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Stocks Tread Water; Obama, McCain Face-Off Tonight; Families Struggling Over Finances; Former AIG Execs Testify Before House Committee
Aired October 07, 2008 - 12:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN ANCHOR: And hello again, everyone. You are in the CNN NEWSROOM.
I'm Tony Harris.
A mix of money and politics headlining the news this Tuesday, October 7th.
Investors catching their breath on Wall Street today. Tonight, it will be the audience tossing out questions at the Obama/McCain town hall debate.
Let's focus first on the global financial crisis and what Americans think of the $700 billion rescue plan. A CNN/Opinion Research Corporation poll releasing this hour 53 percent of people asked feel the rescue is merely a bailout of Wall Street, 40 percent say it will benefit ordinary Americans.
When asked whether taxpayers will get a fair shake under the bailout, almost two-thirds said no. Will government money be spent properly? Again, skepticism. More than half, 52 percent, said it is not likely.
Dow stocks treading water today. That's better than yesterday, when financial fortunes were sinking like a rock.
Let's get the numbers from CNN's Susan Lisovicz at the New York Stock Exchange.
Hi again, Susan.
SUSAN LISOVICZ, CNN BUSINESS CORRESPONDENT: Hi again, Tony.
Well, you know, futures improved quite a bit after the Federal Reserve announced yet another unprecedented move to loosen up the credit market. We saw a modest rally at the open. Two and a half hours later, well, we' re seeing the Dow and the major averages struggle. The Dow right now is below, back below 10,000.
Credit markets have improved a little bits. We're seeing a little bit of movement, a higher movement on treasuries. So the yields are moving higher today.
This, as the Federal Reserve said it will buy commercial paper, the short-term debt that companies need to finance their daily operations, from individual companies. Panicky investors have been less willing to buy this kind of debt lately, making it hard for companies to get the money they need to operate.
You know, and why is that? Why are banks reluctant to lend? Well, we have a good example with Bank of America.
One of the nation' s largest banks reporting a steep drop in profits that was short of estimates. Also, B of A cutting its dividend. It will raise $10 billion through a stock sale. The company will need to set aside money for bad loans through the coming year. B of A shares right now are down 15 percent, and most financial stocks are lower as well -- Tony.
HARRIS: Hang on, markets.
All right, Susan. Good to see you. Thank you.
You know, they've got some explaining to do. Former executives from insurance behemoth AIG are in front of a House committee right now. Lawmakers want to know how the subprime mortgage debacle spiraled into a near-death experience for AIG.
The Fed, as you'll recall, rescued AIG three weeks ago today with an $85 billion loan. The men testifying today ran the company between 2005 and last month. Former CEO Hank Greenberg, who ran AIG four 40 years, is a no-show. He is reportedly ill.
So the match-up is on for tonight, and the map is shifting in the presidential race. A new CNN Electoral College map out this morning gives Barack Obama a sizable advantage, if -- that's a big "if" -- if the election were held today.
It' s not. But if the election were held today, it's estimated Obama would win states with 264 electoral votes. John McCain, 174. One hundred electoral votes are still up for grabs. It takes 270 to win the White House.
Debate night, round two. John McCain and Obama face off tonight with just four weeks until Election Day. Obama riding a recent surge in the polls, but tonight's format could favor John McCain.
Ed Henry, live from Nashville with a debate preview.
And you know, Ed, John McCain, I think we would all agree, needs something of a decisive victory tonight. How does he get it?
ED HENRY, CNN WHITE HOUSE CORRESPONDENT: That's right. Game on.
He really needs to -- needs to connect with voters tonight, and show them that he feels the economy right here in his heart. You know, this kind of format plays to his strengths because he really enjoys the town hall format, but that only raises the stakes as well, because people expect that he's the one who is going to dominate.
So I think he has to show beyond the attacks we've seen from the McCain/Palin attack over the last couple of days trying to bring Barack Obama down and say he's not ready to be commander in chief, now John McCain has an opportunity in this format to focus on the positive and say, look, if you make me commander in chief, I've already laid out what I would do on national security. Here's what I would do on the economy. That's going to be the focus tonight -- Tony.
HARRIS: You know what? Is there anything out there, really, Ed, to suggest that John McCain can achieve this decisive victory, say, on his own? Or does he need some help from Barack Obama?
HENRY: Well, clearly if there's a gaffe from Barack Obama tonight, that would only reinforce the attacks that have been out there from the Republican ticket that he's not ready for primetime. But I think obviously, Obama has shown himself to be pretty cool under fire.
He went in through debate after debate with Hillary Clinton. That obviously warming him up for these three debates with John McCain, the second of three tonight.
I think the pressure a little bit more on McCain, because, clearly, as you mentioned, in those battleground states McCain has been falling behind because of the financial crisis, and quite frankly, he's running out of time. There are only after this one more debate.
In terms of the game-changer everyone's talking about, he's got to get moving either tonight or next week in the final debate.
HARRIS: Ed Henry for us.
Ed, as always, great to talk to you. Thanks, man.
You know, the vice presidential candidates are on and off of the trail today. Democrat Joe Biden taking time off from campaigning. He is attending funeral services for his mother-in-law, who died Sunday.
Republican Sarah Palin on the trail in Florida. She held a rally in Jacksonville about two hours ago. Palin has another stop in Florida this afternoon before heading to North Carolina this evening.
Barack Obama gaining ground in battleground states, including some typical Republican strongholds. That's according to the latest CNN/"TIME Magazine/Opinion Research Corporation polls.
In North Carolina, Obama is logged in a dead heat with John McCain. The last Democrat to carry North Carolina was Jimmy Carter way back in 1976.
Indiana, McCain leads Obama 51-46 percent. Democrats haven't carried Indiana since 1964.
In Ohio, Obama leads McCain by three percentage points. No Republican has ever won the White House without carrying Ohio.
That bellwether state, a battleground state, and a crucial stop on the road to the White House. CNN's Mary Snow live from Columbus.
Mary, what is the biggest issue for voters there in Ohio? Let me take a wild guess here -- the economy?
MARY SNOW, CNN CORRESPONDENT: Yes. You know, Tony, we're at Ohio State University. This is the nation's largest university. About 53,000 students attending here.
And you know, just asking them as they're walking around campus, your biggest issue? And it is the economy.
And when it comes to the economy, there are a couple of things they're thinking about. You know, they're borrowing money to be here at school. Some of them are worried about whether or not their banks will freeze up lending and they won't be able to get a loan. But also, they're talking about the future, what's in store for them.
Let's take a listen to what some students told us.
(BEGIN VIDEO CLIP)
SNOW: What is the most important issue to you at this point?
KIERAN JOHNSON, OHIO STATE UNIVERSITY STUDENT: Basically taxes. I mean, you're looking at a lot of people that are in my segment, college students and working class people, that it's obviously going to impact a lot more with the working class and college students. So I think taxes are the biggest thing that we're looking for in this election.
SNOW: What is the issue that is most important to you?
AMANDA KULCAR, OHIO STATE UNIVERSITY STUDENT: Personally, I think the economic crisis right now that we're dealing with is important to everyone.
(END VIDEO CLIP)
SNOW: And Tony, students here are tuned in, they're waiting to hear what the candidates are saying about the economy. And also, you know, on a day-to-day basis, a lot of these kids don't have a lot of money, and gasoline is a big cost for them. And even things like everyday staples like bread and milk. For them, it's a struggle.
HARRIS: So here's the thing. Young people have an opportunity to really post this time around and make a difference in this election. In a state, really, like Ohio, a city like Columbus, what kind of an impact can young voters have on the election?
SNOW: Well, you know, it depends who you talk to, because the McCain campaign will say, yes, Senator Obama has an edge with young voters, but they don't think it will be a deciding factor. But a lot of young voters will tell you they do believe that they can make a difference, and the Obama campaign has really pushed hard to galvanize young voters and sign them up, getting them to register to vote early. Will it make a big difference? In 2004, they felt -- young voters felt that they could make a difference for John Kerry, but George Bush won here by a slim margin.
HARRIS: That's right.
SNOW: There is a very big enthusiastic factor, though, too, among a lot of these students. That can make a big difference.
HARRIS: I think you said it. Yes, you'll just have to wait and see.
OK. Mary Snow, Columbus, Ohio.
Mary, good to see you. Thank you.
And you can catch all of the debate action right here on CNN. The best political team on television covering it all for you this afternoon, this evening. And then watch the debate with us at 9:00 Eastern.
He's in charge of the $700 billion being used to save the U.S. economy, and he's just 35 years old. We will introduce you.
(COMMERCIAL BREAK)
HARRIS: You know, last hour we talked about Americans so stressed out about the economy, they're not sleeping at night.
Joining me on the phone right now is Sandy Johnson, a mother of three and business owner who is really feeling the pain.
Sandy, good to talk to you.
SANDY JOHNSON, BUSINESS OWNER: Hi. How are you? I'm glad to be here.
HARRIS: I am outstanding.
You know, let me ask you a couple of basic questions here. Are you working right now?
JOHNSON: Yes. I'm actually at home right now.
HARRIS: But are you working? Do you have a job right now? I know you have had some difficult times with your business.
JOHNSON: Yes. It's been kind of slow right now, but I'm working here and there, but it's very slow.
HARRIS: OK. Is your husband working right now?
JOHNSON: Yes.
HARRIS: OK. So he's -- what is your monthly household income right now, as we speak? JOHNSON: Right now as we speak, it's probably about $40, maybe less than that. It's just been real crazy around here.
HARRIS: What do you mean $40? Forty dollars?
JOHNSON: Forty thousand.
HARRIS: Forty thousand. OK. So...
JOHNSON: Sometimes it feels like $40.
HARRIS: OK. All right, so $40,000 a year. So you are in the middle class but you're struggling right now. Correct?
JOHNSON: Yes, I'm struggling very hard.
HARRIS: All right. So tell me about the struggle right now, because we're going to come out and see you a little later. And I guess more pointedly, what are the issues concerning you right now and your household?
JOHNSON: Well, the issues concerning me and my household right now, my husband and I both (INAUDIBLE). He's a truck driver. And right now with the industry, both the trucking and the cleaning industry, it's very slow.
A lot of people are cutting back because of jobs lost. And the first thing they do is let the cleaning service go. It has truly been a struggle, because that's our only source of income. So if neither one of his is going out during the day, we're not bringing any money in.
HARRIS: Got you. Got ask you something. You know, we were talking to a psychologist last hour who was telling us that women are bearing the brunt of the stress in the households.
Is that the case for you? Are you feeling not only your own stress, but the stress of others in your household? And how is that stress sort of expressing itself in your day-to-day life, physically and emotionally?
JOHNSON: Well, I mean, it has really shut me down, to be honest, because I'm sort of the main source in the house, where everybody depends on mom, the wife, to kind of bring everything and keep everything together. And with all the stress going on, I shut down. So, I mean, the house shuts down and we all just -- you know, we are all in our areas, all shutting down.
HARRIS: Yes.
JOHNSON: So it's kind of a struggle, and it gets stressful.
HARRIS: All right. You know what, Sandy? I'm going to come see you today. All right? We're going to...
JOHNSON: OK. (CROSSTALK)
HARRIS: We're going to talk about kitchen table issues. All right?
JOHNSON: OK.
HARRIS: So gather the family up. We'll talk about kitchen table issues and we'll do that sometime this afternoon. All right?
JOHNSON: OK. Well, I look forward to seeing you.
HARRIS: Can't wait to see you.
JOHNSON: Thank you so much. Can't wait to see you either. Thank you so much.
HARRIS: All right. Sandy Johnson.
We are going to invade that house today.
All right, Sandy. See you a little later.
Fed Chairman Ben Bernanke speaks at a Washington conference next hour, and Wall Street will certainly be listening. Bernanke pulled another trick out of his magic hat today. The Fed will now make short-term loans available to Main Street businesses to ensure cash is on hand for day-to-day operations. Officials hope the bold move will begin to defrost the frozen credit markets.
Call him the $700 billion man. The Treasury secretary put Neel Kashkari in charge of the bailout program.
Here's CNN's Susan Roesgen.
(BEGIN VIDEOTAPE)
SUSAN ROESGEN, CNN CORRESPONDENT (voice-over): He's armed with a $700 billion line of credit. His mission, to start buying bad debt. Treasury official Neel Kashkari has been named to spearhead the Wall Street rescue plan.
Kashkari is a 35-year-old who has been working over the last year on mortgage and foreclosure issues, including contingency planning if banks are crippled by bad mortgages. He is also a former vice president of investment bank Goldman Sachs. That makes him the third top administration official to come from that Wall Street firm, alongside his boss, Treasury Secretary Henry Paulson, and White House Chief of Staff Josh Bolten.
While some analysts say the number of Goldman alums involved raises the possibility of a conflict of interest, a White House spokesman says Secretary Paulson is simply trying to bring in the best talent he can. And others say the bailout team will need people with Wall Street experience. STEPHEN POPE, CANTOR FITZGERALD: They have to be people that will understand, what is the heart and soul of the instruments concerned? And secondly, are they able to try and imply a value that the market might think is acceptable upon each individual instrument?
ROESGEN: And the Treasury Department won't handle all the buying itself. Private firms will also play a role.
HENRY PAULSON, TREASURY SECRETARY: We're looking at a number of asset managers with good experience, very good experience and expertise from the private sector.
ROESGEN: But here, too, is the potential for conflict of interest, since some of the best asset managers who would be helping the government also work for Wall Street clients.
Susan Roesgen, CNN, Washington.
(END VIDEOTAPE)
HARRIS: You know, sometimes the solution to part of our energy fix can be found just blowing in the wind.
(COMMERCIAL BREAK)
HARRIS: You know, just air-raiding villages and killing civilians. Barack Obama once said those words were discussing U.S. military efforts in Afghanistan. But is John McCain taking Obama out of context?
Josh Levs, with the CNN Truth Squad, is back.
What did you find here, Josh?
JOSH LEVS, CNN CORRESPONDENT: Well, you know, we're looking at attack ads, the latest attack ads on both sides.
HARRIS: Yes. Yes.
LEVS: And as we've been talking about in both cases now, it's about reaching into the past a little bit.
HARRIS: Right.
LEVS: This one doesn't reach back to the '80s, like the one we looked at last hour from the other side...
HARRIS: That's right.
LEVS: ... but it does reach back here.
Let's take a look. I don't know if you've seen this ad, but what McCain is doing in this ad is raising questions about whether Obama understands and respects what U.S. troops are doing in Afghanistan.
(BEGIN VIDEO CLIP) NARRATOR: Who is Barack Obama? He says our troops in Afghanistan are...
SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: ... just air- raiding villages and killing civilians.
NARRATOR: How dishonorable.
(END VIDEO CLIP)
LEVS: All right. What you just heard in there were a few words out of context from Obama. That's something he said more than a year ago on the campaign trail in New Hampshire when he was answering a question from a voter. The video ended up on YouTube.
(BEGIN VIDEO CLIP)
OBAMA: We've got to get the job done there, and that requires us to have enough troops that we're not just air-raiding villages and killing civilians, which is causing enormous problems there.
(END VIDEO CLIP)
LEVS: Now, at the time, those remarks sparked a lot of anger among some of his opponents and military families and others. But Obama has also praised the work of U.S. troops in Afghanistan. In fact, earlier that same month, August 2007, he said this at a speech in Washington...
(BEGIN VIDEO CLIP)
OBAMA: Our troops have fought valiantly there, but Iraq has deprived them of the support that they need and deserve.
(END VIDEO CLIP)
LEVS: Last summer, before an overseas trip that included a stop in Afghanistan, he described the work U.S. troops are doing in that country as heroic.
Now, the attack ad that we're looking at today says Obama says U.S. troops are just air-raiding villages and killing civilians. So I've got a verdict here for you from the CNN Truth Squad.
We ruled that false. The ad inaccurately presents those words as Obama's current position, setting an out-of-context comment from more than a year ago.
So, Tony, you see how that worked, where they got it.
HARRIS: It is so helpful to have you and the truth squad going to work on these ads. And was that an ad in battleground states, or is that another one of those Web ads?
LEVS: As I understand it, that one is airing as well..
HARRIS: OK. Josh, appreciate it. Thank you.
LEVS: You bet. Thanks.
HARRIS: Energy. Yes? Eyesore maybe.
Like it or not, wind turbines may be coming to the scenic New Jersey shore. And that could be just the start of it all.
CNNMoney.com's Poppy Harlow has our "Energy Fix" from New York.
Hi, Poppy.
POPPY HARLOW, CNNMONEY.COM: Hi there, Tony.
Well, yes, your trip to the Jersey shore next summer might look a little bit different from Cape May all the way to Atlantic City. Southern New Jersey, it is a playground for a lot of us here in the Northeast, but there may be a new addition to the sandbox.
Picture this. OK, big wind turbines -- that's right, regulators have approved a billion-dollar wind farm right off the coast of New Jersey. It could produce enough energy to power 125,000 homes.
You're seeing right now just exactly how it's going to be built. Now, the energy company set to build it says it could not only help us provide more alternative energy, it could also help the local economy. It would create hundreds and hundreds of construction jobs, and also a handful of permanent jobs.
This, Tony, is part of New Jersey's plan to get 20 percent of its energy from alternative sources by the year 2020 -- Tony.
HARRIS: It sounds like T. Boone Pickens' plan in action here. But I have to ask, Poppy, isn't this going to change the entire look of the Jersey shore?
HARLOW: It could. But I want to show you just how far these are away from the coast. Right?
HARRIS: Oh, OK.
HARLOW: They're planning to put them -- take a look here -- about 60 miles off of Ocean City. And then if you're a gambling man or woman, if you're in Atlantic City, they're 17 miles off. So you really can't see them very much at all.
They do say it is more expensive to build them further out, but they think more people will be behind the project if it's going to look better. The question, what it's going to really look like from the shore there. You see it there.
Here's an artist's rendition from the partnership that hopes to build it. It shows what it would look like if the turbines were placed just two miles off the shore. Right?
That's right there. You can certainly see them. But this right over there, you can hardly see that. And that is where it is just about 16, 17 miles off the shore.
The energy company that's set to build it, PG&E, says it is virtually invisible. Environmentalists, Tony, you can bet they're behind it as well.
HARRIS: Yes.
HARLOW: It's going to be a change, but if it works, some other states, maybe they will follow along too.
What do you think? Tell us on ireport.com/energyfix -- Tony.
HARRIS: Poppy Harlow. CNNMoney.com's Poppy Harlow for us.
Poppy, as always, great to the see you. Thank you.
A job is lost, a family's financial troubles turns into tragedy.
(COMMERCIAL BREAK)
HARRIS: Not what we wanted to see after yesterday's big sell- off, the Dow down 136 points. What is going on?
Three hours into the trading day right now, and the Dow, after an early spike into positive territory, triple-digit positive territory, as you can see here, down close to 140 -- well, close to 150 points at this point --142 points, to be more exact about it.
And we'll check in throughout the day with Susan Lisovicz for a look at the markets.
Financial troubles sending a father over the edge. Los Angeles police calling it a murder/suicide.
Our Ted Rowlands now has the tragic story.
(BEGIN VIDEOTAPE)
TED ROWLANDS, CNN CORRESPONDENT (voice-over): In a suicide note left in an envelope for police, a 45-year-old man wrote that he killed his mother-in-law, wife and three sons, ages 19, 12 and 7, over finances.
DEP. CHIEF MICHEL MOORE, LOS ANGELES POLICE: In it, the suspect alluded to having extreme financial difficulties and confessed that he killed his family because of those difficulties.
ROWLANDS: The bodies, including his, were found by police Monday morning in this upscale suburban home about 25 miles northwest of Los Angeles. All had gunshot wounds to the head.
Police say the man wrote he had a graduate degree in finance but had been unemployed for several months. A neighbor from across the street who said he didn't know the family very well didn't seem overly surprised given the state of the economy. RYAN RANSDELL, NEIGHBOR: You know, I kind of thought that, before that he came out, because with what's happening in the markets, et cetera, you know, you would think that some things like this would happen. You just don't expect that it would happen in your own neighborhood.
ROWLANDS: Psychotherapist Stacy Kaiser says it's no secret that financial troubles can send some people spiraling into deep depression.
STACY KAISER, PSYCHOTHERAPIST: That kind of depression, we see people jumping from buildings. And a lot of people in my profession now are concerned that we're going to be seeing more of that. That people are going to be feeling so worried about their financial future that they're going to be taking their lives.
ROWLANDS: Mike and Kristin Bertrand can relate to those feelings. When they lost this southern California home to foreclosure, they say they were desperate.
KRISTIN BERTRAND, LOST HOME IN FORECLOSURE: Rock bottom for me was, wow, thoughts of suicide.
ROWLANDS: The Burtrands ended up starting a support group for others losing their homes.
MOORE: In this period of difficult financial turmoil . . .
ROWLANDS: Police, who often ask for help solving crimes, in this case stood out in front of the house and urged people in financial distress to help themselves.
MOORE: Individuals themselves don't reach out for that assistants. We would ask that people intervene themselves on behalf of their families and their friends.
ROWLANDS: Ted Rowlands, CNN, Los Angeles.
(END VIDEOTAPE)
HARRIS: You know there's some storm activity in it Gulf. And Chad Myers is keep an eye on things for you. We're back in a moment.
(COMMERCIAL BREAK)
HARRIS: Campaign battleground. New numbers show Barack Obama making significant gains in key states. And those gains are reshaping the electoral map.
CNN's John Roberts puts the map in motion for us.
JOHN ROBERTS, CNN CORRESPONDENT: Tony, we've got a whole new series of polls out in battlegrounds states that are going to change the landscape of America here as far as the toss-up states go. We've got eight of those on the map right now, but some of those are going to change as a result of our latest polling. First of all, let's take a look at the lay of the land right now in terms of electoral vote allocation. Barack Obama currently leads John McCain 250 to 189, given states that are either in his safe category or leaning toward the Democrat. But let's take a look at what our latest polls show.
First of all, in the battleground state of Wisconsin, which is currently a toss-up, Barack Obama now leads John McCain 51 percent to 46 percent. That margin between them previously was about three points. Now it's stretched out to five.
In New Hampshire, with four electoral votes, the granite state, big battleground in every election, primary and general election as well, Barack Obama now leads by eight points, 53 percent to 45 percent.
And take a look at this. In North Carolina, which has been solidly Republican. Hasn't voted for a Democrat since it voted for Jimmy Carter back in 1976. Look at this. Even up at 49-49.
Now why is this so significant? Well, let's take a look at the results of the 2004 election. First of all, in the state of Wisconsin, John Kerry beat President Bush by one percentage point 50 percent to 49 percent. Barack Obama now up by five points.
Here in the granite state, the state of New Hampshire, again, by one point, 50 percent to 49 percent. Barack Obama now ahead by eight points. So widening that margin.
But this is what's really significant. Take a look at this. The state of North Carolina. 2004, President Bush beat John Kerry by 12 points. That state is now even up. So that is a pretty dramatic change, 2008, compared to what was happening in 2004.
So what does it all mean in terms of the electoral college now? Well, some of these states are going to change from toss-up now to lean Democrat. First one is Wisconsin. That will give Barack Obama 260 electoral votes, to John McCain's 189.
We have also, because of current polling and historic trends, now put New Hampshire in the lean Barack Obama category, which gives him 264 to 189 electoral votes. And because things are so close, in the state of North Carolina, we are now going to take that from lean Republican, lean John McCain, to toss-up status. So that will give Barack Obama 264 electoral votes to John McCain 174, if the election were to be held today.
Now, of course, we're still four weeks away from Election Day. A lot could change. But at this moment, Tony, the electoral map changing much in favor of Barack Obama. John McCain, still a lot of work to do.
HARRIS: That is something.
All right, John, appreciate it. Thank you. And check out our political ticker for all the latest campaign news. Just log on to CNNPolitics.com, your source for all things political.
What do you say we get over to Chad Myers in the severe weather center and get an update on Tropical Storm Marco.
I totally missed this storm. What, did this develop in a day or so and never really -- didn't even threaten to become a hurricane?
CHAD MYERS, CNN METEOROLOGIST: Yes. Just -- well, it could have yesterday, but right now it's not. It really got torn up as it got some dry air off the mountains here of eastern Mexico. But another one bites the dust. Let's get rid of the M and then we'll just -- maybe we'll just get rid of them all and nothing else hits anywhere. Wouldn't that be great? A couple more to come, I think. The water's still pretty warm there.
Winds are 65 miles per hour, gusting to maybe 75. Veracruz, right there. It's going to miss that for the most part and make rainfall in the mountains here of eastern Mexico. Now that's a problem only because when you rain a lot in the mountains, you could actually get some flooding here. We'll watch out for that here in eastern Mexico. I don't expect it to get all wait to Mexico City. Only with showers maybe but probably not flooding along the city. Remember, Mexico City is one of the highest cities in the entire country. I mean we're talking about 8,000 feet in the sky. Three thousand feet higher than Denver Proper.
Here it is making its way over to Mexico City, but only as a low. Not as a tropical low. Only probably a 25 mile-per-hour wind gusts. And they can handle that. They just don't want all that rain in the mountains.
Rain showers, though, in places that really need it, from Owensboro, back down to Nashville, all the way to Huntsville as well and along the Gulf Coast right now. Tony, no significant airport delays really because of this. Let it rain, let it rain, let it rain. And I'll sing the song later off the air.
HARRIS: Hey, take me back to Mexico City here. What's the elevation?
MYERS: Eight thousand feet.
HARRIS: You know what, I'm thinking of climbing a mountain this year. And I guess I have to get used to altitude. Maybe that's a stop there, to Mexico City. Maybe starting to get altitude . . .
MYERS: Absolutely. Which mountain are you going to climb?
HARRIS: Well, I was thinking of, you know, Kilimanjaro.
MYERS: Oh. Well . . .
HARRIS: That's 19,000 isn't it? MYERS: You might want to practice more than just going to Mexico City. It's going to take a little more than that.
HARRIS: And maybe I better spend more than a year getting ready.
All right, Chad, appreciate it. Thank you.
MYERS: Talk to you later.
HARRIS: Politics and Halloween, always a scary combination. Let's take a trip to CNN.com's i-Report desk and check in.
One of the guys helping run things down there at our i-Report operation. You know him. You love him. Our producer Tyson Wheatley. There he is.
Tyson, good to see you.
TYSON WHEATLEY, CNN.COM PRODUCER: Hi, Tony.
HARRIS: You know, the i-Reporters are really doing a great job of sending us all kinds of things. And I know we want to get to some of the Halloween i-Reports you're getting. But you've got some amazing video of a sandstorm. Where's this from?
WHEATLEY: Tony, this is from the Sudan. In fact, you know what's interesting is, Tony, is we get i-Reports from over 150 countries around the world. But few are cooler than this. This comes -- this is a -- I mean this is huge, right? This comes to us from Umm Durman, Sudan. And a gentlemen by the name of Abdurrahman Jaafar Idris. He took this video on Sunday.
HARRIS: Man, look at that.
WHEATLEY: I know, it's pretty incredible.
HARRIS: Yes.
WHEATLEY: You know and you're going to see here, it completely rolls into the city and then it just turns day into night.
HARRIS: So how -- what were you just saying. That you get i- Reports from how many different countries?
WHEATLEY: More than 150.
HARRIS: My goodness. That is amazing.
And I know -- let's transition here. Let's pivot to -- because I really want to see these. We're talking about Halloween decorations. And some of the decorations are taking on a bit of a political theme, shall we say?
WHEATLEY: Yes. I'm sure politics is always a great -- is a fun theme around Halloween. This year, no exception. I want to take you to Coralville, Texas, though, where we've got this really interesting yard display. This comes to us from Melissa Cruson.
HARRIS: What is that? What are we looking at?
WHEATLEY: OK. So that's McCain. This is a spider web. And this is a . . .
HARRIS: Oh, no.
WHEATLEY: Yes, it's Obama and it's Hillary Clinton. They're trapped in the spider web.
HARRIS: In the McCain spider web, huh?
WHEATLEY: What's really interesting here is that this comes from Melissa Cruston. Their sixth grade daughter came up with this idea. They said they'd been doing a spider theme for three years now.
HARRIS: That's pretty funny, actually.
WHEATLEY: But they decided this year to put a little twist on it. What's interesting is that they said that it's never really gotten as much attention as it has this year. In fact, they live right across the street from a school and they say people have been parking and getting out of their cars and coming and like taking pictures of this display.
HARRIS: That's great (ph).
WHEATLEY: Posing with the doll and . . .
HARRIS: And posing?
WHEATLEY: Yes.
HARRIS: Oh, that's crazy.
All right. What's on the i-Report assignment desk today, Tyson?
WHEATLEY: Well, you may have heard, Tony, there's a debate tonight.
HARRIS: That's right. That's right.
WHEATLEY: There's going to be a lot of people watching. And we want to know from our viewers, we want them to go to ireport.com/desk and we want to -- and to tell us tonight, watch the debate, but then tell us who won. You know, what issues were raised that you were most curious about?
HARRIS: That's right.
WHEATLEY: Watch the debate and then put your video response in. And if we get some good ones, we'll take a look at them tomorrow.
HARRIS: There he is, Tyson Wheatley, from Tyson's Corner down there at .com, our operation. All right, Tyson, appreciate it. See you tomorrow.
WHEATLEY: Take care, Tony.
HARRIS: At tonight's debate we expect to hear from the candidates about the economy, right? What can they say that will actually swing your vote?
(COMMERCIAL BREAK)
HARRIS: All right. Here we go. The former executives of AIG right now testifying before a House committee. Let's take a listen.
(JOINED IN PROGRESS)
MARTIN SULLIVAN, FORMER AIG CHIEF EXECUTIVE OFFICER: People around the world are reeling from the financial tsunami that has ravished the global economy. While we had all hoped that the very unfortunate collapse of Bear Stearns this past spring would be an isolated incident, instead, the financial storm gained momentum and many of the world's most respected financial institution crumbled one after another. The federal government took control of Freddie Mae and Freddie Mac, Lehman Brothers and IndyMac declared bankruptcy and Washington Mutual and Wachovia had to be taken over to avoid a similar fate.
Meanwhile, other prominent institutions sought additional capital, merger partners and redefined their corporate status. Of course, AIG avoided potential bankruptcy only with the help of the government. Now, the U.S. government is establishing a $700 billion fund to provide additional relief to threatened financial institutions. I hope that my testimony about these events that occurred during my tenure at AIG can help the committee understand the formation of what is best described as a global, financial tsunami, while we are all struggling to understand how this crisis happened in the first place and to find out what might have prevented it. There are no simple answers to these questions.
I am not an accountant, nor an economist. I've been an insurance man all my life. However, many factors appear to have been at play, including lending and borrowing practices, illiquid markets, the absence of credit, loss of investor confidence and even accounting rules which require companies like AIG to take billions of dollars upon (ph) realized mark-to-market losses.
When in 2005 the AIG bought us we just stepped into the role of chief executive officer, the company was straining under the weights of several crises, very different from the financial crisis currently threatening financial institutions. I became CEO of AIG at a time when the company was in the midst of governmental investigations that had cast a cloud of suspicion over the company's future. In the face of that crisis, my responsibility was to stabilize the ship and improve our relationship's with our regulators. I think I succeeded.
It was against that backdrop that I began my tenure as CEO of the company. I'm very proud to say that in spite of these challenges, AIG emerged a successful and resilient company. In 2006 and in early 2007, AIG was enjoying grace success and those of us within the company's management had tremendous confidence in our company's future.
However, as we now know, a different storm was gathering over the global, financial markets. No disaster as massive or as unforeseen and unprecedented financial market disruption that has occurred over the past year is the result of a simple or single cause. The world's current economic challenges are obviously related to multiple actions by multiple parties.
To assist the committee, I would like to focus on one particular factor, the role played by one accounting rule applied to corporations. The accounting rules require that certain assets be mark-to-market. In other words, companies must declare the value of those assets on a quarterly basis at the price such assets could sell for on the market at that point in time. Companies must declare these values on their books, even if they have no intention of or immediate need to sell the assets, or even if they have not realized any actual gain or actual loss.
Phase (ph) 157, which was adopted relatively recently, set out specific guidelines as to how companies must determine the market price of certain categories of assets. However well phase 157 operates under any reasonably foreseeable market conditions, and the unprecedented credit crisis, which began in the summer of 2007, phase 157 had, in my opinion, unintended consequences.
In a distressed market, where assets cannot be readily sold, companies are forced to declare the value of those assets at fire sale prices. Just last week, the SEC made changes with respect to the application of phase 157, when in time markets stopped functioning. Of course, AIG did not have the benefit of this guidance during my tenure.
At AIG, I encountered phase 157's unintended effects through the credit default swap portfolio of AIG financial products. A business that my predecessor had established and funded many years earlier. These credit default swaps essentially provided insurance to counterparties in the case of default and underlying bonds. The underlying bonds were very highly rated and the risk of default was viewed as extremely remote.
Finally, the credit default business had, since its inception in the late 1990s, generated a reliable and steady source of income for AIG FP. In fact, AIG FP intending to retain its derivative interest in these highly rated bonds until they reached maturity. When the credit market seized up, like many other financial institutions, we were forced to mark our swap positions at fire sale prices as if we owned the underlying bonds, even though we believed that our swap positions had value if held to maturity.
The company, nevertheless, began reporting billions of dollars of unrealized losses on the basis of then current market valuations. Suddenly the company with a trillion dollars of assets was reported unrealized losses on its income statements that ultimately climbed into tens of billions. As AIG's reported losses mounted, there was a domino-like series of repercussions. Although we raised approximately $20 billion in capital, it appears that even this precaution was not sufficient protection in the face of the overwhelming and unprecedented market crisis that exists today.
AIG, nevertheless, suffered credit rating downgrades, which triggered billions of dollars in collateral (ph) cause, leading to the most recent events. Of course, by the time the board was presented with the federal plan, I had been out of the company for three months. In fact, just last week, both the Securities and Exchange Commission and this Congress recognized the effects of phase 157. The SEC recognized that phase 157 can have unintended consequences for financial institutions where markets seize up. The SEC has attempted to bribe (ph) more flexibility for companies operating and reporting fund the rule.
In the recently passed legislation, Congress directs the SEC to further examine mark-to-market accounting and grants the SEC authority to suspend mark-to-market accounting requirements. These measures make a lot of sense to me.
I've spent my entire adult life in service to AIG. And I am heartbroken as to what has happened. I hope to see the company and indeed the entire global economy emerge from this crisis. I hope that my testimony today has been helpful to the committee and I will do my very best to answer any questions you might have.
Thank you, sir.
REP. HENRY WAXMAN, CHMN., OVERSIGHT & GOVERNMENT REFORM CMTE: Thank you very much, Mr. Sullivan.
Mr. Willumstad.
ROBERT WILLUMSTAD, FORMER AIG CHIEF EXECUTIVE OFFICER: Good morning, Chairman Waxman, Ranking Member Davis and members of the committee.
AIG remain a great company and I want to stress that AIG's problems never threatened AIG's policyholders. The crisis that required AIG to accept assistance from the Federal Reserve was a crisis in confidence that has affected the entire global economy.
When I became CEO of AIG in June of this year, the decline in the U.S. housing market had already been underway for months. Most homeowners were still making their mortgage payments and it was an unexpected and unprecedented breakdown in the market for mortgage backed securities that were held by many banks and other financial institutions. Mark-to-market accounting rules forced AIG, along with Citigroup, Merrill Lynch and others, to book tens of billions of dollars in accounting losses.
By the end the second quarter of 2008, AIG had booked $50,000 of losses. AIG was downgraded by the major rating agencies in early May, and AIG's stock price fell from a high in 2007 of $72 per share to $26 per share this June. This decline occurred despite raising $20 billion in new capital and the vigorous actions of AIG's board and Martin Sullivan, before I became CEO.
In June 2008, the board asked me to replace Martin Sullivan as CEO. I was initially reluctant to do so. However, the board ultimately persuaded me that my experience in the financial services industry, including my time as president and chief operating officer of Citigroup, put me in a position to lead AIG in this difficult period.
On my first day as CEO, I publicly announced that I would present my plan for AIG in 90 days. It became apparent that if the markets continued to decline and if AIG were further downgraded by the rating agencies, AIG could potentially face a liquidity problem. I met with the rating agencies in July and they told me they would not review AIG's ratings until after I announced our plan, which was then scheduled for September 25th.
Even so, I immediately took steps to cut expenses and further protect AIG in the event of a liquidity problem. We identified non- strategic businesses, retained financial advisers and began the process of selling those businesses to raise cash.
To conserve cash, we stopped discussions relating to a number of acquisitions. We were negotiating a transaction with Berkshire Hathaway that would have protected billions of dollars of AIG's liquidity. In late July, I met with the president of the Federal Reserve Bank of New York to discuss the situation.
These were precautionary steps. Through the first week of September, we believed AIG could weather the difficulties in the financial markets. When the market meltdown began in the week of September 8th, the rating agencies indicated they would no longer wait to review AIG's ratings until September 25th.
AIG was in a vicious circle. The rating agencies were considering a downgrade, largely because of market-driven liquidity concerns. But it was a downgrade, or the threat of one, that would trigger a liquidity crisis. We worked around the clock during the week of September 8th to take measures that would provide AIG the liquidity needed to make it through the crisis, but the private markets simply could not provide enough liquidity.
On September 9th, I met again with the Federal Reserve Bank and during the rest of the week I stayed in contact with the Federal Reserve and the Treasury Department.
On Tuesday, September 16, 2008, AIG was preparing for the unthinkable bankruptcy. That afternoon, the Federal Reserve and the Treasury Department told AIG they would provide the necessary liquidity because an AIG bankruptcy would have massive negative effects on the stability of the entire financial system. The terms of the offer were non-negotiable.
After a long discussion, and with the advice of counsel and our financial advisers, the AIG board of directors accepted the Federal Reserve's plan as the best available option. As part of that plan, I was asked by the Treasury Department and the Federal Reserve to step down as CEO. And I did so.
Looking back on my time as CEO, I don't believe AIG could have done anything differently. The credit default swap contracts had been in place for years. The market seizure was an unprecedented global catastrophe. We and our advisers explored every avenue. There was no private market solution to AIG's situation.
I regret the pain that events in the market have caused AIG employees and its shareholders. I'm grateful that the Treasury and the Federal Reserve, and most importantly the American people, offered their assistance to preserve a vital part of the financial system and a great American institution. Because of my three-month tenure at chief executive officer did not provide the opportunity to execute my restructuring plan, and in light of fact that AIG shareholders and employees have lost so much value, I've notified the company I do not intend to accept the payments available to me under the AIG severance plan.
Thank you.
WAXMAN: Thank you both very much.
We're now going to have questions from members of the panel. And without objection, the chairman and the ranking member will be allotted 10 minutes each to use as they see fit. Without objection. That will be the order.
Both of you seem to be saying that these events had nothing to do with your management. It had to do with a tsunami of activities over which you had no control. And we're trying to assess whether that's true or whether there was mismanagement by the executives at AIG.
Now, I want to submit for the record a disturbing letter that I've received from Joseph St. Dennis (ph). He's a very representable man. He was an assistant chief accountant at the SEC enforcement division. He was hired by AIG to address material weaknesses cited by AIG's auditors and to provide greater visibility and control with respect to the operations and accounting policy process of AIG FP.
Mr. St. Dennis says that in 2007, and without objection his letter will be made part of the record. He says in 2007 he became concerned about the valuation model used by AIG's financial products division. But when he tried to audit this division, he was blocked by Mr. Casano (ph), who was the head of that division.
Mr. St. Dennis wrote the committee that the only -- what Mr. Casano said is that -- "I gave deliberately excluded you from the valuation of the Super Seniors because I was concerned that you would pollute the process." That's what Mr. Casano said to Mr. St. Dennis. And Mr. St. Dennis said to the committee, the only pollution Mr. Casano was concerned about was the transparency, I brought AIG FP's accounting policy process.
Mr. Sullivan, you were the CEO at the time. And Mr. St. Dennis was hired to give you insight into Mr. Casano's activity. And he said he was blocked from doing that and he resigned. Were you aware of this?
SULLIVAN: To the very best of my knowledge, sir, I don't believe I ever saw the letter. But I do recall the contents being brought to the my attention. And I understand that a very forward investigation, both from our compliance people and from, I believe, the audit committee, I'm not sure on that, but certainly our compliance and legal people looked into what Mr. St. Dennis was saying. Of course, at that time, we were already putting in place compensating controls, to make sure that our valuation process was obviously accurate.
WAXMAN: Well, you were trying to put these controls in, but the man who was hired by your company to give you the information as to what controls you needed was fired because he was told he couldn't look into what was happening in this particular division of AIG, the FP division, from which all the problems seem to arise.
SULLIVAN: Well, from the very little I know about Mr. St. Dennis, and I have no reason to believe he's not a first-class individual, I think he resigned, sir. I don't think he was terminated. I think he actually resigned.
WAXMAN: No, he resigned because he was blocked from doing this job.
SULLIVAN: Exactly. And I think, you know, as I said, from what I recall about the letter, it was investigated by the legal and compliance people. But, at the same time, obviously, we trying to put compensating controls in there to make sure that our results were as accurate as possible.
WAXMAN: Well, he said he reported Mr. Casano . . .
HARRIS: The next hour of CNN NEWSROOM with Kyra Phillips begins right now.
