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American Morning
Failed Bailout Causes Economic Confusion on Main Street America; Senate to Vote on Bailout Tonight; Sarah Palin Opens Up on Controversial Issues; Public Gives Government a Failing Mark; John McCain Changes His Tone; Small Businesses Feeling the Credit Crunch
Aired October 01, 2008 - 07:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JOHN ROBERTS, CNN ANCHOR: Our Suzanne Malveaux is following all of this, live for us in Washington this morning.
What are the candidates trying to do, Suzanne?
SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, John, really both the candidates are trying to stay ahead of this train wreck. Barack Obama is going to be coming from a rally in Wisconsin, John McCain from Missouri. They're going to be coming back to Washington to cast their votes for the bailout package.
And both of the candidates, they were on the phone with President Bush yesterday. They both weighed in on the deadlock. They are essentially trying to look presidential, engaged in the process. And there are noticeably striking, now a conciliatory tone. They put much of this partisan rancor aside at least for now. The idea behind that, of course, being that this is going to help ease the worries of Americans who are still -- many still very skeptical about this huge undertaking and at the same time it's meant to put pressure on the House, which is expected to vote later in the week to get on board -- John.
ROBERTS: And of course, the vice presidential debate happens tomorrow in St. Louis. A lot of people are looking forward to that. In fact, there are a lot of people who believe that it could be the highest-rated vice presidential debate in history. How are the candidates preparing?
MALVEAUX: Oh, both of them have these practice sessions at these camps that are set up, debate camps, if you will. Both of them are going to heading to St. Louis tomorrow for this first face-off. Biden is going to be casting his vote this evening and then he's going to take his normal Amtrak ride from his home of Delaware back to D.C.
And normally, the vice presidential debates, they really don't carry as much weight. But this time around, it's really going to be the first time for Americans to see these very different candidates discuss both foreign, domestic policy issues. And, John, as you know, the expectations game already in full swing.
Obama campaign saying that they expect that Sarah Palin is going to be a formidable opponent. That is what they are saying. And their hope as always is that by downplaying their candidate's debating skills, they can claim victory if he does really well -- John. ROBERTS: You know, we saw that picture of Sarah Palin there practicing outside of John McCain's ranch in Sedona, Arizona. I don't think, Suzanne, I have ever seen a more pastoral setting for a debate prep in my life.
MALVEAUX: And it's the setting that's going to change very quickly.
ROBERTS: Absolutely.
MALVEAUX: So we'll see how it goes.
ROBERTS: Go from ultimate low pressure to ultimate high pressure.
MALVEAUX: Come on bet.
ROBERTS: Suzanne Malveaux for us -- thanks, Suzanne.
MALVEAUX: Sure.
KIRAN CHETRY, CNN ANCHOR: Well, two historic days on Wall Street in a row -- one bad, one good. But don't let the 485-point rally fool you. Our senior business correspondent, Ali Velshi, is here to tell us where we stand right now.
ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: I stand in front of a crazy chart. I would love -- I'd give anything for a pastoral setting but sadly, that is not in my future. I am looking at charts of the Dow.
Let's take a look at the last couple of days. I know, it feels like Friday already. It's just been two days already that we've had trading. Take a look.
Obviously, this was what happened on Monday. This was when that bill failed in the House of Commons. This is that 777-point drop at the end of the day, but it came back on Tuesday. It's starting to come back. It wasn't anything dramatic but in the end, nearly 500 points, one of the biggest gains that we've ever seen in the stock market.
Now, what's the effect of that? Remember I told you that on Monday we lost $1.2 trillion in the whole stock market. That was the value of the loss. And I said, look, don't worry about those losses. It's not what the stock market is about. These things can be made back in a couple of days. Well, in one day, we recouped half of that. $600 billion is already back.
The point here is, don't get crazy about these markets if you are the average investor. If you're not available to sit in front of your computer and make trades all day, which most people aren't...
CHETRY: (INAUDIBLE)
VELSHI: I think you were trading. Don't do that. America, don't trade stocks during the day. The bottom line is this is not something the average American can have control over right now. We are all in a wait and see mode.
When that vote was going on on the floor of Congress, the traders were all watching their screens to see what was going on in Congress. The folks on the floor were watching the screen to see what was going on the Dow. So don't try and game this.
Stick with your investment strategy. This is going to be volatile market for some time until we know exactly what's going on. I'll keep you posted on that.
ROBERTS: She's trying to make enough money in your trades to rent a clown.
VELSHI: That's right.
ROBERTS: I think she's underestimating the creepiness of the whole thing.
Ali, thanks.
CHETRY: Yes. I have to reconsider. Murder mystery. Costs way too much, though.
VELSHI: I heard. You have to go back to clowns.
Thanks, Ali.
VELSHI: OK.
CHETRY: Well, back to one man who is skeptical of the government's bailout and whether or not it will even work is Bill Isaac. He's a financial consultant and former FDIC chairman. He joins me now.
Thanks for being with us this morning.
WILLIAM ISAAC, CHMN., SECURA GROUP: My pleasure.
CHETRY: You know, you're not a fan of the bill. In fact, you spent the weekend counseling more than 200 members of Congress against this plan. What did you tell them?
ISAAC: Well, I actually wasn't counseling them against the bill. I am not a fan of the bill. I don't like it. But I (OFF-MIKE) Republicans and Democrats that I would come up and talk with them about the banking crisis and what we do about it. So that's what I was spending my time doing.
I wasn't bashing the bill. I was trying to give them things that they could do to the bill to make it better. And there are a lot of number of things they could do to make this bill better.
CHETRY: What are some of the key things that you either think are missing, or you think needs to be taken out? ISAAC: Well, one of the most important things I was urging is that the (OFF-MIKE) the SEC needed to end the marking of mortgage- backed assets to fair value because, which is what their accounting rule requires because there is no market in mortgage-backed securities. And so, the SEC was just crushing the values of these by forcing them to be marked to an index and they destroyed. The SEC destroyed $500 billion (OFF-MIKE) financial industry needlessly. It should never have happened.
And when you destroy $500 billion of (OFF-MIKE) lending capacity because banks lend $10 for every dollar of capital they have. So the SEC almost single-handedly destroyed $5 trillion of lending capacity. That's why we have a credit crunch in this country. Not because the banks need these bad loans purchased from them, they really don't. This is $700 billion out of $14 trillion financial system.
There is plenty of liquidity in that system. What we have is a capital shortage because the SEC was destroying capital for the past year.
CHETRY: Why --
ISAAC: That's the basic argument.
CHETRY: Why aren't we hearing more people talk about that?
ISAAC: Well, a lot of people talk about it, but we can't -- our voices can't be heard from all the politicians saying that Main Street is going to die. This bill is really for Main Street, not Wall Street. That's nonsense. This bill is for Wall Street, and it offends me that we're going to take $700 billion of taxpayer funds and put it into Wall Street.
CHETRY: Let me ask you this, though.
ISAAC: And foreign firms -- foreign firms participate in this bill too.
CHETRY: Right.
ISAAC: I can't believe that.
CHETRY: I want to ask you this because the president came out not only saying that this would be painful and lasting, in terms of the economic damage if something wasn't done, but also that there was a very good chance that we'll recoup this money and that the American taxpayer could make money off of this, but in the end it won't cost $700 billion because that can be made up. Do you buy that?
ISAAC: I don't buy that at all. I mean, I will agree, readily agree, that $700 billion is not down the drain. There will be money back. But anybody who thinks we're going to make a profit, turning $700 billion worth of bad assets over to the government to handle is living in a different world than I live in.
CHETRY: Very interesting point of view this morning. Bill Isaac, a former FDIC chairman from Sarasota, Florida, this morning, thanks.
ROBERTS: And we apologize for some of the technical problems in that. It happens on occasion. The economy is melting down. We have our problems on occasion, so it's live TV.
Sarah Palin opens up about several controversial issues. You'll hear what the Republican vice presidential candidate had to say about abortion and homosexuality ahead on the "Most News in the Morning."
And Congressman Ron Paul warning that the bailout will make things much worse. He's here to tell us why he thinks it could destroy the U.S. dollar.
(COMMERCIAL BREAK)
ROBERTS: The McCain/Palin campaign has been keeping media access to Sarah Palin very limited. But ahead of tomorrow's hugely anticipated vice presidential debate, Sarah Palin was interviewed again by CBS's Katie Couric. The two talked a lot of policy, and our Jason Carroll has got that for us this morning.
Good morning, Jason.
JASON CARROLL, CNN CORRESPONDENT: And hello to you, John. You know the McCain/Palin campaign is solely giving the governor more media exposure. And Palin's interview with Katie Couric, the governor talked about controversial social issues, including abortion. Palin remained firm when asked if exceptions should be made in the case of rape or incest.
(BEGIN VIDEO CLIP, FROM CBS NEWS)
GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: I would counsel that person to choose life despite horrific, horrific circumstances that this person would find themselves in. And if you're asking, though, kind of foundationally here should anybody end up in jail for having had an abortion, absolutely not.
(END VIDEO CLIP)
CARROLL: Couric also asked Palin about another issue which divides conservatives and liberals -- homosexuality. Palin's critics say she attends a church that supports a belief gays can pray their way to being straight. Palin said the media got that wrong. She also says she does not judge anyone based on their personal relationships. Palin also suggested homosexuality is a choice and talked about a close friend of hers who is gay.
(BEGIN VIDEO CLIP)
GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: She is not my gay friend. She is one of my best friends who happens to have made a choice that isn't a choice that I have made.
(END VIDEO CLIP) CARROLL: And the interview wasn't completely about policy. Couric asked what magazines or newspaper the governor has read before McCain picked her as his running mate.
(BEGIN VIDEO CLIP, FROM CBS NEWS)
KATIE COURIC, CBS EVENING NEWS: What specifically? I'm curious that you --
GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: All of them. Any of them that have been in front of me over all these years. I have a vast --
COURIC: Can you name a few?
PALIN: I have a vast variety of sources where we get our news. Alaska isn't a foreign country.
(END VIDEO CLIP)
CARROLL: Palin never offered a specific paper or magazine she reads, a point critics obviously are latching on to now. Palin did another interview with conservative radio talk show host Hugh Hewitt, who asked about her candidacy igniting hostility from the left. Palin said they're not used to someone coming from the outside and saying it's time that Joe six-pack America be represented. Take a listen to what she had to say.
(BEGIN VIDEO CLIP, THE HUGH HEWITT SHOW)
VOICE OF GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: It's motivation for John McCain and I to work that much harder to make sure that our ticket is victorious, and we put government back on the side of the people of Joe six-pack like me.
(END VIDEO CLIP)
CARROLL: Well, she's got a sense of humor. You can imagine critics are going to be talking about that one today as well.
ROBERTS: Yes. So this issue of whether homosexuality is a choice, very controversial topic.
CARROLL: Controversial one.
ROBERTS: Yes.
CARROLL: Obviously. But you know, at least in this particular interview, her supporters are saying she didn't seem to make any mistakes, and we saw what happened to some of those early interviews that she did with Katie Couric.
ROBERTS: Interesting, too, in the interview with Hugh Hewitt that the two of them sort of portrayed the questions that she's been taking in these one-on-one interviews as pop quiz questions.
CARROLL: Pop quizzes.
ROBERTS: And that they've been asking about policy and record and sort of vision for governing. How is that a pop quiz?
CARROLL: Well, you know it's interesting because Governor Palin basically said that she was somewhat surprised about the way the media was handling this given her background. Obviously, you know that she received a degree in journalism from the University of Iowa. I think it was back in 1987.
ROBERTS: Right.
CARROLL: So she was surprised but said that she welcomed it and it was just going to make her work harder.
ROBERTS: Many people believe that it's absolutely legitimate to ask questions about policy and how a person would govern. So a little difference of opinion there.
Jason, thanks so much for that.
CARROLL: Right.
ROBERTS: Fourteen minutes after the hour. You're watching the "Most News in the Morning."
CHETRY: Grading the government.
(BEGIN VIDEO CLIP)
HENRY PAULSON, TREASURY SECRETARY: I'm very disappointed.
(END VIDEO CLIP)
CHETRY: What's wrong in Washington? Frank Sesno rates the response to the financial crisis.
(BEGIN VIDEO CLIP)
SEN. NANCY PELOSI (D), HOUSE SPEAKER: We must move forward.
(END VIDEO CLIP)
CHETRY: You're watching the "Most News in the Morning."
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP, "THE LATE SHOW WITH DAVID LETTERMAN")
DAVID LETTERMAN, HOST, "LATE SHOW WITH DAVID LETTERMAN': Let's just see now how George W. Bush actually did.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I'm running for president with a clear and positive plan. (buzzer)
To build a safer world (buzzer) and a more hopeful America. (buzzer)
I want to change the tone of Washington to one of civility and respect. (buzzer)
I am proud to have Dick Cheney by my side. He is a man of integrity (buzzer) and sound judgment. (buzzer)
We will make our country less dependent on foreign sources of energy. (buzzer)
When America uses force in the world, the cause must be just. (buzzer) The goal must be clear. (buzzer) And the victory must be overwhelming. (buzzer)
It's not about our history. (buzzer) If you give me your trust I will honor it. (buzzer) Give me the opportunity to lead this nation and I will lead. (buzzer)
I am prepared for the work ahead. (buzzer) I will swear to uphold the honor and dignity of the office to which I had been elected, so help me God. (buzzer)
LETTERMAN: Wow. There you go.
(END VIDEO CLIP)
CHETRY: Well, it's often said that behind every joke is a little bit of truth and the president is getting failing grades across the board from the public. In fact, approval numbers for Congress are not looking any better either.
Our Frank Sesno joins us this morning from our Washington bureau with a look at our government's very bad report card. Hi, Frank.
FRANK SESNO, CNN SPECIAL CORRESPONDENT: Good morning. It's getting pretty rough out there, isn't it?
CHETRY: Sure is.
SESNO: You know what they say here in Washington, the definition of a best friend is someone who stabs you in the chest. Well, there's a lot of that going on here right now.
You know, I'm sitting in this week for Diane Rehm on public radio and I'm getting a tremendous amount, we're getting a lot of calls, a lot of letters just to CNN as everybody is, from people who are furious. One who just simply wrote, what is going on in Washington?
Here's the reality. They haven't explained, they haven't reassured, they haven't persuaded, they haven't convinced, they haven't connected, they haven't communicated.
(BEGIN VIDEOTAPE)
SESNO (voice-over): The crisis on Wall Street is matched only by the power vacuum in Washington. The president's voice has been ignored.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: For the financial security of every American, Congress must act.
SESNO: The treasury secretary, the Paul Revere of this crisis, has been rebuffed. He literally begged for votes.
HENRY PAULSON, TREASURY SECRETARY: I'm very disappointed in today's vote.
SESNO: Congressional leaders have failed.
UNIDENTIFIED FEMALE: The motion is not adopted.
SESNO: Republicans --
SEN. JOHN BOEHNER (R), MINORITY LEADER: We've put everything we had into getting the votes.
SESNO: And Democrats.
SEN. NANCY PELOSI (D), HOUSE SPEAKER: We must move forward.
SESNO: But they haven't moved forward and the presidential candidates wanting to project leadership have been on the sidelines. The result -- public anger, confusion and failing grades.
Confidence in Congress, F. Eighty-eight percent think Congress' bailout rejection could actually make the economy worse, according to a "Washington Post"/ABC poll.
The president's job approval, F. Just 31 percent in the latest CNN poll think he's doing a good job.
Confidence in the economy, F. Fifty-three percent are pessimistic.
If you've gotten grades like those, you would have gotten kicked out of school. They don't do that in Washington. They just come back for more.
(END VIDEOTAPE)
SESNO: At least until Election Day, anyway. But this is the background out there and I've got to read you this one -- this one e- mail I got here, Kiran.
This comes from a listener. If you purchased $1,000 worth of Delta Airline stock a year ago, you would have $49 left, with Fannie Mae, you have $2.50 left, with AIG, you have less than $15. But if you purchased $1,000 worth of beer, drunk all of it and turned in the cans for recycling refunds, you'd have $214 in cash. Based on the above, the best current investment advice is to drink heavily and recycle.
So that's the mood out there and they're not -- people aren't happy and they're pointing fingers as they should right here to Washington.
CHETRY: Well, I mean, you put it like that, that sounds like the most common sense we've heard in a long time.
SESNO: I'm not sure it's the best for your health. Maybe not your finance -- maybe your financial health, though. Who knows?
CHETRY: Yes.
SESNO: But it's very -- it's really -- it's really interesting too. And you know, with the election right around the corner, one good thing I think this has done is it's taken a lot of the discussion and debate away from the personalities and the "lipstick on a pig" nonsense and make people focus on issues and what the candidates actually plan to do. And so, maybe people really will be held to account in this process.
CHETRY: Yes. Frank, you bring up a good point. And the other point is that a lot of people say that this is really an example of our government working and that the outcry from constituents is what made many people vote against the bill.
SESNO: That's right. People have tuned in. And you know, in the culture that you and I live in, 24/7, always on world, where there is so much information, you know, these congressional members, these elected representatives have to actually worry that people will inform themselves and holler and speak out, which is exactly what's happened.
CHETRY: Frank Sesno, great to have you with us this morning. Thanks.
SESNO: Thanks.
ROBERTS: Time warp.
(BEGIN VIDEO CLIP)
HENRY PAULSON, TREASURY SECRETARY: Our financial institutions are strong. Our investment banks are strong.
(END VIDEO CLIP)
ROBERTS: A surprising look back at what we were told about the economy before the Wall Street crisis.
(BEGIN VIDEO CLIP)
HENRY PAULSON, TREASURY SECRETARY: They are going to be strong for many, many years.
(END VIDEO CLIP)
ROBERTS: You're watching the "Most News in the Morning."
(COMMERCIAL BREAK)
ROBERTS: Coming up now at 25 minutes after the hour. Welcome back to the "Most News in the Morning."
We are just hours away now from the Senate taking up the government's bailout plan. And while the bailout may seem to have its biggest impact on Washington and Wall Street, it's also taking center stage on Main Street, especially among small business owners.
Mary Snow takes a look at how it's affecting them.
MARY SNOW, CNN CORRESPONDENT: John and Kiran, with the bailout bogged down on Capitol Hill, small business owners are becoming increasingly worried. We visited three separate businesses. Some are already feeling the impact of the credit squeeze, others are bracing for what's to come.
(BEGIN VIDEOTAPE)
PHIL CHIANETTA, OWNER, SAL ELECTRIC: That's our generator.
SNOW (voice-over): Phil Chianetta is keeping one eye on his electric business in Jersey City and the other glued to his TV set. With credit markets tight, he's worried about what happens if banks freeze up and stop lending.
CHIANETTA: My sole existence as a company, Sal Electric, 45 years sole existence is dependent on banks. I need a bank and a line of credit that I have with a bank in order to operate.
SNOW: To keep operating, he needs to pay 110 employees each week. In a worse case scenario, what would happen if banks stop lending altogether?
CHIANETTA: I can operate for 60 days without any revenue coming in.
SNOW: Beyond that?
CHIANETTA: Beyond that, I'd have to depend on my bank for a line of credit. And the amount of money that I have in my line of credit will allow me to go another three months.
SNOW: Don Manthey has already felt the effects of his bank's tightening on Monday. He had to take out a second mortgage on his home, sell a building, and lay off workers to keep his commercial interior business running in Alexandria, after being turned down for a business loan earlier this year.
DON MANTHEY, PROSIUM SERVICE CORPORATION: It makes no sense and the only explanation I got was that we were headed to a recession and that they were more concerned about their loans and tightening up their loan standards.
SNOW: In Middletown, New York, the squeeze on car loans has dried up business at A Plus Auto.
ROBERT CRISAFI, A PLUS AUTO: We used to do three a day, you know. Now, we're down to three a month. SNOW: And the organization representing small businesses say they are not the ones that need the bailout.
TODD MCCRACKEN, NATIONAL SMALL BUSINESS ASSOCIATION: They're not the ones that created this problem. Unfortunately, they may be the ones that have to pay the piper at the end of the day.
(END VIDEOTAPE)
SNOW: Small business owners we spoke with say while they're not in line for any handouts from the bailout, they do hope it will inject confidence into the markets. They say without that confidence, people and companies are not spending and that is putting their livelihoods in jeopardy -- John and Kiran.
CHETRY: Mary Snow for us, thanks.
Well, John McCain is changing targets. The Republican candidate focusing his attacks not on his rival but on Congress for bogging down the financial rescue plan.
Ed Henry takes a look at McCain's new message.
ED HENRY, CNN WHITE HOUSE CORRESPONDENT: John, Kiran, John McCain may pay a political price for supporting the bailout, but he says inaction is just not an option.
(BEGIN VIDEOTAPE)
HENRY (voice-over): Even aides to John McCain admit he's been pummeled over his role in the failed bailout. So on the ropes he decided to fight back. But instead of delivering jabs at Barack Obama, McCain chose a shift in tone.
SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: I think I need to talk to America and hear what their solutions are because we're going to have to get the support of all Americans to address this together.
HENRY: One day after charging excessive partisanship from Obama sunk the deal, McCain didn't even mention his rival by name. Instead, talking non-stop about bipartisanship and only ripping into Congress in general.
MCCAIN: The country and the world look to Washington for leadership, and Congress once again came up empty-handed.
HENRY: But it was McCain who came up empty-handed after putting so much political capital into the bailout talks. So Democrats are skeptical of his new tact.
JENNIFER PALMIERI, DEMOCRATIC STRATEGIST: I think that it was folly from the beginning to think that as a presidential candidate you can actually have a positive impact on the congressional negotiations in any sort of -- in any sort of real way.
HENRY: But Barack Obama is recalibrating his rhetoric on the trail, too, shifting focus away from the blame for the crisis to also go to bat for the bailout.
SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: There will be time to punish those who set this fire. But now is the moment for us to come together and put the fire out.
HENRY: A rare time where the nominees agree because both men realize Monday's partisan meltdown on Capitol Hill turns off the small part of the electorate that's still undecided.
JOHN FEEHERY, REPUBLICAN STRATEGIST: If you call names and start pointing fingers, it doesn't do you any good going after those independent voters.
HENRY: Supporting the rescue plan is risky for both nominees. Voters are overwhelming the Capitol switchboard and e-mail servers with angry protest against any bailout. But Republican strategists say McCain in particular has little choice but to push for a solution, even if it's controversial.
FEEHERY: I think that for John McCain, not only does he have to look like he's fixing the problem, he has to fix the problem. Because at the end of the day if the economy completely tanks, it's not good for McCain.
(END VIDEOTAPE)
HENRY: And standing up to fellow Republicans plays into another McCain campaign theme, portraying himself as a maverick -- John, Kiran.
CHETRY: Ed Henry for us in Washington, thanks.
We're just coming up to 7:30 here on the East Coast. And the Senate is set to act tonight on a $700 billion bailout. A slightly altered bill from the one that the House shot down Monday. It added bank deposit insurance increase as well as some tax breaks.
European Union peacekeepers starting their mission in war-torn Georgia today. They're replacing Russian troops as part of the peace deal that ended the five-day Russia-Georgia war in August. Georgian President Mikheil Saakashvili said that he won't be happy until the last Russian soldier gets out of my country.
America's top nuclear negotiators are in North Korea right now with a new proposal after North Korea backed out of the last deal. North Korea agreed to dismantle its nuclear program in exchange for energy and other concessions. It even blew up part of a key nuclear reactor to show how serious it was. Now they're rebuilding it and blaming the U.S. for going back on its word.
President Bush told the American people that millions face economic hardship if Congress doesn't act now. But for many people hard times are already here. And they are wondering where the leadership has been. Business correspondent Christine Romans joins us now with more. Hi, Christine. CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Hi, there. We've been hearing these dire warnings from the White House, right? We're hearing that the economy, if we don't have a bailout could be in trouble. But not long ago both President Bush and Treasury Secretary Paulson were using entirely different words to describe the economy. Listen.
(BEGIN VIDEO CLIP)
ROMANS (voice-over): It's about as dire as the president can get on the economy.
PRES. GEORGE W. BUSH, UNITED STATES OF AMERICA: We're facing a choice between action and the real prospect of economic hardship for millions of Americans.
ROMANS: This from an administration that for months said that for months said the economy was vibrant. The financial system strong. The president didn't acknowledge "storm clouds" until last December. By then it was raining.
BUSH: There were definitely some storm clouds and concerns. But the underpinning is good. We'll work our way through this period.
ROMANS: Then with each disastrous job report or capital market crisis, an upbeat assessment. In January.
BUSH: Our economy is flexible.
ROMANS: In February the President surprised by spiking gas prices.
BUSH: What did you just say, you're predicting $4 gallon? That's interesting. I haven't heard that.
ROMANS: In March, Bear Stearns was in a death spiral and the Fed brokered its sale.
BUSH: We're in challenging times but another thing is for certain that we've taken strong and decisive action.
HENRY PAULSON, TREASURY SECRETARY: Our financial institutions are strong. Our investment banks are strong. Our banks are strong. They are going to be strong for many, many years.
ROMANS: In July, Indy Mac Bank failed.
BUSH: I believe we will come through this challenge stronger than ever before.
ROMANS: The three trying to sell this $700 billion rescue didn't see it coming. The Treasury Secretary told NPR last year of the global economy?
PAULSON: It's as strong as I've seen it at any time during my business career. ROMANS: And again last October.
PAULSON: This is happening against a backdrop of an economy in which in other respects is very solid. So far there's very little evidence it's bleeding over into other areas.
ROMANS: As the subprime crisis devolved early last year the Fed chief.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: We do not expect significant spillovers in the subprime market for the rest of the economy or to the financial system.
ROMANS: And now?
BERNANKE: This plan is an emergency plan to put out a fire, to resolve a serious crisis which has real Main Street implications.
(END VIDEOTAPE)
ROMANS: Slowly over the last 10 or 11 months this administration has been acknowledging the problem always with a caveat that the underlying system is vibrant and flexible and the economic fundamental strong. It might be one reason why so many are pushing against Washington's bailout plan. If they didn't see it coming, how can they lead us out.
CHETRY: That phrase trust us -
ROMANS: Right.
CHETRY: And lot of people are saying enough.
ROMANS: Right.
CHETRY: All right. Christine Romans, thanks.
JOHN ROBERTS, CNN, ANCHOR: Coming up at 34 minutes after the hour, he is heading up the campaign for liberty. And on his website, he is urging his followers to call senators and tell them to vote against the bailout bill. Congressman Ron Paul joining us next on "the most news in the morning."
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
SAMANTHA BEE, PRES. REAL CITIZENS FOR RON PAUL: Incredible night for Ron Paul.
JON STEWART "DAILY SHOW," HOST: UNIDENTIFIED MALE: Ron Paul wasn't at the debate.
BEE: You see, that's exactly the kind of mainstream media bias that Ron Paul has been fighting against this entire campaign. I think anyone who actually watched that debate could tell that the people's crusader from Texas was the big winner.
(END VIDEO CLIP)
ROBERTS: The "Daily Show" keeping hope alive for Congressman Ron Paul. He didn't really get to face off against John McCain and Barack Obama but Paul did get to say his piece on the bailout on the House floor, warning that it could destroy the dollar and global economy.
Congressman Paul joins us now live from Clute, Texas. Congressman, great to see you. I was browsing around on your web site this morning, campaign for liberty. And right there on the very front page, you are appealing to your supporters and there are tens of thousands of them to get in touch with key senators to tell them to vote this bill down when it comes to a vote in the senate at sundown tonight. Why do you want them to vote it down?
REP. RON PAUL, FMR. REPUBLICAN PRESIDENTIAL CANDIDATE: Well, I think it's a bad bill. I think it's bad for the taxpayer. I think it's doing more of the same thing. It's the same policy that we're following now with this bill is exactly how can we got into that trouble. And you know, I really don't have that much clout in Washington, D.C. and I recognize it. But there are a couple of people outside of Washington that care about what I'm thinking and care about free market economics. And they will respond and I think we did help generate a little bit of mail to the House members.
So, you go where you can have the influence and I think that people in the grassroots understand this a lot better than the members of Congress give them credit for.
ROBERTS: So, instead of the bills that are currently before the Senate, the one that maybe before the House as early as Thursday, what would you do?
PAUL: Well, we need to do a lot, but a lot differently. We recognize how we got into this problem we have. We have too much debt. We have too much MALE: investment.
ROBERTS: OK. So recognize all the things that got us here. But right now today what would do you, if not this bill?
PAUL: You have to liquidate those mistakes. Those mistakes were made due to monetary policy. So you have to allow the market adjust prices downward. And that's not we're not allowing to do. If there are too many houses and the prices are too high the sooner we get the prices down to the market level, and as soon as can we quit trying to encourage more housing - this is what we're doing, we're trying to stimulate houses and keep prices high. It's the exact opposite of what we should do.
So we should get out of the way and not buy up bad debt. There's illiquid assets but most of those are probably worthless plus they're mostly derivatives. We're sticking those with the taxpayers. So we have to recognize that the liquidation of debt is crucial. And if we did that can we would have tough times. There's no doubt about it, for a year. If we keep propping up a system that's not viable we're going to have problems for decades. Just like we did in the depression which we're on the verge of doing.
ROBERTS: Congressman Paul, what do you think about this idea that's being floated, this process called mark to market which would, they would modify the rules so that right now paper that a lot of these institutions are holding which is worth nothing, they would actually be able to assign some sort of value to it. Some people are saying that would just hide the problem. Other people are wondering that maybe that might create some sort of voodoo accounting that would allow widespread abuse in the system. What do you think?
PAUL: It demonstrates the problem. You know, when they prevented them from marking them down. This was an S.E.C. regulation. It shows how regulations backfire. If you had a market economy and you had a market adjusted FDIC where insurance was based on the strength of the bank, this would happen on a daily basis. But instead we insure everybody no matter what the bank is doing and we do it either we overkill, or give it too much credit on bad investments and then can we make changes all of a sudden and they are drastic. So it's impossible. It's either too little or too much and what you need is insurance of FDIC type of insurance has to be driven by the marketplace to measure the viability of a bank.
ROBERTS: So what do you think --
PAUL: As to the moral hazard that we have in the system.
ROBERTS: So what do you then think of this idea of raising the limit on FDIC insurance to $250,000 from it's current cap of 100,000?
PAUL: Well, in the short run it will calm the markets. People will feel better. I might personally feel better for a week or two. But I know long term it's the wrong thing to do. I opposed this in the early '80s when it went from 30 to 100, saying it would lead to more problems like this of mal investment. It would cover over the mistakes and the same thing will happen. But if we raise it to 250 people are going to feel better. It will keep the bubble going for a little while longer putting more pressure on the dollar. Then finally the world will give up on the dollar and then we will have a big problem that nobody has even really begun to think about.
ROBERTS: A lot of people might hope you're wrong with your projection.
PAUL: I do too. I hope I'm wrong.
ROBERTS: You tend to be right about these things on occasion. Dr. Paul, it's good to talk to you. Appreciate it.
PAUL: Thank you.
CHETRY: All right. We're going to talk more about this throughout the morning. Ali Velshi is answering questions that you have written in on his blog, CNN's AMERICAN MORNING blog about the financial crisis.
VELSHI: Yes, we're still taking questions. Cnn.com/am. Cindy in Wisconsin said "I placed my late husband's life insurance in several CDs and a small money market account at my adviser's suggestion. At 45 should I be thinking more about Treasury bonds than the stock market and real estate?" Listen, what your risk tolerance is, is a matter of personal concern to you. At 45 you're too young to get out of the stock market. We got more of these questions coming back, right on the other side of the break. Stay with us on AMERICAN MORNING.
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CHETRY: We're talking about things today. Things we never thought we would be talking about a year ago.
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ROBERTS: It's such a compelling ring into it, mark to market.
CHETRY: It is something that we actually heard from Bill Isaac who is a former FDIC chairman. He said he has the opinion that one of the biggest reasons we're in this financial mess we are is because these companies were forced to put a value on something.
VELSHI: Right. When you couldn't sell these bad assets, these bad loans, mark to market means you mark them to the value that the market offers you, which might be goose eggs, which means a lot of these companies then didn't have the assets to get a loan to continue doing business. So if you didn't have to mark them down. I'm now going to talk to you about credit default swaps. I'm not. I'm answering your questions that you're sending into cnn.com/am. But if he brings mark to market up again, I am going to talk about credit default. You guys are going to have a lot of free time in the morning because you'll switch off your TV.
ROBERTS: This is like the knights who say (inaudible)
VELSHI: Exactly right.
Let's go to Cory in Washington state who says "I know, Ali, I know you are for this bailout in some fashion but after reading many of your blogs when do you get to the point and say "uncle," the American people have spoken and they don't want the bailout. No matter how pretty anyone dress it up? Everyone was quick, almost excited to scare Americans by exhaustingly telling us that we lost $1.2 trillion yesterday. So how much of our money "reappeared" today?"
Of the $1.26 trillion came back yesterday. I was very quick to tell you don't worry about the market loss. You can make up 770 points in two days. I was half right already. I am in favor of doing something. The paralysis of not doing something is what is causing this credit freeze which is working it's way down to you. But you are absolutely right, the American people are the boss. And they will ultimately decide what happens here, maybe a little later than politicians do.
Curt in Ohio says "I have wonder why when there's overwhelming opposition to this bailout, the Senate continues to try to shove it down our throats. How many times do we have to clog the phone lines and crash the web sites before they will listen to us?" I think we'll find that out within the next 12 hours. Because the Senate says it's voting on it this afternoon.
ROBERTS: Yes. It's going to pass the Senate. It's the house that's still big question.
VELSHI: Unless Curt and his people have something to do with it.
ROBERTS: All right. Then work on those credit default swaps.
VELSHI: I'll be on that.
ROBERTS: Thanks, Ali. 47 minutes after the hour. You're watching the "the most news in the morning."
(BEGIN VIDEOTAPE)
ROBERTS (voice-over): Crisis calls.
UNIDENTIFIED MALE: About 85 percent to 90 percent of all the calls are thanking congressmen.
ROBERTS: Computers and phone lines jammed as Congress gets an earful. Carol Costello looks at the bailout backlash.
UNIDENTIFIED MALE: 2,700 e-mails.
ROBERTS: You're watching "the most news in the morning."
(END VIDEOTAPE)
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CHETRY: There's a new version of the bailout bill going to the Senate. One thing about the legislation remains clear. It has Americans confused. New polling numbers show some very mixed messages from the public and our Carol Costello has been looking over those numbers for us. She joins us this morning from our Washington bureau. Hey there, Carol.
CAROL COSTELLO, CNN CORRESPONDENT: Hi, Kiran. You know I talked to our own polling experts and they are perplexed by the numbers. Voters appear to have no clear idea what they want Congress to do. They just want them to do something. Voters are confused and many analysts say our political leaders are to blame.
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COSTELLO (voice-over): The bailout plan went belly up, despite all those scary words describing economic doom for all of us.
PAULSON: Collapse, terrible crisis.
BUSH: $700 billion taxpayer dollars. PELOSI: It's a staggering figure.
UNIDENTIFIED MALE: Bankrupting our children.
UNIDENTIFIED MALE: Nobody wants to loan you money. Nobody wants to take the risk.
PELOSI: The party is over.
COSTELLO: Those words didn't pack a punch like the phrase "Wall Street bailout" did. That's all voters heard. Wall Street bailout not Main Street bailout so they weren't exactly eager to jump on board. That's left politicians now struggling to find the right words.
BUSH: The reality is that we're in an urgent situation and the consequences will grow worse each day if we do not act.
COSTELLO: And now the headlines bear that out. Pictures showing the Dow diving Monday after the bailout plan failed in the house. And what that's meant for your 401(k). It caused phones to ring off the hook in Congressional offices.
UNIDENTIFIED FEMALE: Well -
COSTELLO: Congressman Mike Pence's office logged 500 calls in just two hours. His e-mail box is overflowing with thousands of messages.
UNIDENTIFIED MALE: 2,700 e-mails.
COSTELLO: Mostly from Main Street voters thanking the Republican congressman for his no vote.
BILL SMITH, CHIEF OF STAFF, REP. MIKE PENCE (R-IN): About 85 percent to 90 percent of all the calls that we're receiving right now are thanking Congressman Pence for his opposition to the plan. But also saying Congress should do something.
COSTELLO: Because despite the calls and the dire headlines, voters still appear conflicted about exactly what they want Congress to do. A "Washington Post"-ABC News poll shows 45 percent of voters supported the bailout. 47 percent opposed the plan. Yet 88 percent say they are concerned the economy could get worse because the bailout plan failed.
UNIDENTIFIED FEMALE: I want to hear that it's going to be taken care of. It's going to be resolved.
UNIDENTIFIED MALE: I wonder if I'm going to go to my ATM machine and there's not going to be - you know, my card is not going to work.
UNIDENTIFIED MALE: I don't believe we've had any economists explain what the consequences are. We've had politicians behessing (ph) about it.
COSTELLO: And to add to the confusion, the stock market shot up about 500 points yesterday.
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COSTELLO: Now, of course, that means investors have new hope a new bailout plan will be passed but analysts say clearly President Bush and Treasury Secretary Paulson did a poor job of explaining the bailout to voters and to legislators. Some of whom are clearly playing politics with this failing economy. Kiran.
CHETRY: Carol, it's interesting. I was reading the "New York Daily News" today and one of the many varieties of publications I look at in the morning.
Congressman Moran out of Virginia was joking about it. He said that his constituents were basically split 50/50. Half of them said no and the other half said hell no.
COSTELLO: Well, you know, I was talking to a person from - a congressman from New Jersey Garrett's office yesterday and before the bailout was introduced in the Senate, a lot of Main Street voters were calling. But once the bailout went down, a lot of Wall Street voters were calling saying, what's up with this? We want the bailout. So you're right. It's split 50/50 but it's really along Main Street lines and Wall Street lines.
CHETRY: Yes, you are right, Carol. A good piece for us this morning. Good to see you. Thanks.
(BEGIN VIDEOTAPE)
ROBERTS (voice-over): Bridge to nowhere 2.
GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: I told the Congress thanks, but no thanks.
ROBERTS: Alaska's other pet project and what John McCain had to say about it.
Plus, the golden boy. Boxing legend Oscar de la Hoya running his own campaign to be the pound for pound best. You are watching "the most news in the morning."
(COMMERCIAL BREAK)
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CHETRY: "Issue number one" is your money right now. A disturbing new economic trend. Unfinished homes. What the mortgage mess has done to the new construction business. Dan Simon takes us on a walk through.
DAN SIMON, CNN CORRESPONDENT: John and Kiran, we keep hearing about companies that are struggling because they can't get credit from their banks. Well, no one has been affected more than home builders. For obvious reasons, lenders do not want to be involved in home real estate. And that means in some case like you see here, the builders can't even finish what they started.
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SIMON (voice-over): They built these houses but couldn't finish them. The money dried up. These 12 unfinished homes outside of San Diego are a symbol of the nation's financial crisis.
MIKE PATTINSON, CEO, BARRAT AMERICAN: This would be the kitchen area here. Family room over there.
Mike Pattinson is the CEO of Barrat American, a California home builder. He says his company had to stop construction in March after his bank, Bank of America, froze the company's $125 million credit line. He claims they were current on their payments when the funding stopped.
PATTINSON: I'm angry with the way we've been treated. We and many other home builders like us have been good customers to these banks for decades and the way we've been treated is unconscionable.
SIMON: Pattinson calls himself a classic victim of the mortgage meltdown. He says his lender, like a lot of other banks, got spooked by the home real estate market.
PATTINSON: The banks have made a bad situation worse. Let's not forget that this subprime crisis was created by America's lending industry.
SIMON: We called Bank of America. The company didn't get back to us. Barrat American was one of the top 200 home builders in the country. It received numerous industry awards, built 500 homes and brought in $250 million in revenue. Now its offices are empty after laying off 100 of its 140 employees. Pattinson would like to see language in Congress' bailout package that would help companies regain lost credit.
PATTINSON: Home building is one of the key drivers of the American economy. And if we just bail out banks and the banks do what they've been doing and just sit on that money, then we didn't achieve anything.
(END VIDEOTAPE)
SIMON: These homes are now in foreclosure, which means they could hit the auction block. It's unclear when they'll ever be finished. Also unclear is of course is when the credit lines will reopen for all those struggling home builders. John and Kiran, back to you.
CHETRY: Dan Simon for us, thanks.
Well, everyone says these are tough economic times. But just how tough. Here's a look at an "A.M. Extra" for you now. According to the U.S. census, the average cost of a new home is more than $313,000. Ten years ago it was about $182,000. The cost of sending kids to college. According to the College Boar, the annual tuition cost at a four-year private institution is $23,700. Ten years ago it was under $14,000.
