightlife center. The Delaware Center for the Contemporary Arts in the Delaware Theatre Company call this neighborhood home. And that's your "Local Lowdown."

(END VIDEOTAPE) (COMMERCIAL BREAK)

WILLIS: Men, we have our differences with the other gender, but one thing is for darn sure, an overwhelming majority of all consumer purchases, including buying a home, it's made by women. That's right, 89 percent of those decisions and nearly $1.2 million home purchases were made by single women last year. That's 20 percent of all home sales. Make sure you are doing all the right things when it comes to buying a home. Tara-Nicholle Nelson is the host of the HGTV FrontDoor.com and founder of RethinkRealEstate.com, boy that's a mouthful.

Tara, welcome.

TARA-NICHOLLE NELSON, FRONTDOOR.COM: Thank you for having me.

WILLIS: Now, people say and you say that women and men come to the decision of house buying completely differently. How do they do it differently?

NELSON: Well, just like you just said, like anything, men and women just think about and shop for and buy homes differently. Men are like, you know what? They look, they like, they buy, they're out. Women are much more, you know, honestly, they're much more skeptical of advice from their advisors. They're a little more fearful of making a mistake. They are a lot more hesitant. Those things all things all sound like negatives, but what I see women out there doing is flipping them around and turning them into positives by being much more deliberate and more educated homebuyers.

WILLIS: It's a lot of money. You've got to understand that, we're talking about a lot of dough, here, so it makes a lot of sense that women are just a little slow to the punch. But, let's talk a little bit about what's going on in the marketplace right now because the world has changed. It used to be easy to get a mortgage, it's not anymore. What does this mean for single women out there who want to buy their own place?

NELSON: You know, there's a lot of opportunity out there for women to get in, especially at the entry level and especially in high priced areas, there's a lot more opportunity to buy than there was before. But, at the same time, because we've seen, sort of the after picture of what happens if you make your real estate and mortgage decisions without that level of deliberation and planning and doing the math and even financial planning.

Women are much more hesitant than they even were before. So it is not uncommon for me to teach a seminar and have a woman come up and tell me that they bought every book on the shelf at the bookstore about home buying before they made their decision. So, they're just getting more educated.

WILLIS: You have an interesting point you would like to make about, you tell women, think of your vision of home. Now, when I was buying, I had a vision of home, I was thinking about my pretty kitchen and what kind of flowers I would plant outside, but that's not really what you mean?

NELSON: That's not exactly what I mean. What normally happens when you come to the home buying process, you fill out a chest list of bedrooms, bathrooms, square feet, kind of what do you want the kitchen to look like, that sort of thing. I ask people to take a step before that and actually write out what their vision of their everyday life, what does your life look like once you're in that house. Who do you live with? What do you do with your spare time? Where do you work? How do you get to work?

WILLIS: How does this help?

NELSON: Well, it' helps me -- it's a basically an accountability tool so that when you find a house -- or when you plan the house that you think you want, you're making an offer and you start to have that freak-out moment, we look back at that vision of home document and make sure that the house actually lines up with what the vision was. If it's not, we still have time to back out and of course correct.

WILLIS: I like freak-out's, there are freak-out moments. It's a huge decision and it makes sense to freak-out. How do you calm yourself down?

NELSON: OK, so they call me the freak-out preventing specialist. That's really what my job is and whole thing about freak-out prevention is all about education, because we fear what we don't understand. So, understanding it, both from how to, to what to expect, what to expect is really the piece that people, a lot of times, miss in their education process, they learn how to do a transaction. You need to know everything about how you can expect your entire transaction calendar to play out.

WILLIS: More information is definitely a good thing.

NELSON: Absolutely. But, more of the right information.

WILLIS: OPEN HOUSE will be back here next week, right here on CNN. And you can catch us on "Headline News" every Saturday and Sunday at 3:30 p.m. Eastern Time.

And you can hear much more about the impact of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi, Saturdays and 1:00 p.m. and Sundays at 3:00, right here on CNN. Don't go anywhere, your top stories are next in the CNN NEWSROOM. Have a great weekend.