Return to Transcripts main page
CNN Newsroom
Stock Markets Tank Around the World; House Panel Grills CEO of Lehman Brothers; Prepping Presidential Candidates for Debates
Aired October 06, 2008 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: The Taliban, the Afghans, and Saudi Arabia. Peace talks in the desert? Secret until now. Our Nic Robertson breaks a story you won't see anywhere else.
You call this a bailout? Stock markets tank around the world as more banks and lenders hit the skids and governments race to react.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: People come up and they're like, hey, excuse me. That thing the other night, we just talked about the subprime mortgage thing. What was that about?
(END VIDEO CLIP)
PHILLIPS: Disasters and politicians come and go, but not before they go through "SNL". Live from Atlanta, it's a back-stage look at a banner year for Saturday night.
Hello, everyone. I'm Kyra Phillips live at the CNN World Headquarters in Atlanta and you're live in the CNN NEWSROOM.
Down, down, and down. That describes U.S. stocks, global markets and probably your 401(k). The Dow dips below 10,000 for the first time in four years. Asian stocks have plunged. European stocks have plunged and credit markets are going nowhere amid uncertainty over the U.S. bailout plan.
The Europeans are trying to tackle their own banking meltdown while some major U.S. banks are fighting among themselves. Wachovia is in the middle. Citigroup and Wells Fargo are fighting for control. And the question of the day, how did we get into this mess? Right now Congress is putting the Lehman Brothers bankruptcy, one of Wall Street's biggest collapses, by the way, under its microscope.
And if jittery investors are hoping for a quick fix from President Bush, they're not going to get it. We heard from the president earlier today after he met with small business owners in San Antonio, Texas.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I told them one of the reasons why, you know, I was so strongly for this rescue package was inherent in the strategy of the rescue package is to free up credit. Is to get money moving. And it's going to take a while. I signed a bill on -- last week, but it's going to take a while to get in place a program that, one, is effective and, two, that doesn't waste taxpayers' money.
(END VIDEO CLIP)
PHILLIPS: The economy is definitely issue number one today. Our financial team is all over it. Susan Lisovicz at the New York Stock Exchange for a look at what's happening right now. And senior business correspondent Ali Velshi will tell us what lies ahead.
Let's go ahead and start with, you, Susan and the numbers.
SUSAN LISOVICZ, CNN CORRESPONDENT: Well, Kyra, it's more shock and awe. We're coming off the worst week in Wall Street since the markets reopened after the terror attacks of 9/11 and the president said what a lot of people know. They know rationally you have this unprecedented package. It's just not some magic potion that is going to automatically free up the credit markets. Nonetheless, what's happening in the meantime is we're seeing that this credit crisis is not just confined to U.S. shores.
We're seeing real government intervention in Europe for some very big companies. We're seeing government intervention where they're now guaranteeing bank deposits just like we've seen here in the United States. So this is a contagion. What's happening is it's reinforcing the fear that's already pervasive in the marketplace.
What regulators here and overseas want to do is not let fear get out of hand and create panic because it just makes a bad situation worse. So what we're seeing in the meantime on the big board is the Dow Industrials, very close to session lows. Right now, down nearly 600 points or nearly six percent. The NASDAQ is down seven percent. The broader S&P 500 is down nearly 6.5 percent. Where we're seeing also money -- prices decline is oil prices.
Oil prices right now are down $4.00, below $90 a barrel. A real flood into what are considered safe havens like gold as well as T- bills with very low yields, showing that investors are just willing just to put it in something safe just so that they get their money back. That's the kind of concern that's in the marketplace. Quickly, though, I just want to tell you, I spoke to an analyst from the S&P 500. He says that he is seeing signs that we're near a bottom because of the volatility, the levels, the breadth of the decline.
Right now we're seeing for every stock that's rising, there are 37 declining here at the New York Stock Exchange. That is a ferocious sell-off. Kyra?
PHILLIPS: Wow. Ferocious indeed, Susan. Thanks so much.
Now back to the question of the day. How did we even get here? Right now Congress wants answers. A House panel has been grilling the CEO of Lehman Brothers whose massive bankruptcy helped trigger the current crisis. And lawmakers cited documents alleging that Lehman wasted millions of executive compensation packages even while asking for a federal bailout. Take a listen. (BEGIN VIDEO CLIP)
REP. HENRY WAXMAN, (D) CA: You've been able to pocket close to half a million dollars. And my question to you, a lot of people ask is that fair for the CEO of a company that's now bankrupt to have made that kind of money? It's just unimaginable to so many people.
RICHARD FULD, CEO, LEHMAN BROTHERS: I would say to you the 500 number is not accurate. I would say to you that although it still is a large number, I think for the years that you're talking about here, I believe my cash compensation was close to $60 million, which you have indicated here, and I believe the amount that I took out of the company over and above that was, I believe, a little bit less than $250 million. Still a large number, though.
(END VIDEO CLIP)
PHILLIPS: And tomorrow House lawmakers will probe the government bailout of AIG, the biggest insurance company in America. Let's go to Ali Velshi now.
Plenty of fear and uncertainty surrounding the Wall Street bailout. Is there anything we can be sure of at this point?
ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: That little kid you were just interviewing, I think that little kid might want to be Treasury secretary.
PHILLIPS: She didn't have a lot to say, did she?
VELSHI: You know, the one thing she said, which stuck out, is she wants to save money for college, which is not something most nine- year-olds are thinking about. Bottom line is, if we all thought about saving, that is the root cause of this problem. I'm not blaming American individuals. I'm saying as a culture, we have completely derided the idea that you might actually save money as opposed to spend everything you have access to. When you hear from Lehman Brothers or you hear from the federal government about the debt or you hear from individuals that took mortgages that were too big or banks that gave away mortgages, that's at the root of the problem.
Here -- the economy goes in cycles. Home prices go in cycles. The stock market goes in cycles. And if you have enough cash on hand to get you through to the next part of the cycle, you come out a winner. The problem we've got right now is that there's no money left to spend. We don't have any extra credit. Credit is being squeezed.
And as a result of that, particularly as we head into the all- important holiday shopping season, it looks like it's going to be pretty bad. We continue to lose jobs. We saw that on Friday. We continue to lose home value. So where exactly are we supposed to kick start this economy?
And that's why you're seeing the reaction that you're seeing in the stock market. As much as the bailout might help unfreeze the credit crisis is not the same thing as the fact that people are just spending less and this is an economy two thirds of which is based on our ability to spend money as a -- as a nation. And that's where we're seeing this problem. Investors are looking forward and saying, there's just not going to be that much money to spend. People are going to keep their money in their pockets. How do we then price the stock market?
Now, if you're looking at your 401(k)s, your IRAs, you'll notice them down, if they are well-diversified, somewhere between 25 and 30 percent this year alone. That is huge. You should be making about 10 percent on an average year. But I just want to point out, Kyra, average. When these markets go down, what happens when they go up is they tend go up fairly significantly.
PHILLIPS: But older folks -- older folks are the ones that are going to get hosed in the process.
VELSHI: That's right.
PHILLIPS: As we sit here and we listen to the president of the United States say, well, it's going to take a while. OK, how long is a while?
VELSHI: If you don't have a while. You have a problem.
PHILLIPS: We have folks who need that money right now. Sure, you and I can hold out and we can wait and cross our fingers, but for those that need this money right this minute, they're hosed.
VELSHI: I want people to remember, if you're close to retirement, you still have that money that you've got to grow throughout retirement. So once you start retiring, you have to take a piece ought of your 401(k) on an annual basis, but the rest of it actually has to continues to grow.
So there's two things you want to achieve. One is investing in a way that's suited to your age, your temperament, your tolerance for risk and how much time you have until you take that money out and you can get that on the Internet starting at money.com. But there are a lot of sites, a lot of financial advisers.
The second thing, you cannot at any time be invested in something that makes you uncomfortable. Now your professional advisers, when you buy a mutual fund, your professional traders are the ones selling those stocks on Wall Street today not because they're saying stocks are not the right place to be in the long-term. What they're just saying today, stocks aren't the place to be. So again, let the professionals have their volatile trading. Your investments cannot be -- unless you're a trader, you can't invest this way. So if you're close to retirement, you are having sleepless nights, you need to go on to money.com and click on the personal finance tab and click on the Money 101 tab and understand whether your investments are in the right place.
Some people look at this and say stocks are on sale. There's a discount going on right now. Doesn't mean they won't get lower. Absolutely doesn't mean that. It just means that over the long-term, these cycles occur. And we're not having anybody tell us that they think we're going to 5,000 on the Dow. I just want to ...
PHILLIPS: But you are telling us don't worry about a depression? We're not going to hit a depression.
VELSHI: I'm absolutely telling you ...
PHILLIPS: OK.
VELSHI: Yes. Because, a, we have information. We know that our deposits are not going to disappear in the bank. Back in the Depression, you didn't know that. If your bank failed, you didn't know you were getting money at all. You could lose everything.
Here, if you feel like you're really insecure, your money in cash in a bank will not disappear as long as it's diversified the right way. And there are other reasons, Kyra, why we're protected against that. It doesn't mean we won't have a bad recession and that more jobs won't be lost, but depression is a word we don't have to worry about right now.
PHILLIPS: Like to hear that. Ali Velshi, thanks.
VELSHI: OK.
PHILLIPS: Twenty-nine days before the election. One day before the next debate. John McCain sticking close to home, but not relaxing.
The Arizona Republican is due at a rally in Albuquerque an hour from now. You'll see it live right here on CNN.
Meanwhile, Barack Obama in debate prep mode in Asheville, North Carolina. He had a rally yesterday. Republicans have owned North Carolina, by the way, in presidential races but the Illinois Democrat does see an opportunity.
And if you didn't know the election was less than a month away, the latest ads and attacks might be a tip-off. Republican V.P. candidate Sarah Palin, pummeling Barack Obama over his past associations with a former member of the Weather Underground. That was that band of violent left wing radicals from the 1970s. By the way, Obama was just a child during that time.
And former Underground member Bill Ayers is now a university professor who worked with the same non-profit group that Obama did to raise money for school improvements and charity. Palin accuses Obama of quote, "palling around with terrorists."
(BEGIN VIDEO CLIP)
GOV. SARAH PALIN, (R) VICE PRESIDENTIAL CANDIDATE: Barack Obama says that Ayers was just someone in the neighborhood, but that's less than truthful. His own top advisers said that they were quote "certainly friendly." In fact, Obama held one of his first meetings of his political career in Bill Ayers' living room. And they worked together on various projects in Chicago. And, you know, these are the same guys who think that patriotism is paying higher taxes.
(END VIDEO CLIP)
PHILLIPS: For his part, Obama is dredging up John McCain's role in the savings and loan collapse of the 1980s. McCain was one of the so-called Keating Five. You may remember, those were the senators who intervened with regulators for an S&L owner who went to prison for fraud. Obama dismisses the Underground attacks as guilt by association.
Now, this much we do know. There will be no shortage of questions at tomorrow night's town-hall type debate. Candy Crowley already in Nashville with her notebook poised.
Candy, set the stage for us. Will we see more of this mud- slinging tomorrow night?
CANDY CROWLEY, CNN SR. POLITICAL CORRESPONDENT: You know, it's going to be hard. Here's why. It's a town hall meeting and there will be undecided voters asking questions. They are very close to the candidates when we're asking these questions. And it's really hard to go negative on the guy sitting next to you when you have, as we call them, real people seated around you.
Because it's one thing to have a negative ad. It's even one thing to be in front of a crowd that is already for you, to feed them that red kind of meat. It's another thing to see independents or undecided voters who could go either way and be right there with them and go negative.
So I think it's going to be very tricky for both of them at this point. It's obviously on the economy. I don't exact that they'll engage in this sort of negative way about, you know, terrorists and -- and what John McCain did in the -- in the S&L scandal. So I -- I think they will stick on the economy. There's certainly enough there for them to talk about.
PHILLIPS: So why are the campaigns going negative now? Why pulling out these old stories from years and years past? I mean, this just seems like such a typical tactic, and it seems weak.
CROWLEY: Well, listen, when you are John McCain and you are behind, you go for what you think the weakness is of your opponent. And in this case, it's what do you really know about this candidate? What do you really know about Barack Obama? Hillary Clinton did the same thing. You don't really know him. You know, he brings higher taxes or here's who he's hanging out with.
You need to take a second look. As far as Barack Obama is concerned, it's the John Kerry lesson, you know. Keep hitting back. Every time they say something, you say something back. So what we've had is this huge escalation, 29 days to go, you generally do see this kind of escalation. This is where they're coming from at this point. John McCain from behind in the polls, and Barack Obama listening to the 2004 lesson, which is hit back. PHILLIPS: And if you look at the latest electoral map, and we're basing this on our polls, that Obama has the lead. How is it shaping up within the last few weeks of the race?
CROWLEY: Well, it's -- I mean, we have seen nothing but movement toward Obama. So many things are happening out there. You did not see any relief in the stock market. You did not see any relief if you're a homeowner and you're being foreclosed upon, that hasn't changed. Gas prices haven't gone down. No one expected them to.
But nonetheless, those problems still exist. So long as people are focused on the economy, for many reasons, this favors Democrats. First because they tend to be more interventionist. And in post- Katrina era, people look to the government to do something.
Second, because George Bush is very unpopular and the Obama campaign has, if nothing else, tried to tie John McCain to George Bush, and, third, because Republicans have been in power for eight years.
So there's a lot of reasons why this movement at this point, what we're seeing is toward Obama. Can anything happen? It can. But right now, Obama is coming in here in the cat bird seat, Kyra.
PHILLIPS: Great to see you, Candy.
CROWLEY: Thank you.
PHILLIPS: And again, tomorrow night the presidential candidates face off in their second debate. Debate night, Tuesday night, right here on CNN.
The days grow short, the gloves come off. Politics as usual or acts of desperation or both? We're going to ask some veterans of bare knuckle presidential campaigns.
(COMMERCIAL BREAK)
PHILLIPS: An unprecedented move in the war against the Taliban. The Saudis taking a direct role in trying to bring about a negotiated peace between Taliban militants and the Afghan government. But the pitfalls are staggering.
CNN's senior international correspondent Nic Robertson reports.
(BEGIN VIDEOTAPE)
NIC ROBERTSON, CNN SR. INTERNATIONAL CORRESPONDENT (voice-over): These are the images shot by the Taliban the Taliban wants the world to see them. Their fighters, apparently overrunning a U.S. Army bunker. A powerful force resurgent from their ousting of the Afghan government in 2001.
(on camera): But this is not the whole picture. In the past two weeks, Saudi Arabia's King Abdullah has held breakthrough closed-door talks between the Afghan government and the Taliban. According to sources familiar with the talks, both sides agree the only way to get peace is through negotiations.
Key Taliban leaders now believe they cannot fight their way back to power and are ready to talk.
(voice-over): The symbolism of holding the talks in Mecca, Islam's holiest site, intended to show Saudis' resolve to end the conflict that is already turning into a regional war, destabilizing neighboring Pakistan.
UNIDENTIFIED MALE: The talks are very significant in the sense that for the very first time, you have a formal process that involves the Afghan government and the Taliban.
ROBERTSON: Among the 11 Taliban delegates, several former top officials including the former foreign minister and ambassadors to the UN and Pakistan. They want a time table for coalition forces to withdraw. A key demand from the Saudis that Mullah Omar, the Taliban leader who did not attend, must sever ties to al Qaeda. According to sources close to the talks, Mullah Omar has agreed.
On the battlefield in Afghanistan, the coalition casualty toll is mounting. And among European forces in particular, there is a growing realization new tactics are required.
PETER NEUMANN, KINGS COLLEGE, LONDON: Politicians may still talk about confronting the Taliban, defeating the Taliban, but on the ground the reality is very much everyone accepts that there will only be stability in Afghanistan if the Taliban are in some way being brought onboard.
(END VIDEOTAPE)
PHILLIPS: Nic Robertson now joins us live from London. Nic, give us a reality check. I mean, these are -- are two entities that have never gotten along. The Taliban has never been in support of the royal family in Saudi Arabia. I mean, is this a reality, that they can talk and negotiate something and end this hatred and these -- these acts of terrorism?
ROBERTS: You know, one of the important things for the Saudis here was to sort of break the Taliban away from al Qaeda. For the West, if you're looking at what's happening at the moment, that's got to be a good thing. Because it's going to weaken the stance of al Qaeda in Afghanistan and Pakistan. How the Saudis are going to do it, they're working with the Afghan government who obviously has a vested interest in stopping the fighting in Afghanistan.
And according to sources I've been talking to, they feel, the Saudis feel, that both sides in this really do believe that talking this out is the best thing to do. But let's face it. The Taliban, they're not united. Mullah Omar, the Taliban leader can't afford to get out ahead of his fighters because as one former Taliban official told me earlier on today, if he does that, somebody might just step up and kill him.
So the reality check here is that this is a long way from being done. The next talks perhaps in a couple of months' time, Kyra.
PHILLIPS: Do we know if the U.S. supports this? This is something -- I mean, obviously the U.S. never negotiates with terrorists. Has there been any type of response about what leaders in our country think about this?
ROBERTSON: Well, you know, what I'm hearing from the Saudis, they're prepared to go this alone along their own track. I think there is a broad understanding in Europe and the United States that the Saudis are not going to do anything too controversial here. They have a vested interest in seeing al Qaeda brought down as well.
So there's a lot of people's vested interest. But the Saudis also looking at Afghanistan and saying we can't see it go the same way as Iraq. We can't afford to see Iran get a lead involvement in that country.
And at the moment, I'm told by sources in Afghanistan that the Iranians are playing an increasingly stronger diplomatic role there. That's something the Saudis are looking at as well. The bottom line here is that if this is going to succeed, if the Saudi strategy is going to succeed and the Afghan strategy is going to succeed, it's going to take a change in the coalition policy. A big, seismic change because they're going to have to say, OK, we're not going to fight the Taliban. We're going to talk. And that is not the case right now.
PHILLIPS: Nic Robertson, live from London.
Thanks, Nic.
More from the CNN NEWSROOM straight ahead.
(COMMERCIAL BREAK)
PHILLIPS: Recess is over and back to the bench. The Supreme Court has a new term under the way.
Actually, first of all, I'll tell you about the markets. Dow Industrials down 717 right now as we're monitoring the effects of that bailout plan that was voted on Friday, passing, of course, with the president signing off at the end of the day. We've been seeing the markets tank. It's been causing a lot of fear, obviously, with investors. But we want to tell you, our financial gurus are saying we're not headed toward a depression. It's going to be a tough time, but we're going to have more advice on what to do with your money coming up with Gerri Willis in just a few minutes.
Meanwhile, back to the Supreme Court and that new term that's underway. Justices turned away hundreds of appeals this morning, but a controversial death row case in Georgia will get a hearing. Justices say they need more time to review the Troy Davis case. You remember he was convicted of killing a police officer nearly 20 years ago. Seven of nine witnesses against him have recanted their testimony since then. And justices will take another look at that case on Friday. Meanwhile, Davis came within a couple of hours of execution last month. Well, from hostage, to hero, to star witness, a Georgia woman is on the stand reliving the day that Brian Nichols stormed into her life. Ashley Smith spent hours barricaded in her apartment with Nichols, the admitted Atlanta court house shooter. He's charged with four murders in a spree that began when he shot his way out of his rape trial in 2005.
This morning, Smith shared details of her time with Nichols and how she tried to win his trust. Nichols has pleaded not guilty by reason of insanity and prosecutors plan to seek the death penalty if, indeed, he is convicted.
What will happen to my 401(k)? Where should I put my money? And when should I take it out? You've got all those questions probably for our personal finance editor, Gerri Willis, and she's got some answers for you.
(COMMERCIAL BREAK)
PHILLIPS: Live at the New York Stock Exchange right now. The Dow Industrials down 700 points. You know, with all of this despair and fear about a weakening global economy, we're actually seeing it sweep across Wall Street right now with the Dow Industrials go down again -- 712. We see the number continue to tank. A lot of selling off of stocks as people are concerned, not only about the bailout here, but also what's happening across -- over on the other side of the pond.
Put it all into perspective for us, Susan Lisovicz.
And Gerri Willis, I know we're going to get some tips from you, Gerri, in a minute.
But Susan, just the numbers, tell us how bad this is, and why we need to be so concerned at this point.
LISOVICZ: Well, we're in the throws of a bear market, Kyra. And, you know, the credit bubble that burst is ugly. We're going -- we're swinging from one extreme to another. A few years ago, I was telling T.J., all you had to do was breathe and you could get a loan. And now you see companies like General Electric with a triple-A credit rating, just a company that's been around for more than a century, has been on the Dow actually the longest -- the only company that's still a member of the Dow Industrials, going to Warren Buffett for a little help. And Warren Buffett able to get a very good deal out of the equation.
That happened just last week. So what you're seeing is a credit market that remains virtually frozen. Yes, the legislation, this landmark legislation, was passed on Friday, but as President Bush said today -- and most people, when you think about it -- it takes a while for this to happen. It is going to take a while. But what we're seeing is that some of these arcane indexes that the market, that investors, professional investors, money managers, institutional investors, look at, they can see that the spreads are very high, meaning it is expensive and difficult to get access to credit. And credit is the oxygen that makes an economy grow.
Our economy is not -- it's decelerating to say the very least. We saw it with the jobs report on Friday. And there are many expectations that the unemployment rate will rise, that the economy -- the overall economy -- will be affected, it will get worse before it gets better. We have seen signs that contagion is spreading. The credit crisis that we see here in the U.S. is spreading. We've got clear, undeniable signs of that.
Several governments in Europe basically guaranteeing banker deposits say -- bank deposits -- they do not want a run on the banks. When there's a run on the bank, it doesn't matter how solid the bank is, it just cannot survive that kind of pressure from outside. And so what you're seeing is governments as well overseas propping up financial institutions that are right now in a little bit of trouble for the same reasons that we've talked about for weeks and months here.
PHILLIPS: And do we need to keep it in perspective, Susan? Because this bill was just signed on Friday. We just came off the weekend. It's Monday. There's a lot of fear. It's turbulent times obviously.
So do we need to continue to keep this in perspective because it's only been a couple of days since the bill was signed on Friday?
LISOVICZ: Yes, I think we need to take a deep breath.
And Frankly, Kyra, again, these are times when some investors are looking -- like Warren Buffett, for instance -- are looking at opportunities. Like the one he drove with GE and the one with Goldman Sachs before that. I talked to the head of Standard and Poors. He's a guy who looks at numbers all the time. And he was telling me just this afternoon, he thinks, and this is just one person's opinion, no one can predict bottoms, but he says by looking at where the S&P 500 is -- which is the broadest of the major averages, so many of our mutual funds, our 401(k) investments are tied to the S&P -- so the S&P is down 32 percent from its recent high. He says that is typically in recent history where you start to see the bottoming out. He also was looking at the overall volatility, which has been extreme, and the breadth of the decline.
And we can measure that today. For every stock that is rising here, there are 3,100 declining. There's only about 70 that are to the upside. So it is a ferocious selloff. And sometimes that can be an opportunity. Ultimately, you want to buy low. I'm not saying -- far be it from me to say that this is the bottom of the market because we continue to have problems. We think consumer spending will slow given -- given -- if the unemployment rate rises, you know consumer spending is going to be hamstrung. And the credit crisis -- yes, I mean -- it's going to take a while. If this plan works, it's going to take a while.
But it -- you know, you're seeing the Federal Reserve and governments around the world take extraordinary measures to inject liquidity. And this whole credit bubble didn't happen overnight. It's not going to be fixed overnight, Kyra. It's as simple as that.
PHILLIPS: All right. Susan, thanks so much. Of course we're going to be talking a lot more throughout the day.
You know, let's face it. No matter where we work, where we live, how much we make, we're all talking about the economy. It's issue number one for you. It was for us, too, in our morning meeting. And today we found out about questionable 401(k) advice.
Take a listen.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: NPR had a guy one who was saying just the opposite. Leave it -- don't cut your 401(k). Just make adjustments according to your age.
UNIDENTIFIED FEMALE: A good story that we should probably just report today -- I know it broke over the weekend. This 90-year-old woman in Akron, Ohio. The sheriff's department comes, puts the eviction notice. She was behind on her loan. She ends up shooting herself twice. But she survived and now Fannie Mae says it's going to set aside the loan and let her, you know, live the rest of her days there in her house. I mean, she was 90 and was so distraught when she got the eviction notice, that she shot herself.
UNIDENTIFIED FEMALE: Bank of America is supposed to start reevaluating some of those bad loans from Countrywide. And they're going to reassess and possibly make some changes on some of those, too.
(END VIDEO CLIP)
PHILLIPS: All right. Well, enough about that. So, let's talk about you. How's your nest egg? Right now you might feel like an over-protective mother hen. Our personal finance editor Gerri Willis here to help us out.
Gerri, give us some advice.
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Well, hey, Kyra.
You know, the thing that you need here is some perspective when you see this market plummeting like a stone, down over 700 points just a moment ago. This is a bare market. If you've invested any amount of time at all, you've been here before.
Look, during the dot com crash, stocks lost 41 percent of their value. No where near that at this moment. But you know, we're continuing obviously to watch the market.
Let's look at some numbers from morningstar.com. We're looking at previous bare markets, what happened? You'll notice that after the 1987 stock market crash, stocks recovered almost 15 percent in one year. And after three years, stocks came back about 30 percent during the S&L crisis. So if you see -- here we have the numbers right here. If you see a bare market, there is often a turn-around that follows on fairly quickly on its heels. I'm not saying it will necessarily happen this way now. But, you always want to know how previous bare markets reacted, what happened to stocks over that period.
Now, look, I know you're hurting out there. 87 percent of mutual funds ended in the red in the third quarter. That's according to market research firm LIPOR. If this trend continues it will be even worse in the fourth quarter. But I have to tell you, you need to take a breath and think about what's happened in previous bare markets. There is a turn-around -- Kyra.
PHILLIPS: All right. 401(k), what do we do about that right now? Do we just not look at it? Do we do some reworking? I know a lot of people are meeting with their financial advisers this week.
WILLIS: Well, that's a great idea. Meet with your financial adviser. Meet with the expert in your life who tells you about these things.
Look, this is your retirement money. You won't need this money hopefully for decades. If you're five years from retirement, your strategy is very different. But if you have 5, 10, 15 years, even more to retirement, you should take a breath and stop being obsessed with these numbers.
Look, market volatility is the nature of the beast. Remember, a year ago this week, the Dow Industrials were setting a series of record highs. So here's what you do want to focus on right now. Add to your emergency cash fund. Look, the biggest threat to your economic health right now is probably not your 401(k), it's your job. Can you keep your job? Put as much money away as you can in case you need that emergency money. Pay down your credit card debt. This is probably the highest cost debt that you have right now. Get rid of it. That's a guaranteed return for you.
Take stock of where your money is. Find out how much you have in the bank. Make sure you're within FDIC limits. It's what we've been talking about for weeks now. If you have any questions about your money or your investments, now is the time to get answers. But don't panic. Because that's no way to deal with a situation like this. Keep your goals first and foremost -- Kyra.
PHILLIPS: All right. Gerri Willis, thank you so much.
Ali Velshi, how's it all looking right now as we continue to watch these numbers drop? Dow Industrials down 704 points now. Actually, it's kind of going up and down between about 30 or 40 points.
VELSHI: Yes. Well, Susan mentioned the volatility. And volatility is not your friend as an individual investor because it's something you can't keep track of. In other words, unless you do what I do and you follow the numbers all day and sort of break them down and see what's going up and down, it doesn't really help you.
There's some uniformity to what's going on today, and that is that every single one of the Dow 30 stocks is down. As Susan told you, lots and lots and lots and lots and lots of stocks are down right now. From a percentage basis, that's 725 that we're at right now. The drop of 725 is now bigger than the percentage loss that we had last Monday, the 777-point loss. Because obviously we're working off of a smaller base. So, this is where the numbers start to become irrelevant and you have to think about it in terms of percentages.
So right now, we have a bigger percentage drop in the Dow than we had last week. But, again, we're going back and forth on this one. This is truly a market that is difficult to make sense of. Which is why for those of you out there worried about this and watching this, you'll only have one place to go and that is going back to rules and discipline about investing.
You should be invested where you are and let the portfolio managers who are trying make sense of this, make sense of it. There are a couple of things going on that they're worried about. Number one, Kyra, on Friday, we had a massive unemployment number, a massive jobless number. Never mind the percentage. The 159,000 people who are unemployed, that's a big, big jump. That means every month we have averaged 84,000 people losing jobs when we should be adding 100 or 150,000. On any other day, that would be not only the headline, it would be the only thing we're talking about. But the bailout has shrouded issues a bit.
We have serious unemployment, we have home prices going down and the economy is in danger. And that is why this market is reacting the way it is. This is across the board. This is people getting out and saying I'm going to park my money somewhere else until the market comes back. This is not people saying the market may never come back. This is people saying, this is what's happening right now. And individuals can't time the market.
So, again, understanding the context of what's going on is important. Until we know where that bail set going and the credit markets have started to free up and that Americans generally speaking, feel a little freer about their own money, we're not going to start to see companies reporting that they're doing better and hence, you're not going to see the stock market do better. The stock market is taking the temperature of the economy. Let's not use it as the gauge for the economy. The stock market is not an element of the economy, it is a product of it. So, it's an interesting distinction to make. But people should make sure they're not being driven by the stock market.
PHILLIPS: Ali Velshi, putting it all in perspective for us. Thanks.
Follow the markets and get up to the minute news on the financial crisis on web site anytime. Just log on to CNNMoney.com.
(COMMERCIAL BREAK)
PHILLIPS: Dow Industrials down 783 points right now. We are seeing the effects from that bill, that bailout bill on Friday. Markets pretty much tanking today. A hard time from the U.S., but also hard time overseas as well. A combination of what's happening here in the United States and also just issues that have been taking place in banks overseas.
Those two combined together, it's a tough time economically here and around the world. Someone we haven't had a chance to talk to in a long time. I couldn't think of a better person to kind of gauge the perspective of what's happening going on overseas. Richard Quest live for us in London. He's at 10 Downing Street. is with us.
Great to see you, Richard. Tell us about the international reaction and how the heck is your 401(k)?
RICHARD QUEST, CNN INTERNATIONAL CORRESPONDENT: Sorry? Sorry? I think it's so far down underwater. It sunk without a trace. But luckily, luckily, Kyra, as I was listening to Ali Velshi and to your other guests and experts, I'm on the right side of fifty, so I've got time to rebalance my portfolio.
PHILLIPS: Outstanding.
QUEST: It's not a laughing matter by any stretch of the imagination because even those of us in our mid-40s who are looking at our 401(k) plans, are just basically terrified and have got visions of working until we're 90 to make sure we've got retirement.
Let's talk though about what's happened to markets in Europe. For years I've been banging on about how the markets are interconnected, globalization and people think we're talking absolute rubbish. Well, today now, we are really seeing it. The European markets on average, London down 7 percent; Paris down 9 percent ; Russia, the Russian market closed because it was down 19 percent. And there is no coordinated response. They are bailing out the banks in Germany. They are guaranteeing investors' deposits in Denmark. Britain, behind me, the prime minister is considering inside number 10, considering what the response should be.
So anyone who tells you about decoupling and all of these other fancy phrases they use, is talking rot. The rot has set in and it's spreading fast.
PHILLIPS: All right. I thought we were actually going to hear from those overseas. Did you say that the rot is setting in fast? Is that what I heard you say?
QUEST: Yes. Yes. And I don't think I'm being apocalyptic and I don't think I'm forecasting Armageddon, in terms of markets. I think that quite clearly what we are seeing is a continued downturn, a full- scale bare market that is not going to get better anytime soon.
And just to prove that things are pretty grim, I wouldn't bother asking me another question, Kyra, because I can tell you now, the phone line to my ear has dropped. I hope we haven't paid the bill.
PHILLIPS: OK. And what Richard Quest is actually trying to say, that our link between Atlanta, Georgia, and London, has dropped. So I will not be able to ask him any questions. But I can go from Richard Quest in London, to Susan Lisovicz at the New York Stock Exchange as we continue to monitor the Dow Industrials, dropping now 749 points. The Dow Industrials setting a record for one day point drop.
782, Susan. Anxiety, weak global economy. You heard Richard Quest talking about what's happening overseas. I mean, what's happening there and here coming together. It's kind of frightening to watch these numbers. But still, all of you keep saying to us, don't panic. And that it's fear that is creating a lot of this today, on this Monday.
LISOVICZ: No question about it. But, you know, it's -- you know, this is the -- well, we've seen the biggest point loss actually for the Dow just moments ago, where the blue chips actually dropped 800 points. And of course, it comes one week after recording the biggest point loss for the Dow Industrials.
Having said that, yes, there's a lot of fear and uncertainty in the marketplace, but I wouldn't say that the sell-off we're seeing today is one of panic. We knew the market was going to sell off and we knew why. The legislation was passed on Friday, but there are a lot of questions. There's just as many questions as there are answers. And it's never been done before.
In the meantime, we continue to see the rot, as Richard said, spreading, or the cancer, the disease spreading. It's not just a U.S. problem. It's a global problem and it's playing out in the global market. The global stock market, which saw a huge wave of selling today. But the reason I want to say it's not a panicked sell-off, at least from my indication, is because we've seen it steadily deteriorate. I mean, it's not a big wave of selling, some big jump drop in the precipice that will often mark you know, a break in the market where -- which is a euphemism for a crash. Or, you know, something that would ignite a circuit breaker here where we'd actually have a halt in trading. We're seeing a pretty orderly selloff. It's ugly, but it's an orderly selloff.
It's just -- this is what's happening. We have a credit crisis, governments around the world are trying to resolve it. And in the meantime, the easiest way to go seems to be to sell. And as we go into the final hour of trading, that's typically when a selloff can get particularly nasty. At this point, there would -- we'd really have to have a very big -- a huge selloff for there to be a halt in trading now. We're not close to it. Not yet anyway, Kyra.
PHILLIPS: That is -- just as you're talking about that, crossing the wires, Susan, Federal Reserve saying it's going to provide as much as $900 billion in cash loans to squeeze banks in an urgent effort hopefully to kind of break through this credit clog that's threatening the economy right now.
Ali Velshi are you linked up with me?
VELSHI: Yes, I am. We have apparently still paid the bills in New York so I can talk to you.
But let me just tell you something -- Susan makes reference to an orderly selloff. It's the same thing I was saying earlier. People must be watching this thinking, what is orderly about the second week in a row where we've had more than 700 points? In fact the Dow was off 800 points. We've not seen a minus eight before in history.
Why are we calling this orderly? And are we crazy?
Well I'll tell you what it means. What it means is that stocks can go down, but is there a buyer for every stock that is being sold? A disorderly selloff is that when people are so desperate to get out of the market, and I mean professionals, that they will just get rid of it at any possible price. This is gradual, which means at some point somebody is trying to sell a stock of General Electric and there's somebody on the other side of the equation to buy it and it's not at a ridiculous price. We're still down several percentage points today, in fact a bigger percentage point loss than we were a week ago.
But that is how markets work. When somebody thinks something is not valuable, they sell it. Somebody else thinks it's valuable. So the fact that the Dow is still at 9,500 means that some people think there's value in this. So that's what we mean by an orderly selloff.
What happens when you see a disorderly selloff is people doing everything they can to sell stocks. And that means, for those of you at home, when you put in an order to sell your stock and you put it at market, which means I have got to sell this stock no matter what anybody pays me for it, that is disorderly. And we're not seeing that, which means the market is not yet panicked. And if the market has not panicked, you shouldn't be panicked either.
We will be the first to let you know when something happens to indicate that this is disorderly. And one of things Susan mentioned is that there are things that happen on the market, in this case I think the Dow would have to be down about 1,100 points, where they would stop trading for a certain period of time, probably at this point the -- I don't know what would happen. Susan has got the update on exactly how it works. But there are mechanisms that would stop disorderly trade, at least until tomorrow.
Now, that's what you have to watch out for. This is still a selloff, but it is gradual and it is still orderly. Doesn't help you when you look at your 401(k) or your Dow, but it should help you say, hold on, this is bad, it's not about panic. That's really the message that I'm trying to get across today. There is order to this even though it seems crazy and disorderly.
PHILLIPS: OK. Did you hear Richard Quest use the word rot? I'm just curious, I wonder if he saw my quote by the secretary of the Treasury Andrew Melon from back in the days of President Hoover when he said you need the shock system now during the depression and you have to liquidate everything and purge the rottenness out of the system. There you go, Richard Quest talking about exactly what they were talking about in the Great Depression.
And we saw that, too, with the hearings today with the oversight committee, really grilling the CEO of Lehman Brothers saying, look, this started when -- when we started seeing the -- the corruption that was being investigated and the big pay-offs going inside your company.
VELSHI: But it also started with greed. And no matter what anybody tells you, we're not outlawing that anytime soon. So the bottom line is people use the euphemisms for what you have to do to get this cleansed out of the system, or get the rot out, or cut the cancer out -- the bottom line is they are all euphemisms for the fact that people will lose their jobs. And when people lose their jobs that is much more important than home values going down or oil prices going up.
So we must, in 2008, be able to deal with rot with one of those fancy sprays where you can spray it and it goes away. Because if you do it the old-fashioned way and you just take out the whole thing and throw it out, well that means people's jobs are disappearing and that is very hard to get around. And that's why, academically, it makes sense. It is very hard to actually do that in this economy. It drives us into a rut that could take us years to get out of.
So, that's why I keep on saying there might be other ways to get out of this thing where we ease out of it rather than deciding to let the whole thing fail and to let the chips fall where they may. That can be very damaging. It makes sense in economics classes and to economists. It doesn't necessarily work on the ground.
PHILLIPS: Susan Lisovicz, can we ease ourself out of this gloom and doom and despair and fear that everybody is feeling right now as we watch the numbers drop?
LISOVICZ: Well, Kyra, the other side of fear is greed. And greed is also a component of the stock market. And Warren Buffett and many other savvy investors know that they should be looking -- they should be looking at prices right now. There are good companies that are being swept in this sort of tsunami of selling that we're seeing for a good price.
As I mentioned, no one is going to call it, but you would want to buy on the down side as opposed to when you're going to record highs. And there are -- there are people who studied these kind of things all the time that say there are signs, where we're getting -- it's starting to get to a point where the market can make a bottom and you can start building from there.
PHILLIPS: Susan Lisovicz live from the New York Stock Exchange. Our Ali Velshi out of the New York bureau, watching these historic numbers cross the board as we're struggling through just what's happening on Wall Street right now.
We're going to continue to follow it. 2:55 Eastern time. Stay with me. Quick break. We'll be right back.
(COMMERCIAL BREAK)
PHILLIPS: History in the making for all the wrong reasons. Right now, Dow Industrials down 669 points. You can just see the economy tumbling right now as we continue to monitor these numbers. We're covering it from all angles: the politics, the investigations, the financial advise.
Rick Sanchez is going to take it from here, right after a quick break. We're following your money and what it means to you.
